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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-24667
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MERKERT AMERICAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-3411833
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant on March 29, 1999, based on the closing price
of the Common Stock as reported by the Nasdaq National Market on such date,
was approximately $59,843,608.
The number of shares of the Registrant's Common Stock and Restricted Common
Stock outstanding as of March 29, 1999 was 7,172,300 and 335,700,
respectively.
DOCUMENTS INCORPORATED BY REFERENCE
None
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MERKERT AMERICAN CORPORATION
ANNUAL REPORT ON FORM 10-K
INDEX
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Page
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PART I
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Item 1. Business...................................................... 3
Item 2. Properties.................................................... 12
Item 3. Legal Proceedings............................................. 12
Item 4. Submission of Matters to a Vote of Security Holders........... 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters....................................................... 14
Item 6. Selected Financial Data....................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 18
Item 8. Financial Statements and Supplementary Data................... 29
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 29
PART III
Item 10. Directors and Executive Officers of the Registrant............ 30
Item 11. Executive Compensation........................................ 33
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 36
Item 13. Certain Relationships and Related Transactions................ 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K............................................................. 40
Signatures.................................................... 41
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PART I
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 24A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. These statements appear in a number of
places including Item 1. "Business--Industry Overview" and "--Risk Factors,"
Item 2. "Properties," Item 3. "Legal Proceedings and Administrative Matters,"
Item 5. "Market for Registrant's Common Equity and Related Stockholder
Matters," and Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Such statements can be identified by the
use of forward-looking terminology such as "believes," "expects," "may,"
"estimates," "will," "should," "plans" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by
discussions of strategy. Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and involve significant
risks and uncertainties, and that actual results could differ materially from
those projected in the forward-looking statements as a result of the risk
factors set forth below under "Risk Factors." This report also identifies
other factors that could cause such differences. No assurance can be given
that these are all of the factors that could cause actual results to vary
materially from the forward-looking statements.
Item 1. Business
General
Merkert American Corporation (the "Company") was incorporated on March 4,
1998 in order 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"). On December
18, 1998, the Company consummated its Initial Public Offering of 4,400,000
shares of Common Stock at an offering price of $15.00 per share (the
"Offering"). Simultaneously with the Offering, the Company purchased in
separate transactions (collectively the "Combination") all of the issued and
outstanding capital stock of Merkert Enterprises, Inc., a Massachusetts
corporation ("Merkert") and Rogers-American Company, Inc., a North Carolina
corporation ("Rogers"). As a result, each of Merkert and Rogers became a
wholly-owned subsidiary of the Company. References to the Company after the
Combination also include its wholly-owned subsidiaries. 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 "Certain
Relationships and Related Transactions").
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 represents more than 750 Manufacturers and more than
70,000 food and non-food stock-keeping units ("SKUs"), and has business
relationships with key Retailers in 25 states.
Since 1994, Rogers and Merkert have acquired and integrated 21 companies,
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 various brokerage markets, including the retail food, food
service and private label markets.
In January 1999, the Company acquired Sell, Inc. ("Sell"). Sell, a full
service brokerage firm in the Midwest, had revenues of approximately $9.6
million for the year ended November 30, 1998. In February 1999, the Company
signed letters of intent to acquire three full service food brokerage
companies, Smith, Weber, Boos, Inc. ("SWB"), Buckeye Sales & Marketing, Inc.
("Buckeye") and United Brokerage Company ("UBC"). All three companies operated
in the Midwest region of the United States. SWB has operated under a joint
marketing arrangement with a subsidiary of the Company since 1998. Buckeye and
UBC, have each operated under an
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alliance known as "The Sell Group" since 1998. The acquisition of each of SWB,
Buckeye and UBC is subject to the negotiation and execution of a definitive
agreement and there can be no assurance that any of such acquisitions will be
consummated.
Effective March 31, 1999, the Company merged its several operating
subsidiaries and now operates with one wholly owned subsidiary, Merkert
American Co., Inc. (f/k/a Merkert Enterprises, Inc.).
As of December 31, 1998, the Company had 39 offices servicing Retailers in
25 states. In 1998, the Company had pro forma combined revenue of
approximately $220.4 million and pro forma combined net (loss) of
approximately $(27.8) million exclusive of the estimated effects of the
integration activities and the elimination of certain nonrecurring charges.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Industry Overview
Food brokers serve Manufacturers, Retailers and food service providers for
both branded and private label products. 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. Brokers providing full services to a Manufacturer in connection with the
sale of its products to Retailers, generally earn commissions of 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 Company believes that the retail food brokerage industry is experiencing
significant consolidation. In the past 10 years, the number of food brokerage
firms has decreased from 2,500 to less than 1,000, while the number of sales
representatives employed by such firms increased from 35,000 to 42,000. There
are five multi-regional food brokerage firms, including the Company, each with
a market share of approximately 3%. 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, the Company believes that
consolidation within the
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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.
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.
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.
Business Strategy
The Company's objective is to become one of the leading national providers
of outsourced sales, merchandising and marketing services to Manufacturers,
Retailers and food service providers throughout the United States. The Company
seeks to increase its representation of existing Manufacturers' product lines
in new geographic markets and non-supermarket trade channels, including mass
merchandisers, food service providers, membership warehouses, drug stores and
convenience stores.
The Company seeks to utilize its marketing expertise and information
technology 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.
The Company intends to pursue strategic acquisitions in the food brokerage
industry. Since 1994, Merkert and Rogers have acquired and integrated 21
companies, 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 retail, private label and food service brokerage market
segments.
Company History
Merkert Enterprises, Inc., has operated as a food broker in the northeastern
and mid-Atlantic regions of the United States since 1950. In 1997, Merkert had
total revenues of approximately $147.4 million and net losses of $3.4 million.
For the period from January 1, 1998 through December 18, 1998, Merkert had
total revenues of $132.4 million and net losses of $11.0 million, including
restructuring charges of $6.0 million. The principal source of revenues of
Merkert was from commissions it received from Manufacturers. Merkert also
managed private label programs on behalf of selected Retailers. Merkert has
grown its revenues both internally and through acquisitions, having acquired
and integrated six smaller food brokers since 1994. Merkert financed such
acquisitions, in part, with debt and/or by deferring the payment of a portion
of the purchase price. Primarily as a result of such obligations, as well as a
substantial tax liability, Merkert experienced losses and a working capital
deficit in recent years. The stockholders of Merkert paid such tax liability
from cash otherwise payable to them in connection with the Combination. There
can be no assurance that the Company will generate sufficient cash flow to
meet its future capital requirements or that the Company will not have a
greater working capital deficit in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-- Results of
Operations--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 and net income of $0.7 million. For the period from January 1,
1998 through December 18, 1998, Rogers had total revenues of $79.6 million and
a net loss of $17.9 million. Approximately $15.5 million of this loss pertains
to aggregate non-recurring compensation charges recorded in the fourth quarter
of 1998 by Rogers pertaining to the (i) transfer of shares of common stock of
Rogers by the principal stockholders to certain minority stockholders and (ii)
the life insurance policies (including cash surrender values) to be
distributed to certain stockholders of Rogers. In addition, approximately $0.9
million of this loss pertains to restructuring charges related to the cost of
terminated employees and closed
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offices and $1.0 million pertaining to legal fees and other liabilities
incurred in connection with the Combination. Substantially all of Rogers'
revenues were derived from commissions it received from Manufacturers. Rogers
has grown its revenues both internally and through acquisitions, having
acquired and integrated 15 smaller food brokers since 1994. Rogers financed
such acquisitions, in part, with debt and/or by deferring the payment of a
portion of the purchase price.
Services and Operations
The Company has traditionally provided Manufacturers with an 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 80% of the Company's revenues for the
period ended December 18, 1998 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 most of the
Manufacturers that it represents who generally pay the Company a commission of
3% of the Manufacturer's net sales to Retailers. In general, the Company's
Manufacturers under these arrangements are serviced by business managers who
together with customer service personnel and support staff utilize information
developed by the Company to assist Manufacturers in devising strategic sales
plans and achieving merchandising goals. In addition, retail information is
used 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 Company also handles both order and certain billing management services
for Manufacturers. The Company's order management system enables it to perform
all major management functions relating to orders for goods from Retailers to
Manufacturers.
The Company's category management analysts and shelf space management
analysts serve as liaisons, linking the Company, 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. Business managers use this information in developing strategies with
Manufacturers. Retailer Teams use this, as well as store-specific sales and
demographic information provided by these analysts, to implement sales and
merchandising strategies at the local level.
Headquarters account managers help execute sales plans developed by business
managers and Manufacturers. 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.
Hybrid Services. In response to increasing demand from certain Manufacturers
who are outsourcing more of their retail services functions, the Company has
begun using "hybrid" agreements under which the Company provides only
specified services, geographic coverage and Retailer coverage to a
Manufacturer. 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. These services generally provide for
compensation equivalent to a commission of approximately 1% of the value of
product sales to the Retailer.
Private Label. The Company's private label division, which accounted for
approximately 18% of the Company's revenues during 1998 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.
Store Supplies. The Company's store supplies division, which accounted for
approximately 2% of the Company's revenues during 1998 on a pro forma basis,
operates as a distributor for Monarch Marking Systems,
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Inc. selling 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.
Seasonality
Each of Merkert and Rogers have experienced and the Company expects to
continue to experience fluctuations in quarterly revenues and operating
results as a result of seasonal patterns as many Retailers generate relatively
lower revenues in January, February, July and August. As a result, the Company
has historically experienced 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."
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. 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 effort, the system
significantly curtails order input errors, expedites order processing and
reduces the number of personnel required to fulfill this function.
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. This
system allows both the Company and its Manufacturers to easily access store-
level information.
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 provide Retailers and Manufacturers
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 several 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 including those 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.
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The Company is one of the five largest food brokers in the United States and
competes with the nation's other multi-regional food brokers--Advantage Sales,
Richmont Marketing Specialists, Crossmark and Acosta-PMI. In total, there are
approximately 12 large regional food brokerage firms in the United States. On
a local and regional basis the Company competes with Pezrow, Eastern States
and MAI. Some of the Company's competitors include alliances of smaller
regional food brokers.
Employees
The Company has approximately 2,600 full and part-time employees. The
Company believes that its relations with its employees are good. None of the
Company's employees is a member of any labor union.
Financial Information About Segments, Foreign and Domestic Operations and
Expert Sales
The Company operates in two principal business segments: Food Brokerage and
Private Label principally in the United States. See Note 15 of the Company's
Notes to Consolidated Financial Statements.
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RISK FACTORS
The following risk factors should be carefully reviewed in addition to other
information in this Annual Report on Form 10-K. This Annual Report on Form 10-
K 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 Annual Report on Form 10-K.
Substantial Leverage
In connection with the closing of the Combination and the Offering, the
Company obtained a $75 million Credit Facility (the "Credit Facility") from
First Union National Bank and First Union Capital Markets. First Union
National Bank is an affiliate of Wheat First Securities, Inc., one of the
Underwriters of the Offering. First Union Capital Markets is a division of
Wheat First Securities, Inc. The Credit Facility consists of a five-year
secured, fully amortizing $50 million term loan (the "Term Loan") and a three-
year, secured $25 million revolving line of credit (the "Revolving Credit").
The provisions of the Term Loan and Revolving Credit are more fully described
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." As a result, the Company had
indebtedness (approximately $85.2 million at December 31, 1998) that is
substantial in relation to its stockholders' equity, as well as interest and
debt service requirements that are significant compared to its income and cash
flow from operations.
The degree to which the Company is leveraged could have significant
consequences including the following: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; (ii) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of interest and principal on its indebtedness, thereby reducing funds
available to the Company for other purposes; (iii) the agreements governing
the Credit Facility contain certain restrictive financial and operating
covenants; and (iv) the Company's degree of leverage may limit its flexibility
to adjust to changing market conditions, reduce its ability to withstand
competitive pressures and make it more vulnerable to a downturn in general
economic conditions or its business. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Absence of Combined Operating History; Risks of Integration
Prior to the Combination, Merkert and Rogers operated independently. The
Company intends to operate Merkert and Rogers and any 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 failure of the Company to integrate successfully the operations of Merkert
and Rogers and any subsequently acquired businesses 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."
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 that 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. The Company's inability
to identify appropriate acquisition candidates, to acquire such candidates at
prices acceptable to the Company or to
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manage such acquired businesses profitably could have a material adverse
effect on the Company's business, financial condition and results of
operations.
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 and Accounting Treatment of Goodwill
The Company's balance sheet at December 31, 1998 includes an amount
designated as "goodwill" that represents a material portion of assets and
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 assets 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.
The Financial Accounting Standards Board (the "FASB") has undertaken a
project to comprehensively reconsider the accounting standards for business
combinations. In connection with this project, the FASB may consider such
issues as the accounting for goodwill including its amortization periods. The
Company is presently unable to determine what the results, if any, of this
project may be.
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 that 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 areas. The integration of Merkert and Rogers has
resulted, and may continue to result, in certain Manufacturer conflicts,
particularly in the mid-Atlantic region 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.
Consolidation of Manufacturers and Retailers
The food brokerage industry is presently being affected by several changes.
Consolidation among Manufacturers may result in, among other things, a greater
likelihood of Manufacturer conflicts, which could
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result in lost revenues for the Company. See "--Manufacturer Representation
Conflicts." Consolidation among Retailers may result in lost revenues to the
Company in the event that the Company does not cover the geographic region or
regions in which the Retailer's buying or purchasing office is located. 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.
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 has entered 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.
Voting Control By Directors, Executive Officers and Principal Stockholders
As of February 16, 1999, an aggregate of approximately 27.5% of the
Company's outstanding Common Stock is beneficially owned by its directors and
executive officers and their affiliates. This percentage ownership does not
give effect to the exercise of options to purchase 345,000 shares of Common
Stock held by certain of these individuals, which, if exercised in whole or in
part, will further concentrate ownership of the Common Stock. 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" and "Security Ownership of Certain
Beneficial Owners and Management."
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 issued prior to the Offering and
in the Combination, are "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 Relationships and Related 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. The Company, the holders of all shares issued prior
to the Offering and all stockholders of Merkert have agreed, 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, prior to June 16, 1999, without written consent of the Company's
Underwriters. In addition, at least 938,340 shares of Common Stock are
issuable under the 1998 Stock Plan in the open market, subject to Rule 144 and
lock-up limitations described above. See "Security Ownership of Certain
Beneficial Owners and Management" and "Certain Relationships and Related
Transactions."
11
<PAGE>
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. These provisions may discourage takeover
attempts not first approved by the Board of Directors, including takeovers
that 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. See "Directors and
Executive Officers of the Registrant."
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 Credit Facility
prohibits the Company from paying any dividend without the consent of the
lenders thereunder. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Item 2. Properties
The Company owns its executive offices located in Canton, Massachusetts
containing approximately 45,000 square feet of space. In addition, the Company
maintains 30 sales offices in 25 states in the eastern United States, 28 of
which are leased and two of which are owned. The two owned sales offices
(which are the largest sales offices) are as follows:
<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>
- --------
* The Company expects to 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 former Rogers' shareholders. See "Certain
Relationships and Related Transactions."
The Company believes that its properties are generally well maintained, in
good condition, are adequate for present needs and that suitable additional or
replacement space will be available as required.
Item 3. Legal Proceedings and Administrative Matters
The Company received a written notice from the sellers of a food brokerage
business acquired by Merkert alleging the breach of certain covenants
contained in the agreement with the sellers. The sellers have claimed that
such breaches have caused the acceleration of certain payments to them of the
deferred purchase price and employment-related obligations. The sellers have
filed an arbitration demand claiming breach of contract and are seeking an
acceleration of the payment of the deferred purchase price in the amount of
approximately $7.4 million, together with interest, costs and attorneys' fees.
In addition, the sellers are seeking termination of employment with Merkert
for cause, which termination would not relieve Merkert of its liability under
such sellers' employment agreements and would render the non-competition and
confidentiality covenants null and void. The arbitration is currently pending
before the American Arbitration Association. In connection with the
acquisition of Merkert, a portion of the cash purchase price has been held in
escrow to cover certain of the potential liabilities that could result from an
adverse outcome of this arbitration. The Company believes that such matter, if
determined adversely to the Company, would not have a material adverse effect
on its financial condition or results of operations.
12
<PAGE>
Merkert is currently the subject of an audit with respect to its federal
income tax returns for its fiscal years 1995, 1996 and 1997. In connection
with the acquisition of Merkert, a portion of the cash purchase price has been
held in escrow to cover potential liabilities resulting from the audit. The
Company does not believe that the ultimate outcome of this audit will have a
material adverse effect on its financial condition or results of operations.
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 any such litigation will not, in the
aggregate, have a material adverse effect on the financial condition or
results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The stockholders of the Company voted by written consent in lieu of a
special joint meeting of directors and stockholders on each of October 30,
1998 (the "October Consent"), November 16, 1998 (the "November Consent"),
December 14, 1998 (the "December 14 Consent"), December 15, 1998 (the
"December 15 Consent") and December 18, 1998 (the "December 18 Consent").
As described in the next paragraph, pursuant to the December 18 Consent, the
Company's stockholders approved, effective upon the consummation of the
Offering, the appointment of the Company's current directors, Gerald R.
Leonard, Douglas H. Holstein, Edward P. Grace, III, James L. Monroe and James
A. Schlindwein.
Pursuant to the October Consent, the Company's stockholders approved the
issuance of shares of Common Stock in the Offering, the form of the S-1
registration statement and underwriting agreement for the Offering, the
appointment of a transfer agent for the Common Stock, the issuance of certain
stock options and approval of the Company's senior credit facility. Pursuant
to the November Consent, the Company's stockholders approved the issuance of
certain stock options and amendments to the purchase agreements relating to
the Combination. Pursuant to the December 14 Consent, the Company's
stockholders approved an amendment to the Merkert purchase agreement relating
to the Combination. Pursuant to the December 15 Consent, the Company's
stockholders approved a stock dividend of 729.9074 shares of Common Stock and
186.5 shares of Restricted Common Stock for each issued and outstanding share
of Common Stock, as well as the issuance of certain stock options. Pursuant to
the December 18 Consent, the Company's stockholders approved, effective upon
the consummation of the Offering, the appointment of the Company's current
directors, Gerald R. Leonard, Douglas H. Holstein, Edward P. Grace, III, James
L. Monroe and James A. Schlindwein.
Each of such consents was unanimous with 1,800 votes cast for, zero votes
cast against, no votes withheld, no abstentions and no broker non-votes. The
foregoing voting results were the same for each of the directors.
13
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock has traded on the Nasdaq National Market under
the symbol "MERK" since December 18, 1998. The following table sets forth the
high and low sale prices for the Common Stock for the period from December 18,
1998, the date of the Offering, through December 31, 1998.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fourth Quarter (from December 18, 1998)..................... $15.63 $15.00
</TABLE>
As of March 26, 1999, there were approximately 29 holders of record of the
Company's Common Stock.
The Company intends to retain earnings, if any, to finance the growth and
development of its business and does not anticipate paying cash dividends in
the foreseeable future. In addition, the Company's Credit Facility contains
restrictions on the Company's ability to pay dividends without the consent of
the lenders thereunder.
The Company completed the Offering of its Common Stock in December 1998. The
Offering was made pursuant to a Registration Statement on Form S-1, originally
filed with the Commission on May 22, 1998, as amended (Commission File No.
333-53419), which registration statement became effective on December 15,
1998. The Offering commenced on December 18, 1998 and terminated shortly
thereafter before the sale into the public market of all of the registered
shares of Common Stock.
The shares of Common Stock sold in the Offering were offered for sale in the
United States by a syndicate of underwriters represented by Wheat First Union,
Cleary Gull Reiland & McDevitt Inc. and Scott & Stringfellow, Inc.
The Company registered an aggregate of 5,060,000 shares of Common Stock
(including 660,000 shares issuable upon the exercise of the underwriters'
overallotment option) for sale in the Offering at a per share price of $15.00,
for an aggregate offering price of $75,900,000. The Company sold 4,690,000
shares of Common Stock (including 290,000 shares issued upon the exercise of
the underwriters' overallotment option) in the Offering resulting in aggregate
offering proceeds of $70,350,000. As stated above, such shares were sold
shortly after the commencement of the Offering.
The Company incurred the following expenses in connection with the Offering
(in millions):
<TABLE>
<S> <C>
Underwriting discounts and commissions............................... $4.9
Other expenses....................................................... 3.3
----
Total expenses..................................................... $8.2
====
</TABLE>
After deducting the expenses set forth above, the Company received
approximately $62.2 million in net proceeds from the Offering including
approximately $4,350 received upon the exercise of the underwriters'
overallotment options. The Company used approximately $56.6 million of the
proceeds to pay the cash portion of the consideration for the Combination and
approximately $5.6 million of the proceeds to repay a portion of the bank debt
of Merkert and Rogers assumed in connection with the Combination.
As former stockholders of Merkert or Rogers, certain officers and directors
of the Company received, directly or indirectly, part of the cash
consideration paid in the Combination, as follows:
<TABLE>
<S> <C>
Gerald R. Leonard............................................... $ 89,049
Douglas H. Holstein............................................. 3,700,000
Sidney D. Rogers, Jr............................................ 73,369
Marty D. Carter................................................. 1,250,000
Glenn F. Gillam................................................. 63,753
</TABLE>
14
<PAGE>
Item 6. Selected Financial Data
Selected Consolidated Financial Data for Merkert American Corporation
The following selected consolidated financial data sets forth, for the
periods and the dates indicated, summary consolidated financial data of the
Company and its subsidiaries. The consolidated statement of operations data
for the period from inception (March 4, 1998) through December 31, 1998 and
the consolidated balance sheet data at March 31, 1998 and December 31, 1998
are derived from consolidated financial statements of the Company which have
been audited by Arthur Andersen LLP, independent auditors, and are included in
Item 8 of this Annual Report on Form 10-K. The financial data presented below
are qualified by reference to the consolidated financial statements included
herein and should be read in conjunction with such financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
Period from
Inception to
December 31,
1998
------------
(dollars in
thousands)
<S> <C>
Statement of Operations Data:
Commissions................................................ $ 5,975
Sales...................................................... 2,420
----------
Revenues................................................. 8,395
Operating (loss)........................................... (1,187)
Net (loss)................................................. (1,466)
Net income (loss) per share--basic......................... $ (0.78)
==========
Weighted average shares--basic............................. 1,891,000
==========
Net income (loss) per share--diluted....................... $ (0.78)
==========
Weighted average shares--diluted........................... 1,891,000
==========
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
1998 1998
--------- ------------
<S> <C> <C>
Balance Sheet Data:
Total assets...................................... $789 $188,410
Long-term obligations............................. -- 74,919
Total stockholders' equity........................ -- 72,595
</TABLE>
15
<PAGE>
Selected Financial Data for Merkert and Rogers
The following selected consolidated statement of operations data for each of
the three years ended December 31, 1997 and for the period ended December 18,
1998 and consolidated balance sheet data at December 31, 1995, 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, 1993 and 1994 and for the year ended December 31, 1994 for
Merkert and October 31, 1994 for Rogers are derived from unaudited financial
statements not included herein. 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
period ended December 18, 1998 are not necessarily indicative of results for
the year ending December 31, 1998 or any future period. See the Company
consolidated financial statements and the Notes thereto and the Merkert and
Rogers financial statements and the Notes thereto included in Item 8 of this
Annual Report on Form 10-K.
Merkert
<TABLE>
<CAPTION>
Year ended December 31, Period Ended
---------------------------------------- December 18,
1994 1995 1996 1997 1998
----------- -------- -------- -------- ------------
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Commissions............. $ 68,247 $ 73,336 $ 80,661 $104,274 $ 90,254
Sales................... 37,395 49,233 44,916 43,105 42,185
-------- -------- -------- -------- --------
Revenues.............. 105,642 122,569 125,577 147,379 132,439
Operating income
(loss)(1).............. (329) 2,434 633 1,373 (6,278)
Net (loss).............. (750) (461) (2,074) (3,449) (10,988)
Other Financial Data:
EBITDA(2)(3)............ 2,054 4,566 3,080 5,857 (1,841)
<CAPTION>
At December 31,
------------------------------------------------------
1993 1994 1995 1996 1997
----------- -------- -------- -------- ------------
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ $ 28,418 $ 27,759 $ 31,425 $ 47,422 $ 58,699
Long-term debt, less
current maturities..... 3,554 1,508 3,458 15,590 21,278
Convertible preferred
stock.................. 6,360 6,360 6,360 6,360 5,720
</TABLE>
16
<PAGE>
Rogers
<TABLE>
<CAPTION>
Year ended December 31, Period Ended
------------------------------------ December 18,
1994 1995 1996 1997 1998
----------- ------- ------- ------- ------------
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Commissions................. $30,626 $47,496 $63,311 $82,985 $ 79,558
Operating income (loss)..... 816 3,149 107 4,085 (15,949)
Net income (loss)........... 13 1,034 (1,089) 745 (17,889)
Other Financial Data:
EBITDA(2)(4)................ 1,245 4,222 1,753 6,601 (13,510)
<CAPTION>
At October 31, At December 31,
------------------- -----------------------------
1993 1994 1995 1996 1997
----------- ------- ------- ------- ------------
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets................ $10,948 $13,406 $23,318 $37,761 $ 38,999
Long-term debt, less current
maturities................. 5,812 7,093 15,009 24,849 30,830
</TABLE>
- --------
(1) Includes a restructuring charge of $5,987 for the period ended December
18, 1998.
(2) EBITDA represents earnings before interest, taxes, depreciation and
amortization. The Company believes that EBITDA may be useful 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.
(3) In addition to a restructuring charge of $5,987, Merkert incurred
approximately $3,500 of non-recurring charges (consisting primarily of
severance related costs) for the period ended December 18, 1998.
(4) Approximately $15.5 million of the loss for the period ended December 18,
1998 pertains to aggregate non-recurring compensation charges recorded in
the fourth quarter of 1998 by Rogers pertaining to the (i) transfer of
shares of common stock of Rogers by the principal stockholders to certain
minority stockholders and (ii) the life insurance policies (including cash
surrender values) to be distributed to certain stockholders of Rogers. In
addition, approximately $0.9 million of this loss pertains to
restructuring charges related to the cost of terminated employees and
closed offices and $1.0 million pertaining to legal fees and other
liabilities incurred in connection with the Combination.
17
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Annual Report on Form 10-K 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 herein. The following discussion and
analysis should be read in conjunction with the Company's consolidated
financial statements as of, and for the period ended, December 31, 1998 and
Merkert's and Rogers' respective financial statements and related notes
thereto presented elsewhere in this Annual Report on Form 10-K.
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.
Prior to December 18, 1998 the Company conducted operations only in
connection with the Combination and the Offering. On December 18, 1998, the
Company purchased all of the issued and outstanding capital stock of Merkert
and Rogers in the Combination.
On December 18, 1998 the Company sold 4.4 million shares of its common stock
at a price of $15.00 per share. The net proceeds from the Offering, net of the
Underwriters' discount, was $61.4 million. The Company also borrowed $50.0
million under the term loan portion of the Credit Facility.
The operating results of the Company reflect only activity subsequent to the
Combination and the Offering, from December 18, 1998 to December 31, 1998 with
respect to Merkert and Rogers. Prior to December 18, 1998 the Company's
Statement of Operations only reflects the non-recurring, non-cash compensation
charge of approximately $1.3 million in the second quarter of 1998 pertaining
to the April 1998 purchases of 275,222 shares of Common Stock from the
Company.
Prior to the Combination, Merkert and Rogers operated throughout the periods
presented as independently owned entities. For financial reporting purposes,
the Company is presented as acquiring Merkert and Rogers. Merkert,
headquartered in Canton, Massachusetts, was founded in 1950 and operates 10
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 operates 20 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. There can be no assurance that losses in
revenue will not be incurred as a result of potential Manufacturer conflicts
associated with the Combination or future acquisitions by the Company.
Acquisition History
The food brokerage industry has experienced significant consolidation as the
number of food brokerage firms has decreased from 2,500 to less than 1,000
over the past 10 years. A number of the companies in the food brokerage
industry, including Merkert and Rogers, have participated in the trend toward
consolidation by
18
<PAGE>
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 1996, each of Merkert and
Rogers has completed several acquisitions.
Since the beginning of 1996, Merkert has completed four asset acquisitions
of food brokerage companies. These included 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.
Since the beginning of 1996, Rogers has completed 8 significant acquisitions
of food brokerage companies including, among others, 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).
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.
Depreciation and amortization expenses. Depreciation and amortization
expenses relate to property, plant and equipment and intangible assets,
including goodwill incurred and noncompete agreements entered into in
connection with the Company's acquisition program.
19
<PAGE>
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, Period ended
--------------------------------- December 18,
1996 1997 1998
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Commissions............. $ 80,661 $104,274 $ 90,254
Sales................... 44,916 43,105 42,185
-------- -------- --------
Revenues.............. $125,577 100.0% $147,379 100.0% $132,439 100.0%
Cost of sales........... 41,890 33.4 39,027 26.5 38,709 29.2
Selling expenses........ 52,510 41.8 69,913 47.4 59,778 45.1
General and
administrative......... 28,097 22.4 32,582 22.1 29,806 22.5
Depreciation and
amortization........... 2,447 1.9 4,484 3.1 4,437 3.4
Restructuring expense... -- -- -- -- 5,987 4.5
-------- ----- -------- ----- -------- -----
Operating income
(loss)................. 633 0.5 1,373 0.9 (6,278) (4.7)
Interest expense, net... 2,150 1.8 4,954 3.4 4,180 3.2
Other (income) expense,
net.................... (247) (0.3) (23) (0.1) 530 0.4
-------- ----- -------- ----- -------- -----
(Loss) before income
taxes.................. (1,270) (1.0) (3,558) (2.4) (10,988) (8.3)
Provision (benefit) for
income taxes........... 804 0.6 (109) (0.1) -- --
-------- ----- -------- ----- -------- -----
Net (loss).............. (2,074) (1.6) (3,449) (2.3) (10,988) (8.3)
Preferred stock
dividend............... 445 0.4 445 0.3 300 0.2
-------- ----- -------- ----- -------- -----
Net (loss) applicable to
common stockholders.... $ (2,519) (2.0)% $ (3,894) (2.6)% $(11,288) (8.5)%
======== ===== ======== ===== ======== =====
</TABLE>
Merkert results for the period ended December 18, 1998 compared to 1997
Revenues. Revenues decreased by $14.9 million, or 10.1%, from $147.4 million
for the year ended December 31, 1997 to $132.4 million for the period ended
December 18, 1998. Approximately $5.5 million of this decrease is attributable
to the shortened operating period ended December 18, 1998. Of the remaining
$9.5 million decrease in revenues, commission revenue decreased by
approximately $11.0 million or 10.5% from $104.3 million for the year ended
December 31, 1997 to $93.3 million on an annualized basis in 1998.
Approximately 31% of the decrease in revenues from commissions is due to the
impact of a discontinued retail merchandising operation which had been
established in 1995 to serve one specific Retailer. Approximately 25% of the
decrease in revenues from commissions is due to lost business arising from the
resolution of Manufacturer conflicts resulting from the Combination while the
remaining 44% is attributable to the resolution of Manufacturer conflicts
arising from prior acquisitions. See "--Combined Integration Activities."
Sales. Sales increased by $1.5 million, or 3.5%, from $43.1 million for the
year ended December 31, 1997 to $44.6 million on an annualized basis in 1998
due to increases in promotional programs as well as increases in private label
sales.
Selling expenses. Selling expenses decreased by $10.1 million, or 14.4%,
from $69.9 million in 1997 to $59.8 million for the period ended December 18,
1998. Approximately $2.2 million of such decrease is due to the shorter
operating period in 1998. The remaining decrease of $7.9 million is primarily
due to reductions in personnel associated with acquisitions in overlapping
geographic areas which were made in late 1996 and during 1997, reductions
relating to the integration of Merkert and Rogers operations prior to the
Combination and reductions associated with the discontinued merchandising
operations.
General and administrative expenses. General and administrative expenses
decreased by $2.8 million, or 8.5% from $32.6 million for the year ended
December 31, 1997 to $29.8 million for the period ended December 18, 1998.
Approximately $1.0 million of this decrease is due to the shorter 1998
operating period. The remaining
20
<PAGE>
decrease is due to reductions in personnel associated with acquisitions in
overlapping geographic areas which were made in late 1996 and during 1997,
reductions relating to the integration of Merkert and Rogers operations prior
to the Combination and reductions associated with the discontinued
merchandising operations. Included in the 1998 general and administrative
expenses is $4.0 million of cost attributable to the Combination, including
$2.7 million of severance costs.
As a percentage of revenues, selling, general and administrative expenses
decreased from 69.5% for 1997 to 67.6% on an annualized basis in 1998.
Restructuring expense. The results for the period ended December 18, 1998
reflect restructuring expenses of $6.0 million with no corresponding charge
during 1997. These expenses relate to severance costs associated with
elimination of certain positions primarily as a result of integration
activities in the metropolitan New York and mid-Atlantic regions, as well as
costs associated with certain sales offices made redundant in the integration
activities in these regions.
Depreciation and amortization. Depreciation and amortization expenses were
substantially unchanged from the year ended December 31, 1997 to the period
ended December 18, 1998. On an annualized basis, depreciation expense would
have been approximately $0.1 million higher in 1998 versus 1997 due to
deprecation expense increases associated with the new Merkert corporate
headquarters completed in the third quarter of 1997.
Interest expense. Interest expense decreased by $0.8 million, or 16.5%, from
$5.0 million for the year ended December 31, 1997 to $4.2 million for the
period ended December 18, 1998. Approximately $0.1 million of the decrease is
attributable to the shorter 1998 operating period. The remaining $0.7 million
decrease was caused by reductions in debt due to principal payments made
during the period and a reduction in interest expense associated with the IRS
obligation.
(Loss) before income taxes. The loss before income taxes increased from
$(3.6) million for the year ended December 31, 1997 to $(11.0) million for the
period ended December 18, 1998.
Provision (benefit) for income taxes. The provision for income taxes
increased by $0.1 million from a benefit of $(0.1) million for the year ended
December 31, 1997 to no provision for the period ended December 18, 1998 due
to the increase in the valuation allowance for deferred tax assets.
Net (loss). The net loss increased by approximately $8.3 million from ($3.4)
million for the year ended December 31, 1997 to ($11.0) million for the period
ended December 18, 1998.
Preferred stock dividends. The amount payable in respect of preferred stock
dividends decreased by $0.1 million due to the shorter 1998 operating period.
Net (loss) applicable to common stockholders. The net loss applicable to
common stockholders increased by $7.4 million from the year ended December 31,
1997 to the period ended December 18, 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 the commission increase is attributable to acquisitions consummated in
late 1996 and early 1997 net of account losses associated with product
conflicts related to the acquired companies and other factors. 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 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.
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<PAGE>
General and administrative expenses. 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. Such expenses were offset, in part, by savings
relating to the integration of such acquisitions.
In 1997, Merkert focused on the integration of 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.
Annualized payroll was reduced by $11.6 million, or 17.9%, from $64.8
million in January 1997 to $53.2 million in December 1997 as a result of these
efforts as well as the discontinuation of the merchandising operation. Since
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 $2.8 million from $2.2
million in 1996 to $5.0 million in 1997, due mainly to interest expense
related to obligations to sellers in connection with acquisitions. Interest
expense 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 that was completed late in
1997.
(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. The 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, as well as to
permanent non-deductible expenses, principally related to travel and
entertainment expenses.
Net (loss). The net loss increased by $1.3 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 Merkert Enterprises, Inc. Employee Stock Ownership Plan (the "ESOP")
totaled $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 (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.
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<PAGE>
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, Period ended
------------------------------ December 18,
1996 1997 1998
-------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Commissions................. $63,311 100.0% $82,985 100.0% $ 79,558 100.0%
Selling expenses............ 50,614 79.9 63,361 76.3 76,894 96.7
General and administrative.. 10,944 17.3 13,023 15.7 15,226 19.1
Depreciation and
amortization............... 1,646 2.6 2,516 3.0 2,439 3.0
Restructuring expense....... -- -- -- -- 948 1.2
------- ----- ------- ----- -------- -----
Operating income (loss)..... 107 0.2 4,085 5.0 (15,949) (20.0)
Interest expense............ 1,656 2.6 2,536 3.1 2,617 3.3
------- ----- ------- ----- -------- -----
Income (loss) before income
taxes...................... (1,549) (2.4) 1,549 1.9 (18,566) (23.3)
Provision (benefit) for
income taxes............... (460) (0.7) 804 1.0 (677) (0.8)
------- ----- ------- ----- -------- -----
Net income (loss)........... $(1,089) (1.7)% $ 745 0.9% $(17,889) (22.5)%
======= ===== ======= ===== ======== =====
</TABLE>
Rogers' results for the period ended December 18, 1998 compared to 1997
Revenues. Commission revenues decreased by $3.4 million, or 4.1%, from $83.0
million for the year ended December 31, 1997 to $79.6 million for the period
ended December 18, 1998. Approximately $2.9 million or 85% of such decrease in
revenues is attributable to the shortened operating period in 1998. The
balance of the decrease is due to revenues lost due to manufacturer conflicts,
principally in the Mid-Atlantic, offset by additional revenues gained in other
markets. The conflict related losses are principally due to the integration of
the Rogers and Merkert Mid-Atlantic operations during the second half of 1998.
Selling expenses. Selling expenses increased by $13.5 million, or 21.3%,
from $63.4 million for the year ended December 31, 1997 to $76.9 million for
the period ended December 18, 1998. On a full year basis, selling expenses for
Rogers are estimated to be $80.4 million, an increase of $17.0 million over
1997. All of the increase is attributable to non-recurring items associated
with the Combination. Approximately $14.8 million of this amount relates to
non-cash compensation charges due to the transfer of shares of common stock of
Rogers by the then principal stockholders to certain minority stockholders and
the assignment of life insurance policies and other assets distributed or to
be distributed to certain former stockholders of Rogers. The remaining $2.2
million of non-recurring items is attributable to severance and payroll taxes
relating to the aforementioned compensation charges.
General and administrative expenses. General and administrative expenses
increased by $2.2 million, or 16.9%, from $13.0 million for the year ended
December 31, 1997 to $15.2 million for the period ended December 18, 1998.
This increase is attributable to increases in legal fees and travel related
costs incurred in connection with the Combination, increases in communication
costs (including for Internet and Intranet applications) and computer software
upgrades.
Depreciation and amortization. Depreciation and amortization expenses
decreased by approximately $0.1 million from $2.5 million for the year ended
December 31, 1997 to $2.4 million for the period ended December 18, 1998
mainly due to the shorter 1998 operating period.
Restructuring expense. The results for the period ended December 18, 1998
reflect restructuring expenses of $0.9 million, with no corresponding change
during 1997. These expenses relate to severance costs associated with
elimination of certain positions primarily as a result of integration
activities in the mid-Atlantic regions as well as costs associated with
certain sales offices made redundant in the integration activities in the
region.
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<PAGE>
Interest expense. Interest expense increased by $0.1 million, from $2.5
million for the year ended December 31, 1997 to $2.6 million for the period
ended December 18, 1998. The increase was due to higher average outstanding
borrowings on Rogers' bank line of credit mainly due to increased expenses
associated with restructuring and other Combination activity.
Income (loss) before taxes. Income before taxes decreased by $20.1 million,
from pre-tax income of $1.5 million for the year ended December 31, 1997 to a
pre-tax loss of $(18.6) million in the period ended December 18, 1998.
Provision (benefit) for income taxes. The provision for income taxes
decreased by $1.5 million from a provision of $0.8 million in 1997 to a
benefit of $(0.7) million in 1998 due to the decrease in income before income
taxes discussed above.
Net income (loss). Net income decreased by $18.6 million, from net income of
$0.7 million for the year ended December 31, 1997 to a net loss of $(17.9)
million for the period ended December 18, 1998.
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, 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 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. 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.
24
<PAGE>
Combined Integration Activities
Since 1994, Merkert and Rogers acquired a total of 21 companies, adding
geographic coverage and resulting in increased revenues. In 1997, Merkert
conducted integration activities to eliminate duplicative costs and operations
resulting from certain of these acquisitions. As part of this initiative,
Merkert integrated the T-D acquisition into its New England Division and
merged the ABD acquisition with its Boerner Division, one of two Merkert
divisions in the metropolitan New York area prior to the ABD acquisition.
During 1998, Merkert further integrated its two metropolitan New York
business units into one operation. In addition, during 1998, Merkert and
Rogers began the integration of their combined operations. This process
resulted in the integration of the mid-Atlantic region and the closure of a
total of five offices in such region. The integration plan was substantially
completed at the closing of the Combination and the Offering. As a result of
its ongoing integration activities, Merkert recorded a $6.0 million
restructuring charge during the period ended December 18, 1998 while Rogers
recorded a restructuring charge of $0.9 million for the same period.
Assuming the implementation of Merkert's 1997 integration plans, Merkert's
1998 integration of its two metropolitan New York business units, and the
integration of the combined operations of Merkert and Rogers all occurred as
of January 1, 1997, the Company would have eliminated duplicative salaries,
benefits, bonuses and other direct costs of $19.4 million for the year ended
December 31, 1997 and $14.3 million for the year ended December 31, 1998. In
addition, the Company's integration activities would have resulted in the net
reduction of rental and other office expenses of $0.5 million for the year
ended December 31, 1997 and $0.5 million for the year ended December 31, 1998.
Further, in connection with these integration activities, the Company has
identified approximately $12.9 million of revenues in 1997 and $5.9 million of
revenues in the year ended December 31, 1998 that have been lost as a result
of manufacturer conflicts and other factors.
The Company's pro forma combined EBITDA for the year ended December 31, 1997
and the period ended December 18, 1998 was $13.2 million and $14.6 million,
respectively. After giving effect, on a pro forma basis, to the elimination
and other effects of the Company's integration activities described above,
assuming these integration activities were completed as of January 1, 1997,
and the elimination of $28.9 million of non-recurring charges related to the
Combination and as described below, the Company's adjusted unaudited pro forma
combined EBITDA and adjusted unaudited pro forma combined net income for the
year ended December 31, 1997 would have been $20.8 million and $4.6 million,
respectively, and the Company's adjusted unaudited pro forma combined EBITDA
and adjusted unaudited pro forma combined net income for the period ended
December 18, 1998 would have been $25.6 million and $7.4 million,
respectively.
The non-recurring charges which have been eliminated for the calculation of
the Company's 1998 adjusted unaudited pro forma combined EBITDA and 1998
adjusted unaudited pro forma combined net income are: (i) a $1.3 million non-
cash compensation charge relating to the purchase of stock by Gerald R.
Leonard, the Company's President and Chief Executive Officer; (ii) a $10.3
million non-cash compensation charge for the transfer of shares of common
stock of Rogers by principal stockholders to certain minority stockholders;
(iii) $12.0 million of severance and other charges which primarily related to
the termination of employees and the closing of certain redundant facilities;
(iv) $4.6 million relating to cash and life insurance policies distributed to
certain stockholders of Rogers; and (v) $0.7 million of various charges for
legal fees, relocation and other costs.
EBITDA represents earnings before interest, taxes, depreciation and
amortization. The Company believes that EBITDA may be useful 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
25
<PAGE>
flows prepared in accordance with generally accepted accounting principles or
as a measure of profitability or liquidity. None of the unaudited pro forma
financial data, as adjusted, purports to represent what the Company's combined
results of operations would have been or may be for any future period and all
such information should be read only in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto and the Merkert and
Rogers Financial Statements and the Notes thereto included elsewhere in this
Annual Report on Form 10-K.
Liquidity and Capital Resources
On December 18, 1998, the Company completed an initial public offering of
its Common Stock, raising net proceeds of approximately $58.9 million and
simultaneously purchased, in separate transactions, all of the outstanding
common stock of Merkert and Rogers. Of the net proceeds, approximately $56.6
million was used to pay the cash portion of the purchase price of Merkert and
Rogers.
In connection with the Offering and the Combination, the Company obtained a
$75 million Credit Facility from First Union National Bank and First Union
Capital Markets. First Union National Bank is an affiliate of Wheat First
Securities, Inc., one of the Underwriters of the Offering. First Union Capital
Markets is a division of Wheat First Securities, Inc. The Credit Facility
consists of a five-year, secured, fully amortizing $50 million term loan (the
"Term Loan") and a three-year, secured $25 million revolving line of credit
(the "Revolving Credit"). The Company paid commitment and other fees of
approximately $3.0 million in connection with obtaining the Credit Facility.
The balance outstanding under the Credit Facility was $50.0 million at
December 31, 1998.
Together with the remaining net proceeds of the Offering, the Company used
amounts available under the Term Loan portion of the Credit Facility to (i)
repay approximately $15.8 million of indebtedness of Merkert and Rogers
assumed in connection with the Offering; (ii) pay, or reserve for the payment
of, approximately $27.1 million of obligations to certain sellers of
previously acquired businesses; (iii) repay approximately $0.80 million
outstanding under a promissory note payable to Monroe & Company II, LLC which
was attributable to certain of the Company's expenses; (iv) fund approximately
$1.5 million of buyouts of employment arrangements of certain departing
executives of Merkert; and (v) pay approximately $5.6 million of expenses
incurred by the Company, and each of Merkert and Rogers and their respective
stockholders in connection with the Combination. The Credit Facility is
secured by a lien on substantially all of the assets of the Company, Merkert,
Rogers and their respective subsidiaries and by a pledge of 100% of the
capital stock of Merkert, Rogers and such subsidiaries. In addition, the
Credit Facility is jointly and severally guaranteed by Merkert, Rogers and
their respective subsidiaries.
Interest is payable on the Term Loan and the Revolving Credit at a rate
based on one of two customary interest rates plus an additional interest
margin of 75 to 350 basis points. This rate was 8.73% as of December 31, 1998
on the Term Loan. The applicable margin is determined based on certain
financial ratios of the Company. The Credit Facility requires the Company to
make certain mandatory prepayments of amounts outstanding under the Credit
Facility with the use of certain excess cash flow and certain proceeds of debt
and equity financing. The Credit Facility requires the Company to comply with
various affirmative and negative covenants, including, among others: (i) the
maintenance of certain financial ratios, (ii) restrictions on additional
indebtedness, (iii) restrictions on liens, guarantees, dividends and the
disposition of assets and (iv) obtaining the lenders' consent to acquisitions
involving cash consideration in excess of a specified amount.
At December 31, 1998, the working capital of the Company was approximately
$2.1 million. The Company anticipates that its cash flow from operations, cash
on hand and anticipated borrowings available under the Revolving Credit 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.
The Company incurred approximately $12.4 million in integration costs
associated with the Combination of which approximately $2.0 million was paid
prior to the closing of the Offering by Merkert and Rogers. In addition,
approximately $1.6 million of the integration costs were paid from proceeds of
the Offering, $1.0 million was paid by the Company prior to December 31, 1998
and the remainder was or will be paid subsequent to December 31, 1998.
26
<PAGE>
On a combined basis, Merkert and Rogers generated $4.2 million of net cash
from operating activities for the period ended December 18, 1998 due to the
level of noncash expenditures in operating losses primarily at Rogers. On a
combined basis, cash flows (used in) financing activities were $(1.9) million
for the period ended December 18, 1998 due to debt repayments at Rogers
partially offset by borrowing activity at Merkert.
The Company intends to pursue acquisition opportunities and expects to fund
future acquisitions through the issuance of additional Common Stock,
borrowings available under the Revolving Credit, debt or equity financing and
cash flow from operations.
The Company is obligated to make payments relative to its Credit Facility
and to the sellers of certain businesses acquired by Merkert and Rogers. In
addition, the Company is obligated to make payments relative to the mortgages
on the Merkert and Rogers' headquarters. The Company estimates the total
principal and interest payments under these various obligations will be
approximately $16.4 million, $21.0 million, $16.7 million, $18.0 million and
$17.3 million over each of the next five years. A portion of the net available
borrowings under the Credit Facility were used to repay, prior to their
scheduled maturity, obligations of Merkert and Rogers to certain sellers of
previously acquired businesses. The $9.3 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.
The Company estimates future requirements for capital expenditures, based on
the requirements of Merkert and Rogers, will be approximately $2.5 million per
year. Capital expenditures in information technology and systems will be made
by the Company to maintain its position in these areas. In addition, the
Company 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 $1.6 million in 1998.
Seasonality; Fluctuations in Quarterly Operating Results
Merkert and Rogers have both experienced and the Company expects to
experience fluctuations in quarterly revenues and operating results as a
result of seasonal patterns. Rogers' business has been stronger in the first
calendar quarter compared to Merkert's business due to its presence in
Florida. Merkert's business, on the other hand, has been stronger in the
fourth calendar quarter as a result of the historically strong sales
associated with the holiday season.
Inflation
The Company does not believe that its revenues have been materially affected
by inflation.
Year 2000 Compliance
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the century date
change occurs, date sensitive systems recognize the year 2000 as 1900 or not
at all. The inability to recognize or properly respond to the Year 2000 issue
may cause systems to incorrectly process financial and operational
information.
The Company has developed and begun the implementation of a plan to
evaluate, remediate and, where necessary, replace its information technology
infrastructure, software, hardware and communications systems (the "IT
systems") in light of the Year 2000 issue. The Company has substantially
completed the evaluation of its IT and non-IT systems (such as climate
control, copying machines and security systems) for potential exposure to
problems associated with Year 2000 compliance. The Company's assessment and
evaluation efforts have included the testing of systems, inquiries of third
parties and other research.
Primarily as a result of the implementation of significant systems upgrades,
the Company believes that it has substantially reduced its potential exposure
to Year 2000 problems. These upgrades have included the replacement of
Merkert's order processing system (including the electronic data interchange
("EDI")) with new
27
<PAGE>
hardware and software. The Company has tested the application of this order
processing system at Merkert and such tests have yielded satisfactory results.
As a result, the Company believes that this order processing system is Year
2000 compliant. Additionally, during the second quarter of 1999, the Company
intends to convert Rogers' mid-Atlantic operations to the order processing
system currently in use by Merkert and by Rogers in regions other than the
mid-Atlantic, which the Company believes is Year 2000 compliant. The estimated
cost of this conversion is approximately $0.1 million.
The Company has determined that Merkert's financial reporting system is not
Year 2000 compliant and intends to replace it with Rogers' existing system,
which has been recently upgraded and which the Company believes is Year 2000
compliant. This replacement is expected to be completed by June 1999 and is
estimated to cost approximately $0.2 million.
Substantially all of the costs incurred by the Company relating to the
improvement of its IT systems were incurred in connection with planned
upgrading activities rather than in response to the results of the Company's
Year 2000 compliance evaluation. The Company does not anticipate any
significant additional costs in connection with its Year 2000 compliance
activities. However, if the Company's Year 2000 compliance efforts are not
completed as scheduled, or if the cost of achieving Year 2000 compliance
exceeds the Company's current estimates, the Year 2000 issue could have a
material adverse effect on the Company's business, financial condition or
results of operations.
The Company intends to replace several PBX (telephone) systems at Rogers
because they are not Year 2000 compliant. The estimated cost of the new
telephone systems is $0.1 million. In addition, approximately $0.2 million of
personal computers, which cannot be upgraded, will be replaced in the first
quarter of 1999.
The Company also is vulnerable to the failure by Manufacturers, Retailers or
other third-party vendors or customers to identify and remedy their own Year
2000 issues. Although the Company has initiated efforts to communicate with
such parties regarding their Year 2000 compliance efforts, the Company is
unable to estimate the nature or extent of any potential impact resulting from
the failure of these third parties to achieve Year 2000 compliance. There can
be no assurance that any one or more of such third parties will not experience
Year 2000 problems or that such problems will not have a material adverse
effect on the Company.
The Company has developed a contingency plan to transmit data that is
ordinarily transmitted on the EDI system to third parties that are not Year
2000 compliant. Other than with respect to the transmission of such data, the
Company has not developed a contingency plan in the event that it has not
achieved Year 2000 compliance on or prior to December 31, 1999. The results of
the Company's assessment and evaluation efforts to date have not yet
identified a need for such contingency planning. The Company intends to
continue to assess its Year 2000 compliance, to implement its Year 2000
compliance plans and to communicate with material third parties regarding
their Year 2000 compliance efforts. In the event that the Company develops
information indicating that contingency planning would be prudent, the Company
intends to undertake such planning and to implement appropriate measures
accordingly.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk related to its Credit Facility as
discussed in the Notes to the Company's Consolidated Financial Statements. The
interest on the Credit Facility is subject to fluctuations in the market. The
Company has entered into an interest rate swap agreement with a financial
institution to hedge a portion of this risk. The Company does not believe the
remaining market risk is material to the Company's consolidated financial
statements.
28
<PAGE>
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Financial Statement Schedule filed as a part of
this Annual Report on Form 10-K are listed on the Index to Consolidated
Financial Statements and Consolidated Financial Statement Schedule on page F-
1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
29
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth information concerning the Company's
directors and executive officers and the offices held by each:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gerald R. Leonard....... 52 Chairman of the Board, Chief Executive Officer
and President
Douglas H. Holstein..... 55 Chief Operating Officer of the Company,
President of Rogers (a subsidiary of the
Company) and Director
Joseph T. Casey......... 44 Chief Financial Officer
Sidney D. Rogers, Jr.... 47 Chief Administrative Officer and Secretary
Marty D. Carter......... 39 Vice President of Acquisitions and Chief
Financial Officer of Rogers (a subsidiary of the
Company)
Glenn F. Gillam......... 47 President of Merkert (a subsidiary of the
Company)
Edward P. Grace, III.... 48 Director
James L. Monroe......... 40 Director
James A. Schlindwein.... 70 Director
</TABLE>
Gerald R. Leonard has been Chairman of the Board, Chief Executive Officer
and President of the Company since the consummation of the Offering. Mr.
Leonard was previously Chief Executive Officer of Merkert American Co., Inc.
(formerly known as Merkert Enterprises, Inc.), a subsidiary of the Company
acquired in December 1998 ("Merkert") from September 1994 until December 1998
and served as the President of Merkert from September 1994 until June 1998.
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.
Douglas H. Holstein has been Chief Operating Officer and a Director of the
Company since the 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.
Joseph T. Casey has served as Chief Financial Officer of the Company since
the consummation of the Offering. Mr. Casey was previously Chief Financial
Officer of Monroe & Company, LLC, a merchant banking firm, from 1997 until
December 1998. From 1993 to 1997, Mr. Casey was Chief Financial Officer for
the Quality Systems Group of Intertek Testing Services, a consumer products
testing company. In such positions, Mr. Casey had general charge and
responsibility for all financial matters.
Sidney D. Rogers, Jr. has served as Chief Administrative Officer and
Secretary of the Company since the consummation of the Offering. Mr. Rogers
was Chief Financial Officer and Vice President of Merkert from 1994 until the
Company's acquisition of Merkert in December 1998. He has been with Merkert
since 1977 and served as Vice President of Administration of Merkert from 1986
to 1994.
Marty D. Carter has served as Vice President of Acquisitions of the Company
since the consummation of the Offering. Mr. Carter has also served as Chief
Financial Officer of Rogers since 1987.
Glenn F. Gillam has served as President of Merkert since June 1998. Mr.
Gillam was President of the Food Enterprises, New England Division, of Merkert
from 1994 until 1998, and has been with Merkert in various capacities since
1983.
Edward P. Grace, III has served as a Director of the Company since the
consummation of the Offering. Mr. Grace is President of Phelps Grace
International, Inc., a restaurant consulting and investment company. From
30
<PAGE>
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, Bryant College, and Johnson & Wales
University.
James L. Monroe has served as a Director of the Company since the
consummation of the Offering. Mr. Monroe was the President and sole Director
of the Company from March 1998 until the consummation of the Offering in
December 1998. Since 1997, Mr. Monroe has been the principal of Monroe &
Company, LLC, a merchant banking firm he founded that invests in companies in
consolidating industries. From January 1994 until December 1996, Mr. Monroe
was a Senior Vice President of Oppenheimer & Co., Inc., an investment banking
and brokerage firm, 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 of Advest, Inc., an investment banking and
brokerage firm.
James A. Schlindwein has been a Director of the Company since the
consummation of the Offering. 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, Agra Quest,
Inc., Chilay Corporation and Thompson's Pet Pasta Products, Inc.
There are no family relationships among any of the Directors and executive
officers of the Company.
Board of Directors
The business of the Company is managed under the direction of the Board of
Directors consisting of five persons. The Company's Second Amended and
Restated Certificate of Incorporation provides that the Board of Directors
shall be divided into two classes until the day of the first election of Class
II Directors occurring after the consummation of the Offering. From and after
such date, the Board of Directors shall be divided into three classes (such
event, the "Board Conversion"). On the date of the Board Conversion, the Class
II Directors will be elected for a two-year term, and the initial class of
Class III Directors will be elected for a three-year term. The Second Amended
and Restated Certificate of Incorporation further provides that following 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.
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.
Meetings of Board of Directors and Committees
The term of each of the current Directors commenced upon consummation of the
Offering on December 18, 1998. The Board of Directors of the Company did not
hold any meetings during the period ended December 31, 1998.
Following consummation of the Offering, the Board of Directors established
an audit committee (the "Audit Committee") and a Compensation Committee (the
"Compensation Committee"). The Audit Committee, which consists of Messrs.
Grace and Schlindwein, did not meet in 1998. The Audit Committee recommends 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. The
Audit Committee also reviews the scope and results of the audit with the
independent accountants, reviews with management and the independent
accountants the Company's year-end operating results, considers the adequacy
of the internal accounting procedures and considers the effect of such
procedures on the accountants' independence.
31
<PAGE>
The Compensation Committee, which consists of Messrs. Grace and Schlindwein,
did not meet in 1998. The Compensation Committee reviews and recommends to the
Board of Directors the compensation arrangements for all directors and
officers, approves such arrangements for other senior level employees and
administer and takes such other action as may be required in connection with
certain compensation and incentive plans of the Company. The Compensation
Committee also determines 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 and prescribes the terms and provisions of each grant made under the 1998
Stock Plan. In addition, the Compensation Committee interprets the 1998 Stock
Plan and grants thereunder, and establishes, amends and revokes rules and
regulations for administration of the 1998 Stock Plan.
Compensation of Directors
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. In addition, upon
consummation of the Offering, each Independent Director then serving was
granted an option to purchase 20,000 shares of Common Stock at an exercise
price equal to the initial public offering price of $15.00 per share of Common
Stock. Under the 1998 Stock Plan, each Independent Director elected following
the Offering is entitled to receive an initial 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 on the fifth business
day after each annual meeting of stockholders, beginning with the 1999 annual
meeting, will receive an option to purchase 5,000 shares of Common Stock. In
addition, the Independent Director who serves as Chairman of the Audit
Committee received options to purchase an additional 5,000 shares of Common
Stock upon consummation of the Offering and will receive options to purchase
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 vest
50% upon the first anniversary of the grant date and 50% in equal annual
installments over the number of years remaining in each Director's term as of
the first anniversary of the grant date, shall terminate upon the tenth
anniversary of the grant date and have an exercise price per share equal to
the fair market value of the Common Stock on the grant date.
All Directors are reimbursed for travel expenses incurred in attending
meetings of the Board of Directors and its committees.
32
<PAGE>
Item 11. Executive Compensation
The following sections of this Annual Report on Form 10-K set forth and
discuss the compensation paid or awarded during the last fiscal year to the
Company's Chief Executive Officer and each of the other executive officers
named in the table below. Since the Company paid no compensation prior to the
consummation of the Offering on December 18, 1998, most of the compensation
reported in these sections was paid by Merkert and Rogers prior to their
acquisition by the Company on December 18, 1998.
Summary Compensation Table
The following table shows the 1998 compensation paid by the Company,
including compensation paid by Merkert and Rogers prior to December 18, 1998,
to the Chief Executive Officer and each of the named persons.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------- ------------------------------
Awards Payouts
---------- ---------------
Securities
Underlying All
Name and Options/ Other
Principal Position(1) Year Salary($) Bonus($) SARs(#) Compensation($)
--------------------- ---- --------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Gerald R. Leonard....... 1998 $370,820 $ -- 40,000 $ 11,208
Chairman, Chief
Executive Officer and
President
Douglas H. Holstein..... 1998 275,866 -- 50,000 338,708
Chief Operating
Officer, President of
Rogers
Joseph T. Casey......... 1998 214,945(2) -- -- --
Chief Financial Officer
Sidney D. Rogers, Jr.... 1998 201,667 -- 70,000 3,583
Chief Administrative
Officer and Secretary
Glenn F. Gillam......... 1998 268,333 100,000 100,000 10,927
President of Merkert
</TABLE>
- --------
(1) Each of the executive officers commenced employment with the Company on
December 18, 1998 upon consummation of the Offering.
(2) Includes $200,000 paid to Mr. Casey for consulting services rendered to
the Company in connection with the Combination and the Offering.
Option Grants in Last Fiscal Year
The following table sets forth the options granted in 1998 to the Chief
Executive Officer and each of the named persons:
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Number of Percent of Share Price
Shares Total Options Exercise Appreciation for
Underlying Granted to or Base Option Term
Options Employees in Price Expiration ---------------------
Name Granted Fiscal Year ($/share) Date 5% 10%
---- ---------- ------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Leonard
December 1998.......... 40,000 11.5% $15.00 12/08 $ 377,336 $ 956,244
Douglas H. Holstein
November 1998.......... 30,000 11.25 11/08 212,250 537,888
December 1998.......... 20,000 14.4% 15.00 12/08 188,668 478,122
Joseph T. Casey......... -- -- -- -- -- --
Sidney D. Rogers, Jr.
November 1998.......... 50,000 11.25 11/08 353,750 896,480
December 1998.......... 20,000 20.2% 15.00 12/08 188,668 478,122
Glenn F. Gillam
November 1998.......... 75,000 11.25 11/08 530,625 1,344,720
December 1998.......... 25,000 28.8% 15.00 12/08 235,835 597,653
</TABLE>
33
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth information concerning the number and value
of unexercised options to purchase shares of the Company's Common Stock held
by the Chief Executive Officer and each of the named persons who held such
options at December 31, 1998. None of the named persons exercised any stock
options during 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Shares December 31, 1998 December 31, 1998(1)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Leonard....... -- -- -- 40,000 -- $ 5,000
Douglas H. Holstein..... -- -- -- 50,000 -- 118,750
Joseph T. Casey......... -- -- -- -- -- --
Sidney D. Rogers, Jr.... -- -- -- 70,000 -- 196,250
Glenn F. Gillam......... -- -- -- 100,000 -- 293,750
</TABLE>
- --------
(1) These values have been calculated based upon the closing sale price of the
Company's Common Stock, as reported by the Nasdaq National Market, on
December 31, 1998 ($15.125) less the applicable exercise price.
Report of the Compensation Committee of the Board of Directors on Executive
Compensation
Prior to the Combination and the Offering on December 18, 1998, the Company
did not have a Compensation Committee and decisions concerning compensation of
executive officers were made by the Company's Board of Directors.
Prior to the consummation of the Offering, the Company did not compensate
its only executive officer, Mr. Monroe. In connection with the consummation of
the Offering, Mr. Monroe resigned as an executive officer of the Company and
the Company entered into employment agreements with certain persons who
currently serve as executive officers. These employment agreements established
the salaries of the Chief Executive Officer and certain other executive
officers at levels negotiated with representatives of Merkert and Rogers in
connection with the Combination. See "Employment and Noncompetition Agreements
with Executive Officers". Additionally, in connection with the closing of the
Offering certain executive officers of the Company were granted options to
acquire shares of the Company's Common Stock.
Since the Offering, the responsibility for the establishment and
administration of the Company's executive compensation policies has been
delegated to the Compensation Committee of the Board of Directors. Over the
next year, the Compensation Committee intends to formulate compensation
policies with respect to the Company's executive officers. In general, the
Compensation Committee believes that the Company should utilize base salary,
incentive bonuses and equity incentives as the three basic components of
executive compensation. The Compensation Committee also believes that
executive compensation should be structured so as to align the interests of
executive management with the long term interests of the Company's
stockholders.
Compensation Committee
James A. Schlindwein, Chairman
Edward P. Grace, III
Employment and Noncompetition Agreements with Executive Officers
On December 18, 1998 each of Messrs. Leonard, Holstein, Rogers and Gillam
entered into employment and noncompetition agreements with the Company
providing for base salaries of $400,000, $300,000, $195,000 and $300,000,
respectively. Each employment and noncompetition agreement is for a term of
three years, and
34
<PAGE>
unless terminated or not renewed by the Company or the executive officer, the
term will continue thereafter. In the event of termination of employment by
the Company without cause, the executive officer is 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 and is also entitled to receive from the Company continuation of
health plan benefits and automobile benefits until the expiration of the
initial term.
Stockholder Return Performance Graph
The following graph compares, during the period commencing December 15,
1998, the first day that the Common Stock was traded on Nasdaq and ending
December 31, 1998, the cumulative total stockholder return on the Company's
Common Stock, based on the market price of the Company's Common Stock and
assuming reinvestment of dividends, with the total return of a group of peer
issuers and the Wilshire 5000 Index. The calculation of cumulative total
return assumes a $100 investment in the Company's Common Stock, a composite of
the peer issuers and the Wilshire 5000 Index on December 15, 1998. The
comparisons in this graph are historical, reflect only nine days of trading
activity, and are not intended to forecast or be indicative of possible future
performance of the Company's Common Stock.
lp10
<TABLE>
<CAPTION>
12/15/98(1) 12/31/98
----------- --------
<S> <C> <C>
Wilshire Small Cap Index $100.00 $107.60
Peer Group(2) $100.00 $103.40
MAC $100.00 $100.80
</TABLE>
- --------
(1) The beginning measurement point is established by the market close on
December 15, 1998, the first day on which the Company's Common Stock was
publicly traded.
(2) The Peer Issuer Group (the "Group") consists of eleven food manufacturers,
retailers and distributors. The portion of the $100 deemed to be invested
in each component issuer of the Group is proportional to its stock market
capitalization at the beginning of the measurement period. Because
information regarding the number of outstanding common shares of the
component issuers on December 15, 1998 was not available, the number of
outstanding shares of each issuer as of the date closest to September 30,
1998 as reported in such issuer's quarterly or annual reports was
multiplied by the market close of its common stock on December 15, 1998 to
arrive at the stock market capitalization used for purposes of
apportioning the original investment of $100 among the component issuers.
35
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of February 16, 1999, 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 and the
executive officers of the Company named below, and (iii) all directors 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
Name of Beneficial Owner(1) Owned(2) Percentage
--------------------------- ------------ ----------
<S> <C> <C>
Gerald R. Leonard(3)............................... 226,152 3.0%
Sidney D. Rogers, Jr.(4)........................... 5,079 *
Glenn F. Gillam(5)................................. 4,325 *
Edward P. Grace, III(6)............................ -- *
Douglas H. Holstein(7)............................. 10,000 *
Joseph T. Casey.................................... -- *
James L. Monroe(8)................................. 1,352,777 18.0%
James A. Schlindwein(9)............................ 480,819 6.4%
Alliance Capital Management L.P.(10)
1290 Avenue of Americas
New York, New York 10104........................... 447,000 6.0%
Friess Associates, Inc.(11)
115 E. Snow King
Jackson, Wyoming 83001............................. 405,000 5.4%
Merkert Enterprises, Inc.(12)
Employee Stock Ownership Trust
500 Turnpike Street
Canton, Massachusetts 02021........................ 473,319 6.3%
Eugene F. Merkert(13)
2359 South Ocean Boulevard
Highland Beach, Florida 33487...................... 445,492 5.9%
All directors and executive officers as a group (9
persons).......................................... 2,067,672 27.5%
</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 report are deemed outstanding, but are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(3) Includes 4,275 shares of Common Stock held by Merkert Enterprises, Inc.
Employee Stock Ownership Trust and allocable to Mr. Leonard. Includes
44,760 shares of Restricted Common Stock, which shares are convertible
into shares of Common Stock in certain circumstances. Does not include an
aggregate of 55,044 shares held by The Corrie E. Leonard Irrevocable
Trust and The Kevin M. Leonard Irrevocable Trust, for which Mr. Leonard
serves as a Trustee. Mr. Leonard disclaims beneficial ownership of the
shares of Common Stock held by such trusts. Excludes 40,000 shares
subject to options not exercisable within 60 days.
36
<PAGE>
(4) Includes 3,280 shares held by the Merkert Enterprises, Inc. Employee
Stock Ownership Trust and allocable to Mr. Rogers. Excludes 70,000 shares
subject to options not exercisable within 60 days.
(5) Includes 3,925 shares held by the Merkert Enterprises, Inc. Employee
Stock Ownership Trust and allocable to Mr. Gillam. Excludes 100,000
shares subject to options not exercisable within 60 days.
(6) Excludes 20,000 shares subject to options not exercisable within 60 days.
(7) Excludes 50,000 shares subject to options not exercisable within 60 days.
(8) Includes 1,352,777 shares of Common Stock (including 279,750 shares of
Restricted Common Stock, which shares are convertible into shares of
Common Stock in certain circumstances) 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 subject to
options not exercisable within 60 days.
(9) Includes 473,319 shares held by the Merkert Enterprises, Inc. Employee
Stock Ownership Trust, of which Mr. Schlindwein is the trustee. Mr.
Schlindwein disclaims beneficial ownership of these shares. Excludes
25,000 shares subject to options not exercisable within 60 days.
(10) Beneficial ownership information is based on the Schedule 13G filed by
Alliance Capital Management L.P., AXA, AXA Assurances I.A.R.D. Mutuelle,
AXA Assurances Vie Mutuelle, AXA Conseil Vie Assurance Mutuelle, AXA
Courtage Assurance Mutuelle and The Equitable Companies Incorporated on
February 16, 1999.
(11) Beneficial ownership information is based on the Schedule 13G filed by
Friess Associates, Inc. on January 25, 1999.
(12) Beneficial ownership information is based on the Schedule 13G filed by
the Merkert Enterprises, Inc. Employee Stock Ownership Trust on December
29, 1998.
(13) Beneficial ownership information is based on the Schedule 13G filed by
Eugene F. Merkert, Robert Q. Crane, Tuyet Payne, the Eugene F. Merkert
1984 Revocable Trust and the Eugene F. Merkert 1991 Charitable Remainder
Unitrust on February 16, 1999.
Item 13. Certain Relationships and Related Transactions
Simultaneously with the consummation of the Offering on December 18, 1998,
the Company separately purchased all of the issued and outstanding capital
stock of each of Merkert and Rogers. Such transactions are referred to
collectively as the "Combination." Pursuant to the stock purchase agreement
with Merkert, the Company paid the stockholders of Merkert aggregate
consideration of $31.0 million in cash and 1,166,667 shares of Common Stock.
Pursuant to the stock purchase agreement with Rogers, the Company paid the
stockholders of Rogers cash in the aggregate amount of $25.6 million.
The consideration 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 such
consideration included, among others, the historical revenues and pro forma
EBITDA of each of Merkert and Rogers.
37
<PAGE>
In connection with the Combination, certain former stockholders of each of
Merkert and Rogers became directors and/or executive officers of the Company
and received the following consideration pursuant to the Combination:
<TABLE>
<CAPTION>
Shares of
Cash Common Stock
---------- ------------
<S> <C> <C>
Gerald R. Leonard................................. $ 89,049* 5,974*
Douglas H. Holstein............................... 3,700,000 0
Sidney D. Rogers, Jr.............................. 73,369* 4,979*
Marty D. Carter................................... 1,250,000 0
Glenn F. Gillam................................... 63,753* 3,925*
</TABLE>
- --------
* Includes cash and shares paid to the Merkert Enterprises, Inc. Employee
Stock Ownership Trust and allocable to such individuals.
In addition, certain expenses incurred by these individuals in connection
with the Combination were paid by the Company.
As a result of negotiations between the stockholders of Rogers and the
Company regarding the purchase of Rogers, Messrs. Holstein and Carter (i) will
receive a portion of 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 expected sale to a third party of the
Charlotte, North Carolina property which was the headquarters of Rogers; (ii)
will receive cash bonuses in an amount equal to approximately $266,000 for Mr.
Holstein and $95,000 for Mr. Carter based upon certain income tax refunds
receivable by the Company; and (iii) have been paid cash bonuses, accrued by
Rogers prior to the Combination, of $71,683 for Mr. Holstein and $55,644 for
Mr. Carter.
In connection with the Combination, the Company used a portion of the net
proceeds of the Offering and the net available borrowings under the Credit
Facility to fund the buyouts of Merkert Enterprises, Inc.'s employment
arrangements with Eugene F. Merkert and Robert Q. Crane, stockholders of the
Company, for cash payments of $876,924 and $583,900, respectively. In
connection with such buyouts, the Company is also providing family health
insurance benefits and disability insurance coverage for three years to Mr.
Merkert and transferred one automobile to each of Messrs. Merkert and Crane.
Monroe & Company, LLC, a Delaware limited liability company of which Mr.
Monroe is a member and sole manager, is party to a consulting agreement with
the Company which provides that Monroe & Company, LLC will provide 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 was also paid a fee (amounting to
approximately $562,000) equal to 0.75% of the principal amount committed under
a senior credit facility. An additional fee shall be payable to Monroe &
Company, LLC upon increases in such amount or upon refinancing with a new
lender during the term of the consulting agreement. Monroe & Company, LLC is
also 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.
Mr. Monroe, a director of the Company, is a member and the sole manager of
Monroe & Company II, LLC and Monroe & Company, LLC and Mr. Grace, a director
of the Company, is a member of Monroe & Company II, LLC, which provided the
Company with advice and expertise regarding the Combination and the Offering.
Expenses paid by the Company prior to the Offering were financed with funds
advanced to the Company by
38
<PAGE>
Monroe & Company II, LLC. Outstanding advanced amounts bore 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. Monroe & Company II, LLC
advanced approximately $800,000 to the Company for such expenses. The Company
repaid the advanced amounts plus interest to Monroe & Company II, LLC upon
consummation of the Offering.
In April 1998, Gerald R. Leonard, Chairman of the Board, Chief Executive
Officer and President of the Company, purchased 275,222 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 275,222 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 $0) plus (ii) one-half of the accrued
and unpaid interest at such time.
The Company and Messrs. Monroe and Leonard are parties to a Registration
Rights Agreement pursuant to which Messrs. Monroe and Leonard have the right,
subject to certain restrictions, beginning on June 16, 1999, to cause the
Company to effect a registration of their shares of Common Stock under the
Securities 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.
The Company also entered into a Registration Rights Agreement with the
former stockholders of Merkert, including Messrs. Leonard, Gillam, Rogers,
Merkert, Crane and the Merkert Employee Stock Ownership Trust pursuant to
which such former stockholders 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.
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.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The Company's executive officers and directors and beneficial owners of more
than 10% of its Common Stock are required under Section 16(a) of the Exchange
Act to file reports of ownership and changes in ownership with the Securities
and Exchange Commission. Copies of those reports must also be furnished to the
Company. Based solely on a review of the copies of reports furnished to the
Company, and written representations from certain reporting persons that no
other reports were required, the Company believes that during 1998 no person
who was a director, executive officer or beneficial owner of more than 10% of
the Common Stock failed to file on a timely basis all reports required by
Section 16(a) except: (i) Mr. Casey inadvertently failed to timely file a Form
3 following his appointment as an executive officer of the Company on December
18, 1998; (ii) Mr. Gillam inadvertently failed to timely report his purchase
of 400 shares of Common Stock through the Offering's Reserved Share Program;
(iii) Mr. Rogers inadvertently failed to timely report his purchase of 100
shares of Common Stock through the Offering's Reserved Share Program; and (iv)
Mr. Schlindwein inadvertently failed to timely report his purchase of 7,500
shares of Common Stock in connection with the Offering. Messrs. Casey, Gillam,
Rogers and Schlindwein subsequently filed or amended the required form.
39
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) Documents filed as a part of this Form 10-K
1. Financial Statements.
The Financial Statements filed as a part of this Form 10-K are listed on
the Index to Consolidated Financial Statements and Consolidated Financial
Statement Schedule on page F-1.
2. Financial Statement Schedule.
The Financial Statement Schedule filed as a part of this Form 10-K is
listed on the Index to Consolidated Financial Statements and Consolidated
Financial Statement Schedule on page F-1.
3. Exhibits
The Exhibits filed as a part of this Form 10-K are listed on the Index to
Exhibits on page 42.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the last
quarter of 1998.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 1999 Merkert American Corporation
/s/ Gerald R. Leonard
By: _________________________________
Gerald R. Leonard
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on March 30, 1999.
/s/ Gerald R. Leonard
_____________________________________
Gerald R. Leonard
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer)
/s/ Douglas H. Holstein
_____________________________________
Douglas H. Holstein
Chief Operating Officer, President
of Rogers, Director
/s/ Joseph T. Casey
_____________________________________
Joseph T. Casey
Chief Financial Officer (Principal
Financial and Accounting Officer)
/s/ Edward P. Grace, III
_____________________________________
Edward P. Grace, III
Director
/s/ James L. Monroe
_____________________________________
James L. Monroe
Director
/s/ James A. Schlindwein
_____________________________________
James A. Schlindwein
Director
41
<PAGE>
INDEX TO EXHIBITS
The following is a complete list of exhibits filed or incorporated by
reference as a part of this Annual Report on Form 10-K:
<TABLE>
<C> <S>
3.1 Second Amended and Restated Certificate of Incorporation of Merkert
American Corporation incorporated by reference to Exhibit 3.1 to Merkert
American Corporation's Amendment No. 7 to Registration Statement on Form
S-1 filed December 15, 1998 (No. 333-53419).
3.2 Amended and Restated By-laws of Merkert American Corporation (filed
herewith).
10.1 Stock Purchase Agreement, dated May 20, 1998, among Merkert American
Corporation (formerly known as Monroe, Inc.), Merkert Enterprises, Inc.
and the stockholders of Merkert Enterprises, Inc. incorporated by
reference to Exhibit 10.1 to Merkert American Corporation's Registration
Statement on Form S-1 filed May 22, 1998 (No. 333-53419).
10.2 Amendment No. 1, dated November 18, 1998, to Stock Purchase Agreement
among Merkert American Corporation, Merkert Enterprises, Inc. and the
stockholders of Merkert Enterprises, Inc. incorporated by reference to
Exhibit 10.28 to Merkert American Corporation's Amendment No. 5 to
Registration Statement on Form S-1 filed November 19, 1998 (No. 333-
53419).
10.3 Amendment No. 2, dated December 15, 1998, to Stock Purchase Agreement
among Merkert American Corporation, Merkert Enterprises, Inc. and the
stockholders of Merkert Enterprises, Inc. (filed herewith).
10.4 Stock Purchase Agreement, dated May 22, 1998, among Merkert American
Corporation (formerly known as Monroe, Inc.), Rogers-American Company,
Inc. and the stockholders of Rogers-American Company, Inc. incorporated
by reference to Exhibit 10.2 to Merkert American Corporation's
Registration Statement on Form S-1 filed May 22, 1998 (No. 333-53419).
10.5 Amendment No. 1, dated November 16, 1998, to Stock Purchase Agreement
among Merkert American Corporation, Rogers-American Company, Inc. and
the stockholders of Rogers-American Company, Inc. incorporated by
reference to Exhibit 10.27 to Merkert American Corporation's Amendment
No. 5 to Registration Statement on Form S-1 filed November 19, 1998 (No.
333-53419).
10.6 Agreement, dated May 11, 1998, between Merkert American Corporation
(formerly known as Monroe, Inc.) and Monroe & Company, LLC incorporated
by reference to Exhibit 10.8 to Merkert American Corporation's
Registration Statement on Form S-1 filed May 22, 1998 (No. 333-53419).
10.7 Agreement for the Purchase of Common Stock, dated April 8, 1998, between
Merkert American Corporation (formerly known as Monroe, Inc.) and Gerald
R. Leonard incorporated by reference to Exhibit 10.9 to Merkert American
Corporation's Amendment No. 1 to Registration Statement on Form S-1
filed May 29, 1998 (No. 333-53419).
10.8 Promissory Note, dated April 8, 1998, of Gerald R. Leonard issued to
Merkert American Corporation (formerly known as Monroe, Inc.)
incorporated by reference to Exhibit 10.10 to Merkert American
Corporation's Amendment No. 1 to Registration Statement on Form S-1
filed May 29, 1998
(No. 333-53419).
10.9 Stock Pledge Agreement, dated April 8, 1998, between Merkert American
Corporation (formerly known as Monroe, Inc.) and Gerald R. Leonard
incorporated by reference to Exhibit 10.11 to Merkert American
Corporation's Amendment No. 1 to Registration Statement on Form S-1
filed May 29, 1998 (No. 333-53419).
10.10 Registration Rights Agreement, dated May 18, 1998, between Merkert
American Corporation (formerly known as Monroe, Inc.) and Gerald R.
Leonard incorporated by reference to Exhibit 10.14 to Merkert American
Corporation's Registration Statement on Form S-1 filed May 22, 1998 (No.
333-53419).
10.11 Registration Rights Agreement, dated December 18, 1998, between Merkert
American Corporation and the stockholders of Merkert Enterprises, Inc.
(filed herewith).
</TABLE>
42
<PAGE>
<TABLE>
<C> <S>
10.12 Tax Escrow Agreement, dated December 18, 1998, among Merkert American
Corporation, Robert Q. Crane, as stockholders' representative, and State
Street Bank & Trust Company (filed herewith).
10.13 Indemnification Escrow Agreement, dated December 18, 1998, among Merkert
American Corporation, Robert Q. Crane, as stockholders' representative,
the stockholders of Merkert Enterprises, Inc. and State Street Bank &
Trust Company (filed herewith).
10.14 Indemnification Escrow Agreement, dated December 18, 1998, among Merkert
American Corporation, Curtis L. Rogers, Jr., as stockholders'
representative, the stockholders of Rogers-American Company, Inc. and
State Street Bank & Trust Company (filed herewith).
10.15 Credit Agreement, dated December 18, 1998, among Merkert American
Corporation, and First Union National Bank (filed herewith).
10.16 Security Agreement, dated December 18, 1998, made by Merkert American
Corporation, Merkert Enterprises, Inc., Rogers-American Company, Inc.
and Rogers-American Company of Florida, Inc. in favor of First Union
National Bank (filed herewith).
10.17 Pledge Agreement, dated December 18, 1998, made by Merkert American
Corporation, Merkert Enterprises, Inc., and Rogers-American Company,
Inc. in favor of First Union National Bank (filed herewith).
10.18 Guaranty Agreement, dated December 18, 1998, made by Merkert
Enterprises, Inc., Rogers-American Company, Inc. and Rogers-American
Company of Florida, Inc. in favor of First Union National Bank (filed
herewith).
10.19 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 incorporated by reference to Exhibit 10.23 to
Merkert American Corporation's Amendment No. 3 to Registration Statement
on Form S-1 filed July 20, 1998
(No. 333-53419).
10.20 Amendment, dated December 18, 1998, to Indenture of Mortgage Deed of
Trust, Security Agreement, Fixture Filing, Financing Statement and
Assignment of Rents and Leases, between Merkert Enterprises, Inc. and
Corporate Real Estate Capital, LLC (filed herewith).
10.21 Loan Agreement between Merkert Enterprises, Inc. and Corporate Real
Estate Capital, LLC incorporated by reference to Exhibit 10.24 to
Merkert American Corporation's Amendment No. 3 to Registration Statement
on Form S-1 filed July 20, 1998 (No. 333-53419).
10.22 Promissory Note of Merkert Enterprises, Inc. issued to Corporate Real
Estate Capital, LLC incorporated by reference to Exhibit 10.25 to
Merkert American Corporation's Amendment No. 3 to Registration Statement
on Form S-1 filed July 20, 1998 (No. 333-53419).
10.23 Balance Purchase Money Promissory Note of Rogers-American Company, Inc.
issued to Rexham Industries Corp. incorporated by reference to Exhibit
10.33 to Merkert American Corporation's Amendment No. 6 to Registration
Statement on Form S-1 filed December 10, 1998 (No. 333-53419).
10.24 Amendment to Balance Purchase Money Promissory Note of Rogers-American
Company, Inc. issued to Rexham Industries Corp. incorporated by
reference to Exhibit 10.34 to Merkert American Corporation's Amendment
No. 6 to Registration Statement on Form S-1 filed December 10, 1998
(No. 333-53419).
10.25 Deed of Trust and Security Agreement, dated November 2, 1992, among
Rogers-American Company, Inc., as mortgagor, B. D. Farmer III and J.
Christopher Oates, as trustees, and Rexham Industries Corp., as
beneficiary, incorporated by reference to Exhibit 10.35 to Merkert
American Corporation's Amendment No. 6 to Registration Statement on Form
S-1 filed December 10, 1998 (No. 333-53419).
10.26 Distributor's Agreement, dated January 1, 1982, Merkert Enterprises,
Inc. and Monarch Marking Systems, Inc. incorporated by reference to
Exhibit 10.12 to Merkert American Corporation's Registration Statement
on Form S-1 filed May 22, 1998 (No. 333-53419).
</TABLE>
43
<PAGE>
<TABLE>
<C> <S>
10.27 Agreement, dated October 30, 1997, between Merkert Laboratories, Inc.
and Misco Products Corporation incorporated by reference to Exhibit
10.13 to Merkert American Corporation's Registration Statement on Form
S-1 filed May 22, 1998 (No. 333-53419).
10.28 Amended and Restated Merkert American Corporation 1998 Stock Option and
Incentive Plan incorporated by reference to Exhibit 10.17 to Merkert
American Corporation's Amendment No. 3 to Registration Statement on Form
S-1 filed July 20, 1998 (No. 333-53419).
10.29 Employment and Non-Competition Agreement, dated December 18, 1998,
between Merkert American Corporation and Gerald R. Leonard (filed
herewith).
10.30 Employment and Non-Competition Agreement, dated December 18, 1998,
between Merkert American Corporation and Sidney D. Rogers, Jr. (filed
herewith).
10.31 Employment and Non-Competition Agreement, dated December 18, 1998,
between Merkert Enterprises, Inc. and Glenn F. Gillam (filed herewith).
10.32 Employment and Non-Competition Agreement, dated December 18, 1998,
between Rogers-American Company, Inc. and Douglas H. Holstein (filed
herewith).
10.33 Employment and Non-Competition Agreement, dated December 18, 1998,
between Rogers-American Company, Inc. and Marty D. Carter (filed
herewith).
10.34 Form of Incentive Stock Option Agreement under the Merkert American
Corporation 1998 Stock Option and Incentive Plan incorporated by
reference to Exhibit 10.26 to Merkert American Corporation's Amendment
No. 3 to Registration Statement on Form S-1 filed July 20, 1998
(No. 333-53419).
10.35 Form of Non-Qualified Stock Option Agreement under the Merkert American
Corporation 1998 Stock Option and Incentive Plan incorporated by
reference to Exhibit 10.18 to Merkert American Corporation's Amendment
No. 3 to Registration Statement on Form S-1 filed July 20, 1998
(No. 333-53419).
10.36 Stock Purchase Agreement, dated January 20, 1999, among Merkert American
Corporation, Sell, Inc. and the stockholders of Sell, Inc. (filed
herewith).
21.1 Subsidiaries of Merkert American Corporation (filed herewith).
27.1 Financial Data Schedule (filed herewith).
</TABLE>
44
<PAGE>
Item 14(a). Index to Consolidated Financial Statements and Consolidated
Financial Statement Schedule
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements:
Merkert American Corporation and Subsidiaries:
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets............................................. F-3
Consolidated Statement of Operations.................................... F-4
Consolidated Statement of Stockholders' Equity.......................... F-5
Consolidated Statement of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Merkert Enterprises, Inc. and Subsidiary:
Report of Independent Public Accountants................................ F-21
Consolidated Balance Sheets............................................. F-22
Consolidated Statements of Operations................................... F-23
Consolidated Statements of Stockholders' Deficit........................ F-24
Consolidated Statements of Cash Flows................................... F-25
Notes to Consolidated Financial Statements.............................. F-26
Rogers-American Company, Inc. and Subsidiary:
Report of Independent Public Accountants................................ F-34
Consolidated Balance Sheets............................................. F-35
Consolidated Statements of Operations................................... F-36
Consolidated Statements of Stockholders' Equity (Deficit)............... F-37
Consolidated Statements of Cash Flows................................... F-38
Notes to Consolidated Financial Statements.............................. F-39
Consolidated Financial Statement Schedule:
Merkert American Corporation and Subsidiaries:
II. Valuation and Qualifying Accounts for the period ended December 31,
1998................................................................... S-1
</TABLE>
Schedules Omitted:
All other schedules are omitted as they are not applicable or the
information is shown in the consolidated financial statements or notes
thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Merkert American Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Merkert
American Corporation and Subsidiaries (the "Company") as of March 31, 1998 and
December 31, 1998, and the related consolidated statement of operations,
stockholders' equity and cash flows for the period from inception (March 4,
1998) through December 31, 1998. 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
American Corporation and Subsidiaries as of March 31, 1998 and December 31,
1998, and the consolidated results of their operations and their cash flows
for the period from inception (March 4, 1998) through December 31, 1998, in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Boston, Massachusetts
March 30, 1999
F-2
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1998
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................. $500 $ 1,185
Restricted cash....................................... -- 9,981
Accounts receivable, less allowance for doubtful
accounts of $1,374................................... -- 22,334
Income taxes receivable............................... -- 2,647
Inventories........................................... -- 1,623
Deferred income taxes................................. -- 423
Prepaid expenses and other............................ 289 595
---- --------
Total current assets................................ 789 38,788
---- --------
Property, plant and equipment, net...................... -- 17,417
Noncompetes, net........................................ -- 1,986
Goodwill, net........................................... -- 124,475
Deferred income taxes................................... -- 1,328
Other assets............................................ -- 4,416
---- --------
Total assets........................................ $789 $188,410
==== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and notes
payable.............................................. $500 $ 10,523
Accounts payable...................................... -- 9,293
Accrued expenses...................................... 289 21,080
---- --------
Total current liabilities........................... 789 40,896
---- --------
Long-term debt, net of current portion.................. -- 74,673
---- --------
Other liabilities....................................... -- 246
---- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value--Authorized--54,000,000
shares
Issued and outstanding--0 and 7,218,000,
respectively......................................... -- 72
Additional paid in capital............................ -- 75,489
Note for sale of common stock......................... -- (1,500)
Accumulated deficit................................... -- (1,466)
---- --------
Total stockholders' equity.......................... -- 72,595
---- --------
Total liabilities and stockholders' equity.......... $789 $188,410
==== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MARCH 4, 1998) TO DECEMBER 31, 1998
(in thousands, except share amounts)
<TABLE>
<S> <C>
Commission income.................................................. $ 5,975
Sales.............................................................. 2,420
----------
Revenues......................................................... 8,395
Cost of sales...................................................... 2,368
Selling expenses................................................... 4,293
General and administrative expenses................................ 2,742
Depreciation and amortization...................................... 179
----------
Operating loss................................................... (1,187)
Interest expense, net.............................................. 273
Other expenses, net................................................ 6
----------
Loss before provision for income taxes........................... (1,466)
Provision for income taxes......................................... --
----------
Net loss......................................................... $ (1,466)
==========
Net loss per share--basic.......................................... $ (0.78)
==========
Shares used in computing net loss per share--basic................. 1,891,000
==========
Net income per share--diluted...................................... $ (0.78)
==========
Shares used in computing net loss per share--diluted............... 1,891,000
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (MARCH 4, 1998) TO DECEMBER 31, 1998
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock,
$.01 Par Value Additional
---------------- paid in Note for sale of Accumulated
Shares Amount capital Common Stock deficit Total
--------- ------ ---------- ---------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 4, 1998
....................... -- $ -- $ -- $ -- $ -- $ --
Shares issued upon
founding and
organization........... 1,376,111 14 (14) -- -- --
Shares issued to
employee............... 275,222 2 2,769 (1,500) -- 1,271
Shares issued in
connection with the
Combination............ 1,166,667 12 14,863 -- -- 14,875
Shares sold in
connection with the
Offering, net of
expenses............... 4,400,000 44 57,871 -- -- 57,915
Net loss................ -- -- -- -- (1,466) (1,466)
--------- ----- ------- ------- ------- -------
Balance, December 31,
1998................... 7,218,000 $ 72 $75,489 $(1,500) $(1,466) $72,595
========= ===== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MARCH 4, 1998) TO DECEMBER 31, 1998
(in thousands)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss............................................................. $ (1,466)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities--
Depreciation and amortization...................................... 179
Changes in assets and liabilities, exclusive of acquisitions--
(Increase) decrease in--
Restricted cash.................................................. (28)
Accounts receivable, net......................................... 950
Inventories...................................................... (277)
Increase (decrease) in--
Accounts payable................................................. (3,141)
Accrued expenses................................................. (1,700)
--------
Net cash (used in) operating activities.......................... (2,083)
--------
Cash flows from investing activities:
Acquisitions, net of cash acquired................................. (96,147)
--------
Cash flows from financing activities:
Issuance of long term debt......................................... 50,000
Restricted cash.................................................... (9,000)
Issuance of Common Stock, net of expenses.......................... 57,915
--------
Net cash provided by financing activities........................ 98,915
--------
Net increase in cash............................................. 685
Cash at beginning of period.......................................... 500
--------
Cash at end of year.................................................. $ 1,185
========
Supplemental disclosures of:
Cash flow information--
Cash payments for--
Interest......................................................... $ 7
Income taxes..................................................... --
Non-cash flow information--
Note for sale of Common Stock.................................... $ 1,500
========
Common Stock issued in the Combination........................... $ 14,875
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share amounts)
1. Business and Organization
Merkert American Corporation (the "Company") was incorporated on March 4,
1998 in order to create a leading national food brokerage firm providing
outsourced sales, merchandising and marketing services to manufacturers,
suppliers and producers of food products and consumer goods ("Manufacturers").
On December 18, 1998, simultaneously with the consummation of the Company's
Initial Public Offering (the "Offering"), the Company purchased in separate
transactions (collectively the "Combination") all of the issued and
outstanding capital stock of Merkert Enterprises, Inc., a Massachusetts
corporation ("Merkert") and Rogers-American Company, Inc., a North Carolina
corporation ("Rogers"). As a result, each of Merkert and Rogers became
separate wholly owned subsidiaries of the Company. From March 4, 1998 through
December 18, 1998, the Company's only operations related to the Offering and
Combination.
The Company acts as an independent sales and marketing representative,
selling grocery and consumer products on behalf of Manufacturers and
coordinating the executions of Manufacturers' marketing programs with
retailers and wholesalers ("Retailers"). The Company's other activities
include managing private label programs on behalf of selected Retailers. The
Company primarily operates throughout the northeast, mid-Atlantic and
southeast regions of the United States.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed in
the preparation of these financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, Merkert and Rogers subsequent to the Combination on
December 18, 1998. All intercompany accounts and transactions have been
eliminated in consolidation.
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. Actual results could differ from those estimates.
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 the Company.
Fair Value of Financial Instruments
Effective March 4, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 107, Disclosures about Fair Value of
Financial Instruments. SFAS No. 107 requires the Company to disclose estimated
fair values for certain of its financial instruments. The Company's financial
instruments consist of cash, restricted cash, accounts receivable, accounts
payable, long-term debt and an interest rate swap. The carrying value of the
Company's financial instruments approximates fair value at December 31, 1998.
F-7
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk principally consist of trade receivables. The Company's trade
receivables result primarily from commission sales. The Company maintains
reserves for potential credit losses and such losses have been immaterial.
Inventories
Inventories are primarily finished goods and consist of price marking guns
and labels as well as other supplies sold to retailers. Inventories are stated
at the lower of cost or market and are valued on a first-in, first-out (FIFO)
basis.
Property and Equipment
Property and equipment are stated at estimated fair value, or cost
(subsequent to the acquisition). Depreciation is computed using either the
straight-line or accelerated methods based upon the estimated useful lives of
the assets. See Note 6.
Intangibles
Intangibles consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Goodwill......................................................... $124,587
Noncompete agreements............................................ 2,000
--------
126,587
Accumulated amortization......................................... (126)
--------
$126,461
========
</TABLE>
Goodwill, the excess of the acquired business purchase price over the fair
value of the assets acquired and liabilities assumed, is amortized on a
straight-line basis over its estimated useful life of 40 years. Noncompete
agreements are amortized on a straight-line basis over the life of the
respective agreement. Amortization expense was $126 for the period ended
December 31, 1998. See Note 4.
Income Taxes
The Company 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.
Comprehensive Income
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for the reporting and display of comprehensive
income and other comprehensive income items. In general, comprehensive income
combines net income and other changes in equity during the year from non-owner
sources. The adoption of this statement had no impact on total shareholders'
equity.
Impairment of Long-Lived Assets
The Company 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, the Company
evaluates long-lived assets including property and equipment and goodwill
whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. Under SFAS No. 121, an
F-8
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
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, 1998, management believes no such
impairment of assets was indicated.
Accrued Expenses
Accrued expenses consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Compensation....................................................... $ 9,295
Restructuring...................................................... 5,146
Other.............................................................. 6,639
-------
$21,080
=======
</TABLE>
Restructuring
Merkert Enterprises incurred restructuring charges in the period ended
December 18, 1998 of $5,987 in connection with severance and other costs
incurred prior to the Combination. Rogers incurred a restructuring charge of
$948 million in the same period. Payments of $1,789 were made prior to
December 31, 1998. The balance of the restructuring charges, $5,146, have
been, or will be paid subsequent to December 31, 1998.
Stock-Based Compensation Plans
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. The
Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting
for Stock-Based Compensation.
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.
Prepaid Expenses and Other
Prepaid expenses and other assets at March 31, 1998 consisted primarily of
legal, accounting and other professional fees incurred in connection with the
Offering and the Combination. All costs associated with the Combination as of
December 31, 1998 are included as a component of the purchase price pursuant
to the purchase method of accounting. All costs associated with the Offering
have been charged to Stockholder's Equity as a reduction to the proceeds upon
the closing of the Offering.
Segment Reporting
The Company reports information about operating segments in accordance with
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographical areas and major customers.
F-9
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
3. The Offering
On December 18, 1998, the Company completed the Offering and sold 4,400,000
shares of its common stock at an offering price of $15.00 per share. The net
proceeds of approximately $61,400 raised by the Company were used primarily to
fund the Combination. The common stock sold in the offering does not include
an additional 1,651,333 shares issued to related parties in connection with
the organization and initial capitalization of the Company (see Note 11) nor
1,166,667 shares issued in connection with the Combination (see Note 4).
On January 18, 1999, the Underwriters partially exercised an over-allotment
option and the Company issued an additional 290,000 shares of Common Stock at
the offering price of $15.00 per share. This resulted in additional proceeds
to the Company of approximately $4,350 that was used by the Company to fund
certain acquisitions and for other corporate purposes. See Note 17.
The Company and certain executives and directors are parties to a
Registration Rights Agreement, dated May 18, 1998, pursuant to which the
individuals 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. These individuals 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 entered into Registration
Rights Agreements with the former stockholders of Merkert and Rogers,
respectively, pursuant to which such former stockholders 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.
4. Business Combinations
In December 1998, concurrently with and as a condition to the consummation
of the Offering, the Company purchased all of the outstanding capital stock of
Merkert and Rogers. Merkert American Corporation was designated as the
accounting acquirer pursuant to Staff Accounting Bulletin 97, because the then
current stockholders of the Company owned the largest portion of Common Stock
after the consummation of the Offering and the Combination.
The aggregate consideration paid by the Company for Merkert and Rogers was
approximately $74,100, consisting of approximately $56,600 in cash and
1,166,667 shares of Common Stock. In connection with the Combination, the
Company repaid in the aggregate, approximately $34,000 of indebtedness and
certain then existing acquisition obligations of Merkert and Rogers from a
portion of the net proceeds of the Offering and from net available borrowings
under the Company's $75,000 Credit Facility (as described in Note 7, the
"Credit Facility"). In addition, on behalf of Merkert, the Company funded
approximately $1,461 of buyouts of certain employment agreements with two
former employees of Merkert.
The Combination was accounted for using the purchase method of accounting;
accordingly, the results of operations of Merkert and Rogers are included in
the accompanying consolidated financial statements from December 18, 1998. The
purchase price has been allocated to assets acquired and liabilities assumed
based upon their estimated fair values at the date of the Combination. The
purchase price allocations are preliminary. It is management's opinion that
the final allocation of the purchase price will not differ materially from the
preliminary estimated amounts. The Company has recorded the excess of the
purchase price over the estimated fair value of the businesses acquired,
approximately $124,587 (net of approximately $2,000 in value assigned to
certain noncompete agreements) as "goodwill" in the accompanying consolidated
balance sheet. The goodwill is being amortized over a 40 year period.
F-10
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
The following unaudited pro forma combined statement of operations
information gives effect to the Combination and the Offering as if they had
occurred on January 1, 1997.
<TABLE>
<CAPTION>
Year ended Period ended
12/31/97 12/18/98
---------- ------------
(unaudited)
<S> <C> <C>
Revenues........................................... $230,364 $211,997
Net income (loss).................................. 91 (26,697)
Net income per share--basic........................ .01 (3.70)
Net income per share--diluted...................... .01 (3.70)
</TABLE>
The preceding unaudited pro forma amounts reflect the results of operations
for the Company assuming the Combination and the Offering were completed on
January 1, 1997. Additionally, the amounts shown in the table reflect (a)
reductions in salaries, fringe and other direct expenses of former
stockholders/employees of Merkert and Rogers; (b) additional rental expense
reflecting the expected sale and leaseback of Rogers' headquarters; (c) net
reductions in the amortization of goodwill and other intangibles as a result
of the purchase of Merkert and Rogers; (d) income tax provisions after
considering non-deductible goodwill amortization; and (e) net reductions in
interest expense attributable to the pay down of certain indebtedness.
5. Restricted Cash
At December 31, 1998 cash in the amount of approximately $9,000 was
restricted for use in connection with obligations to repay certain sellers of
previously acquired businesses. In addition, certain funds are restricted for
promotional purposes. See Note 12.
6. Property, Plant and Equipment
Property, plant and equipment are comprised of the following at December 31,
1998:
<TABLE>
<CAPTION>
Depreciable
Amount Life in Years
------- -------------
<S> <C> <C>
Land................................................. $ 1,081 --
Buildings............................................ 10,418 40
Furniture and equipment.............................. 4,348 5
Data processing...................................... 702 3
Motor vehicles....................................... 43 5
Leasehold improvements............................... 878 5
-------
17,470
Less--Accumulated depreciation....................... 53
-------
$17,417
=======
</TABLE>
Depreciation expense for the period ended December 31, 1998 amounted to
approximately $53.
F-11
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
7. Long-Term Debt
As of December 31, 1998, debt consists of the following:
<TABLE>
<S> <C>
Credit Facility (as defined):
Revolving Credit................................................ $ --
Term Loan....................................................... 50,000
Acquisition obligations........................................... 20,750
Bank--mortgage loans.............................................. 13,078
Commercial promissory notes....................................... 778
Leases............................................................ 306
Other............................................................. 284
-------
85,196
Less--Current maturities.......................................... 10,523
-------
Net long-term debt.............................................. $74,673
=======
</TABLE>
In connection with the Offering and the Combination, the Company obtained a
$75,000 Credit Facility from First Union National Bank and First Union Capital
Markets. First Union National Bank is an affiliate of Wheat First Securities,
Inc., one of the Underwriters of the Offering. First Union Capital Markets is
a division of Wheat First Securities, Inc. The Credit Facility consists of a
five-year, secured, fully amortizing $50,000 term loan (the "Term Loan") and a
three-year, secured $25,000 revolving line of credit (the "Revolving Credit").
The Company paid commitment and other fees of approximately $3,035 in
connection with obtaining the Credit Facility.
The Credit Facility is secured by a lien on substantially all of the assets
of the Company, Merkert, Rogers and their respective subsidiaries and by a
pledge of 100% of the capital stock of Merkert, Rogers and such subsidiaries.
In addition, the Credit Facility is jointly and severally guaranteed by
Merkert, Rogers and their respective subsidiaries.
Interest is payable on the Term Loan and the Revolving Credit at a rate
based on one of two customary interest rates plus an additional interest
margin of 75 to 350 basis points. The rate on the outstanding balance of the
Term Loan was 8.73% as of December 31, 1998. The applicable margin is
determined based on certain financial ratios of the Company. The Credit
Facility requires the Company to make certain mandatory prepayments of amounts
outstanding under the Credit Facility with the use of certain excess cash flow
and certain proceeds of debt and equity financing. The Credit Facility
requires the Company to comply with various affirmative and negative
covenants, including, among others: (i) the maintenance of certain financial
ratios, (ii) restrictions on additional indebtedness, (iii) restrictions on
liens, guarantees, dividends and the disposition of assets and (iv) obtaining
the lenders' consent to acquisitions involving cash consideration in excess of
a specified amount.
In December 1998, the Company entered into an interest rate swap agreement
with a financial institution to reduce the impact of interest rate changes on
the Term Loan. The agreement, which matures on December 31, 2001 has a
notational principal amount of $25,000. The swap agreement effectively
converts a portion of the Term Loan to a fixed rate. The Company pays the
counterparty a fixed rate of 5.17% per annum and receives payments based upon
the floating three month LIBOR rate. The Company is exposed to credit loss in
the event of nonperformance by the counterparty; however, the Company does not
anticipate such nonperformance.
F-12
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
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 at rates ranging from 8% to 10%. Cash
of approximately $9,000 is held in escrow as of December 31, 1998 in
connection with obligations to repay certain sellers of previously acquired
businesses. The amounts due under the acquisition agreements are unsecured and
extend through 2011. These amounts are payable in either monthly or quarterly
installments.
The Company's corporate office space is secured by a mortgage with a real
estate lender. The balance outstanding under the mortgage note of
approximately $9,360 at December 31, 1998 bears interest at 8.56%, requires
monthly payments of approximately $82 including interest and matures on March
1, 2018.
The Company also has a mortgage note with a bank which is secured by certain
land, a building and fixtures. The balance outstanding under this mortgage of
approximately $3,718 at December 31, 1998 bears interest at 8.50% with monthly
payments of approximately $34 including interest through December 1999 and a
balloon payment of approximately $3,646 due in January 2000.
Future principal payments on long-term debt for the years ending December
31, are as follows:
<TABLE>
<S> <C>
1999............................................................... $10,523
2000............................................................... 15,846
2001............................................................... 12,646
2002............................................................... 15,172
2003............................................................... 15,148
Thereafter......................................................... 15,861
-------
Total............................................................ $85,196
=======
</TABLE>
8. Employee Benefit Plans
The Company sponsors separate contributory plans for employees under the
provisions of Section 401(k) of the Internal Revenue Code (the "401(k)
Plans"). Merkert Enterprises amended its Employee Stock Ownership Plan and
Trust ("ESOP") on January 1, 1997 to provide for a contributory plan. Eligible
employees of Merkert and Rogers can make voluntary contributions to their
respective 401(k) Plans.
Under the provisions of the 401(k) Plans, the Company currently matches
varying percentages of an eligible employee's contribution up to certain
limits determined by the Company of the employee's salary. On an annual basis,
the Company may make a discretionary contribution into the profit sharing
component of Rogers' 401(k) Plan.
On December 18, 1998 all of the Merkert Enterprises shares held by the ESOP
were purchased by the Company as part of the Combination.
For the period ended December 31, 1998, the Company's expense with regard to
the 401(k) plans was not material.
9. Postretirement Benefits
The Company provides medical and dental benefits to certain eligible former
employees and their eligible dependents of Merkert and Rogers (the
"Postretirement Plan"). The accumulated postretirement benefit obligation,
which is unfunded, recorded in Other liabilities in the accompanying
consolidated balance sheet as of December 31, 1998, amounted to approximately
$484. This obligation was determined using an estimated discount rate of 8%
based on estimated payments required over future periods. An increase of 1% in
health care cost rates would not have a material effect on the Company's
financial position or results of operations.
F-13
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
10. Income Taxes
The provision for income taxes for the period ended December 31, 1998 is as
follows:
<TABLE>
<S> <C>
Federal--
Current............................................................. $--
Deferred............................................................ --
----
--
----
State--
Current............................................................. --
Deferred............................................................ --
----
$--
====
</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 statement of operations is as follows:
<TABLE>
<S> <C>
Federal income tax provision (benefit) at statutory rates.......... $(513)
State income taxes, net of federal benefit......................... (132)
Permanent items.................................................... 74
Other.............................................................. 571
-----
$ --
=====
</TABLE>
The tax effect of temporary differences which give rise to deferred income
tax assets (liabilities) at December 31, 1998 are as follows:
<TABLE>
<S> <C>
Assets--
Net operating loss carryforwards................................ $ 9,575
Tax credit carryforwards........................................ 157
Receivable reserves............................................. 542
Other........................................................... 7,081
-------
Total assets.................................................. 17,355
Valuation allowance............................................. (16,328)
-------
Total assets, net of valuation allowance...................... 1,027
-------
Liabilities--
Property basis differences...................................... (366)
Other........................................................... (661)
-------
Total liabilities............................................. (1,027)
-------
Net assets.................................................... $ --
=======
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $22,098 for federal income tax purposes which expire in varying
amounts through 2018.
The Company has provided a valuation allowance on the portion of the net
deferred tax assets due to the uncertainty of their realizability.
F-14
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
Merkert is currently the subject of an audit with respect to its federal
income tax returns for its fiscal years 1995, 1996 and 1997. In connection
with the acquisition of Merkert by the Company, a portion of the cash purchase
price has been held in escrow to cover potential liabilities resulting from
the audit. The Company does not believe that the ultimate outcome of the audit
will have a material adverse effect on its financial condition or results of
operations.
11. Related Party Transactions
In connection with the founding and organization of the Company, Monroe &
Company II, LLC purchased 1,376,111 shares of Common Stock for a nominal
purchase price. 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 on an exclusive basis for three
years. Pursuant to the consulting agreement, Monroe & Company, LLC is 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 $1,000, plus (ii) 4% of
the Consideration paid in excess of $1,000 and up to $2,000, plus (iii) 3% of
the Consideration paid in excess of $2,000 and up to $3,000, plus (iv) 2% of
the Consideration paid in excess of $3,000 and up to $4,000, plus (v) 1% of
the Consideration paid in excess of $4,000. 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 refinancing 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. For the period ended December 31, 1998, Monroe &
Company, LLC was paid approximately $0.6 million for such services.
In April 1998, Gerald R. Leonard, who became Chairman of the Board, Chief
Executive Officer and President of the Company upon consummation of the
Offering, purchased 275,222 shares of Common Stock from the Company for an
aggregate purchase price of $1,500. As a result, the Company recorded a non-
recurring compensation charge of $1,271 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 (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 275,222 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 (but
not less than zero dollars) and (ii) one-half of the accrued and unpaid
interest at such time.
F-15
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
12. Commitments and Contingencies
Promotional Funds
Certain Manufacturers provide the Company with funds to be used solely for
advertising and other promotional activities. As of December 31, 1998, the
Company had cash of $772 which was restricted to payment for promotional
activities on behalf of its Manufacturers. The offsetting liability is
included in accrued liabilities in the consolidated balance sheet at December
31, 1998.
Legal Proceedings
The Company 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 have filed an arbitration demand which is currently pending
before the American Arbitration Association. In the opinion of management, any
liability that the Company might incur upon the resolution of this arbitration
will not, in the aggregate, have a material adverse effect on the financial
condition or results of operations of the Company.
The Company is involved in various legal proceedings that arise in the
ordinary course of business. Management believes the outcome of such legal
proceedings will not have a material adverse impact on the Company's
consolidated financial position or results of operations.
Leases
The Company leases certain office and warehouse facilities under operating
leases expiring on various dates through 2005.
Rental costs, including real estate taxes, amounted to approximately $188
for the period ended December 31, 1998.
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,
1998:
<TABLE>
<CAPTION>
Rent Payments
-------------
<S> <C>
Year ending December 31,
1999....................................................... $ 4,354
2000....................................................... 3,131
2001....................................................... 2,707
2002....................................................... 2,210
2003....................................................... 1,809
Thereafter................................................. 2,482
-------
Total.................................................... $16,693
=======
</TABLE>
F-16
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
13. Stockholders' Equity
On December 15, 1998, the Company effected a stock dividend of 729.9074
shares of Common Stock and 186.5 shares of Restricted Common Stock in respect
of each share of Common Stock outstanding on December 15, 1998. All share and
per share amounts give effect to such stock dividend.
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.
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 (i) which 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
Combination.
Upon amendment and restatement of the Company's Certificate of
Incorporation, the Company's authorized capital stock consists of 54,000,000
shares of Common Stock, $.01 par value per share, of which 4,000,000 are
designated as Restricted Common Stock and 1,000,000 shares of undesignated
preferred stock.
Common Stock
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 December 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.
14. Stock Option Plan
The Company has adopted the Merkert American Corporation 1998 Stock Option
and Incentive Plan (the "1998 Stock Plan"). The 1998 Stock Plan 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 938,340.
In general, the terms of the awards granted are 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.
F-17
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
In November and December 1998, the Company granted NQSOs to purchase up to
245,000 shares of Common Stock under the 1998 Stock Plan to persons who are
officers of the Company following the consummation of the Offering. These
options were issued at an exercise price of $11.25 per share and become
exercisable in five annual installments beginning on the first anniversary of
the date of grant. The difference between the exercise price, $11.25, and the
offering price will be recognized as compensation expenses over the vesting
period. In addition, in connection with the Offering, the Company granted to
employees of the Company options under the 1998 Stock Plan to purchase an
aggregate of 347,000 shares of Common Stock. Each such option has 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 five annual
installments beginning on the first anniversary of the date of grant. The
Company also granted to directors, options under the 1998 Stock Plan to
purchase an aggregate of 65,000 shares of Common Stock. Each such option has a
per share exercise price equal to the offering price, expires 10 years from
the date of grant and generally becomes exercisable in annual installments
vesting 50% upon the first anniversary of the grant date and the remaining 50%
vesting in equal installments over the number of years remaining in each
director's term as of the first anniversary of the date of the grant.
Information with respect to all stock options is summarized below:
<TABLE>
<CAPTION>
Weighted Avg.
ISOs NQSOs Total Exercise Price
------- ------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at March 4, 1998......... -- -- -- --
Granted............................ 347,000 310,000 657,000 $13.60
Exercised.......................... -- -- -- --
Canceled........................... -- -- -- --
------- ------- ------- ------
Outstanding at December 31, 1998..... 347,000 310,000 657,000 $13.60
======= ======= ======= ======
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123. As
such, had compensation expense for the Company's 1998 Stock Plan been
determined based on the fair value at the grant dates for awards in 1998, the
Company's net (loss), basic and diluted net (loss) per share would have been
$(1,502), $(0.79) and $(0.79), respectively on a pro-forma basis for the
period ended December 31, 1998. Pro forma compensation expense for options
granted is reflected over the vesting period; therefore future pro forma
compensation expense may be greater as additional options are granted.
The fair value of stock options granted during 1998 was estimated on the
date of grant using the Black-Scholes option-pricing model. The weighted
average fair value was $5.67 per share assuming an expected volatility of
32.5%, a risk free interest rate of 5.25%, expected lives of 9.9 years, and no
dividend yield.
15. Segment Information
The Company operates in two principal business segments: Food Brokerage and
Private Label principally in the United States. The Company provides
outsourced sales and marketing services to manufacturers of branded food and
non-food products in the Food Brokerage segment. Private Label includes the
Company's private label division, which procures private label products on
behalf of certain retailers as well as the distribution of price marking
equipment and other ancillary products to retailers.
The financial information provided below reflects only those operations from
December 18, 1998, the date of acquisition of Merkert and Rogers, through
December 31, 1998. The Company had no operating history in these segments
prior to December 18, 1998.
F-18
<PAGE>
MERKERT AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
Food Brokerage revenues are reported as Commissions on the Consolidated
Statement of Operations, while Private Label revenues are reported as Sales.
Operating profit is total revenue less operating expenses and excludes general
corporate expenses, interest expense and income taxes.
Information on the Company's business segments was as follows:
For the period from inception (March 4, 1998) to December 31, 1998:
<TABLE>
<S> <C>
Revenues:
Food Brokerage................................................ $ 5,975
Private Label................................................. 2,420
--------
$ 8,395
========
Operating Profit:
Food Brokerage................................................ 598
Private Label................................................. 52
General corporate expenses.................................... (1,837)
--------
Operating (loss).............................................. $ (1,187)
========
At December 31, 1998:
Identifiable Assets:
Food Brokerage................................................ $ 19,036
Private Label................................................. 4,920
General corporate assets...................................... 164,454
--------
$188,410
========
</TABLE>
Two supermarket customers accounted for 75% of the private label sales
segment in the period from December 18, 1998 to December 31, 1998.
16. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share for the period ended December 31, 1998:
<TABLE>
<S> <C>
Numerator:
Net income (loss)........................................... $ (1,466)
==========
Denominator:
Weighted average shares--basic.............................. 1,891,000
Dilutive stock options...................................... --
----------
Weighted average shares--assuming dilution.................. 1,891,000
==========
Net income (loss) per common share:
Basic and diluted........................................... $ (0.78)
==========
Number of options excluded as they would be antidilutive.... 657,000
==========
</TABLE>
F-19
<PAGE>
17. Subsequent Events
In January 1999, the Company acquired Sell, Inc. ("Sell") for cash
consideration of approximately $2,400 and notes payable of $3,800. Sell, a
full service brokerage firm in the Midwest, had revenues of $9,600 for the
year ended November 30, 1998.
In February 1999, the Company signed letters of intent to acquire three full
service food brokerage companies, Smith, Weber, Boos, Inc. ("SWB"), Buckeye
Sales & Marketing, Inc. ("Buckeye") and United Brokerage Company ("UBC"). All
three companies operated in the Midwest region of the United States. SWB has
operated under a joint marketing arrangement with a subsidiary of the Company
since 1998. Buckeye and UBC, have each operated under an alliance known as
"The Sell Group" since 1998. The combined annual revenues of SWB, Buckeye and
UBC are approximately $24,000.
F-20
<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 two years in the period ended December 31, 1997
and for the period from January 1, 1998 through December 18, 1998. 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
two years in the period ended December 31, 1997 and for the period from
January 1, 1998 through December 18, 1998 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
March 30, 1999
F-21
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 730 $ 566
Restricted cash.......................................... 368 595
Accounts receivable, less allowance for doubtful accounts
of $225 and $575, respectively.......................... 16,708 18,437
Inventories.............................................. 1,834 1,911
Prepaid expenses and advances............................ 240 318
-------- --------
Total current assets................................... 19,880 21,827
-------- --------
Property, plant and equipment, net......................... 8,155 12,628
-------- --------
Intangibles, net of amortization........................... 18,027 23,613
-------- --------
Other assets............................................... 1,360 631
-------- --------
Total assets........................................... $ 47,422 $ 58,699
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt..................... $ 651 $ 693
Revolving line of credit................................. 1,430 5,883
Current maturities of notes payable and lease
obligations............................................. 2,746 4,085
Accounts payable......................................... 8,611 8,184
Accrued expenses......................................... 23,844 27,942
-------- --------
Total current liabilities.............................. 37,282 46,787
-------- --------
Long-term debt and notes payable, less current maturities.. 15,590 21,278
-------- --------
Commitments and contingencies
Convertible redeemable preferred stock:
$.01 par value, at redemption value--
Authorized--500,000 shares
Issued and outstanding--237,446 and 213,566,
respectively........................................... 6,360 5,720
Common Stock, subject to redemption, $.01 par value--
Issued and outstanding--370,753 and 411,853 shares,
respectively............................................. 805 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
Additional paid-in capital............................... 3,126 3,126
Accumulated deficit...................................... (12,048) (15,942)
Treasury stock--at cost.................................. (3,707) (3,903)
-------- --------
(12,615) (16,705)
-------- --------
Total liabilities and stockholders' deficit............ $ 47,422 $ 58,699
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31, Period ended
------------------------ December 18,
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Commissions.......................... $ 80,661 $ 104,274 $ 90,254
Sales................................ 44,916 43,105 42,185
----------- ----------- --------
125,577 147,379 132,439
Operating expenses:
Selling expenses..................... 52,510 69,913 59,778
Cost of sales........................ 41,890 39,027 38,709
General and administrative........... 28,097 32,582 29,806
Depreciation and amortization........ 2,447 4,484 4,437
Restructuring expense................ -- -- 5,987
----------- ----------- --------
Operating income (loss)............ 633 1,373 (6,278)
----------- ----------- --------
Other income (expense):
Interest expense, net................ (2,150) (4,954) (4,180)
Other income (expense), net.......... 247 23 (530)
----------- ----------- --------
Total other income (expense)....... (1,903) (4,931) (4,710)
----------- ----------- --------
Loss before provision for income
taxes................................. (1,270) (3,558) (10,988)
Provision (benefit) for income taxes... 804 (109) --
----------- ----------- --------
Net loss........................... (2,074) (3,449) (10,988)
Preferred stock dividends.............. 445 445 300
----------- ----------- --------
Net loss applicable to common
stockholders.......................... $ (2,519) $ (3,894) $(11,288)
=========== =========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<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,
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.............. -- -- -- -- -- (10,988) (10,988)
Preferred dividend
declared............. -- -- -- -- -- (300) (300)
--------- ---- ------- ------ ------ -------- --------
Balance, December 18,
1998................... 1,447,582 $ 14 223,000 $3,903 $3,126 $(27,230) $(27,993)
========= ==== ======= ====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended
December 31, Period ended
---------------- December 18,
1996 1997 1998
------- ------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(2,074) $(3,449) $(10,988)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities--
Depreciation and amortization................ 2,447 4,484 4,437
Loss (gain) on disposal of fixed assets...... 45 115 (251)
Deferred income taxes........................ -- -- (1,576)
Changes in assets and liabilities, exclusive
of acquisitions.............................
(Increase) decrease in--
Restricted cash............................ 309 (227) 16
Accounts receivable, net................... (1,565) (1,729) 4,076
Inventories, prepaid expenses and
advances.................................. 718 (155) 516
Other assets............................... (348) 527 (330)
Increase (decrease) in--
Accounts payable........................... 2,266 (427) 3,163
Accrued expenses........................... 2,584 4,098 1,865
------- ------- --------
Net cash provided by operating
activities.............................. 4,382 3,237 928
------- ------- --------
Cash flows from investing activities:
Additions to property, plant and equipment..... (3,356) (7,273) (1,586)
Net proceeds from sale of property, plant and
equipment..................................... 117 530 647
Acquisitions, net of cash acquired............. (1,421) (748) --
(Increase) decrease in cash surrender value,
net of increase in policy loans............... (26) 202 (12)
------- ------- --------
Net cash (used in) investing activities.. (4,686) (7,289) (951)
------- ------- --------
Cash flows from financing activities:
Dividends paid................................. (445) (445) (300)
Borrowings under revolving line of credit...... 1,430 4,453 2,146
Issuance (repayment) of long-term debt......... 1,473 3,419 978
Net (repayment) of notes payable............... (1,292) (2,529) (540)
Redemption of convertible preferred stock...... -- (640) (622)
Redemption of redeemable common stock.......... -- -- (350)
(Repurchase) issuance of treasury stock........ (1,665) (370) --
------- ------- --------
Net cash (used in) provided by financing
activities.............................. (499) 3,888 1,312
------- ------- --------
Net increase (decrease) in cash.......... (803) (164) 1,289
Cash at beginning of year...................... 1,533 730 566
------- ------- --------
Cash at end of period.......................... $ 730 $ 566 $ 1,855
======= ======= ========
Supplemental disclosures of:
Cash flow information--
Cash payments for--
Interest................................. $ 934 $ 3,501 $ 4,200
======= ======= ========
Income taxes............................. $ 1,825 $ 21 $ 1,780
======= ======= ========
Non-cash flow information--
Purchase price financed by seller.......... $13,947 $ 6,292 $ --
======= ======= ========
Liabilities assumed........................ $ 724 $ 560 $ --
======= ======= ========
Stock issued to ESOP....................... $ -- $ 174 $ 871
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share amounts)
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.
On May 20, 1998, and as amended from time to time, Merkert entered into a
stock purchase agreement with Merkert American Corporation and the
stockholders of Merkert (the "Purchase Agreement"). On December 18, 1998,
pursuant to the Purchase Agreement and simultaneously with an Initial Public
Offering of Merkert American Corporation common stock (collectively the
"Combination"), Merkert American Corporation purchased all of the outstanding
shares of common and convertible redeemable preferred stock of Merkert. The
consideration paid by Merkert American Corporation was approximately $31,000
in cash and 1,166,667 shares of its common stock. The cash portion of the
consideration does not reflect approximately $17,200 of payments made by
Merkert of certain federal and state tax obligations resulting from the
settlement of an examination of Merkert's tax filings for 1992, 1993 and 1994.
See further discussion in Note 9.
On December 18, 1998, as a result of the Combination, Merkert became a
wholly-owned subsidiary of Merkert American Corporation.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Merkert and
its wholly-owned subsidiary Merkert Laboratories, Inc. These financial
statements reflect the historical balance sheets of Merkert as of December 31,
1996 and 1997 and the statements of operations, stockholders' deficit and cash
flows for each of the two years in the period ended December 31, 1997 and for
the period from January 1, 1998 through December 18, 1998. All intercompany
accounts and transactions have been eliminated in consolidation.
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 Manufacturer to
the retailer or wholesaler. Merkert recognizes product sales revenue upon
shipment.
Fair Value of Financial Instruments
Effective December 31, 1995, Merkert adopted Statement of Financial
Accounting Standards ("SFAS") No. 107, Disclosures about Fair Value of
Financial Instruments. SFAS No. 107 requires that Merkert disclose
F-26
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
estimated fair values for certain of its financial instruments. Merkert's
financial instruments consist of cash, restricted 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, 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.
Inventories
Inventories are primarily finished goods and consist of price marking guns
and labels as well as other supplies sold to retailers. Inventories are stated
at the lower of cost or market and are valued on a first-in, first-out (FIFO)
basis.
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. See Note 4.
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>
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 that 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 $861, $2,615 and $2,607 for the years
ended December 31, 1996 and 1997 and for the period ended December 18, 1998,
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.
F-27
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
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 property and 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 and December 18, 1998, 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>
Compensation............................................... $ 3,125 $ 3,589
Taxes...................................................... 14,353 16,972
Other...................................................... 6,366 7,381
------- -------
$23,844 $27,942
======= =======
</TABLE>
Restructuring
Merkert incurred restructuring charges in the period ended December 18, 1998
of $5,987 in connection with severance and other costs incurred prior to the
Combination. Payments of $975 were made prior to December 31, 1998. The
balance of the restructuring charges of $5,012 have been, or will be paid,
subsequent to December 31, 1998.
3. Acquisitions
Merkert completed acquisitions of several food brokerage businesses during
1996 and 1997.
The acquisitions were 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
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 that were consummated in 1996 and 1997:
<TABLE>
<CAPTION>
Purchase Price Net
------------------ Tangible
Cash Financed Assets
Date Paid by Seller Acquired Goodwill Intangibles
----- ------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
ABD Sales, Inc.......... 10/96 $(1,121) $(9,275) $ (63) $10,147 $ 312
DelGrosso-Richardson-
Morrison, Inc.......... 10/96 (300) (4,672) 88 3,554 1,330
Toomey-Delong, Inc...... 1/97 (635) (5,144) 593 1,160 4,026
Luciano................. 1/97 (113) (1,148) (405) 1,666 --
</TABLE>
F-28
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
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.
4. Property, plant and equipment
Property, plant and equipment are comprised of the following at December 31,
1996 and 1997:
<TABLE>
<CAPTION>
Depreciable
Life
1996 1997 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, 1996 and 1997 and for
the period ended December 18, 1998, was $1,586 and $1,869 and $1,830,
respectively.
5. Long-Term Debt
As of December 31, debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Revolving line of credit.................................. $ 1,430 $ 5,883
Bank mortgage and term loans.............................. 2,834 6,253
Subordinated 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>
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. On December 18, 1998, the then outstanding
balance under this agreement of $8,000 was paid off in connection with the
Combination.
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
F-29
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
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 were due monthly. The mortgage loan matured September 5, 2006, at
which time a balloon payment of the remaining balance would have been due. On
February 13, 1998, Merkert entered into a $9,500 secured mortgage agreement,
effective April 1, 1998, with a real estate lender that 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.
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%. In
connection with the Combination, the then outstanding balances of the Luciano
and Toomey-Delong obligations aggregating approximately $5,089 were paid in
full on December 18, 1998. The amount then outstanding under the ABD
obligation of approximately $9,000 is held in escrow pending the resolution of
the matter discussed in Note 9. The remaining obligations under the
acquisition agreements are unsecured, payable in quarterly installments and
extend through 2006.
Future principal payments on long-term debt as of December 31, 1997 for the
years ending December 31, were 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>
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.
F-30
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
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.
For the years ended December 31, 1996 and 1997 and for the period ended
December 18, 1998, Merkert expensed approximately $1,249, $988 and $1,311,
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
common stock was issued to the 401(k) 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. On December 18, 1998,
these shares were purchased by Merkert American Corporation as part of the
Combination. See Note 1.
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. On
December 18, 1998, these shares were purchased by Merkert American Corporation
as part of the Combination. See Note 1.
8. Contingencies
Merkert is involved in various legal proceedings that 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 have filed an arbitration demand which is currently pending
before the American Arbitration Association. Merkert believes that this
matter, if determined adversely to Merkert, would not have a material adverse
effect on Merkert.
F-31
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
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 $3,469,
$4,386 and $3,489 in 1996, 1997 and for the period ended December 18, 1998,
respectively.
10. Income Taxes
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
Year ended
December 31, Period Ended
------------ December 18,
1996 1997 1998
------------ ------------
<S> <C> <C> <C>
Federal--
Current....................................... $ 603 $ (82) $--
Deferred...................................... -- -- --
----- ------ ----
603 (82) --
----- ------ ----
State--
Current....................................... 201 (27) --
Deferred...................................... -- -- --
----- ------ ----
201 (27) --
----- ------ ----
$ 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 operations are as follows:
<TABLE>
<CAPTION>
Year ended
December 31, Period Ended
-------------- December 18,
1996 1997 1998
----- ------- ------------
<S> <C> <C> <C>
U.S. federal statutory provision............ $(432) $(1,210) $(3,726)
State income taxes, net of federal income
tax effect................................. (76) (213) (585)
Change in valuation allowance............... 1,137 1,613 4,399
Permanent items............................. 314 459 702
Other....................................... (139) (758) (790)
----- ------- -------
Effective tax provision................... $ 804 $ (109) $ --
===== ======= =======
</TABLE>
F-32
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
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 carryforwards....................... -- 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 were audited
by tax authorities. On May 18, 1998, Merkert entered into a settlement with
the Internal Revenue Service ("IRS") which resolved matters raised by them in
the examinations. In connection with the settlement, Merkert agreed to pay
approximately $17,200, in the aggregate, to both the IRS and the applicable
state tax authorities. The amount of the settlement did not differ materially
from recorded reserves. On December 18, 1998, pursuant to the Combination, the
former stockholders of Merkert used 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 that it believes will be adequate to
cover any potential liability, however the ultimate outcome of this matter is
uncertain.
F-33
<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 two years in the period ended December
31, 1997 and for the period from January 1, 1998 through December 18, 1998.
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 two years in the period
ended December 31, 1997 and for the period from January 1, 1998 through
December 18, 1998, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
March 30, 1999
F-34
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash....................................................... $ 730 $ 556
Restricted cash............................................ 220 505
Accounts receivable, less allowance for doubtful accounts
of $484 and $799, respectively............................ 6,413 9,072
Prepaid expenses and advances.............................. 292 218
Income taxes receivable.................................... 512 --
Deferred tax asset......................................... 546 639
------- -------
Total current assets..................................... 8,713 10,990
------- -------
Property, plant and equipment, net........................... 5,953 5,931
------- -------
Intangibles, net of amortization............................. 20,519 18,671
------- -------
Other assets:
Cash value of life insurance, net.......................... 2,449 3,239
Deferred tax asset......................................... 117 149
Other assets............................................... 10 19
------- -------
Total other assets....................................... 2,576 3,407
------- -------
Total assets............................................. $37,761 $38,999
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt....................... $ 6,344 $ 1,949
Accounts payable........................................... 3,087 2,034
Accrued expenses........................................... 3,971 3,880
------- -------
Total current liabilities................................ 13,402 7,863
------- -------
Long-term debt, less current maturities...................... 24,849 30,830
------- -------
Other liabilities............................................ 316 479
------- -------
Commitments and contingencies
Stockholders' deficit:
Common stock, $1.00 par value--
Authorized--100,000 shares
Issued--955 shares........................................ 1 1
Additional paid-in capital................................. 149 37
Accumulated deficit........................................ (956) (211)
------- -------
Total stockholders' deficit.............................. (806) (173)
------- -------
Total liabilities and stockholders' deficit.............. $37,761 $38,999
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Year ended
December 31, Period ended
---------------- December 18,
1996 1997 1998
------- ------- ------------
<S> <C> <C> <C>
Revenues:
Commissions.................................. $63,311 $82,985 $ 79,558
------- ------- --------
Operating expenses:
Selling expenses............................. 50,614 63,361 76,894
General and administrative................... 10,944 13,023 15,226
Depreciation and amortization................ 1,646 2,516 2,439
Restructuring expense........................ -- -- 948
------- ------- --------
Operating income (loss).................... 107 4,085 (15,949)
Interest expense............................... (1,656) (2,536) (2,617)
------- ------- --------
Income (loss) before provision for income
taxes......................................... (1,549) 1,549 (18,566)
Provision (benefit) for income taxes........... (460) 804 (677)
------- ------- --------
Net income (loss).......................... $(1,089) $ 745 $(17,889)
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock, Retained
$1.00 Par Value Additional Earnings/
------------------ Paid-in (Accumulated
Shares Amount Capital Deficit) Total
-------- ------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1995.................... 1,091 $ 1 $ 225 $ 133 $ 359
Net loss................. -- -- -- (1,089) (1,089)
Redemption of 59 shares.. (59) -- (76) -- (76)
-------- ------- ------- -------- -------
Balance, December 31,
1996.................... 1,032 1 149 (956) (806)
Net income............... -- -- -- 745 745
Redemption of 76.4
shares.................. (77) -- (112) -- (112)
-------- ------- ------- -------- -------
Balance, December 31,
1997.................... 955 1 37 (211) (173)
Net loss................. -- -- -- (17,889) (17,889)
Transfer of ownership
interest................ -- -- 10,319 -- 10,319
-------- ------- ------- -------- -------
Balance, December 18,
1998.................... 955 $ 1 $10,356 $(18,100) $(7,743)
======== ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended
December 31, Period ended
----------------- December 18,
1996 1997 1998
-------- ------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ (1,089) $ 745 $(17,889)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities--
Compensation expense....................... -- -- 15,529
Depreciation and amortization.............. 1,646 2,516 2,438
Loss on disposal of fixed assets........... -- -- 91
Deferred income taxes...................... (500) (126) 612
Changes in assets and liabilities, exclusive
of acquisitions
(Increase) decrease in--
Restricted cash............................ (20) (285) 131
Accounts receivable, net................... (1,707) (2,659) 148
Income taxes receivable.................... (512) 512 (1,147)
Prepaid expenses and advances.............. (77) 74 (10)
Other assets............................... 29 (9) (41)
Increase (decrease) in--
Accounts payable........................... 1,588 (1,053) 729
Accrued expenses........................... 129 (91) 2,646
Other liabilities.......................... 711 (572) --
-------- ------- --------
Net cash provided by (used in) operating
activities.............................. 198 (948) 3,237
-------- ------- --------
Cash flows from investing activities:
Additions to property, plant and equipment... (1,045) (453) (16)
Acquisitions, net of cash acquired........... (11,231) (192) --
(Increase) decrease in cash surrender value,
net of increase in policy loans............. (487) (789) (296)
-------- ------- --------
Net cash provided by (used in) investing
activities.............................. (12,763) (1,434) (312)
-------- ------- --------
Cash flows from financing activities:
Borrowings under revolving line of credit,
net of repayments........................... 3,024 4,546 (553)
Issuance of long-term debt................... 10,157 -- --
Repayment of long-term debt.................. -- (2,226) (2,656)
Redemption of Common Stock................... (76) (112) --
-------- ------- --------
Net cash provided by (used in) financing
activities.............................. 13,105 2,208 (3,209)
-------- ------- --------
Net increase (decrease) in unrestricted
cash.................................... 540 (174) (284)
Unrestricted cash at beginning of year......... 190 730 556
-------- ------- --------
Unrestricted cash at end of period............. $ 730 $ 556 272
======== ======= ========
Supplemental disclosures of cash flow
information:
Cash payments for-
Interest................................... $ 1,635 $ 2,486 $ 2,494
======== ======= ========
Income taxes............................... $ 722 $ 180 $ 234
======== ======= ========
Non-cash flow information-
Purchase price financed by seller.......... $ 10,626 $ 48 $ --
======== ======= ========
Liabilities assumed........................ $ 1,227 $ -- $ --
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-38
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share amounts)
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.
On May 22, 1998 and as amended on November 16, 1998, Rogers entered into a
stock purchase agreement with Merkert American Corporation and the
stockholders of Rogers (the "Purchase Agreement"). On December 18, 1998,
pursuant to the Purchase Agreement and simultaneously with an Initial Public
Offering of Merkert American Corporation common stock (collectively the
"Combination"), Merkert American Corporation purchased all of the outstanding
shares of common stock of Rogers for approximately $25,635 in cash. On
December 18, 1998, as a result of the Combination, Rogers became a wholly-
owned subsidiary of Merkert American Corporation.
In connection with the consummation of the Purchase Agreement, the former
principal stockholders of Rogers transferred a portion of their shares of
common stock to certain minority stockholders to compensate those employees
for valuable prior services. As a result, the accompanying consolidated
statement of operations includes a compensation charge of $10,319 and other
non-recurring charges of approximately $5,210 for the period ended December
18, 1998. See Notes 2, 5 and 11.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Rogers and its
wholly-owned subsidiary Rogers-American Company of Florida, Inc. These
financial statements reflect the historical balance sheets of Rogers as of
December 31, 1996 and 1997 and the statements of operations, stockholders'
deficit and cash flows for each of the two years in the period ended December
31, 1997 and for the period from January 1, 1998 through December 18, 1998.
All intercompany accounts and transactions have been eliminated in
consolidation.
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 Manufacturer 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, restricted cash, accounts receivable, accounts payable and
long-term debt. The carrying value of Rogers' financial instruments
approximates fair value at December 31, 1996 and 1997.
F-39
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
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.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets. See
Note 4.
Intangibles
Intangibles consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Goodwill................................................. $17,283 $17,460
Noncompete agreements.................................... 6,589 6,604
------- -------
23,872 24,064
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
estimated useful lives that range from 5 to 20 years. Noncompete agreements
are amortized on a straight-line basis over the life of the respective
agreement. Amortization expense was $1,285, $2,040 and $1,946 for the years
ended December 31, 1996 and 1997 and for the period ended December 18, 1998,
respectively.
Cash Surrender Value of Life Insurance
Included within other 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.
In connection with the consummation of the Purchase Agreement, Rogers
assigned the life insurance policies on key executives to certain former
stockholders. As a result, the accompanying consolidated statements of
operations includes a compensation charge of $3,535 for the period ended
December 18, 1998.
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.
F-40
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
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 property and 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 and December 18, 1998, 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>
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>
Restructuring
Rogers incurred a restructuring charge of $948 in the period ended December
18, 1998 in connection with the Combination. Payments of $814 were made prior
to December 31, 1998. The balance of the restructuring charges, $134, have
been, or will be paid subsequent to December 31, 1998.
3. Acquisitions
Rogers completed acquisitions of several food brokerage businesses during
1996 and 1997. The acquisitions were 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 that were consummated in 1996
and 1997.
F-41
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Purchase Price Net
---------------- Tangible
Cash Financed Assets
Date Paid by Seller Acquired Goodwill Intangibles
------- ----- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
G.B.S................ 10/96 $ -- $ (982) $288 $ 555 $ 139
Fitzwater............ 11/96 (800) (5,924) 800 4,739 1,185
Sales Support, Inc... 11/96 -- (997) -- -- 997
Tinney & Associates.. 11/96 -- (1,377) 218 927 232
Brown & Stagner...... 11/96 -- (1,905) 97 1,446 362
Others............... Various -- (1,001) 36 486 479
</TABLE>
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,
1996 and 1997:
<TABLE>
<CAPTION>
Depreciable
Life
1996 1997 In Years
------ ------ -----------
<S> <C> <C> <C>
Land............................................. $ 500 $ 500 --
Building......................................... 3,500 3,500 40
Furniture and equipment.......................... 3,117 3,476 5-7
Motor vehicles................................... 79 79 3-5
Leasehold improvements........................... 694 789 20
------ ------
7,890 8,344
Less--Accumulated depreciation................... 1,937 2,413
------ ------
$5,953 $5,931
====== ======
</TABLE>
Depreciation expense for the years ended December 31, 1996 and 1997 and for
the period ended December 18, 1998 was $361, $476 and $492, respectively.
In connection with the consummation of the Purchase Agreement, Rogers intends
to sell its corporate headquarters and distribute the net cash proceeds to
certain former stockholders.
F-42
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
5. Long-Term Debt
As of December 31, debt consists of the following:
<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
------- -------
Net long-term debt...................................... $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. On December 18, 1998, in connection with the Combination, the then
outstanding balance of $7,817 of this debt was fully repaid.
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 payable 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. In connection with
the Combination, the then outstanding balance of approximately $2,448 was paid
in full on December 18, 1998.
F-43
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
T&M--Unsecured notes payable bearing interest at 8% per annum, with monthly
payments of $2 through September 1999 and $6 through September 2004.
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. In connection with the Combination, the
then outstanding balance of approximately $701 was paid in full on December
18, 1998.
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. In connection with the
Combination, approximately $501 of the then outstanding balance of
approximately $986 was paid on December 18, 1998.
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.
In connection with the Combination, the then outstanding balance of
approximately $2,271 was paid in full on December 18, 1998. Additionally, in
connection with the Combination, the Company recorded a compensation charge of
$675 for the period ended December 18, 1998.
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.
Future principal payments on long-term debt as of December 31, 1997 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>
6. 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.
F-44
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
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, 1996 and 1997 and for the period ended
December 18, 1998, Rogers expensed approximately $615, $403 and $444,
respectively, under the terms of the 401(k) Plan.
7. Postretirement Benefits
Rogers provides medical and dental benefits to certain eligible former
employees and their eligible dependents (the "Postretirement Plan"). The
accumulated postretirement benefit obligation, which is unfunded, is recorded
in Accrued expenses in the accompanying consolidated balance sheets. This
obligation was determined using an estimated discount rate of 8% based on
estimated payments required over future periods. An increase of 1% in health
care cost rates would not have a material effect on Rogers' financial position
or results of operations.
8. 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.
9. Commitments
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. The amount expensed under
these agreements for the years ended December 31, 1996 and 1997 and for the
period ended December 18, 1998 was $0, $163 and $0, respectively. As a
condition of the acquisition of Rogers by Merkert American Corporation, all
but one of the supplemental pensions were voided. The remaining obligation of
$246 has been fully reflected in Rogers' consolidated financial statements.
Certain of Rogers' former shareholders, as a group, lease a sales office
located in North Carolina to Rogers. The annual rental of approximately $88 is
at fair value in the estimation of management. The lease expires in 2003.
Promotional Funds
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. An offsetting promotional
funds liability was
F-45
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
recorded 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.
Legal Proceedings
Rogers has received written notice from the sellers of a food brokerage
business acquired by Rogers alleging breach of certain covenants contained in
an agreement with such seller claiming such breaches have caused the
acceleration of certain obligations of Rogers to the seller. In December 1998,
Rogers entered into a settlement agreement with such sellers providing for the
buyout of substantially all obligations to such sellers and a release of such
sellers' security for a cash payment of $4,270 which payment was funded by
Merkert American Corporation in the Combination on December 18, 1998.
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 $5,773,
$7,985 and $7,778 for the years ended December 31, 1996 and 1997 and for the
period ended December 18, 1998, respectively.
10. Related Party Transactions
Rogers owns 49% of the outstanding voting common stock of an affiliated
merchandising entity which began operations in 1997. 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 (loss) of the affiliate for 1997 and 1998 were $922 and $(1)
and $2,948 and $1, respectively. Total assets at December 31, 1997 were $218.
Rogers had no trade receivables outstanding at December 31, 1997 from this
affiliate. During 1997 and 1998, Rogers had no sales to this affiliate.
Certain of Rogers' former shareholders, as a group, owned 49% of the voting
common stock of another affiliated entity. During 1996, 1997 and 1998, Rogers
recorded commission revenues of approximately $230, $183 and $253 from this
affiliate. Trade receivables at December 31, 1997 were $56.
11. Income Taxes
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
Year ended
December 31, Period Ended
-------------- December 18,
1996 1997 1998
------ ------ ------------
<S> <C> <C> <C>
Federal--
Current...................................... $ 30 $ 698 $(508)
Deferred..................................... (375) (95) --
------ ----- -----
(345) 603 (508)
------ ----- -----
State--
Current...................................... 10 232 (169)
Deferred..................................... (125) (31) --
------ ----- -----
(115) 201 (169)
------ ----- -----
$ (460) $ 804 $(677)
====== ===== =====
</TABLE>
F-46
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
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 operations are as follows:
<TABLE>
<CAPTION>
Year ended
December 31, Period Ended
--------------December 18,
1996 1997 1998
------ ------------------
<S> <C> <C> <C>
U.S. federal statutory provision.............. $ (527) $ 527 $(6,312)
State income taxes, net of federal income tax
effect....................................... (74) 87 (872)
Permanent items............................... 171 140 713
Valuation allowance........................... -- -- 5,794
Other......................................... (30) 50 --
------ ----- -------
Effective tax provision..................... $ (460) $ 804 $ (677)
====== ===== =======
</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
Liabilities--
Property basis differences................................ (35) (53)
Other..................................................... (47) (56)
----- ------
Total liabilities....................................... (82) (109)
----- ------
Net assets.............................................. $ 663 $ 788
===== ======
</TABLE>
In connection with the Combination, the Company has agreed to distribute
approximately $1,000 of refundable income taxes to the selling shareholders.
Accordingly, the accompanying consolidated statement of operations includes a
compensation charge of $1,000.
F-47
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
-------- ---------- ---------- ---------- ----------- ----------
Additions Additions Deductions
Balance at charged to charged to written off Balance at
beginning Cost and other against end of
Description of period Expenses accounts reserve period
----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1998:
Allowance for doubtful
accounts............... $-- $-- $1,374 $-- $1,374
Restructuring reserve... -- -- 5,146 -- 5,146
</TABLE>
F-48
<PAGE>
INDEX TO EXHIBITS
The following is a complete list of exhibits filed or incorporated by
reference as a part of this Annual Report on Form 10-K:
<TABLE>
<C> <S>
3.1 Second Amended and Restated Certificate of Incorporation of Merkert
American Corporation incorporated by reference to Exhibit 3.1 to Merkert
American Corporation's Amendment No. 7 to Registration Statement on Form
S-1 filed December 15, 1998 (No. 333-53419).
3.2 Amended and Restated By-laws of Merkert American Corporation (filed
herewith).
10.1 Stock Purchase Agreement, dated May 20, 1998, among Merkert American
Corporation (formerly known as Monroe, Inc.), Merkert Enterprises, Inc.
and the stockholders of Merkert Enterprises, Inc. incorporated by
reference to Exhibit 10.1 to Merkert American Corporation's Registration
Statement on Form S-1 filed May 22, 1998 (No. 333-53419).
10.2 Amendment No. 1, dated November 18, 1998, to Stock Purchase Agreement
among Merkert American Corporation, Merkert Enterprises, Inc. and the
stockholders of Merkert Enterprises, Inc. incorporated by reference to
Exhibit 10.28 to Merkert American Corporation's Amendment No. 5 to
Registration Statement on Form S-1 filed November 19, 1998 (No. 333-
53419).
10.3 Amendment No. 2, dated December 15, 1998, to Stock Purchase Agreement
among Merkert American Corporation, Merkert Enterprises, Inc. and the
stockholders of Merkert Enterprises, Inc. (filed herewith).
10.4 Stock Purchase Agreement, dated May 22, 1998, among Merkert American
Corporation (formerly known as Monroe, Inc.), Rogers-American Company,
Inc. and the stockholders of Rogers-American Company, Inc. incorporated
by reference to Exhibit 10.2 to Merkert American Corporation's
Registration Statement on Form S-1 filed May 22, 1998 (No. 333-53419).
10.5 Amendment No. 1, dated November 16, 1998, to Stock Purchase Agreement
among Merkert American Corporation, Rogers-American Company, Inc. and
the stockholders of Rogers-American Company, Inc. incorporated by
reference to Exhibit 10.27 to Merkert American Corporation's Amendment
No. 5 to Registration Statement on Form S-1 filed November 19, 1998 (No.
333-53419).
10.6 Agreement, dated May 11, 1998, between Merkert American Corporation
(formerly known as Monroe, Inc.) and Monroe & Company, LLC incorporated
by reference to Exhibit 10.8 to Merkert American Corporation's
Registration Statement on Form S-1 filed May 22, 1998 (No. 333-53419).
10.7 Agreement for the Purchase of Common Stock, dated April 8, 1998, between
Merkert American Corporation (formerly known as Monroe, Inc.) and Gerald
R. Leonard incorporated by reference to Exhibit 10.9 to Merkert American
Corporation's Amendment No. 1 to Registration Statement on Form S-1
filed May 29, 1998 (No. 333-53419).
10.8 Promissory Note, dated April 8, 1998, of Gerald R. Leonard issued to
Merkert American Corporation (formerly known as Monroe, Inc.)
incorporated by reference to Exhibit 10.10 to Merkert American
Corporation's Amendment No. 1 to Registration Statement on Form S-1
filed May 29, 1998
(No. 333-53419).
10.9 Stock Pledge Agreement, dated April 8, 1998, between Merkert American
Corporation (formerly known as Monroe, Inc.) and Gerald R. Leonard
incorporated by reference to Exhibit 10.11 to Merkert American
Corporation's Amendment No. 1 to Registration Statement on Form S-1
filed May 29, 1998 (No. 333-53419).
10.10 Registration Rights Agreement, dated May 18, 1998, between Merkert
American Corporation (formerly known as Monroe, Inc.) and Gerald R.
Leonard incorporated by reference to Exhibit 10.14 to Merkert American
Corporation's Registration Statement on Form S-1 filed May 22, 1998 (No.
333-53419).
10.11 Registration Rights Agreement, dated December 18, 1998, between Merkert
American Corporation and the stockholders of Merkert Enterprises, Inc.
(filed herewith).
</TABLE>
42
<PAGE>
<TABLE>
<C> <S>
10.12 Tax Escrow Agreement, dated December 18, 1998, among Merkert American
Corporation, Robert Q. Crane, as stockholders' representative, and State
Street Bank & Trust Company (filed herewith).
10.13 Indemnification Escrow Agreement, dated December 18, 1998, among Merkert
American Corporation, Robert Q. Crane, as stockholders' representative,
the stockholders of Merkert Enterprises, Inc. and State Street Bank &
Trust Company (filed herewith).
10.14 Indemnification Escrow Agreement, dated December 18, 1998, among Merkert
American Corporation, Curtis L. Rogers, Jr., as stockholders'
representative, the stockholders of Rogers-American Company, Inc. and
State Street Bank & Trust Company (filed herewith).
10.15 Credit Agreement, dated December 18, 1998, among Merkert American
Corporation, and First Union National Bank (filed herewith).
10.16 Security Agreement, dated December 18, 1998, made by Merkert American
Corporation, Merkert Enterprises, Inc., Rogers-American Company, Inc.
and Rogers-American Company of Florida, Inc. in favor of First Union
National Bank (filed herewith).
10.17 Pledge Agreement, dated December 18, 1998, made by Merkert American
Corporation, Merkert Enterprises, Inc., and Rogers-American Company,
Inc. in favor of First Union National Bank (filed herewith).
10.18 Guaranty Agreement, dated December 18, 1998, made by Merkert
Enterprises, Inc., Rogers-American Company, Inc. and Rogers-American
Company of Florida, Inc. in favor of First Union National Bank (filed
herewith).
10.19 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 incorporated by reference to Exhibit 10.23 to
Merkert American Corporation's Amendment No. 3 to Registration Statement
on Form S-1 filed July 20, 1998
(No. 333-53419).
10.20 Amendment, dated December 18, 1998, to Indenture of Mortgage Deed of
Trust, Security Agreement, Fixture Filing, Financing Statement and
Assignment of Rents and Leases, between Merkert Enterprises, Inc. and
Corporate Real Estate Capital, LLC (filed herewith).
10.21 Loan Agreement between Merkert Enterprises, Inc. and Corporate Real
Estate Capital, LLC incorporated by reference to Exhibit 10.24 to
Merkert American Corporation's Amendment No. 3 to Registration Statement
on Form S-1 filed July 20, 1998 (No. 333-53419).
10.22 Promissory Note of Merkert Enterprises, Inc. issued to Corporate Real
Estate Capital, LLC incorporated by reference to Exhibit 10.25 to
Merkert American Corporation's Amendment No. 3 to Registration Statement
on Form S-1 filed July 20, 1998 (No. 333-53419).
10.23 Balance Purchase Money Promissory Note of Rogers-American Company, Inc.
issued to Rexham Industries Corp. incorporated by reference to Exhibit
10.33 to Merkert American Corporation's Amendment No. 6 to Registration
Statement on Form S-1 filed December 10, 1998 (No. 333-53419).
10.24 Amendment to Balance Purchase Money Promissory Note of Rogers-American
Company, Inc. issued to Rexham Industries Corp. incorporated by
reference to Exhibit 10.34 to Merkert American Corporation's Amendment
No. 6 to Registration Statement on Form S-1 filed December 10, 1998
(No. 333-53419).
10.25 Deed of Trust and Security Agreement, dated November 2, 1992, among
Rogers-American Company, Inc., as mortgagor, B. D. Farmer III and J.
Christopher Oates, as trustees, and Rexham Industries Corp., as
beneficiary, incorporated by reference to Exhibit 10.35 to Merkert
American Corporation's Amendment No. 6 to Registration Statement on Form
S-1 filed December 10, 1998 (No. 333-53419).
10.26 Distributor's Agreement, dated January 1, 1982, Merkert Enterprises,
Inc. and Monarch Marking Systems, Inc. incorporated by reference to
Exhibit 10.12 to Merkert American Corporation's Registration Statement
on Form S-1 filed May 22, 1998 (No. 333-53419).
</TABLE>
43
<PAGE>
<TABLE>
<C> <S>
10.27 Agreement, dated October 30, 1997, between Merkert Laboratories, Inc.
and Misco Products Corporation incorporated by reference to Exhibit
10.13 to Merkert American Corporation's Registration Statement on Form
S-1 filed May 22, 1998 (No. 333-53419).
10.28 Amended and Restated Merkert American Corporation 1998 Stock Option and
Incentive Plan incorporated by reference to Exhibit 10.17 to Merkert
American Corporation's Amendment No. 3 to Registration Statement on Form
S-1 filed July 20, 1998 (No. 333-53419).
10.29 Employment and Non-Competition Agreement, dated December 18, 1998,
between Merkert American Corporation and Gerald R. Leonard (filed
herewith).
10.30 Employment and Non-Competition Agreement, dated December 18, 1998,
between Merkert American Corporation and Sidney D. Rogers, Jr. (filed
herewith).
10.31 Employment and Non-Competition Agreement, dated December 18, 1998,
between Merkert Enterprises, Inc. and Glenn F. Gillam (filed herewith).
10.32 Employment and Non-Competition Agreement, dated December 18, 1998,
between Rogers-American Company, Inc. and Douglas H. Holstein (filed
herewith).
10.33 Employment and Non-Competition Agreement, dated December 18, 1998,
between Rogers-American Company, Inc. and Marty D. Carter (filed
herewith).
10.34 Form of Incentive Stock Option Agreement under the Merkert American
Corporation 1998 Stock Option and Incentive Plan incorporated by
reference to Exhibit 10.26 to Merkert American Corporation's Amendment
No. 3 to Registration Statement on Form S-1 filed July 20, 1998
(No. 333-53419).
10.35 Form of Non-Qualified Stock Option Agreement under the Merkert American
Corporation 1998 Stock Option and Incentive Plan incorporated by
reference to Exhibit 10.18 to Merkert American Corporation's Amendment
No. 3 to Registration Statement on Form S-1 filed July 20, 1998
(No. 333-53419).
10.36 Stock Purchase Agreement, dated January 20, 1999, among Merkert American
Corporation, Sell, Inc. and the stockholders of Sell, Inc. (filed
herewith).
21.1 Subsidiaries of Merkert American Corporation (filed herewith).
23.1 Consent of Arthur Andersen LLP (filed herewith).
27.1 Financial Data Schedule (filed herewith).
</TABLE>
44
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
MERKERT AMERICAN CORPORATION
ARTICLE I
---------
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of stockholders shall be
--------------
held at the hour, date and place within or without the United States which is
fixed by the majority of the Board of Directors, the Chairman of the Board, if
one is elected, or the Chief Executive Officer, which time, date and place may
subsequently be changed at any time by vote of the Board of Directors. If no
annual meeting has been held for a period of thirteen months after the
Corporation's last annual meeting of stockholders, a special meeting in lieu
thereof may be held, and such special meeting shall have, for the purposes of
these By-laws or otherwise, all the force and effect of an annual meeting. Any
and all references hereafter in these By-laws to an annual meeting or annual
meetings also shall be deemed to refer to any special meeting(s) in lieu
thereof.
SECTION 2. Matters to be Considered at Annual Meetings. At any annual
-------------------------------------------
meeting of stockholders or any special meeting in lieu of annual meeting of
stockholders (the "Annual Meeting"), only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such Annual Meeting. To be considered as properly brought before an
Annual Meeting, business must be: (a) specified in the notice of meeting, (b)
otherwise properly brought before the meeting by, or at the direction of, the
Board of Directors, or (c) otherwise properly brought before the meeting by any
holder of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation entitled to vote
at such Annual Meeting who complies with the requirements set forth in this
Section 2.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this Section 2 to the
Secretary of the Corporation and (ii) be present at such meeting, either in
person or by a representative. For the first Annual Meeting following the
initial public offering of common stock of the Corporation, a stockholder's
notice shall be timely if delivered to, or mailed to and received by,
<PAGE>
the Corporation at its principal executive office not later than the close of
business on the later of (x) the 75th day prior to the scheduled date of such
Annual Meeting or (y) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the anniversary date of the immediately preceding Annual Meeting (the
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(1) the 75th day prior to the scheduled date of such Annual Meeting or (2) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
For purposes of these By-laws, "public announcement" shall mean: (a)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (b) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (c) a letter or report sent to stockholders of
record of the Corporation at the time of the mailing of such letter or report.
A stockholder's notice to the Secretary shall set forth as to each matter
proposed to be brought before an Annual Meeting: (i) a brief description of the
business the stockholder desires to bring before such Annual Meeting and the
reasons for conducting such business at such Annual Meeting, (ii) the name and
address, as they appear on the Corporation's stock transfer books, of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's capital stock beneficially owned by the stockholder proposing such
business, (iv) the names and addresses of the beneficial owners, if any, of any
capital stock of the Corporation registered in such stockholder's name on such
books, and the class and number of shares of the Corporation's capital stock
beneficially owned by such beneficial owners, (v) the names and addresses of
other stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's capital
stock beneficially owned by such other stockholders, and (vi) any material
interest of the stockholder proposing to bring such business before such meeting
(or any other stockholders known to be supporting such proposal) in such
proposal.
If the Board of Directors or a designated committee thereof determines that
any stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2 or that the information provided in a stockholder's
notice does not satisfy the information requirements of this Section 2 in any
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If neither the Board of Directors nor such committee makes
a determination as to the validity of any stockholder proposal in the manner set
forth above, the presiding officer of the Annual Meeting shall determine whether
the stockholder proposal was made in accordance with the terms of this Section
2. If the presiding officer determines that any stockholder proposal was not
made in a timely fashion in accordance with the provisions of this Section 2 or
that the information provided in a stockholder's notice does not satisfy the
information requirements of this Section 2 in any material respect, such
proposal shall not be presented for action at the Annual Meeting in
2
<PAGE>
question. If the Board of Directors, a designated committee thereof or the
presiding officer determines that a stockholder proposal was made in accordance
with the requirements of this Section 2, the presiding officer shall so declare
at the Annual Meeting and ballots shall be provided for use at the meeting with
respect to such proposal.
Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this Section 2, and nothing
in this Section 2 shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
SECTION 3. Special Meetings. Except as otherwise required by law and
----------------
subject to the rights, if any, of the holders of any series of preferred stock,
special meetings of the stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution approved by the affirmative vote
of a majority of the directors then in office.
SECTION 4. Matters to be Considered at Special Meetings. Only those
--------------------------------------------
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
SECTION 5. Notice of Meetings; Adjournments. A written notice of each
--------------------------------
Annual Meeting stating the hour, date and place of such Annual Meeting shall be
given by the Secretary or an Assistant Secretary (or other person authorized by
these By-laws or by law) not less than 10 days nor more than 60 days before the
Annual Meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law or under the Certificate of Incorporation of the
Corporation (as the same may hereafter be amended and/or restated, the
"Certificate") or under these By-laws, is entitled to such notice, by delivering
such notice to him or by mailing it, postage prepaid, addressed to such
stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be delivered
when hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for Annual Meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
Notice of an Annual Meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting was not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any Annual Meeting or special meeting of stockholders need be
specified in any written waiver of notice.
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The Board of Directors may postpone and reschedule any previously scheduled
Annual Meeting or special meeting of stockholders and any record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 2 of this
Article I or Section 3 of Article II hereof or otherwise. In no event shall
the public announcement of an adjournment, postponement or rescheduling of any
previously scheduled meeting of stockholders commence a new time period for the
giving of a stockholder's notice under Section 2 of Article I and Section 3 of
Article II of these By-laws.
When any meeting is convened, the presiding officer may adjourn the meeting
if (a) no quorum is present for the transaction of business, (b) the Board of
Directors determines that adjournment is necessary or appropriate to enable the
stockholders to consider fully information which the Board of Directors
determines has not been made sufficiently or timely available to stockholders,
or (c) the Board of Directors determines that adjournment is otherwise in the
best interests of the Corporation. When any Annual Meeting or special meeting
of stockholders is adjourned to another hour, date or place, notice need not be
given of the adjourned meeting other than an announcement at the meeting at
which the adjournment is taken of the hour, date and place to which the meeting
is adjourned; provided, however, that if the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat and each stockholder who, by law or under the
Certificate or these By-laws, is entitled to such notice.
SECTION 6. Quorum. A majority of the shares entitled to vote, present in
------
person or represented by proxy, shall constitute a quorum at any meeting of
stockholders. If less than a quorum is present at a meeting, the holders of
voting stock representing a majority of the voting power present at the meeting
or the presiding officer may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except as provided in
Section 5 of this Article I. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. The stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 7. Voting and Proxies. Stockholders shall have one vote for each
------------------
share of stock entitled to vote owned by them of record according to the books
of the Corporation, unless otherwise provided by law or by the Certificate.
Stockholders may vote either in person or by written proxy, but no proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. Proxies shall be filed with the Secretary of the
meeting before being voted. Except as otherwise limited therein or as otherwise
provided by law, proxies shall entitle the persons authorized thereby to vote at
any adjournment of such meeting, but they shall not be valid after final
adjournment of such meeting. A proxy with respect to stock held in the name of
two or more persons shall be valid if executed by or on behalf of any one of
them unless at or prior to the exercise of the proxy the Corporation
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receives a specific written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed
valid, and the burden of proving invalidity shall rest on the challenger.
SECTION 8. Action at Meeting. When a quorum is present, any matter before
-----------------
any meeting of stockholders shall be decided by the affirmative vote of the
majority of shares present in person or represented by proxy at such meeting and
entitled to vote on such matter, except where a larger vote is required by law,
by the Certificate or by these By-laws. Any election by stockholders shall be
determined by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors, except where a larger vote is required by law, by the Certificate or
by these By-laws. The Corporation shall not directly or indirectly vote any
shares of its own stock; provided, however, that the Corporation may vote shares
which it holds in a fiduciary capacity to the extent permitted by law.
SECTION 9. Stockholder Lists. The Secretary or an Assistant Secretary (or
-----------------
the Corporation's transfer agent or other person authorized by these By-laws or
by law) shall prepare and make, at least 10 days before every Annual Meeting or
special meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 10. Presiding Officer. The Chairman of the Board, if one is
-----------------
elected, or if not elected or in his or her absence, the Chief Executive
Officer, shall preside at all Annual Meetings or special meetings of
stockholders and shall have the power, among other things, to adjourn such
meeting at any time and from time to time, subject to Sections 5 and 6 of this
Article I. The order of business and all other matters of procedure at any
meeting of the stockholders shall be determined by the presiding officer.
SECTION 11. Voting Procedures and Inspectors of Elections. The
---------------------------------------------
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at
a meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such
5
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duties as are required by the General Corporation Law of the State of Delaware,
as amended from time to time (the "DGCL"), including the counting of all votes
and ballots. The inspectors may appoint or retain other persons or entities to
assist the inspectors in the performance of the duties of the inspectors. The
presiding officer may review all determinations made by the inspectors, and in
so doing the presiding officer shall be entitled to exercise his or her sole
judgment and discretion and he or she shall not be bound by any determinations
made by the inspectors. All determinations by the inspectors and, if applicable,
the presiding officer, shall be subject to further review by any court of
competent jurisdiction.
ARTICLE II
----------
Directors
---------
SECTION 1. Powers. The business and affairs of the Corporation shall be
------
managed by or under the direction of the Board of Directors except as otherwise
provided by the Certificate or required by law.
SECTION 2. Number and Terms. 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 shall hold office in the manner provided in the
Certificate.
SECTION 3. Director Nominations. Nominations of candidates for election
--------------------
as directors of the Corporation at any Annual Meeting may be made only (a) by,
or at the direction of, a majority of the Board of Directors or (b) by any
holder of record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote at such Annual Meeting who complies with the timing, informational and
other requirements set forth in this Section 3. Any stockholder who has
complied with the timing, informational and other requirements set forth in this
Section 3 and who seeks to make such a nomination, or his, her or its
representative, must be present in person at the Annual Meeting. Only persons
nominated in accordance with the procedures set forth in this Section 3 shall be
eligible for election as directors at an Annual Meeting.
Nominations, other than those made by, or at the direction of, the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Section 3. For the first Annual Meeting
following the initial public offering of common stock of the Corporation, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not later than the close
of business on the later of (i) the 75th day prior to the scheduled date of such
Annual Meeting or (ii) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior
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to the Anniversary Date; provided, however, that in the event the Annual Meeting
is scheduled to be held on a date more than 30 days before the Anniversary Date
or more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(x) the 75th day prior to the scheduled date of such Annual Meeting or (y) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
A stockholder's notice to the Secretary shall set forth as to each person
whom the stockholder proposes to nominate for election or re-election as a
director: (1) the name, age, business address and residence address of such
person, (2) the principal occupation or employment of such person, (3) the class
and number of shares of the Corporation's capital stock which are beneficially
owned by such person on the date of such stockholder notice, and (4) the consent
of each nominee to serve as a director if elected. A stockholder's notice to
the Secretary shall further set forth as to the stockholder giving such notice:
(a) the name and address, as they appear on the Corporation's stock transfer
books, of such stockholder and of the beneficial owners (if any) of the
Corporation's capital stock registered in such stockholder's name and the name
and address of other stockholders known by such stockholder to be supporting
such nominee(s), (b) the class and number of shares of the Corporation's capital
stock which are held of record, beneficially owned or represented by proxy by
such stockholder and by any other stockholders known by such stockholder to be
supporting such nominee(s) on the record date for the Annual Meeting in question
(if such date shall then have been made publicly available) and on the date of
such stockholder's notice, and (c) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
If the Board of Directors or a designated committee thereof determines that
any stockholder nomination was not made in accordance with the terms of this
Section 3 or that the information provided in a stockholder's notice does not
satisfy the informational requirements of this Section 3 in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any stockholder nomination was not made in
accordance with the terms of this Section 3 or that the information provided in
a stockholder's notice does not satisfy the informational requirements of this
Section 3 in any material respect, then such nomination shall not be considered
at the Annual Meeting in question. If the Board of Directors, a designated
committee thereof or the presiding officer determines that a nomination was made
in accordance with the terms of this Section 3, the presiding officer shall so
declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such nominee.
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Notwithstanding anything to the contrary in the second paragraph of this
Section 3, in the event that the number of directors to be elected to the Board
of Directors of the Corporation is increased and there is no public announcement
by the Corporation naming all of the nominees for director or specifying the
size of the increased Board of Directors at least 75 days prior to the
Anniversary Date, a stockholder's notice required by this Section 3 shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if such notice shall be delivered to, or mailed to and
received by, the Corporation at its principal executive office not later than
the close of business on the 15th day following the day on which such public
announcement is first made by the Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of directors at an Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such Annual Meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as directors at
the Annual Meeting in accordance with the procedures set forth in this Section
shall be provided for use at the Annual Meeting.
SECTION 4. Qualification. No director need be a stockholder of the
-------------
Corporation.
SECTION 5. Vacancies. Subject to the rights, if any, of the holders of
---------
any series of 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 until the next Annual
Meeting of stockholders and until such director's successor shall have been duly
elected and qualified or until his or her earlier resignation or removal. 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 6. Removal. Directors may be removed from office in the manner
-------
provided in the Certificate.
SECTION 7. Resignation. A director may resign at any time by giving
-----------
written notice to the Chairman of the Board, if one is elected, the Chief
Executive Officer or the Secretary. A resignation shall be effective upon
receipt, unless the resignation otherwise provides.
SECTION 8. Regular Meetings. The regular annual meeting of the Board of
----------------
Directors shall be held, without notice other than this Section 8, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of stockholders. Other regular meetings of the Board of Directors may
be held at such hour, date and place as the Board of Directors may by resolution
from time to time determine without notice other than such resolution.
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SECTION 9. Special Meetings. Special meetings of the Board of Directors
----------------
may be called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the Chief Executive
Officer. The person calling any such special meeting of the Board of Directors
may fix the hour, date and place thereof.
SECTION 10. Notice of Meetings. Notice of the hour, date and place of all
------------------
special meetings of the Board of Directors shall be given to each director by
the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, or the Chief Executive Officer or such other officer designated by the
Chairman of the Board, if one is elected, or the Chief Executive Officer.
Notice of any special meeting of the Board of Directors shall be given to each
director in person, by telephone, or by facsimile, telex, telecopy, telegram, or
other written form of electronic communication, sent to his or her business or
home address, at least 24 hours in advance of the meeting, or by written notice
mailed to his or her business or home address, at least 48 hours in advance of
the meeting. Such notice shall be deemed to be delivered when hand delivered to
such address, read to such director by telephone, deposited in the mail so
addressed, with postage thereon prepaid if mailed, dispatched or transmitted if
faxed, telexed or telecopied, or when delivered to the telegraph company if sent
by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any
notice of the hour, date or place of any meeting adjourned for less than 30 days
or of the business to be transacted thereat, other than an announcement at the
meeting at which such adjournment is taken of the hour, date and place to which
the meeting is adjourned.
A written waiver of notice signed before or after a meeting by a director
and filed with the records of the meeting shall be deemed to be equivalent to
notice of the meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because such meeting is not lawfully called or
convened. Except as otherwise required by law, by the Certificate or by these
By-laws, neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 11. Quorum. At any meeting of the Board of Directors, a majority
------
of the directors then in office shall constitute a quorum for the transaction of
business, but if less than a quorum is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time, and the meeting may
be held as adjourned without further notice, except as provided in Section 10 of
this Article II. Any business which might have been transacted at the meeting
as originally noticed may be transacted at such adjourned meeting at which a
quorum is present.
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SECTION 12. Action at Meeting. At any meeting of the Board of Directors
-----------------
at which a quorum is present, a majority of the directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Certificate or by these By-laws.
SECTION 13. Action by Consent. Any action required or permitted to be
-----------------
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 14. Manner of Participation. Directors may participate in
-----------------------
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-laws.
SECTION 15. Committees. The Board of Directors, by vote of a majority of
----------
the directors then in office, may elect from its number one or more committees,
including, without limitation, an Executive Committee, a Compensation Committee,
a Stock Option Committee and an Audit Committee, and may delegate thereto some
or all of its powers except those which by law, by the Certificate or by these
By-laws may not be delegated. Except as the Board of Directors may otherwise
determine, any such committee may make rules for the conduct of its business,
but unless otherwise provided by the Board of Directors or in such rules, its
business shall be conducted so far as possible in the same manner as is provided
by these By-laws for the Board of Directors. All members of such committees
shall hold such offices at the pleasure of the Board of Directors. The Board of
Directors may abolish any such committee at any time. Any committee to which
the Board of Directors delegates any of its powers or duties shall keep records
of its meetings and shall report its action to the Board of Directors. The
Board of Directors shall have power to rescind any action of any committee, to
the extent permitted by law, but no such rescission shall have retroactive
effect.
SECTION 16. Compensation of Directors. Directors shall receive such
-------------------------
compensation for their services as shall be determined by a majority of the
Board of Directors provided that directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as directors of the
Corporation.
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ARTICLE III
-----------
Officers
--------
SECTION 1. Enumeration. The officers of the Corporation shall consist of
-----------
a Chief Executive Officer, a Treasurer, a Secretary and such other officers,
including, without limitation, a Chairman of the Board of Directors, a
President, a Chief Financial Officer, a Chief Operating Officer and one or more
Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents),
Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as
the Board of Directors may determine.
SECTION 2. Election. At the regular annual meeting of the Board following
--------
the Annual Meeting of stockholders, the Board of Directors shall elect the Chief
Executive Officer, the Treasurer and the Secretary. Other officers may be
elected by the Board of Directors at such regular annual meeting of the Board of
Directors or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a director.
-------------
Any person may occupy more than one office of the Corporation at any time. Any
officer may be required by the Board of Directors to give bond for the faithful
performance of his or her duties in such amount and with such sureties as the
Board of Directors may determine.
SECTION 4. Tenure. Except as otherwise provided by the Certificate or by
------
these By-laws, each of the officers of the Corporation shall hold office until
the regular annual meeting of the Board of Directors following the next Annual
Meeting of stockholders and until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
SECTION 5. Resignation. Any officer may resign by delivering his or her
-----------
written resignation to the Corporation addressed to the Chief Executive Officer
or the Secretary, and such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
SECTION 6. Removal. Except as otherwise provided by law, the Board of
-------
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the directors then in office.
SECTION 7. Absence or Disability. In the event of the absence or
---------------------
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the
---------
unexpired portion of the term by the Board of Directors.
SECTION 9. Chief Executive Officer. The Chief Executive Officer shall,
-----------------------
subject to the direction of the Board of Directors, have general supervision and
control of the Corporation's business. If there is no Chairman of the Board or
if he or she is absent, the Chief Executive Officer shall preside, when present,
at all meetings of stockholders and of the Board of Directors. The Chief
Executive Officer shall have such other powers and perform such other duties as
the Board of Directors may from time to time designate.
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SECTION 10. Chairman of the Board. The Chairman of the Board, if one is
---------------------
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
SECTION 11. President. The President, if one is elected, shall have such
---------
powers and shall perform such duties as the Board of Directors may from time to
time designate.
SECTION 12. Vice Presidents and Assistant Vice Presidents. Any Vice
---------------------------------------------
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 13. Treasurer and Assistant Treasurers. The Treasurer shall,
----------------------------------
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have
such other duties and powers as may be designated from time to time by the Board
of Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 14. Secretary and Assistant Secretaries. The Secretary shall
-----------------------------------
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose.
In his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the absence
of the Secretary, any Assistant Secretary may perform his or her duties and
responsibilities.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
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SECTION 15. Other Powers and Duties. Subject to these By-laws and to such
-----------------------
limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
ARTICLE IV
----------
Capital Stock
-------------
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to a
---------------------
certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the President or a Vice
President and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. The Corporation seal and the signatures by the
Corporation's officers, the transfer agent or the registrar may be facsimiles.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the time of its issue. Every
certificate for shares of stock which are subject to any restriction on transfer
and every certificate issued when the Corporation is authorized to issue more
than one class or series of stock shall contain such legend with respect thereto
as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and unless
---------
otherwise provided by the Board of Directors, shares of stock may be transferred
only on the books of the Corporation by the surrender to the Corporation or its
transfer agent of the certificate theretofore properly endorsed or accompanied
by a written assignment or power of attorney properly executed, with transfer
stamps (if necessary) affixed, and with such proof of the authenticity of
signature as the Corporation or its transfer agent may reasonably require.
SECTION 3. Record Holders. Except as may otherwise be required by law, by
--------------
the Certificate or by these By-laws, the Corporation shall be entitled to treat
the record holder of stock as shown on its books as the owner of such stock for
all purposes, including the payment of dividends and the right to vote with
respect thereto, regardless of any transfer, pledge or other disposition of such
stock, until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of his
or her post office address and any changes thereto.
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SECTION 4. Record Date. In order that the Corporation may determine
-----------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date: (a) in the case of determination of stockholders entitled to vote at any
meeting of stockholders, shall, unless otherwise required by law, not be more
than sixty nor less than ten days before the date of such meeting and (b) in the
case of any other action, shall not be more than sixty days prior to such other
action. If no record date is fixed: (i) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held and (ii) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
---------------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
---------
Indemnification
---------------
SECTION 1. Definitions. For purposes of this Article:
-----------
(a) "Director" means any person who serves or has served the Corporation as
a director on the Board of Directors of the Corporation.
(b) "Officer" means any person who serves or has served the Corporation as
an officer appointed by the Board of Directors of the Corporation;
(c) "Non-Officer Employee" means any person who serves or has served as an
employee of the Corporation, but who is not or was not a Director or Officer;
(d) "Proceeding" means any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, inquiry, investigation,
administrative hearing or other proceeding, whether civil, criminal,
administrative, arbitrative or investigative;
(e) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom presentation aids
and devices, costs incurred in connection with document review,
14
<PAGE>
organization, imaging and computerization, telephone charges, postage, delivery
service fees, and all other disbursements, costs or expenses of the type
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, being or preparing to be a witness in,
settling or otherwise participating in, a Proceeding;
(f) "Corporate Status" describes the status of a person who (i) in the case
of a Director, is or was a director of the Corporation and is or was acting in
such capacity, (ii) in the case of an Officer, is or was an officer, employee or
agent of the Corporation or is or was a director, officer, employee, trustee or
agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such Officer is or was serving at the
request of the Corporation, and (iii) in the case of a Non-Officer Employee, is
or was an employee of the Corporation or is or was a director, officer,
employee, trustee or agent of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such Non-Officer Employee
is or was serving at the request of the Corporation; and
(g) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding.
SECTION 2. Indemnification of Directors and Officers. Subject to the
-----------------------------------------
operation of Section 4 of this Article V, each Director and Officer shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Director or Officer or on such Director or
Officer's behalf in connection with any threatened, pending or completed
Proceeding or any claim, issue or matter therein, which such Director or Officer
is, or is threatened to be made, a party to or participant in by reason of such
Director \or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 2 shall
continue as to a Director or Officer after he or she has ceased to be a Director
or Officer and shall inure to the benefit of his or her heirs, executors,
administrators and personal representatives. Notwithstanding the foregoing, the
Corporation shall indemnify any Director or Officer seeking indemnification in
connection with a Proceeding initiated by such Director or Officer only if such
Proceeding was authorized by the Board of Directors of the Corporation.
SECTION 3. Indemnification of Non-Officer Employees. Subject to the
----------------------------------------
operation of Section 4 of this Article V, each Non-Officer Employee may, in the
discretion of the Board of Directors of the Corporation, be indemnified by the
Corporation to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended, against any or all Expenses,
15
<PAGE>
judgments, penalties, fines and amounts reasonably paid in settlement that are
incurred by such Non-Officer Employee or on such Non-Officer Employee's behalf
in connection with any threatened, pending or completed Proceeding, or any
claim, issue or matter therein, which such Non-Officer Employee is, or is
threatened to be made, a party to or participant in by reason of such Non-
Officer Employee's Corporate Status, if such Non-Officer Employee acted in good
faith and in a manner such Non-Officer Employee reasonably believed to be in or
not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 3 shall
continue as to a Non-Officer Employee after he or she has ceased to be a Non-
Officer Employee and shall inure to the benefit of his or her heirs, personal
representatives, executors and administrators. Notwithstanding the foregoing,
the Corporation may indemnify any Non-Officer Employee seeking indemnification
in connection with a Proceeding initiated by such Non-Officer Employee only if
such Proceeding was authorized by the Board of Directors of the Corporation.
SECTION 4. Good Faith. No indemnification shall be provided pursuant to
----------
this Article V to a Director, to an Officer or to a Non-Officer Employee with
respect to a matter as to which such person shall have been finally adjudicated
in any Proceeding (i) not to have acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation and (ii) with respect to any criminal Proceeding, to have had
reasonable cause to believe his or her conduct was unlawful. In the event that
a Proceeding is compromised or settled prior to final adjudication so as to
impose any liability or obligation upon a Director, an Officer or a Non-Officer
Employee, no indemnification shall be provided pursuant to this Article V to
said Director, Officer or Non-Officer Employee with respect to a matter if there
be a reasonable good faith determination that with respect to such matter such
person did not act in good faith and in a manner such person reasonably believed
to be in, or not opposed to, the best interests of the Corporation, and, with
respect to any criminal Proceeding, had reasonable cause to believe his or her
conduct was unlawful. The determination contemplated by the preceding sentence
shall be made (a) by a majority vote of the Disinterested Directors, even though
less than a quorum of the Board of Directors, (b) by a committee of
Disinterested Directors designated by a majority vote of Disinterested
Directors, even though less than a quorum of the Board of Directors, (c) if
there are no such Disinterested Directors, or if a majority of Disinterested
Directors so direct, by independent legal counsel in a written opinion, or (d)
by the stockholders of the Corporation.
SECTION 5. Advancement of Expenses to Directors Prior to Final
---------------------------------------------------
Disposition. The Corporation shall advance all Expenses incurred by or on behalf
of any Director in connection with any Proceeding in which such Director is
involved by reason of such Director's Corporate Status within ten days after the
receipt by the Corporation of a written statement from such Director requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.
16
<PAGE>
SECTION 6. Advancement of Expenses to Officers and Non-Officer Employees
-------------------------------------------------------------
Prior to Final Disposition. The Corporation may, in the discretion of the Board
- --------------------------
of Directors of the Corporation, advance any or all Expenses incurred by or on
behalf of any Officer or Non-Officer Employee in connection with any Proceeding
in which such Officer or Non-Officer Employee is involved by reason of such
Officer or Non-Officer Employee's Corporate Status upon the receipt by the
Corporation of a statement or statements from such Officer or Non-Officer
Employee requesting such advance or advances from time to time, whether prior to
or after final disposition of such Proceeding. Such statement or statements
shall reasonably evidence the Expenses incurred by such Officer or Non-Officer
Employee and shall be preceded or accompanied by an undertaking by or on behalf
of such Officer or Non-Officer Employee to repay any Expenses so advanced if it
shall ultimately be determined that such Officer or Non-Officer Employee is not
entitled to be indemnified against such Expenses.
SECTION 7. Contractual Nature of Rights. The foregoing provisions of this
----------------------------
Article V shall be deemed to be a contract between the Corporation and each
Director and Officer who serves in such capacity at any time while this Article
V is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any Proceeding theretofore or thereafter brought based
in whole or in part upon any such state of facts. If a claim for
indemnification or advancement of Expenses hereunder by a Director or Officer is
not paid in full by the Corporation within (a) 60 days after the Corporation's
receipt of a written claim for indemnification, or (b) in the case of a
Director, 10 days after the Corporation's receipt of documentation of Expenses
and the required undertaking, such Director or Officer may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim, and if successful in whole or in part, such Director or Officer shall
also be entitled to be paid the expenses of prosecuting such claim. The failure
of the Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination concerning
the permissibility of such indemnification or, in the case of a Director,
advancement of Expenses, under this Article V shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible.
SECTION 8. Non-Exclusivity of Rights. The rights to indemnification and
-------------------------
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
or these By-laws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
SECTION 9. Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any Director, Officer or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer or Non-Officer Employee, or arising
out of any such person's Corporate Status, whether or not the Corporation would
have the power to indemnify such person against such liability under the DGCL or
the provisions of this Article V.
17
<PAGE>
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
SECTION 1. Fiscal Year. Except as otherwise determined by the Board of
-----------
Directors, the fiscal year of the Corporation shall end on the last day of
December of each year.
SECTION 2. Seal. The Board of Directors shall have power to adopt and
----
alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
------------------------
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the Chief Executive Officer or the Treasurer or any other officer,
employee or agent of the Corporation as the Board of Directors or Executive
Committee, if one is elected, may authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors otherwise
--------------------
provides, the Chairman of the Board, if one is elected, the Chief Executive
Officer or the Treasurer may waive notice of and act on behalf of this
Corporation, or appoint another person or persons to act as proxy or attorney in
fact for this Corporation with or without discretionary power and/or power of
substitution, at any meeting of stockholders or shareholders of any other
corporation or organization, any of whose securities are held by this
Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a resident
--------------
agent upon whom legal process may be served in any action or proceeding against
the Corporation.
SECTION 6. Corporate Records. The original or attested copies of the
-----------------
Certificate, By-laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock transfer books, which
shall contain the names of all stockholders, their record addresses and the
amount of stock held by each, may be kept outside the State of Delaware and
shall be kept at the principal office of the Corporation, at the office of its
counsel or at an office of its transfer agent or at such other place or places
as may be designated from time to time by the Board of Directors.
SECTION 7. Amendment of By-laws.
--------------------
(a) Amendment by Directors. Except as provided otherwise by law, these
--- ----------------------
By-laws may be amended or repealed by the Board of Directors by the affirmative
vote of a majority of the directors then in office.
18
<PAGE>
(b) Amendment by Stockholders. These By-laws 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 three-fourths of the
shares present in person or represented by proxy at such meeting and entitled to
vote on such amendment or repeal, 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 the majority of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class.
Adopted May 19, 1998 and effective as of May 19, 1998.
19
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 2 TO STOCK PURCHASE AGREEMENT
This AMENDMENT NO. 2 TO STOCK PURCHASE AGREEMENT (the "Amendment"), is made
and entered into as of December 15, 1998, by and among Merkert American
Corporation (formerly known as Monroe, Inc.), a Delaware corporation ("Buyer"),
Merkert Enterprises, Inc., a Massachusetts corporation (the "Company"), Eugene
F. Merkert and those individuals identified as Stockholders on the signature
pages to this Amendment (each, individually a "Stockholder" and collectively the
"Stockholders"). Capitalized terms used herein and not otherwise defined shall
have the meaning provided in the Purchase Agreement, as hereinafter defined.
WHEREAS, the parties hereto are parties to a Stock Purchase Agreement,
dated as of May 20, 1998, as amended as of November 18, 1998 (as so amended, the
"Purchase Agreement"); and
WHEREAS, the parties hereto desire to amend the Purchase Agreement as
provided herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
Section 1. Amendment. The Purchase Agreement is amended as set forth
---------
below:
(a) The second parenthetical in clause (c) of Section 1.2 of the Purchase
Agreement which reads "(written notice of which must be provided to the
Company and the Stockholders' Representative not less than ten (10) days
prior to the Closing Date)," is deleted in its entirety and is replaced by
the following:
(written notice of which must be provided to the Company and the
Stockholders' Representative no later than 9:00 a.m., Boston time, on the
first (1st) business day after the date on which the IPO Price is agreed to
by Buyer and the managing underwriter of the IPO),
(b) Section 1.4 of the Purchase Agreement is amended to add a new paragraph
to the end of such Section, which paragraph shall read in its entirety as
follows:
In the event that, after the Closing but in any event within one
hundred fifty (150) days after the Closing, the IRS waives or reduces
and refunds to the Company the failure to pay penalties with respect
to the Settled Audits which are included in the Audit Amount (which
penalties aggregate $397,524.36 assuming payment to the IRS in full
with respect to the Settled Audits on December 18, 1998) (the "FTP
Penalties"), Buyer agrees to pay to each Stockholder such
Stockholder's Common Proportionate Share of the actual cash amount
received by the Company from the IRS with respect to the FTP
Penalties. Such payment, if any, will be paid to the Stockholders no
later than
<PAGE>
fifteen (15) days after the date on which the Company receives the
refund of the FTP Penalties. Subject to the foregoing, such payment
will be paid by wire transfer of immediately available funds to the
accounts specified by each Stockholder prior to the Closing, or, if
not so specified, by check. The Company will not take any action which
would result in any such waiver, reduction or refund of the FTP
Penalties being treated as other than a cash refund (including as a
credit or reduction of other tax liabilities).
(c) Section 1.4A of the Purchase Agreement is deleted in its entirety and
is replaced by the following:
1998 Taxes. As additional consideration for the transfer by the
----------
Stockholders to Buyer of the Company Shares, Buyer agrees to pay to
each Stockholder such Stockholder's Common Proportionate Share of the
actual amount received by the Company, if any, as a refund with
respect to the Company's federal income tax return for the Company's
taxable year ended August 31, 1998 (collectively, the "Additional
----------
Payments"). The Additional Payments, if any, shall be paid to the
--------
Stockholders no later than fifteen (15) days after the date on which
the Company receives its final refund with respect to the Company's
federal income tax return for the Company's taxable year ended August
31, 1998. Subject to the foregoing, the Additional Payments shall be
paid by wire transfer of immediately available funds to the accounts
specified by each Stockholder prior to the Closing, or, if not so
specified, by certified check. If the Company takes any action after
the Closing which would reduce the amount of the Additional Payments,
the Additional Payments will not be so reduced but will be treated as
if such action had not been taken.
The Company shall have the right to prepare and file (or cause
its accountants to prepare and file) prior to the Closing the
Company's federal income tax return for its taxable year ended August
31, 1998. If the Company elects to prepare and file (or cause its
accountants to prepare and file) such federal income tax return, the
Company will also prepare and file (or cause its accountants to
prepare and file) together with such federal income tax return (i) an
election under Section 172(b)(3) of the Code to relinquish the entire
carryback period with respect to the net operating loss for the
Company's taxable year ended August 31, 1998 (the "1998 NOL") and (ii)
an election under Section 172(f)(6) of the Code to have the carryback
period with respect to the Company's taxable year ended August 31,
1998 determined without regard to Section 172(b)(1)(C) of the Code.
Buyer shall have the right to review and discuss such federal income
tax return and such elections with the Company prior to filing. The
Company represents and warrants that since February 1, 1998 it has not
filed IRS Form 1120X or Form 1139 or otherwise made a refund claim
with respect to any taxable year or taken any action inconsistent with
the
2
<PAGE>
elections under Sections 172(b)(3) and 172(f)(6) of the Code
required under this paragraph. The Company covenants and agrees that
from and after the date hereof and through the Closing Date, it will
not file IRS Form 1120X or Form 1139 or otherwise make a refund claim
with respect to any taxable year or take any action inconsistent with
the elections under Sections 172(b)(3) and 172(f)(6) of the Code
required under this paragraph.
(d) Section 1.9 of the Purchase Agreement is deleted in its entirety and is
replaced by the following:
Indemnification Escrow. On the Closing Date, Buyer shall deposit into
----------------------
escrow (the "Indemnity Escrow") with the Escrow Agent (a) cash in the
----------------
aggregate amount of $3,891,161 (the "Cash Escrow Amount") and (b) a
------------------
number of shares of Buyer Common Stock (rounded to the nearest whole
share) equal to (i) $1,300,000 divided by (ii) the IPO Price (the
"Escrowed Shares"), to be held, invested and distributed by the Escrow
----------------
Agent in accordance with the terms of an indemnification escrow
agreement in substantially the form attached hereto as Exhibit D (the
---------
"Indemnification Escrow Agreement"). The cash portion of the Total
--------------------------------
Consideration otherwise payable to each Stockholder shall be reduced
by such Stockholder's Common Proportionate Share of the Cash Escrow
Amount. The number of shares of Buyer Common Stock to be delivered to
each Stockholder at the Closing pursuant to Section 1.2 shall be
reduced by such Stockholder's Common Proportionate Share of the number
of Escrowed Shares. Notwithstanding the foregoing, the cash portion of
the Total Consideration payable in respect of the Preferred Shares and
the shares of Buyer Common Stock deliverable in respect of Preferred
Shares shall not be reduced and shall not participate in the Indemnity
Escrow.
(e) Section 2.3(b) of the Purchase Agreement is deleted in its entirety and
is replaced by the following:
The Stockholders own of record and, except for (i) the trust fund (the
"ESOP Trust Fund") referred to in Article 2.17 of the Merkert
---------------
Enterprises, Inc. Employee Stock Ownership Plan as amended and
restated by the Ninth Amendment, effective as of January 1, 1997, as
amended by the Tenth Amendment, effective as of September 1, 1997,
(the "ESOP"), (ii) the Merkert Trust and (iii) the Eugene F. Merkert
----
1991 Charitable Remainder Unitrust (the "Merkert CRUT"), beneficially,
all of the issued and outstanding shares of capital stock of the
Company as set forth on Exhibit A hereto.
---------
(f) The parenthetical in Section 8.2(b) of the Purchase Agreement is
deleted in its entirety and is replaced by the following:
3
<PAGE>
(giving effect to the Schedules and, with respect to the
representations and warranties contained in the first sentence of
Section 2.6(a), the first sentence of Section 2.6(a)(ii), Section
2.11, the last sentence of Section 2.15 and Section 2.30(b), to the
Closing Disclosure Supplement and any Company Disclosure Supplement)
(g) Section 8.2(i) of the Purchase Agreement is deleted in its entirety and
is replaced by the following:
Employment and Non-Competition Agreements. The existing Employment
-----------------------------------------
Agreements between each of Gerald R. Leonard, Glenn F. Gillam and
Murray C. Rosen and the Company shall have been terminated, and each
of Gerald R. Leonard, Glenn F. Gillam and Sidney D. Rogers, Jr. shall
have executed and delivered to Buyer an Employment and Non-Competition
Agreement in substantially the form of Exhibit H attached hereto.
---------
(h) The third sentence of Section 10.7 of the Purchase Agreement is deleted
in its entirety and is replaced by the following:
In determining Losses hereunder, due account shall be taken of all
relevant factors, including, without limitation, the net present value of
(i) any insurance proceeds (net of any negative tax effects) and (ii) any
deduction, credit, amortization, exclusion from income or other tax benefit
realized by the indemnified party on the account of any Loss; provided that
(x) Buyer Indemnifiable Losses relating to the Audit Liabilities will not
be reduced by any such tax benefit which results from any appeal, dispute
or contest of the Settled Audits by Buyer or the Company and (y) Buyer
Indemnifiable Losses will not be reduced for any reason as a result of the
1998 NOL or any use, application or benefit of the 1998 NOL.
(i) Schedule 1.4 (Audit Amount) to the Purchase Agreement is deleted in its
entirety and is replaced by Schedule 1.4 attached hereto.
(j) Exhibit A (List of Stockholders) to the Purchase Agreement is deleted
in its entirety and is replaced by Exhibit A attached hereto.
(k) Exhibit B (Allocation of Total Consideration) to the Purchase Agreement
is deleted in its entirety and is replaced by Exhibit B attached hereto.
(l) Exhibit D (Form of Indemnification Escrow Agreement) to the Purchase
Agreement is deleted in its entirety and is replaced by Exhibit D attached
hereto.
4
<PAGE>
Section 2. Governing Law. This Amendment shall be construed under and
-------------
governed by the internal laws of The Commonwealth of Massachusetts without
regard to its conflict of laws provisions.
Section 3. Counterparts. For the convenience of the parties, this
------------
Amendment may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which shall constitute one and the same document.
[Remainder of page intentionally left blank]
5
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be
executed as of the date set forth above by their duly authorized
representatives.
MERKERT AMERICAN CORPORATION
By: /s/ James L. Monroe
---------------------------------
James L. Monroe
President
MERKERT ENTERPRISES, INC.
By: /s/ Gerald R. Leonard
---------------------------------
Gerald R. Leonard
Chief Executive Officer
S-1
<PAGE>
STOCKHOLDERS
------------
/s/ Edward Cassorla
-------------------
Edward Cassorla
40 Bristol Road
West Newton, MA 02165
/s/ Kenneth D. Chipman
----------------------
Kenneth D. Chipman
31 Robin Road
Norfolk, MA 02056
/s/ Robert Q.Crane
------------------
Robert Q. Crane
7 Mountview Road
Wellesley Hills, MA 02181
/s/ Manley J. Kiley, Jr.
------------------------
Manley J. Kiley, Jr.
269 Marshall Street
Duxbury, MA 02332
/s/ Gerald R. Leonard
---------------------
Gerald R. Leonard
339 Far Reach Road
Westwood, MA 02090
/s/ Eugene F. Merkert
---------------------
Eugene F. Merkert
2359 South Ocean Boulevard
Highland Beach, FL 33487-1834
S-2
<PAGE>
EUGENE F. MERKERT 1984 REVOCABLE
TRUST
/s/ Eugene F. Merkert
----------------------------------
Eugene F. Merkert, Trustee
/s/ Robert Q. Crane
----------------------------------
Robert Q. Crane, Trustee
/s/ Tuyet Payne
----------------------------------
Tuyet Payne, Trustee
EUGENE F. MERKERT 1991 CHARITABLE
REMAINDER UNITRUST
/s/ Eugene F. Merkert
----------------------------------
Eugene F. Merkert, Trustee
/s/ Robert Q. Crane
----------------------------------
Robert Q. Crane, Trustee
MERKERT ENTERPRISES, INC.
EMPLOYEE STOCK OWNERSHIP TRUST
/s/ James A. Schlindwein
----------------------------------
James A. Schlindwein, as Trustee and not individually
500 Turnpike Street
Canton, MA 02021
/s/ Sidney D. Rogers, Jr.
----------------------------------
Sidney D. Rogers, Jr.
11 Day Street
Norfolk, MA 02056
/s/ Murray C. Rosen
----------------------------------
Murray C. Rosen
11 Fairview Drive
N. Caldwell, NJ 07006
S-3
<PAGE>
EXHIBIT 10.11
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of December 18,
1998, by and among Merkert American Corporation (formerly Monroe, Inc.), a
Delaware corporation (the "Company"), and each of the holders named on the
signature pages hereto (collectively, the "Holders" and each individually, a
"Holder").
This Agreement is contemplated by Section 8.1(e) of that certain Stock
Purchase Agreement, dated as of May 20, 1998, amended as of November 18, 1998
and December 15, 1998 (as so amended, the "Purchase Agreement") by and among the
Company, Merkert Enterprises, Inc., a Massachusetts corporation, Eugene F.
Merkert and the Holders.
The parties hereby agree as follows:
Section 1. Definitions.
-----------
As used in this Agreement, the following terms shall have the following
meanings:
"Business Day" means any day other than a day on which banks are authorized
------------
or required to be closed in the State of New York.
"Closing Date" has the meaning ascribed thereto in the Purchase Agreement.
------------
"Commission" means the Securities and Exchange Commission.
----------
"Common Shares" means (i) the 1,166,667 shares of Common Stock received by
-------------
the Holders pursuant to the Purchase Agreement and (ii) any shares of Common
Stock issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, the shares of Common
Stock described in the preceding clause (i).
"Common Stock" means the common stock, par value $.01 per share, of the
------------
Company.
"Company" has the meaning set forth in the preamble and shall include the
-------
Company's successors by merger, acquisition, reorganization or otherwise.
"Controlling Persons" has the meaning set forth in Section 6(a).
-------------------
"Damages" has the meaning set forth in Section 6(a).
-------
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
------------
time to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"Holder Information" has the meaning set forth in Section 8.
------------------
"Person" means any individual, corporation, partnership, limited liability
------
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or other agency or political subdivision thereof.
"Prospectus" means the prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, and by all other
amendments and supplements to the prospectus, including post-effective
amendments, and in each case including all material incorporated by reference or
deemed to be incorporated by reference in such prospectus.
"Qualified Holder" has the meaning set forth in Section 2(a).
----------------
"Registrable Securities" means the Common Shares except for (i) Common
----------------------
Shares the sale of which is covered by a Registration Statement that has been
declared effective under the Securities Act and (ii) Common Shares which cease
to be outstanding.
"Registration Expenses" has the meaning set forth in Section 5.
---------------------
"Registration Statement" means any registration statement of the Company
----------------------
that covers any of the Registrable Securities pursuant to the provisions of this
Agreement and all amendments and supplements to any such registration statement,
including post-effective amendments, in each case including the Prospectus, all
exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Securities Act" means the Securities Act of 1933, as amended from time to
--------------
time, or any successor statute, and the rules and regulations of the Commission
promulgated thereunder.
"Selling Stockholders" has the meaning set forth in Section 2(b).
--------------------
"Suspension Notice" has the meaning set forth in Section 4.
-----------------
"Suspension Period" has the meaning set forth in Section 4.
-----------------
2
<PAGE>
Section 2. Piggy-back Registrations.
------------------------
(a) If at any time or times after the date hereof the Company shall
determine to register under the Securities Act any shares of Common Stock
(including, but not limited to, a registration statement for a secondary
offering, but excluding a registration statement on Form S-4 or S-8 (or then
equivalent forms) or a registration statement filed in connection with an
exchange offer or offering of securities solely to the Company's existing
securityholders) and the form of registration statement to be used permits the
registration of Registrable Securities, then the Company shall promptly give
written notice of such proposed registration to the Holders (but in no event
less than thirty (30) days prior to the anticipated effective date of the
registration statement) and will afford any Holder who, at the time such notice
is given, does not meet the requirements of Rule 144 promulgated under the
Securities Act for such Holder to sell all of such Holder's Registrable
Securities pursuant to such Rule during the four-week period immediately
preceding the anticipated effective date of such registration statement (a
"Qualified Holder"), the opportunity to include in such registration statement
all of the Registrable Securities held by such Qualified Holder. If within
twenty (20) days after the receipt of such notice the Company receives a written
request from any Qualified Holder for the inclusion in such registration of some
or all of the Registrable Securities held by such Qualified Holder (which
request shall specify the number of Registrable Securities intended to be
disposed of by such Qualified Holder and the intended method of distribution
thereof), the Company shall use all commercially reasonable efforts to cause
such Registrable Securities to be included in such registration on the same
terms and conditions as any similar securities of the Company or any other
securityholder included therein and to permit the sale or other disposition of
such Registrable Securities in accordance with the intended method of
distribution thereof. The Company may withdraw a registration under this
Section 2 at any time prior to the time it becomes effective, provided that the
Company shall give prompt notice of such withdrawal to the Qualified Holders
which requested to be included in such registration.
(b) In connection with any offering under this Section 2 involving an
underwriting, the Company shall not be required to include a Holder's
Registrable Securities in the underwritten offering unless such Holder accepts
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by the Company. If the managing underwriter of an
underwritten offering with respect to which registration has been requested by
any Holder pursuant to this Section 2 has advised the Company in writing (a copy
of which shall be provided to the Qualified Holders requesting such
registration) that, in such underwriter's good faith judgment, the number of
securities to be sold in such offering by persons other than the Company
(collectively, "Selling Stockholders") is greater than the number which can be
offered without adversely affecting such offering, then the Company may reduce
the number of securities to be included in such offering for the accounts of
Selling Stockholders (including the Holders) to a number deemed satisfactory by
the managing underwriter, provided, however, that the securities to be excluded
-------- -------
shall be determined in the following order of priority: first, securities held
by any Selling Stockholder not having contractual, incidental registration
rights; and second, securities held by any Selling
3
<PAGE>
Stockholders (including the Holders) participating in such offering pursuant to
the exercise of contractual piggyback or demand registration rights, as
determined on a pro rata basis (based upon the aggregate number of securities
held by such Selling Stockholders). In addition, if, in the written opinion of
tax counsel to the Company or its independent auditors (a copy of which shall be
provided to the Qualified Holders requesting registration), the number of
securities to be sold by Selling Stockholders in an offering with respect to
which registration has been requested by any Holder pursuant to this Section 2
could jeopardize the status of the transactions contemplated by the Purchase
Agreement as exchanges qualifying under Section 351 of the Internal Revenue Code
of 1986, as amended, then the Company may reduce the number of securities to be
included in such offering for the accounts of Selling Stockholders (including
the Holders) to a number deemed satisfactory by such tax counsel, in the order
of priority set forth in the immediately preceding sentence.
(c) Each Holder hereby agrees that such Holder may not participate in
any underwritten offering hereunder unless such Holder (i) agrees to sell such
Holder's Registrable Securities on the basis provided in the underwriting
arrangements for such offering, and (ii) completes and executes all customary
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of the underwriting
arrangements; provided, however, that no Holder shall be required to provide any
indemnification greater in scope than the indemnification provided pursuant to
Section 6(b) of this Agreement.
Section 3. Registration Procedures.
-----------------------
In connection with the obligations of the Company to register Registrable
Securities pursuant to the terms and conditions of this Agreement:
(a) The Company shall prepare and file with the Commission a
Registration Statement on the appropriate form under the Securities Act,
which form shall comply as to form in all materials respects with the
requirements of the applicable form and include all financial statements
required by the Commission to be filed therewith.
(b) The Company shall (i) prepare and file with the Commission such
amendments and post-effective amendments to any Registration Statement as
may be necessary to keep such Registration Statement effective until the
earlier of (A) one hundred eighty (180) days following the effectiveness of
such Registration Statement; provided, however, that such 180-day period
shall be extended by the number of days for which any Suspension Period is
in effect during the effectiveness of such Registration Statement, or (B)
the completion of the proposed offering of Registrable Securities pursuant
to such Registration Statement, (ii) cause the prospectus included in such
Registration Statement to be supplemented by any required prospectus
supplement, and, as so supplemented, to be filed pursuant to Rule 424 under
the Securities Act and
4
<PAGE>
(iii) comply with the provisions of the Securities Act applicable to it
with respect to the disposition of all Registrable Securities covered by
such Registration Statement.
(c) The Company shall furnish to any Holder, without charge, such
number of conformed copies of any Registration Statement and any post-
effective amendment thereto and such number of copies of the Prospectus
(including each preliminary Prospectus) and any amendments or supplements
thereto, as such Holder may reasonably request in order to facilitate the
sale of such Holder's Registrable Securities.
(d) The Company shall use all commercially reasonable efforts to
register or qualify the Registrable Securities covered by any Registration
Statement under such other securities or "blue sky" laws of such states of
the United States as any Holder reasonably requests; provided, however,
-------- -------
that the Company shall not be required (i) to qualify generally to do
business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d), (ii) to file any general consent to
service of process, or (iii) to subject itself to taxation in any
jurisdiction where it would not otherwise be subject to taxation.
(e) The Company shall promptly notify each Holder of the happening of
any event which makes any statement made in any Registration Statement or
related Prospectus untrue or which requires the making of any changes in
such Registration Statement or Prospectus so that it will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
and promptly following expiration of any Suspension Period, the Company
shall prepare and file with the Commission and furnish a supplement or
amendment to such Prospectus so that, as thereafter deliverable to the
purchasers of Registrable Securities, such Prospectus will not contain any
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,
in light of the circumstances under which they were made, not misleading.
(f) The Company shall use all commercially reasonable efforts to
prevent the issuance of any order suspending the effectiveness of any
Registration Statement, and, if one is issued, the Company shall use all
commercially reasonable efforts to obtain the withdrawal of such order as
promptly as practicable.
(g) The Company shall cause the Registrable Securities included in any
Registration Statement to be listed on the New York Stock Exchange or such
other securities exchange on which the Common Stock is then listed.
5
<PAGE>
Section 4. Suspension Period.
-----------------
Each Holder, upon receipt of any notice (a "Suspension Notice") from the
Company of the happening of any event of the kind described in Section 3(e) or
of any event which, in the Company's reasonable business judgment, could become
such an event, shall immediately discontinue disposition of the Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 3(e) (the period from the date on which such
Holder receives a Suspension Notice to the date on which such Holder receives
copies of the supplemented or amended Prospectus is referred to herein as the
"Suspension Period"). If so directed by the Company, each Holder will deliver
to the Company all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable Securities that
is current at the time of receipt of such notice. In the event that the Company
shall give any Suspension Notice, the Company shall use all commercially
reasonable efforts and take such actions as are reasonably necessary to end the
Suspension Period as promptly as practicable.
Section 5. Registration Expenses.
---------------------
Subject to the proviso below, any and all expenses incident to the
Company's performance of or compliance with this Agreement, including without
limitation Commission and securities exchange registration and filing fees, fees
and expenses incurred in connection with compliance with state securities or
"blue sky" laws, printing expenses, fees and expenses incurred in connection
with the listing of the Registrable Securities and fees and disbursements of
counsel for the Company and of the independent certified public accountants of
the Company and, in connection with any piggy-back registration under Section 2,
the reasonable fees and disbursements, not to exceed $5,000 in the aggregate for
such piggy-back registration, of one firm of counsel to the Holders (all such
expenses being herein called "Registration Expenses"), will be borne by the
Company; provided, however, that Registration Expenses shall not include (a)
-------- -------
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of Registrable Securities (which shall be paid by the
selling Holders pro rata based on the number of Common Shares being sold by each
Holder), (b) any fees or expenses of any counsel (other than as provided above),
accountants or other persons retained or employed by the Holders, or (c) out-of-
pocket expenses of the Holders and their agents, including, without limitation,
any travel costs.
Section 6. Indemnification and Contribution.
--------------------------------
(a) Indemnification by the Company. The Company agrees to indemnify and
------------------------------
hold harmless, to the full extent permitted by law, each Holder, its officers,
directors, trustees, employees and agents and each Person, if any, which
controls such Holder within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, (collectively,
6
<PAGE>
"Controlling Persons"), from and against all losses, claims, damages,
liabilities and expenses (including without limitation any legal or other fees
and expenses reasonably incurred by any Holder or any such Controlling Person in
connection with defending or investigating any action or claim in respect
thereof) (collectively, "Damages") to which any of them may become subject under
the Securities Act or otherwise, insofar as such Damages arise out of or are
based upon (i) any untrue or alleged untrue statement of material fact contained
in any Registration Statement (including any related preliminary or final
Prospectus) pursuant to which Registrable Securities were registered under the
Securities Act, or (ii) any omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except insofar as such
Damages arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission based upon information furnished in writing
to the Company by such Holder expressly for use therein.
(b) Indemnification by the Holders. Each Holder agrees to indemnify and
------------------------------
hold harmless, to the full extent permitted by law, the Company, its directors,
officers, employees and agents and each Controlling Person of the Company, from
and against any and all Damages to which any of them may become subject under
the Securities Act or otherwise to the same extent as the foregoing indemnity
from the Company to such Holder, but only to the extent such Damages arise out
or are based upon any untrue statement or omission or alleged untrue statement
or omission based upon information furnished to the Company in writing by such
Holder expressly for use in any Registration Statement. In no event shall the
liability of any Holder for indemnification under this Section 6(b) in its
capacity as such (and not in such Holder's capacity as an officer or director of
the Company) exceed the proceeds received by such Holder from the sale of
Registrable Securities under such Registration Statement.
(c) Indemnification Procedures. In case any proceeding (including any
--------------------------
governmental investigation) shall be instituted involving any Person in respect
of which indemnity may be sought pursuant to either paragraph (a) or (b) above,
such Person (the "indemnified party") shall promptly notify the Person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceedings and shall pay the fees and
disbursements of such counsel relating to such proceeding. The failure or delay
of an indemnified party to notify the indemnifying party with respect to a
particular proceeding shall not relieve the indemnifying party from any
obligation or liability which it may have pursuant to this Agreement if the
indemnifying party is not prejudiced by such failure or delay. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent. No
indemnifying party shall, without the prior written consent of any indemnified
party (which consent shall not be unreasonably withheld), effect any settlement
of any pending or threatened proceeding in respect of which such indemnified
party is a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement
7
<PAGE>
includes an unconditional release of such indemnified party from all liability
on all claims that are the subject matter of such proceeding and such settlement
does not admit to the participation or conduct of any criminal activity.
(d) Contribution. To the extent that the indemnification provided for in
------------
paragraph (a) or (b) of this Section 6 is held by a court of competent
jurisdiction to be unavailable to an indemnified party in respect of any
Damages, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such Damages (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand, and each Holder on the other, from the offering of
the Registrable Securities or (ii) if the allocation provided by clause (i)
above 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 the Holders, on the
other, in connection with the statements or omissions which resulted in such
Damages, as well as any other relevant equitable considerations. The relative
fault of the Company on the one hand and of the Holders on the other hand shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or written
information supplied by the Holders and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
If indemnification is available under paragraph (a) or (b) of this Section
6, the indemnifying parties shall indemnify each indemnified party to the full
extent provided in such paragraphs without regard to the relative benefits to or
relative fault of said indemnifying party or indemnified party or any other
equitable consideration provided for in this Section 6(d).
The Company and each Holder agrees that it would not be just or equitable
if contribution pursuant to this Section 6(d) were determined by pro rata
--- ----
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the Damages referred to in this Section 6
shall be deemed to include any legal or other expenses reasonably incurred (and
not otherwise reimbursed) by such indemnified party in connection with
investigating or defending any such action or claim. In no event shall any
Holder be required to contribute an amount under this Section 6(d) in excess of
the proceeds received by such Holder from the sale of Registrable Securities
under the relevant Registration Statement. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
8
<PAGE>
Section 7. Restrictions on Sales by Holders.
--------------------------------
In the event of an underwritten public offering of securities of the
Company with respect to which the piggy-back registration rights pursuant to
Section 2 apply, each Holder who beneficially owns 5% or more of the issued and
outstanding Common Stock and who either (i) elects not to exercise such piggy-
back registration rights or (ii) elects to exercise such piggy-back registration
and all of the Registrable Securities requested by such Holder to be included in
such offering are so included, then such Holder shall, if the managing
underwriter (or underwriters) of such offering requires each director, officer
and 5% stockholder of the Company to do so, agree not to effect any sale or
disposition of any securities similar to those being registered in such offering
(other than pursuant to such offering) for such period, not to exceed the 14
days immediately prior to and the 180-day period following the effective date of
the relevant Registration Statement, as such managing underwriter(s) shall
specify. Such agreement shall be in form and substance satisfactory to the
Company and such underwriter.
Section 8. Information Furnished by Holders.
--------------------------------
Each Holder shall furnish to the Company such information ("Holder
Information") regarding such Holder and such Holder's intended method of
distribution of the Registrable Securities as the Company may from time to time
reasonably request in writing in order to comply with the Securities Act and the
provisions of this Agreement. Each Holder agrees (a) to notify the Company as
promptly as practicable of any inaccuracy or change in Holder information
previously furnished by the Holder to the Company or of the occurrence of any
event, in either case as a result of which any Prospectus contains or would
contain an untrue statement of a material fact regarding the Holder or the
Holder's intended method of distribution of the Registrable Securities or omits
or would omit to state any material fact regarding the Holder or the Holder's
intended method of distribution of the Registrable Securities required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and (b) to promptly furnish to the
Company any additional information required to correct and update any previously
furnished Holder Information or required so that the Prospectus shall not
contain, with respect to the Holder or the Holder's intended method of
distribution of the Registrable Securities, 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 in light of the circumstances then
existing.
Section 9. Miscellaneous.
-------------
(a) Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given except pursuant to a written instrument signed by the Company and the
Holders of a majority in interest of the Registrable Securities then
outstanding.
9
<PAGE>
(b) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by registered or certified mail (return
receipt requested), postage prepaid or courier to the parties at their
respective addresses set forth on the signature pages hereof (or at such other
address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof).
All such notices and communications shall be deemed to have been received: at
the time delivered by hand, if personally delivered; five Business Days after
being deposited in the mail, postage prepaid, if mailed; and on the next
Business Day if timely delivered to a courier guaranteeing overnight delivery.
(c) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders. If any transferee of any Holder shall acquire
Registrable Securities in any manner, whether by operation of law or otherwise,
such Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities such person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement and such person shall be entitled to
received the benefits hereof.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts without regard to
principles of conflicts of law.
(g) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
10
<PAGE>
(h) Entire Agreement. This Agreement is intended by the parties as a final
----------------
expression of their agreement and is intended to be the complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
(i) Further Assurances. Each party shall cooperate and take such action as
------------------
may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
(j) Rule 144. The Company shall timely file any reports required to be
--------
filed by it under the Securities Act and the Exchange Act to the extent required
from time to time to enable the Holders to sell Registrable Securities without
registration under the Securities Act pursuant to the exemption provided by Rule
144 under the Securities Act. Upon request of any Holder, the Company will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
[END OF TEXT]
11
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed by their respective officers hereunto duly
authorized, as of the day and year first above written.
COMPANY:
MERKERT AMERICAN CORPORATION
By: /s/ Gerald R. Leonard
---------------------
Gerald R. Leonard
President
490 Turnpike Street
Canton, MA 02021
HOLDERS:
/s/ Edward Cassorla
-------------------
Edward Cassorla
40 Bristol Road
West Newton, MA 02165
/s/ Kenneth D. Chipman
----------------------
Kenneth D. Chipman
31 Robin Road
Norfolk, MA 02056
/s/ Robert Q. Crane
-------------------
Robert Q. Crane
7 Mountview Road
Wellesley Hills, MA 02181
/s/ Manley J. Kiley, Jr.
------------------------
Manley J. Kiley, Jr.
35 Mill Pond Land
Duxbury, MA 02332
12
<PAGE>
/s/ Gerald R. Leonard
---------------------
Gerald R. Leonard
339 Far Reach Road
Westwood, MA 02090
MERKERT ENTERPRISES, INC. EMPLOYEE STOCK OWNERSHIP PLAN
By: /s/ James A. Schlindwein
------------------------
James A. Schlindwein, as Trustee and not
individually
500 Turnpike Street
Canton, MA 02021
/s/ Sidney D. Rogers, Jr.
-------------------------
Sidney D. Rogers, Jr.
11 Day Street
Norfolk, MA 02056
/s/ Murray C. Rosen
-------------------
Murray C. Rosen
11 Fairview Drive
N. Caldwell, NJ 07006
EUGENE F. MERKERT 1984 REVOCABLE TRUST
By: /s/ Eugene F. Merkert
---------------------
Eugene F. Merkert, Trustee
2359 South Ocean Boulevard
Highland Beach, FL 33487-1834
By: /s/ Robert Q. Crane
-------------------
Robert Q. Crane, Trustee
7 Mountview Road
Wellesley Hills, MA 02181
By: /s/ Tuyet Payne
---------------
Tuyet Payne, Trustee
13
<PAGE>
EUGENE F. MERKERT 1991 CHARITABLE REMAINDER UNITRUST
By: /s/ Eugene F. Merkert
---------------------
Eugene F. Merkert, Trustee
2359 South Ocean Boulevard
Highland Beach, FL 33487-1834
By: /s/ Robert Q. Crane
-------------------
Robert Q. Crane, Trustee
7 Mountview Road
Wellesley Hills, MA 02181
14
<PAGE>
EXHIBIT 10.12
TAX ESCROW AGREEMENT
--------------------
AGREEMENT made as of December 18, 1998 by and among Merkert American
Corporation (formerly known as Monroe, Inc.), a Delaware corporation ("Buyer"),
Robert Q. Crane, as Stockholders' Representative (as defined in the Purchase
Agreement (as defined below)), and State Street Bank and Trust Company, as
escrow agent (the "Escrow Agent"). Capitalized terms used herein and not
otherwise defined shall have the meaning provided in the Purchase Agreement, as
hereinafter defined.
WHEREAS, Buyer, Merkert Enterprises, Inc., a Massachusetts corporation
("Merkert"), Eugene F. Merkert and the Merkert Stockholders are parties to a
Stock Purchase Agreement dated as of May 20, 1998, amended as of November 18,
1998 and December 15, 1998 (as so amended, the "Purchase Agreement");
WHEREAS, pursuant to Section 1.4 of the Purchase Agreement, Buyer has
agreed to deposit an amount of cash with the Escrow Agent to hold, invest and
deliver pursuant to this Agreement; and
WHEREAS, the Escrow Agent is willing to enter into this Agreement and
perform as required herein in consideration of the premises and the mutual
obligations and promises contained in this Agreement on the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows.
1. Appointment of the Escrow Agent. Buyer and the Stockholders'
-------------------------------
Representative hereby appoint and designate State Street Bank and Trust Company
as Escrow Agent for the property described herein. The Stockholders'
Representative shall serve as exclusive representative of the Stockholders with
respect to the Escrow Fund and this Agreement.
2. Escrow Fund; Amounts Earned on Escrow Fund. Buyer shall deposit with
------------------------------------------
the Escrow Agent and the Escrow Agent agrees to accept TWO HUNDRED THIRTY ONE
THOUSAND SEVEN HUNDRED EIGHT DOLLARS ($231,708) to be held in a designated
separate account of the Escrow Agent (the "Escrow Account"). The consideration
deposited hereunder, inclusive of any earnings on the same, shall be referred to
as the "Escrow Fund." The Escrow Fund shall be invested from time to time in
Eligible Investments (as defined in Section 22) pursuant to (and as specified
in) the written direction of Buyer received by the Escrow Agent (which direction
shall include maturity terms selected by Buyer). The Escrow Agent shall be
entitled to presume that any maturity terms set forth in an investment
instruction from Buyer have been agreed to by Stockholders' Representative. The
Escrow Agent is authorized to liquidate any such investment at any time when
necessary to pay any amount hereunder. In no instance shall the Escrow Agent
have any liability for any loss on any such investment.
<PAGE>
3. Amounts Earned on Escrow Fund; Tax Matters. All amounts earned, paid
------------------------------------------
or distributed with respect to the Escrow Fund (whether interest, dividends or
otherwise) shall become a part of the Escrow Fund and shall be held hereunder
upon the same terms as the original Escrow Fund. The parties agree that (i) for
tax reporting purposes, and for any tax year, all interest or other income
earned from the investment of the Escrow Fund shall be allocable to Buyer and
(ii) to the extent permitted by applicable law, including Section 468B(g) of the
Internal Revenue Code of 1986, as amended, Buyer will include all amounts earned
on the Escrow Fund in its gross incomes for federal, state and local income tax
(collectively, "income tax") purposes and pay any income tax resulting
therefrom. Buyer and the Stockholders also agree for income tax purposes to
treat all amounts distributed to the Stockholders from the Escrow Fund as
increases in the cash portion of the Total Consideration paid by Buyer to the
Stockholders (subject to the application of Section 483 and/or 1274 of the
Internal Revenue Code of 1986, as amended). Buyer agrees to provide the Escrow
Agent with a certified tax identification number by signing and returning a Form
W-9 to the Escrow Agent prior to the date on which interest or other income is
first earned by the Escrow Fund. The parties hereto understand that, in the
event that such tax identification numbers are not certified to the Escrow Agent
prior to the date on which any income is first earned on the Escrow Fund, the
Internal Revenue Code, as amended from time to time, may require withholding of
a portion of any interest or other income earned on the investment of the Escrow
Fund.
4. Distribution of Escrow Fund. Distributions from the Escrow Fund shall
---------------------------
be made as follows:
(a) Upon receipt by the Escrow Agent of joint written instructions
signed by both Buyer and the Stockholders' Representative, the Escrow Agent
shall make payments out of the Escrow Fund in accordance with such
instructions in immediately available funds within five (5) business days
after receipt of such instructions or as soon as possible thereafter.
(b) Upon receipt by the Escrow Agent of a certificate (an "Interim
Distribution Certificate") signed by Buyer certifying that (i) enclosed
therewith is a true, accurate and complete copy of a demand for payment
(including any assessment or determination of an amount due), relating to
one or more Audits, from the Internal Revenue Service (the "IRS") and/or
any taxing authority of any state or locality, including the Massachusetts
Department of Revenue (any such taxing authority, the "DOR") or (ii) Buyer
reasonably believes the amount instructed to be paid therein is payable to
the IRS and/or the DOR, relating to one or more Audits, and instructing the
Escrow Agent to pay to the IRS and/or the DOR, as the case may be, the
amount set forth in such Interim Distribution Certificate, which Interim
Distribution Certificate shall be accompanied by the demand for payment, if
any, the Escrow Agent shall make payments to the IRS or the DOR out of the
Escrow Fund in accordance with such Interim Distribution Certificate in
immediately available funds within five (5) business days after receipt of
such Interim Distribution Certificate or as soon as possible thereafter.
2
<PAGE>
(c) Upon receipt by the Escrow Agent of a certificate (a "Final
Distribution Certificate") signed by Buyer certifying that (i) full and
final settlements with the IRS and the DOR of all matters relating to the
Audits have been reached, and (ii) either (A) enclosed therewith is a true,
accurate and complete copy of a demand for payment (including any
assessment or determination of an amount due) from the IRS and/or the DOR
or (B) Buyer reasonably believes the amount instructed to be paid therein
to the IRS and/or the DOR is payable to the IRS and/or the DOR, and
instructing the Escrow Agent to (x) pay to the IRS and/or the DOR, as the
case may be, the amount set forth in such Final Distribution Certificate
and (y) pay in accordance with such Final Distribution Certificate the
remaining balance, if any, of the Escrow Fund, the Escrow Agent shall make
payments out of the Escrow Fund in accordance with such Final Distribution
Certificate in immediately available funds within ten (10) business days
after receipt of such Final Distribution Certificate or as soon as possible
thereafter.
Prior to making any payments out of the Escrow Fund pursuant to subparagraph (c)
of this Section 4, the Escrow Agent shall provide written notice to the
Stockholders' Representative that it has received a Final Distribution
Certificate (a copy of which shall accompany such notice) from Buyer.
5. Disputed Claims. If a controversy arises between one or more of the
---------------
parties hereto, as to whether or not or to whom the Escrow Agent shall deliver
the Escrow Fund or as to any other matter arising out of or relating to the
Escrow Fund or this Agreement, the Escrow Agent shall not be required to
determine the same and thereafter shall not make any delivery of the Escrow Fund
but shall retain it until the Escrow Agent shall have either (i) received
written instructions signed by both Buyer and the Stockholders' Representative
or (ii) been directed by an order of a court of competent jurisdiction (the time
for all appeals therefrom having expired) as to the respective rights of Buyer
and the Stockholders' Representative with respect to the Escrow Fund, in which
case the Escrow Agent shall disburse the Escrow Fund in accordance with such
instructions or order within five (5) business days after the receipt thereof,
unless such instructions or order otherwise provide. The Escrow Agent shall be
entitled to assume that no such controversy has arisen unless it has received a
written notice that such a controversy has arisen which refers specifically to
this Agreement. If a controversy of the type referred to in this Section 5
arises, the Escrow Agent may, in its sole discretion (but shall not be obligated
to), commence interpleader or similar actions or proceedings for determination
of the controversy pursuant to Section 9.
6. Termination. This Agreement shall terminate when all amounts of the
-----------
Escrow Fund have been distributed.
3
<PAGE>
7. Scope of Undertaking. The Escrow Agent shall have no responsibility
--------------------
or obligation of any kind in connection with this Agreement and the Escrow Fund,
and shall not be required to deliver the same or any part thereof or take any
action with respect to any matters that might arise in connection therewith,
other than to receive, hold, and make delivery of the Escrow Fund as herein
expressly provided or by reason of a judgment or order of a court of competent
jurisdiction.
8. Knowledge and Sufficiency of Documents. The Escrow Agent shall not be
--------------------------------------
bound by or have any responsibility with respect to compliance with any
agreement between any of the other parties hereto, irrespective of whether the
Escrow Agent has knowledge of the existence of any such agreement or terms and
provisions thereof, the Escrow Agent's only duty, liability, and responsibility
being to receive, hold and deliver the Escrow Fund as herein provided. The
Escrow Agent shall not be required in any way to determine the validity or
sufficiency, whether in form or in substance, of the Escrow Fund or the
validity, sufficiency, genuineness or accuracy of any instrument, document,
certificate, statement or notice referred to in this Agreement or contemplated
hereby (including, without limitation, wire transfer instructions, whether
incorporated herein or provided in a separate written instruction); or the
identity or authority of the persons executing the same, and it shall be
sufficient if any writing purporting to be such instrument, document,
certificate, statement or notice is delivered to the Escrow Agent and purports
on its face to be correct in form and signed or otherwise executed by the party
or parties required to sign or execute the same under this Agreement.
9. Right of Interpleader. Should any controversy arise between Buyer, on
---------------------
one hand, and the Stockholders' Representative, on the other, or any other
person, firm or entity, with respect to this Agreement, the Escrow Fund, or any
part thereof, or the right of any party or other person to receive the Escrow
Fund, or should such parties fail to designate another Escrow Agent as provided
in Section 17 hereof, or if the Escrow Agent should be in doubt as to what
action to take, the Escrow Agent shall have the right (but not the obligation)
to (i) withhold delivery of the Escrow Fund until the controversy is resolved as
provided in Section 5 hereof, the conflicting demands are withdrawn or its doubt
is resolved as provided in Section 5 hereof, or (ii) institute a bill of
interpleader in any court of competent jurisdiction to determine the rights of
the parties hereto (the right of the Escrow Agent to institute such bill of
interpleader, however, shall not be deemed to modify the manner in which the
Escrow Agent is entitled to make disbursements of the Escrow Fund as hereinabove
set forth, other than to tender the Escrow Fund into the registry of such
court). Should a bill of interpleader be instituted, or should the Escrow Agent
be threatened with litigation or become involved in litigation in any manner
whatsoever on account of this Agreement or the Escrow Fund, then as between
themselves and the Escrow Agent, Buyer and the Stockholders, jointly and
severally, hereby bind and obligate themselves, their successors, heirs,
executors and assigns to pay the Escrow Agent its reasonable attorneys' fees and
any and all other disbursements, expenses, losses, costs and damages of the
Escrow Agent in connection with or resulting from such threatened or actual
litigation. Notwithstanding the foregoing, as between themselves, Buyer and the
Stockholders shall each pay one-half of all amounts payable to the Escrow Agent
pursuant to this paragraph.
4
<PAGE>
10. Scope of Duties and Errors in Judgment. It is expressly understood
--------------------------------------
and agreed that the Escrow Agent shall be under no duty or obligation to give
any notice, or to do or to omit the doing of any action or anything with respect
to the Escrow Fund, except to hold the same (and any earnings thereon, pursuant
to the terms hereof) in the Escrow Account and to make disbursements in
accordance with the terms of this Agreement. Without limiting the generality of
the foregoing, it is acknowledged and agreed that (i) no implied duties shall be
read into this Agreement on the part of the Escrow Agent, and (ii) the Escrow
Agent shall not be obligated to take any legal or remedial action which might in
its judgment involve it in any expense or liability for which it has not been
furnished acceptable indemnification. The Escrow Agent, its directors, officers
and employees shall not be liable for any error in judgment or any act or steps
taken or permitted to be taken in good faith, or for any mistake of law or fact,
or for anything it may do or refrain from doing in connection herewith, except
for its own willful misconduct or gross negligence.
11. Indemnity. As between themselves and the Escrow Agent, Buyer and the
---------
Stockholders, jointly and severally, agree to indemnify the Escrow Agent against
and hold the Escrow Agent harmless from any and all losses, costs, damages,
expenses, claims, and attorney's fees and expenses suffered or incurred by the
Escrow Agent as a result of, in connection with or arising from or out of the
acts or omissions of the Escrow Agent in performance of or pursuant to this
Agreement, except such acts or omissions as may result from the Escrow Agent's
willful misconduct or gross negligence. In no event shall the Escrow Agent be
liable for indirect, punitive, special or consequential damages.
Buyer and the Stockholders, jointly and severally, agree to indemnify and
hold the Escrow Agent harmless from and against any taxes, additions for late
payment, interest, penalties and other expenses, that may be assessed against
the Escrow Agent with respect to any payment of Escrow Funds or other activities
under this Agreement. Buyer and Stockholders' Representative undertake to
instruct the Escrow Agent in writing with respect to the Escrow Agent's
responsibility for withholding and other taxes, assessments, or other
governmental charges, certifications and governmental reporting in connection
with its acting as Escrow Agent under this Agreement. Buyer and the
Stockholders, jointly and severally, agree to indemnify and hold the Escrow
Agent harmless from any liability on account of taxes, assessments or other
governmental charges, including, without limitation, the withholding or
deduction or the failure to withhold or deduct the same, and any liability for
failure to obtain proper certifications or to properly report to governmental
authorities, to which the Escrow Agent may be or become subject in connection
with or which arises out of this Agreement, including costs and expenses
(including reasonable attorneys' fees and expenses), interest and penalties.
Notwithstanding the foregoing, as between themselves, Buyer and the Stockholders
shall each pay one-half of all amounts payable to the Escrow Agent pursuant to
this paragraph. Notwithstanding any term hereof to the contrary, the terms of
this Section 11 shall survive the termination of this Agreement.
5
<PAGE>
12. Notices. All notices under this Agreement will be in writing and will
-------
be delivered by personal service or facsimile or certified mail (or, if
certified mail is not available, then by first class mail), postage prepaid, to
such address as may be designated from time to time by the relevant party, and
which will initially be as set forth below. Copies of all notices shall be
given to Buyer, the Stockholders' Representative and the Escrow Agent; provided,
--------
however, that the failure to give copies of such notice shall not render the
- -------
notice invalid or unenforceable. Any notice sent by certified mail will be
deemed to have been given three (3) days after the date on which it is mailed.
Any notice transmitted by facsimile will be deemed given upon confirmation of
receipt. All other notices will be deemed given when received. No objection
may be made to the manner of delivery of any notice actually received in writing
by an authorized agent of a party. Notices will be addressed as follows or to
such other address as the party to whom the same is directed will have specified
in conformity with the foregoing:
(a) If to Buyer:
Merkert American Corporation
490 Turnpike Street
Canton, MA 02021
Attn: President
Facsimile: (781) 828-8274
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
53 State Street
Boston, MA 02109
Attn: Robert P. Whalen, Jr., Esq.
Facsimile: (617) 523-1231
(b) If to the Stockholders' Representative:
Robert Q. Crane
7 Mountview Road
Wellesley Hills, MA 02180
with a copy to:
Zack Kosnitzky, P.A.
100 S.E. 2nd Street, Suite 2800
Miami, FL 33131
Attn: Thomas O. Wells, Esq.
Facsimile: (305) 539-1307
6
<PAGE>
(c) If to the Escrow Agent:
State Street Bank and Trust Company
Financial Markets Group
Corporate Trust
Attn: Merkert Tax Escrow Account
Two International Place
Boston, MA 02110
Facsimile: (617) 664-5742
With a copy to:
Peabody & Arnold LLP
50 Rowes Wharf
Boston, MA 02110
Attn: Douglas C. Reynolds, Esq.
Facsimile: (617) 951-2125
13. Consultation with Legal Counsel. The Escrow Agent may consult with
-------------------------------
its in-house counsel or other counsel satisfactory to it in respect to questions
relating to its duties or responsibilities hereunder or otherwise in connection
herewith and shall not be liable for any action taken, suffered, or omitted by
the Escrow Agent in good faith upon the advice of such counsel. The Escrow
Agent may act through its officers, employees, agents and attorneys.
14. Choice of Laws; Cumulative Rights. This Agreement and the disposition
---------------------------------
hereunder shall be construed and regulated under and their validity and effect
shall be determined by The Commonwealth of Massachusetts. All of the Escrow
Agent's rights hereunder are cumulative of any other rights it may have by law
or otherwise.
15. Reimbursement of Expenses. The Escrow Agent shall be entitled to
-------------------------
reimbursement from Buyer and the Stockholders of all its reasonable costs and
expenses, including reasonable fees and expenses of legal counsel incurred by it
in connection with the preparation, operating, administration and enforcement of
this Agreement. The Escrow Agent shall be entitled to reimbursement on demand
for all expenses incurred in connection with the administration of this
Agreement or the escrow created hereby which are in excess of its compensation
for normal services hereunder, including, without limitation, payment of any
legal fees and expenses incurred by the Escrow Agent in connection with
resolution of any claim by any party hereunder. Notwithstanding the foregoing,
as between themselves, Buyer and the Stockholders shall each pay one-half of all
amounts payable to the Escrow Agent pursuant to this paragraph.
16. Entire Agreement. This Agreement evidences the entire agreement among
----------------
Buyer, the Stockholders, the Stockholders' Representative and the Escrow Agent
in connection with the Escrow Fund and no other agreement entered into between
the parties or any of them
7
<PAGE>
shall be considered or adopted or binding, in whole or in part, by or upon the
Escrow Agent, notwithstanding that any other such agreement may be deposited
herewith or the Escrow Agent may have knowledge thereof. This Agreement may be
amended only in writing signed by all of the parties hereto.
17. Resignation. The Escrow Agent may resign upon 10 days' prior written
-----------
notice to Buyer and the Stockholders' Representative, and upon the written
instruction of Buyer and the Stockholders' Representative, the Escrow Agent
shall deliver the Escrow Fund to any designated substitute Escrow Agent mutually
agreeable to such parties. If Buyer and the Stockholders' Representative fail
to designate a substitute Escrow Agent within 10 days, the Escrow Agent, in its
sole discretion and its sole option, either may (i) continue to hold the Escrow
Fund, or (ii) institute a bill of interpleader as contemplated by Section 9
hereof.
18. Captions. Section headings and captions have been inserted for
--------
convenience only and do not in any way limit the provisions set out in the
various sections hereof.
19. Severability. If one or more of the provisions contained herein for
------------
any reason shall be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions hereof, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
20. Compensation. Buyer and the Stockholders covenant and agree, jointly
------------
and severally, to pay to the Escrow Agent the fee determined by the Escrow
Agent, from time to time, to be applicable to this escrow and bear all costs and
expenses incurred by the Escrow Agent in connection therewith. The Escrow
Agent's fees, as in effect on the date hereof, are attached hereto as Schedule
--------
A. Without altering or limiting the joint and several liability of Buyer and
the Stockholders hereunder, as between themselves, Buyer and the Stockholders
shall each pay one-half of all amounts payable to the Escrow Agent pursuant to
this Section 20.
21. Collected Funds; Collection of Items. No monies shall be required to
------------------------------------
be disbursed by the Escrow Agent until and unless it has collected funds. The
Escrow Agent may pay out monies held in escrow due to any party by its check.
The Escrow Agent shall not be obligated to take any legal action to enforce
payment of any item deposited with it in escrow.
22. Investment. Subject to Section 2(a) of this Agreement, the available
----------
uninvested portion of the Escrow Fund shall be invested (and reinvested, as the
case may be) from time to time by the Escrow Agent in any of the following
investments (collectively, "Eligible Investments"):
(i) Short term obligations issued or guaranteed by The United States
of America or any agency or instrumentality thereof;
8
<PAGE>
(ii) Certificates of deposit of or interest bearing accounts with
national banks or corporations endowed with trust powers, including the Escrow
Agent, having capital and surplus in excess of $100,000,000;
(iii) Insured Money Market Account short term investments with
national banks or corporations endowed with trust powers, including the Escrow
Agent, having capital and surplus in excess of $100,000,000; or
(iv) Corporate bond funds with a rating of at least A+ or the
equivalent thereof by Standard & Poor's Corporation, at least A+ or the
equivalent thereof by Moody's Investors Service, Inc. or an equivalent rating by
another nationally recognized rating agency.
Investments pursuant to such investment instructions described above shall
in all instances be subject to availability (including any time-of-day
requirements). In no instance shall Escrow Agent have any obligation to provide
investment advice of any kind. The Escrow Agent shall not be required to invest
any funds held hereunder except as expressly provided in written instructions
received from Buyer pursuant to Section 2 hereof, and shall not be obligated to
pay interest on uninvested funds. All amounts received by the Escrow Agent (and
any credits to the Escrow Account) shall be conditional upon collection (and
actual receipt by the Escrow Agent of final payment). In no event shall the
Escrow Agent have any obligation to advance funds.
The Escrow Agent may be authorized at all times and from time to time to
liquidate any investment of the Escrow Fund as may be necessary to provide
available cash to make any release, disbursement or payment called for under the
terms of this Agreement. The Escrow Agent shall have no responsibility or
liability for any losses resulting from liquidation of the Escrow Fund (such as
liquidation prior to maturity).
23. Security Interest. The parties grant to the Escrow Agent a lien upon
-----------------
and security interest in the Escrow Fund, to secure payment of the parties'
obligations and liabilities, both joint and several hereunder.
24. Execution in Counterparts. For the convenience of the parties and to
-------------------------
facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document and such counterparts may be delivered by
facsimile.
25. Consent to Jurisdiction and Service. Buyer, each Stockholder and the
-----------------------------------
Stockholders' Representative hereby absolutely and irrevocably consents and
submits to the jurisdiction of the courts in The Commonwealth of Massachusetts
and of any Federal court located in said Commonwealth in connection with any
actions or proceedings brought against Buyer, the Stockholders and/or the
Stockholders' Representative arising out of or relating to this Agreement. In
any such action or process, Buyer, each Stockholder and the Stockholders'
Representative hereby absolutely and irrevocably waive personal service of any
summons,
9
<PAGE>
complaint, declaration or other process and hereby absolutely and irrevocably
agree that the service thereof may be made by certified or registered first-
class mail directed to Buyer and the Stockholders' Representative, as the case
may be, at their respective addresses in accordance with Section 12 hereof.
26. Force Majeure. Neither Buyer, any Stockholder, nor the Stockholders'
-------------
Representative nor the Escrow Agent shall be responsible for delays or failures
in performance resulting from acts beyond control. Such acts shall include but
not be limited to acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters.
27. Binding Effect. This Agreement shall be binding upon the respective
--------------
parties hereto and their heirs, executors, successors and assigns.
28. Modifications. This Agreement may not be altered or modified without
-------------
the express written consent of the parties hereto. No course of conduct shall
constitute a waiver of any of the terms and conditions of this Agreement, unless
such waiver is specified in writing, and then only to the extent so specified.
A waiver of any of the terms and conditions of this Agreement on one occasion
shall not constitute a waiver of the other terms of this Agreement, or of such
terms and conditions on any other occasion.
29. Reproduction of Documents. This Agreement and all documents relating
-------------------------
hereto, including, without limitation, (a) consents, waivers and modifications
which may hereafter be executed, and (b) certificates and other information
previously or hereafter furnished, may be reproduced by any photographic,
photostatic, microfilm, optical disk, micro-card, miniature photographic or
other similar process. The parties agree that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
[End of Text]
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement in multiple
counterparts, each of which is and shall be considered an original for all
intents and purposes effective as of the date first written above.
MERKERT AMERICAN CORPORATION
By: /s/ Gerald R. Leonard
------------------------------------
Gerald R. Leonard
President
/s/ Robert Q. Crane
-----------------------------------------
Robert Q. Crane, as Stockholders'
Representative
STATE STREET BANK AND TRUST COMPANY, as Escrow Agent
By: /s/ Arthur Blakeslee
----------------------------
Name: Arthur Blakeslee
Title: Assistant Vice President
11
<PAGE>
EXHIBIT 10.13
INDEMNIFICATION ESCROW AGREEMENT
--------------------------------
This ESCROW AGREEMENT (the "Agreement") is made and entered into as of
December 18, 1998, by and among Merkert American Corporation (formerly known as
Monroe, Inc.), a Delaware corporation ("Buyer"), Robert Q. Crane, an individual
(the "Stockholders' Representative"), State Street Bank and Trust Company (the
"Escrow Agent"), and the parties identified as the Merkert Stockholders on the
signature pages hereto (the "Merkert Stockholders"), with reference to the
following facts:
A. Pursuant to the terms and conditions of a Stock Purchase Agreement
dated as of May 20, 1998, as amended as of November 18, 1998 and December 15,
1998 (as so amended, the "Purchase Agreement"), by and among Buyer, Merkert
Enterprises, Inc., a Massachusetts corporation, Eugene F. Merkert and the
Merkert Stockholders, Buyer has agreed to acquire all of the issued and
outstanding capital stock of Merkert Enterprises, Inc. Capitalized terms not
otherwise defined herein have the meanings set forth in the Purchase Agreement.
B. Under the terms of the Purchase Agreement, Buyer is entitled to
indemnification under certain circumstances as set forth in Section 10 of the
Purchase Agreement.
C. The purpose of this Agreement is to provide for the deposit into
escrow of cash and shares of Buyer's common stock, par value $.01 per share
("Buyer Common Stock"), pursuant to Section 1.9 of the Purchase Agreement to
secure, in part, the indemnification obligations of the Merkert Stockholders
under Section 10 of the Purchase Agreement.
NOW, THEREFORE, based on the above premises and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. Appointment of Escrow Agent and Stockholders' Representative;
-------------------------------------------------------------
Indemnification.
- ---------------
1.1 Escrow Agent. The Escrow Agent is hereby appointed as escrow
------------
agent for the purposes set forth herein, and the Escrow Agent hereby accepts
such appointment on the terms set forth herein.
<PAGE>
1.2 Stockholders' Representative. The Stockholders' Representative
----------------------------
is hereby appointed as agent and representative of the Merkert Stockholders for
the purposes set forth herein, and the Stockholders' Representative accepts such
appointment on the terms set forth herein.
1.3 Indemnification. The Merkert Stockholders have agreed to
---------------
indemnify and hold harmless Buyer pursuant to Section 10 of the Purchase
Agreement. The Bergida Escrow Fund, the State Escrow Fund, the General Escrow
Fund and the Escrowed Shares (as each such term is defined in Section 2.1
hereof) shall secure, in part, the indemnification obligations of the Merkert
Stockholders in the manner provided in this Agreement.
2. Escrow Funds.
-----------
2.1 Deposit; Proportionate Interest. In accordance with Section 1.9
-------------------------------
of the Purchase Agreement, on the Closing Date (defined as the date of this
Agreement), Buyer shall deposit with the Escrow Agent cash in the aggregate
amount of $3,891,161 of which (i) $2,000,000 shall be held in a designated
separate account of the Escrow Agent (inclusive of any earnings on the same, the
"Bergida Escrow Fund"), (ii) $191,161 shall be held in a designated separate
account of Escrow Agent (inclusive of any earnings on the same, the "State
Escrow Fund"), and (iii) $1,700,000 shall be held in a designated separate
account of Escrow Agent (inclusive of any earnings on the same, the "General
Escrow Fund"). Also, in accordance with Section 1.9 of the Purchase Agreement,
on the Closing Date, Buyer, on behalf of the Merkert Stockholders, shall deposit
with the Escrow Agent a number of shares of Buyer Common Stock (rounded to the
nearest whole share) equal to (i) $1,300,000 divided by (ii) $15.00, the price
----------
at which shares of Buyer Common Stock will be sold to the public in the initial
public offering of Buyer Common Stock (the "IPO Price") (the "Escrowed Shares").
Each Merkert Stockholder shall thereby contribute to the Escrowed Shares, a
number of shares of Buyer Common Stock in an amount equal to the percentage
interests or amounts set forth on Schedule B attached hereto. Such pro rata
----------
interest shall be referred to as such Merkert Stockholder's "Proportionate
Interest." Although the Escrowed Shares shall be issued in the name of the
Escrow Agent or its nominee, all Escrowed Shares shall be held by the Escrow
Agent for the benefit of the Merkert Stockholders. If during the term of this
Agreement there is declared a stock dividend or stock split, all securities
thereby issuable with respect to the Escrowed Shares shall be deposited
hereunder and shall be deemed "Escrowed Shares" for the purposes of this
Agreement. If during the term of this Agreement there is paid to the Escrow
Agent any dividends in cash or other property (other than securities) in respect
of the Escrowed Shares, such dividends shall be paid promptly, but in no event
not less than three (3) business days, by the Escrow Agent to the Merkert
Stockholders in accordance with each Merkert Stockholder's Proportionate
Interest. The Escrowed Shares shall be held for the benefit of the Merkert
Stockholders and disbursed by the Escrow Agent in accordance with the terms of
this Agreement. The parties agree that for federal income tax purposes, the
Merkert Stockholders will own the Escrowed Shares as of the Closing Date.
2
<PAGE>
2.2 Voting of Escrowed Shares. The Escrowed Shares held by the
-------------------------
Escrow Agent pursuant to this Agreement shall be deemed issued and outstanding,
shall appear as issued and outstanding on Buyer's balance sheet, and shall be
legally outstanding under applicable state law. With respect to any matter on
which stockholders of Buyer have a right to vote, the Escrow Agent, upon receipt
of written notices to such effect, on behalf of the Merkert Stockholders, acting
at the written direction of such stockholders received not less than three (3)
business days prior to such vote, shall exercise the right to vote, or not vote,
all Escrowed Shares (or any portion thereof); provided, however, that the Escrow
-------- -------
Agent shall at the expense of Buyer and the Merkert Stockholders promptly
forward, or cause to be forwarded, copies of any proxies, proxy statements or
other materials which it receives to the Stockholders' Representative, and shall
vote the applicable portion of the Escrowed Shares in accordance with any
written instructions timely received by the Escrow Agent from any Merkert
Stockholder. Absent any such written instructions, the Escrow Agent shall not
vote any Escrowed Shares.
2.3 Amounts Earned on Escrow Funds; Tax Matters. The Bergida Escrow
-------------------------------------------
Fund, the State Escrow Fund and the General Escrow Fund shall be invested from
time to time in Eligible Investments (as defined in Section 15) pursuant to (and
as specified in) the written direction of Buyer received by the Escrow Agent
(which direction shall include maturity terms selected by Buyer). The Escrow
Agent shall be entitled to presume that any maturity terms set forth in an
investment instruction from Buyer have been agreed to by the Stockholders'
Representative. In no instance shall the Escrow Agent have any liability for
any loss on any such investment. All amounts earned, paid or distributed with
respect to the Bergida Escrow Fund, the State Escrow Fund or the General Escrow
Fund (whether interest, dividends or otherwise) shall become a part of the
Bergida Escrow Fund, the State Escrow Fund or the General Escrow Fund, as the
case may be, and shall be held hereunder upon the same terms as the original
funds. The parties agree that (i) for tax reporting purposes, and for any tax
year, all interest or other income earned from the investment of the Bergida
Escrow Fund, the State Escrow Fund and the General Escrow Fund shall be
allocable to Buyer and (ii) to the extent permitted by applicable law, including
Section 468B(g) of the Internal Revenue Code of 1986, as amended (the "Code"),
Buyer will include all amounts earned on the Bergida Escrow Fund, the State
Escrow Fund or the General Escrow Fund in its gross income for federal, state
and local income tax (collectively, "income tax") purposes and pay any income
tax resulting therefrom. The parties also agree for income tax purposes to
treat all amounts distributed to the Merkert Stockholders from the Bergida
Escrow Fund, the State Escrow Fund or the General Escrow Fund as payments of
deferred purchase price paid to the Merkert Stockholders on the date received.
Buyer agrees to provide the Escrow Agent with a certified tax identification
number by signing and returning a Form W-9 to the Escrow Agent prior to the date
on which interest or other income is first earned by the Bergida Escrow Fund,
the State Escrow Fund or the General Escrow Fund. Buyer understands that, in
the event its tax identification number is not certified to the Escrow Agent
prior to the date on which interest or other income is first earned on the
Bergida Escrow Fund, the State Escrow Fund or
3
<PAGE>
the General Escrow Fund, the Internal Revenue Code, as amended from time to
time, may require withholding of a portion of any interest or other income
earned on the investment of the Bergida Escrow Fund, the State Escrow Fund or
the General Escrow Fund.
2.4 Escrowed Shares Nontransferable. The Merkert Stockholders'
-------------------------------
interest in this Agreement and the Escrowed Shares (prior to the disbursement
thereof) may not be transferred or assigned, except by operation of law,
intestacy, devise or descent.
3. Application of Escrow Funds. The Bergida Escrow Fund, the State
---------------------------
Escrow Fund and the General Escrow Fund shall be held in escrow under the terms
of this Agreement and released by the Escrow Agent upon the following terms:
3.1 Joint Instructions. Upon joint written notice and instruction
------------------
from Buyer and the Stockholders' Representative that the Bergida Escrow Fund,
the State Escrow Fund or the General Escrow Fund, or any portion thereof, should
be disbursed, the Escrow Agent shall make such disbursement in accordance with
the directions set forth in such joint written notice and instruction.
3.2 Indemnification Claims.
----------------------
3.2.1 General Escrow Fund; Escrowed Shares. If at any time, or from
------------------------------------
time to time, on or before the later of (i) the first (lst) anniversary of the
Closing Date and (ii) the date on which the Escrow Agent receives a joint
written notice signed by Buyer and the Stockholders' Representative certifying
that full and final settlements with the IRS and the DOR of all matters relating
to the Audits have been reached (such later date, the "General Fund Termination
Date"), Buyer delivers to the Escrow Agent written notice (an "Indemnification
Notice") and a copy thereof to the Stockholders' Representative pursuant to
Section 4.1 hereof asserting that Buyer is entitled to indemnification under
Section 10 of the Purchase Agreement, which Indemnification Notice shall state
the basis and amount of such indemnification claim, then the Escrow Agent shall
disburse to Buyer from the General Escrow Fund, on the thirtieth (30th) day
following receipt by the Escrow Agent of such Indemnification Notice, an amount
equal to the value of such claim (a "General Escrow Payout"). Any General
Escrow Payout shall be disbursed from the General Escrow Fund; provided,
--------
however, in the event that the General Escrow Fund is not sufficient to pay the
- -------
value of any such claim, the Escrow Agent shall distribute the entire balance of
the General Escrow Fund, if any, and, in addition, shall distribute a number of
the Escrowed Shares equal to (a) the amount of such claim which was not paid
from the General Escrow Fund) divided by (b) the IPO Price (subject to
----------
appropriate adjustment after the Closing Date for any stock split or stock
dividend with respect to Buyer Common Stock, or any combination or
reclassification of Buyer Common Stock into a greater or smaller number of
shares), as certified in writing to the Escrow Agent by Buyer. Notwithstanding
the foregoing, each Stockholder may elect to pay in cash, in accordance with its
respective Proportionate Interest, the portion of any such
4
<PAGE>
indemnification claim which is being satisfied, in whole or in part, by the
Escrowed Shares (each, an "Electing Stockholder"). In the event of any such
election, Buyer and the Stockholders' Representative shall provide joint written
notice and instructions to the Escrow Agent to deliver to each Electing
Stockholder a number of the Escrowed Shares, equal to (x) the amount of the cash
payment that was made directly to Buyer by such Electing Stockholder in respect
of such claim divided by (y) the IPO Price (subject to appropriate adjustment
----------
after the Closing Date for any stock split or stock dividend with respect to
Buyer Common Stock, or any combination or reclassification of the Buyer Common
Stock into a greater or smaller number of shares), as certified in writing to
the Escrow Agent by Buyer (the "Cash Option"). Notwithstanding the foregoing,
any Indemnification Notice asserting that Buyer is entitled to indemnification
under Section 10.2(f) of the Purchase Agreement may only be delivered pursuant
to, and satisfied in accordance with, Section 3.2.2 of this Agreement.
3.2.2 Bergida Escrow Fund. If at any time, or from time to time,
-------------------
on or before the date on which the Escrow Agent receives a joint written notice
signed by Buyer and the Stockholders' Representative certifying that the
ABD/Bergida Dispute has been fully and finally settled or otherwise disposed of
(the "Bergida Fund Termination Date"), Buyer delivers to the Escrow Agent an
Indemnification Notice and a copy thereof to the Stockholders' Representative
pursuant to Section 4.1 hereof asserting that Buyer is entitled to
indemnification under Section 10.2(f) of the Purchase Agreement, which
Indemnification Notice shall state the basis and amount of such indemnification
claim, then the Escrow Agent shall disburse to Buyer from the Bergida Escrow
Fund, on the thirtieth (30th) day following receipt by the Escrow Agent of such
Indemnification Notice, an amount equal to the value of such claim (a "Bergida
Escrow Payout").
3.2.2A State Escrow Fund. If at any time, or from time to time, on or
-----------------
before January 31, 2000 (or if such date is not a business day, the next
business day, the "State Fund Termination Date"), Buyer delivers to the Escrow
Agent an Indemnification Notice and a copy thereof to the Stockholders'
Representative pursuant to Section 4.1 hereof asserting that Buyer is entitled
to indemnification under Section 10 of the Purchase Agreement with respect to
penalties imposed by any state taxing authority arising out of or as a result of
the Settled Audits, which Indemnification Notice shall state the basis and
amount of such indemnification claim, then the Escrow Agent shall disburse to
Buyer from the State Escrow Fund, on the thirtieth (30th) day following receipt
by the Escrow Agent of such Indemnification Notice, an amount equal to the value
of such claim (a "State Escrow Payout").
3.2.3 Notwithstanding the foregoing provisions of this Section
3.2, if prior to the thirtieth (30th) day following receipt by the Escrow Agent
of an Indemnification Notice the Escrow Agent receives written notice from the
Stockholders' Representative that a dispute exists with respect to any such
indemnification claims (a "Dispute Notice"), which Dispute Notice shall state
the basis of such dispute and the portion of the General Escrow Payout, the
Bergida Escrow Payout or the State Escrow Payout, if any, as to which no dispute
5
<PAGE>
exists, the Escrow Agent shall continue to hold the portion of the General
Escrow Payout, the Bergida Escrow Payout or the State Escrow Payout, as the case
may be, that is in dispute (but shall disburse to Buyer the portion of the
General Escrow Payout, the Bergida Escrow Payout or the State Escrow Payout, as
the case may be, as to which no dispute exists) until directed otherwise
pursuant to Section 3.3 hereof.
3.3 Dispute of Indemnification Claim. If the Escrow Agent timely
--------------------------------
receives a Dispute Notice, the Escrow Agent shall retain the portion of the
Bergida Escrow Fund, the State Escrow Fund, the General Escrow Fund and/or the
Escrowed Shares, as the case may be, in dispute until the first to occur of the
following:
3.3.1 the date on which the Escrow Agent receives joint written
instructions from Buyer and the Stockholders' Representative, in which case the
Escrow Agent shall disburse the Bergida Escrow Fund, the State Escrow Fund, the
General Escrow Fund and/or the Escrowed Shares, as the case may be (or
applicable portions thereof) as set forth in such joint written instructions;
3.3.2 the date on which the Escrow Agent receives a final order of
a court of competent jurisdiction (the time for all appeals therefrom having
expired) (the "Indemnity Award") resolving the dispute, in which case the Escrow
Agent shall disburse the Bergida Escrow Fund, the State Escrow Fund, the General
Escrow Fund and/or the Escrowed Shares, as the case may be (or applicable
portions thereof) as set forth in the Indemnity Award; or
3.3.3 the date which is four years and 364 days after the Closing
Date.
3.4 Automatic Disbursement on Termination Date.
------------------------------------------
3.4.1 General Escrow Fund. If, on the General Fund Termination
-------------------
Date, there is any amount of the General Escrow Fund remaining undisbursed and
not subject to an Indemnification Notice received by the Escrow Agent, the
Escrow Agent shall disburse (a) to the Merkert Shareholders in accordance with
each Merkert Stockholder's Proportionate Interest (rounded to the nearest whole
share) (upon receipt of proper stock certificates from Buyer's transfer agent)
Escrowed Shares, (b) to the Merkert Shareholders in accordance with each Merkert
Stockholder's Proportionate Interest (rounded to the nearest whole cent) an
amount equal to (1) the excess of $1,700,000 over the aggregate amount of all
cash distributions and other cash amounts paid from the General Escrow Fund
(including, without limitation, all cash General Escrow Payouts), plus (2)
interest on all amounts in the General Escrow Fund to the extent actually earned
up to the Federal short-term rate (as defined in Section 1274(d) of the Code)
for the period beginning on the date hereof and ending on the General Fund
Termination Date and (c) to Buyer, an amount equal to the interest on all
amounts in the General Escrow Fund to the extent such interest exceeds the
amount of interest calculated pursuant to subclause
6
<PAGE>
(2) of the preceding clause (b). The calculation in clauses (b) and (c) above
shall be provided to the Escrow Agent by joint written certificate of Buyer and
Stockholders' Representative. The Escrow Agent will be protected in reliance
thereon.
3.4.2 Bergida Escrow Fund. If, on the Bergida Fund Termination
-------------------
Date, there is any amount of the Bergida Escrow Fund remaining undisbursed and
not subject to an Indemnification Notice received by the Escrow Agent, the
Escrow Agent shall disburse (a) to the Merkert Stockholders in accordance with
each Merkert Stockholder's Proportionate Interest (rounded to the nearest whole
cent), an amount equal to (1) the excess of $2,000,000 over the aggregate amount
of all cash distributions and other cash amounts paid from the Bergida Escrow
Fund (including, without limitation, all cash Bergida Escrow Payouts), plus (2)
interest on all amounts in the Bergida Escrow Fund to the extent actually earned
up to the Federal short-term rate (as defined in Section 1274(d) of the Code)
for the period beginning on the date hereof and ending on the Bergida Fund
Termination Date and (b) to Buyer, an amount equal to the interest on all
amounts in the Bergida Escrow Fund to the extent such interest exceeds the
amount of interest calculated pursuant to subclause (2) of the preceding clause
(a). The calculation in clauses (a) and (b) above shall be provided to the
Escrow Agent by joint written certificate of Buyer and Stockholders'
Representative. The Escrow Agent will be protected in reliance thereon.
3.4.2A State Escrow Fund. If, on the State Fund Termination Date,
-----------------
there is any amount of the State Escrow Fund remaining undisbursed and not
subject to an Indemnification Notice received by the Escrow Agent, the Escrow
Agent shall disburse (a) to the Merkert Stockholders in accordance with each
Merkert Stockholder's Proportionate Interest (rounded to the nearest whole
cent), an amount equal to (1) the excess of $191,161 over the aggregate amount
of all cash distributions and other cash amounts paid from the State Escrow Fund
(including, without limitation, all cash State Escrow Payouts), plus (2)
interest on all amounts in the State Escrow Fund to the extent actually earned
up to the Federal short-term rate (as defined in Section 1274(d) of the Code)
for the period beginning on the date hereof and ending on the State Fund
Termination Date and (b) to Buyer, an amount equal to the interest on all
amounts in the State Escrow Fund to the extent such interest exceeds the amount
of interest calculated pursuant to subclause (2) of the preceding clause (a).
The calculation in clauses (a) and (b) above shall be provided to the Escrow
Agent by joint written certificate of Buyer and Stockholders' Representative.
The Escrow Agent will be protected in reliance thereon.
3.5 Fractional Shares. No fractional shares shall be issued under
-----------------
this Agreement to any of the Merkert Stockholders. Any payment which would
result in the disbursement of a fractional share of Buyer Common Stock shall be
rounded to the nearest whole share.
7
<PAGE>
3.6 Payment of Indemnification Claims; Valuation of Buyer Common
------------------------------------------------------------
Stock. Whenever this Agreement provides that the Escrow Agent may or shall
- -----
disburse Escrowed Shares to Buyer, the Escrow Agent shall deliver to the
transfer agent for the Escrowed Shares the stock certificate representing such
Escrowed Shares and the transfer agent shall deliver to the Escrow Agent one
stock certificate representing the number of shares to be delivered to Buyer and
another stock certificate representing the balance of Escrowed Shares remaining.
The Escrow Agent shall then deliver to Buyer a stock certificate representing
the appropriate number of Escrowed Shares determined in accordance with the next
sentence. The number of Escrowed Shares disbursed to satisfy an indemnification
claim by Buyer shall be equal to the number of Escrowed Shares (rounded to the
nearest whole share) determined as follows: (i) the amount of Losses with
respect to which Buyer is entitled to indemnification under Section 10 of the
Purchase Agreement and as to which the Escrow Agent has received an
Indemnification Notice for which a Dispute Notice is not timely delivered or, if
so delivered, the dispute has been resolved in accordance with Section 3.3
hereof divided by (ii) the IPO Price, subject to appropriate adjustment after
----------
the Closing Date for any stock split or stock dividend with respect to Buyer
Common Stock, or any combination or reclassification of Buyer Common Stock into
a greater or smaller number of shares, all as certified in writing to the Escrow
Agent by Buyer. Buyer will promptly forward an updated Schedule B to the Escrow
----------
Agent to reflect any such changes to the capital structure of Buyer. Except as
set forth in Section 3.2.1 with respect to the Cash Option, the Merkert
Stockholders shall not have the right to substitute other property for the
Escrowed Shares with respect to the satisfaction of any indemnification claims
secured hereby.
4. Communications with Stockholders' Representative.
------------------------------------------------
4.1 Notice of Indemnification Claims. Buyer shall provide a copy of
--------------------------------
any Indemnification Notice to the Stockholders' Representative concurrently with
the delivery thereof to the Escrow Agent.
4.2 Additional Information Regarding Indemnification Claims. Within
-------------------------------------------------------
five (5) business days after receiving a request therefor from the Stockholders'
Representative, Buyer shall furnish the Stockholders' Representative with such
additional information relating to any claim made in an Indemnification Notice
as he may reasonably request from time to time for the purpose of evaluating the
merits of the claim for indemnification.
5. Scope of Undertaking. The Escrow Agent shall have no responsibility
--------------------
or obligation of any kind in connection with this Agreement, the Bergida Escrow
Fund, the State Escrow Fund, the General Escrow Fund and the Escrowed Shares,
and shall not be required to deliver the same or any part thereof or take any
action with respect to any matters that might arise in connection therewith,
other than to receive, hold, and make delivery of the Bergida Escrow Fund, the
State Escrow Fund, the General Escrow Fund and the Escrowed Shares, as herein
expressly provided or by reason of a judgment or order of a court of competent
jurisdiction.
8
<PAGE>
6. Knowledge and Sufficiency of Documents. The Escrow Agent shall not be
--------------------------------------
bound by or have any responsibility with respect to compliance with any
agreement between any of the other parties hereto, including the Purchase
Agreement, irrespective of whether the Escrow Agent has knowledge of the
existence of any such agreement or terms and provisions thereof, the Escrow
Agent's only duty, liability, and responsibility being to receive, hold and
deliver the Bergida Escrow Fund, the State Escrow Fund, the General Escrow Fund
and the Escrowed Shares as herein provided. The Escrow Agent shall not be
required in any way to determine the validity or sufficiency, whether in form or
in substance, of the Bergida Escrow Fund, the State Escrow Fund, the General
Escrow Fund and the Escrowed Shares or the validity, sufficiency, genuineness or
accuracy of any instrument, document, certificate, statement or notice referred
to in this Agreement or contemplated hereby, or the adequacy of any security
interest created hereunder; or the identity or authority of the persons
executing the same, and it shall be sufficient if any writing purporting to be
such instrument, document, certificate, statement or notice is delivered to the
Escrow Agent and purports on its face to be correct in form and signed or
otherwise executed by the party or parties required to sign or execute the same
under this Agreement.
7. Right of Interpleader. Should any controversy arise between Buyer, on
---------------------
one hand, and the Stockholders' Representative, on the other, or any other
person, firm or entity, with respect to this Agreement, the Bergida Escrow Fund,
the State Escrow Fund, the General Escrow Fund and the Escrowed Shares, or any
part thereof, or the right of any party or other person to receive the Bergida
Escrow Fund, the State Escrow Fund, the General Escrow Fund and the Escrowed
Shares, or should such parties fail to designate another Escrow Agent as
provided in Section 12 hereof, or if the Escrow Agent should be in doubt as to
what action to take, the Escrow Agent shall have the right (but not the
obligation) to (i) withhold delivery of the Bergida Escrow Fund, the State
Escrow Fund, the General Escrow Fund and the Escrowed Shares until the
controversy is resolved as provided in Section 3.3 hereof or (ii) institute a
bill of interpleader in any court of competent jurisdiction to determine the
rights of the parties hereto (the right of the Escrow Agent to institute such
bill of interpleader, however, shall not be deemed to modify the manner in which
the Escrow Agent is entitled to make disbursements of the Bergida Escrow Fund,
the State Escrow Fund, the General Escrow Fund and the Escrowed Shares as
hereinabove set forth, other than to tender the Bergida Escrow Fund, the State
Escrow Fund, the General Escrow Fund and the Escrowed Shares into the registry
of such court). Should a bill of interpleader be instituted, or should the
Escrow Agent be threatened with litigation or become involved in litigation in
any manner whatsoever on account of this Agreement or the Bergida Escrow Fund,
the State Escrow Fund, the General Escrow Fund and the Escrowed Shares, then as
between themselves and the Escrow Agent, Buyer and the Merkert Stockholders,
jointly and severally, hereby bind and obligate themselves, their successors,
heirs, executors and assigns to pay the Escrow Agent its
9
<PAGE>
reasonable attorneys' fees and any and all other disbursements, expenses,
losses, costs and damages of the Escrow Agent in connection with or resulting
from such threatened or actual litigation. Notwithstanding the foregoing, as
between themselves, Buyer and the Merkert Stockholders shall each pay one-half
of all amounts payable to the Escrow Agent pursuant to this Section 7.
8. Scope of Duties and Errors in Judgment. It is expressly understood
--------------------------------------
and agreed that the Escrow Agent shall be under no duty or obligation to give
any notice, or to do or to omit the doing of any action or anything with respect
to the Bergida Escrow Fund, the State Escrow Fund, the General Escrow Fund and
the Escrowed Shares, except to hold the same and to make disbursements in
accordance with the terms of this Agreement. Without limiting the generality of
the foregoing, it is acknowledged and agreed that (i) no implied duties shall be
read into this Agreement on the part of the Escrow Agent, and (ii) the Escrow
Agent shall not be obligated to take any legal or remedial action which might in
its judgment involve it in any expense or liability for which it has not been
furnished acceptable indemnification. The Escrow Agent, its directors, officers
and employees shall not be liable for any error in judgment or any act or steps
taken or permitted to be taken in good faith, or for any mistake of law or fact,
or for anything it may do or refrain from doing in connection herewith, except
for its own willful misconduct or gross negligence.
9. Indemnity. As between themselves and the Escrow Agent, Buyer and the
---------
Merkert Stockholders, jointly and severally, agree to indemnify the Escrow Agent
against and hold the Escrow Agent and its officers, employees and directors
harmless from any and all losses, costs, damages, expenses, claims, and
attorney's fees and expenses suffered or incurred by the Escrow Agent as a
result of, in connection with or arising from or out of the acts or omissions of
the Escrow Agent in performance of or pursuant to this Agreement, except such
acts or omissions as may result from the Escrow Agent's willful misconduct or
gross negligence. In no event shall the Escrow Agent be liable for indirect,
punitive, special or consequential damages.
Buyer and the Merkert Stockholders, jointly and severally, agree to assume
any and all obligations imposed now or hereafter by any applicable tax law with
respect to the distribution of the Bergida Escrow Fund, the State Escrow Fund,
the General Escrow Fund and the Escrowed Shares under this Agreement, and to
indemnify and hold the Escrow Agent harmless from and against any taxes,
additions for late payment, interest, penalties and other expenses, that may be
assessed against the Escrow Agent in any such distribution or other activities
under this Agreement. Buyer and the Stockholders' Representative undertake to
instruct the Escrow Agent in writing with respect to the Escrow Agent's
responsibility for withholding and other taxes, assessments, or other
governmental charges, certifications and governmental reporting in connection
with its acting as Escrow Agent under this Agreement. Buyer and the Merkert
Stockholders, jointly and severally, agree to indemnify and hold the Escrow
Agent harmless from any liability on account of taxes, assessments or other
governmental charges,
10
<PAGE>
including without limitation the withholding or deduction or the failure to
withhold or deduct the same, and any liability for failure to obtain proper
certifications or to properly report to governmental authorities, to which the
Escrow Agent may be or become subject in connection with or which arises out of
this Agreement, including costs and expenses (including reasonable attorneys'
fees and expenses), interest and penalties.
Notwithstanding the foregoing, as between themselves, Buyer and the Merkert
Stockholders shall each pay one-half of all amounts payable to the Escrow Agent
pursuant to this Section 9.
10. Consultation with Legal Counsel. The Escrow Agent may consult with
-------------------------------
its in-house counsel or other counsel satisfactory to it in respect to questions
relating to its duties or responsibilities hereunder or otherwise in connection
herewith and shall not be liable for any action taken, suffered, or omitted by
the Escrow Agent in good faith upon the advice of such counsel. The Escrow
Agent may act through its officers, employees, agents and attorneys.
11. Reimbursement of Expenses of the Escrow Agent. The Escrow Agent shall
---------------------------------------------
be entitled to reimbursement from Buyer and the Merkert Stockholders of all its
reasonable costs and expenses, including reasonable fees and expenses of legal
counsel incurred by it in connection with the preparation, operating,
administration and enforcement of this Agreement. The Escrow Agent shall be
entitled to reimbursement on demand for all expenses incurred in connection with
the administration of this Agreement or the escrow created hereby which are in
excess of its compensation for normal services hereunder, including without
limitation, payment of any legal fees and expenses incurred by the Escrow Agent
in connection with resolution of any claim by any party hereunder.
Notwithstanding the foregoing, as between themselves, Buyer and the Merkert
Stockholders shall each pay one-half of all amounts payable to the Escrow Agent
pursuant to this Section 11.
12. Resignation. The Escrow Agent may resign upon 10 days' prior written
-----------
notice to Buyer and the Stockholders' Representative, and upon written
instruction to Buyer and the Stockholders' Representative, the Escrow Agent
shall deliver the Bergida Escrow Fund, the State Escrow Fund, the General Escrow
Fund and the Escrowed Shares to any designated substitute Escrow Agent mutually
agreeable to such parties. If Buyer and the Stockholders' Representative fail
to designate a substitute Escrow Agent within 10 days, the Escrow Agent, in its
sole discretion and its sole option, either may (i) continue to hold the Bergida
Escrow Fund, the State Escrow Fund, the General Escrow Fund and the Escrowed
Shares or (ii) institute a bill of interpleader as contemplated by Section 7
hereof.
13. Compensation. Buyer and the Merkert Stockholders covenant and agree,
------------
jointly and severally, to pay to the Escrow Agent the fee determined by the
Escrow Agent, from time to time, to be applicable to this escrow and bear all
costs and expenses incurred by the Escrow Agent in connection therewith. The
Escrow Agent's fees, as in effect on the date hereof, are
11
<PAGE>
attached hereto as Schedule A. Without altering or limiting the joint and
----------
several liability of Buyer and the Merkert Stockholders hereunder, as between
themselves, Buyer and the Merkert Stockholders agree that they shall each pay
one-half of all amounts payable to the Escrow Agent pursuant to this Section 13.
14. Responsibilities of the Stockholders' Representative.
----------------------------------------------------
14.1 General. The Stockholders' Representative has been designated by
-------
the Merkert Stockholders to represent the Merkert Stockholders with respect to
the Bergida Escrow Fund, the State Escrow Fund, the General Escrow Fund and the
Escrowed Shares pursuant to the terms of this Agreement. The duties of the
Stockholders' Representative hereunder shall be limited to the observance of the
express provisions of this Agreement. The Stockholders' Representative shall
not be subject to, or be obliged to recognize, any other agreement between the
parties hereto or directions or instructions not specifically set forth or
provided for herein or in the Purchase Agreement.
14.2 Reimbursement of Expenses of the Stockholders' Representative.
-------------------------------------------------------------
The Merkert Stockholders shall reimburse the Stockholders' Representative for
reasonable out-of-pocket expenses incurred by the Stockholders' Representative
in the performance of his duties hereunder. During the period the Bergida
Escrow Fund, the State Escrow Fund, the General Escrow Fund and/or the Escrowed
Shares are held in escrow under this Agreement, the reimbursement provided under
this Section 14.2 shall be from sources of funds other than the Bergida Escrow
Fund, the State Escrow Fund, the General Escrow Fund and the Escrowed Shares.
14.3 Duties. The Merkert Stockholders hereby authorize and direct the
------
Stockholders' Representative to take all action necessary in connection with the
implementation of this Agreement on behalf of the Merkert Stockholders,
including, without limitation, giving and receiving all notices required to be
given under this Agreement, settling any dispute arising hereunder and executing
all such documents as the Stockholders' Representative shall deem necessary or
appropriate in connection with the transactions contemplated by this Agreement.
All decisions and actions by the Stockholders' Representative shall be binding
upon all of the Merkert Stockholders, and no Merkert Stockholder shall have the
right to object, dissent, protest or otherwise contest the same.
14.4 Reliance. By their execution of this Agreement, the Merkert
--------
Stockholders agree that (i) Buyer and the Escrow Agent shall be able to rely
conclusively on the instructions and decisions of the Stockholders'
Representative as to any actions required or permitted to be taken by the
Merkert Stockholders or the Stockholders' Representative hereunder, and no party
hereto shall have any cause of action against any other for any action taken in
reliance upon the instructions or decisions of the Stockholders' Representative,
(ii) all actions, decisions and instructions of the Stockholders' Representative
shall be conclusive and
12
<PAGE>
binding upon all of the Merkert Stockholders and no Merkert Stockholder shall
have any cause of action against the Stockholders' Representative or any other
person for any action taken, decision made or instruction given by the
Stockholders' Representative under this Agreement, except for gross negligence,
breach of fiduciary duties owed to the Merkert Stockholders, fraud or willful
breach of this Agreement by the Stockholders' Representative and (iii) the
provisions of this Section 14 are independent and severable, shall constitute an
irrevocable power of attorney, coupled with an interest and surviving death,
granted by the Merkert Stockholders to the Stockholders' Representative and
shall be binding upon the executors, heirs, legal representatives and successors
of each Merkert Stockholder.
15. Investment. Subject to Section 2.3 of this Agreement, the available
----------
uninvested portion of the Bergida Escrow Fund, the State Escrow Fund, and the
General Escrow Fund shall be invested (and reinvested, as the case may be) from
time to time by the Escrow Agent in any of the following investments
(collectively, "Eligible Investments"):
(i) Short term obligations issued or guaranteed by The United States
of America or any agency or instrumentality thereof; or
(ii) Certificates of deposit of or interest bearing accounts with
national banks or corporations endowed with trust powers, including the
Escrow Agent, having capital and surplus in excess of $100,000,000; or
(iii) Insured Money Market Account short term investments with
national banks or corporations endowed with trust powers, including Escrow
Agent, having capital and surplus in excess of $100,000,000; or
(iv) Corporate bond funds with a rating of at least A+ or the
equivalent thereof by Standard & Poor's Corporation, at least A+ or thereof
by Moody's Investors Service, Inc. or an equivalent rating by another
nationally recognized rating agency.
Investments pursuant to such investment instructions described above shall
in all instances be subject to availability (including any time-of-day
requirements). In no instance shall the Escrow Agent have any obligation to
provide investment advice of any kind. The Escrow Agent shall not be required
to invest any funds held hereunder except as expressly provided in written
instructions received from the Stockholders' Representative pursuant to Section
2 hereof, and shall not be obligated to pay interest on uninvested funds. All
amounts received by the Escrow Agent (and any credits to the Bergida Escrow
Fund, the State Escrow Fund, and the General Escrow Fund) shall be conditional
upon collection (and actual receipt by the Escrow Agent of final payment). In
no event shall the Escrow Agent have any obligation to advance funds.
13
<PAGE>
The Escrow Agent may be authorized at all times and from time to time to
liquidate any investment of the Bergida Escrow Fund, the State Escrow Fund, and
the General Escrow Fund as may be necessary to provide available cash to make
any release, disbursement or payment called for under the terms of this
Agreement. The Escrow Agent shall have no responsibility or liability for any
losses resulting from liquidation of the Bergida Escrow Fund, the State Escrow
Fund, and the General Escrow Fund (such as liquidation prior to maturity).
16. Change in the Stockholders' Representative. The Stockholders'
------------------------------------------
Representative may be removed and a successor named in accordance with the terms
of the Purchase Agreement. The Escrow Agent shall be promptly notified in
writing of any such change in the Stockholders' Representative.
17. Confidentiality. All of the information provided by the parties to
---------------
this Agreement pursuant to this Agreement shall be deemed "Confidential
Information" except to the extent that such information (i) was known to the
receiving party prior to its receipt from the disclosing party, (ii) is or
becomes part of the public domain through no fault of any party hereto or (iii)
is disclosed by a party hereto to a third party that is legally free to disclose
such information. Each of the parties to this Agreement agrees that, without
the express written consent of the other parties hereto, it will (i) not use the
Confidential Information for any purpose except as required to discharge its
responsibilities under this Agreement; (ii) use reasonable efforts to prevent
the disclosure or other dissemination of the Confidential Information in its
possession to any third party; and (iii) upon discharging its responsibilities
under this Agreement, return or destroy any document in its possession
containing any Confidential Information supplied by the other parties to this
Agreement.
18. Miscellaneous.
-------------
18.1 Complete Agreement. This Agreement and any documents referred to
------------------
herein (including, without limitation, the Purchase Agreement) or executed
contemporaneously herewith constitute the parties' entire agreement with respect
to the subject matter hereof and supersede all agreements, representations,
warranties, statements, promises and understandings, whether oral or written,
with respect to the subject matter hereof. This Agreement shall be binding upon
the respective parties hereto and their heirs, executors, successors and
assigns.
18.2 Amendments and Waivers. This Agreement may be amended, modified
----------------------
and supplemented, and compliance with any provision hereof may be waived, only
by a writing signed by Buyer, the Escrow Agent and the Stockholders'
Representative.
14
<PAGE>
18.3 Assignment. This Agreement shall be binding upon and inure to
----------
the benefit of Buyer, the Escrow Agent, the Merkert Stockholders and the
Stockholders' Representative and their respective successors and permitted
assigns. Except as expressly provided in this Agreement, none of the parties
may assign any of his or its rights or obligations under this Agreement without
the prior written consent of the other parties; provided, however, that Buyer
-------- -------
may assign its rights under this Agreement in connection with a merger,
consolidation or sale of substantially all of the assets of Buyer.
18.4 Waivers Strictly Construed. With regard to any power, remedy or
--------------------------
right provided herein or otherwise available to any party hereunder (a) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (b) no alteration, modification or
impairment shall be implied by reason of any previous waiver, extension of time,
delay or omission in exercise, or other indulgence.
18.5 Severability. In case any one or more of the provisions
------------
contained in this Agreement 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 provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
18.6 Termination. Upon the final distribution of the Bergida Escrow
-----------
Fund, the State Escrow Fund, the General Escrow Fund and the Escrowed Shares
pursuant to Section 3 hereof, this Agreement shall terminate. Anything
contained herein to the contrary notwithstanding, the provisions of Sections 7,
9 and 17 shall remain in full force and effect following the termination of this
Agreement.
18.7 Notices. All notices under this Agreement will be in writing and
-------
will be delivered by personal service or facsimile or certified mail (or, if
certified mail is not available, then by first class mail), postage prepaid, to
such address as may be designated from time to time by the relevant party, and
which will initially be as set forth below. Copies of all notices shall be
given to Buyer, the Stockholders' Representative and the Escrow Agent; provided,
--------
however, that the failure to give copies of such notice shall not render the
- -------
notice invalid or unenforceable. Any notice sent by certified mail will be
deemed to have been given three (3) days after the date on which it is mailed.
Any notice transmitted by facsimile will be deemed given upon confirmation of
receipt. All other notices will be deemed given when received. No objection
may be made to the manner of delivery of any notice actually received in writing
by an authorized agent of a party. Notices will be addressed as follows or to
such other address as the party to whom the same is directed will have specified
in conformity with the foregoing:
15
<PAGE>
(a) If to Buyer:
Merkert American Corporation
490 Turnpike Street
Canton, MA 02021
Attn: President
Facsimile: (781) 828-8274
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
53 State Street
Boston, MA 02109
Attn: Robert P. Whalen, Jr., Esq.
Facsimile: (617) 523-1231
(b) If to the Stockholders' Representative:
Robert Q. Crane
7 Mountview Road
Wellesley Hills, MA 02180
with a copy to:
Zack Kosnitzky, P.A.
100 S.E. 2nd Street, Suite 2800
Miami, FL 33131
Attn: Thomas O. Wells, Esq.
Facsimile: (305) 539-1307
(c) If to the Escrow Agent:
State Street Bank and Trust Company
Financial Markets Group
Corporate Trust
Attn: Merkert Indemnity Escrow Account
Two International Place
Boston, MA 02110
Facsimile: (617) 664-5742
16
<PAGE>
With a copy to:
Peabody & Arnold LLP
50 Rowes Wharf
Boston, MA 02110
Attn: Douglas C. Reynolds, Esq.
Facsimile: (617) 951-2125
18.8 Governing Law; Consent to Jurisdiction and Service. The rights
--------------------------------------------------
and liabilities of the parties under this Agreement shall be governed by the
laws of The Commonwealth of Massachusetts, regardless of the choice of laws
provisions of such state or any other jurisdiction. Buyer, each Merkert
Stockholder and the Stockholders' Representative hereby absolutely and
irrevocably consents and submits to the jurisdiction of the courts in The
Commonwealth of Massachusetts and of any Federal court located in said
Commonwealth in connection with any actions or proceedings brought against
Buyer, the Merkert Stockholders and/or the Stockholders' Representative arising
out of or relating to this Agreement. In any such action or process, Buyer,
each Merkert Stockholder and the Stockholders' Representative hereby absolutely
and irrevocably waive personal service of any summons, complaint, declaration or
other process and hereby absolutely and irrevocably agree that the service
thereof may be made by certified or registered first-class mail directed to
Buyer and the Stockholders' Representative, as the case may be, at their
respective addresses in accordance with Section 18.7 hereof.
18.9 Headings. The headings in this Agreement are inserted only as a
--------
matter of convenience, and in no way define, limit, or extend or interpret the
scope of this Agreement or of any particular Section.
18.10 Force Majeure. Neither Buyer, the Stockholders' Representative
-------------
nor the Escrow Agent shall be responsible for delays or failures in performance
resulting from acts beyond their control. Such acts shall include but not be
limited to acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters.
18.11 Reproduction of Documents. This Agreement and all documents
-------------------------
relating hereto, including, without limitation, (a) consents, waivers and
modifications which may hereafter be executed, and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
17
<PAGE>
18.12 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
[Remainder of page intentionally left blank]
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
MERKERT AMERICAN CORPORATION
/s/ Gerald R. Leonard
---------------------
Gerald R. Leonard
President
STATE STREET BANK AND TRUST COMPANY,
as Escrow Agent
By: /s/ Arthur Blakeslee
---------------------------------
Name: Arthur Blakeslee
Title: Assistant Vice President
/s/ Robert Q. Crane
---------------------------------
Robert Q. Crane, as Stockholders' Representative
MERKERT STOCKHOLDERS:
/s/ Edward Cassorla
---------------------------------
Edward Cassorla
/s/ Kenneth D. Chipman
---------------------------------
Kenneth D. Chipman
/s/ Robert Q. Crane
---------------------------------
Robert Q. Crane
/s/ Manley J. Kiley, Jr.
---------------------------------
Manley J. Kiley, Jr.
19
<PAGE>
/s/ Gerald R. Leonard
---------------------------------
Gerald R. Leonard
EUGENE F. MERKERT 1984 REVOCABLE
TRUST
/s/ Eugene F. Merkert
---------------------------------
Eugene F. Merkert, Trustee
/s/ Robert Q. Crane
---------------------------------
Robert Q. Crane, Trustee
/s/ Tuyet Payne
---------------------------------
Tuyet Payne, Trustee
EUGENE F. MERKERT 1991 CHARITABLE
REMAINDER UNITRUST
/s/ Eugene F. Merkert
---------------------------------
Eugene F. Merkert, Trustee
/s/ Robert Q. Crane
---------------------------------
Robert Q. Crane, Trustee
MERKERT ENTERPRISES, INC. EMPLOYEE
STOCK OWNERSHIP TRUST
/s/ James A. Schlindwein
---------------------------------
James A. Schlindwein, as Trustee
and not individually
20
<PAGE>
/s/ Sidney D. Rogers, Jr.
---------------------------------
Sidney D. Rogers, Jr.
/s/ Murray C. Rosen
---------------------------------
Murray C. Rosen
21
<PAGE>
EXHIBIT 10.14
INDEMNIFICATION ESCROW AGREEMENT
--------------------------------
This ESCROW AGREEMENT (the "Agreement") is made and entered into as of
December 18, 1998, by and among Merkert American Corporation (formerly known as
Monroe, Inc.), a Delaware corporation ("Buyer"), Curtis L. Rogers, Jr., an
individual (the "Stockholders' Representative"), State Street Bank and Trust
Company (the "Escrow Agent"), and the parties identified as the Rogers
Stockholders on the signature pages hereto, with reference to the following
facts:
A. Pursuant to the terms and conditions of a Stock Purchase Agreement,
dated as of May 22, 1998, as amended as of November 16, 1998 (as so amended, the
"Purchase Agreement"), by and among Buyer, Rogers-American Company, Inc., a
North Carolina corporation, Curtis L. Rogers, Jr., as representative, and the
Rogers Stockholders, Buyer has agreed to acquire all of the issued and
outstanding capital stock of Rogers-American Company, Inc. Capitalized terms
not otherwise defined herein have the meanings set forth in the Purchase
Agreement.
B. Under the terms of the Purchase Agreement, Buyer is entitled to
indemnification under certain circumstances as set forth in Section 10 of the
Purchase Agreement.
C. The purpose of this Agreement is to provide for the deposit into
escrow of cash, pursuant to Section 1.8 of the Purchase Agreement to secure, in
part, the indemnification obligations of the Rogers Stockholders under Section
10 of the Purchase Agreement.
NOW, THEREFORE, based on the above premises and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. Appointment of Escrow Agent and Stockholders' Representative;
-------------------------------------------------------------
Indemnification.
- ---------------
1.1 Escrow Agent. The Escrow Agent is hereby appointed as escrow
------------
agent for the purposes set forth herein, and the Escrow Agent hereby accepts
such appointment on the terms set forth herein.
1.2 Stockholders' Representative. The Stockholders' Representative
----------------------------
is hereby appointed as agent and representative of the Rogers Stockholders for
the purposes set forth herein, and the Stockholders' Representative accepts such
appointment on the terms set forth herein.
<PAGE>
1.3 Indemnification. The Rogers Stockholders have agreed to
---------------
indemnify and hold harmless Buyer pursuant to Section 10 of the Purchase
Agreement. The Escrow Fund (as defined in Section 2.1 hereof) shall secure, in
part, the indemnification obligations of the Rogers Stockholders in the manner
provided in this Agreement.
2. Escrow Fund.
-----------
2.1 Escrow Fund. In accordance with Section 1.8 of the Purchase
-----------
Agreement, on the date hereof, Buyer, on behalf of the Rogers Stockholders, has
deposited with the Escrow Agent One Million Five Hundred and Fifty Thousand
Dollars ($1,550,000) to be held in a designated separate account of the Escrow
Agent (inclusive of any earnings on the same, the "Escrow Fund"). The Rogers
Stockholders shall each contribute such amounts to the Escrow Fund as provided
in Schedule B hereto (each such Rogers Stockholder's "Percentage Interest").
----------
2.2 Amounts Earned on Escrow Fund; Tax Matters. The Escrow Fund
------------------------------------------
shall be invested from time to time in Eligible Investments (as defined in
Section 15) pursuant to (and as specified in) the written direction of the
Stockholders' Representative received by the Escrow Agent (which direction shall
include maturity terms selected by the Stockholders' Representative). The
Escrow Agent shall be entitled to presume that any maturity terms set forth in
an investment instruction from the Stockholders' Representative have been agreed
to by Buyer. In no instance shall the Escrow Agent have any liability for any
loss on any such investment. All amounts earned, paid or distributed with
respect to the Escrow Fund (whether interest, dividends or otherwise) shall
become a part of the Escrow Fund and shall be held hereunder upon the same terms
as the original Escrow Fund. The parties agree that (i) for tax reporting
purposes, and for any tax year, all interest or other income earned from the
investment of the Escrow Fund shall be allocable to the Rogers Stockholders
according to their respective Percentage Interests and (ii) to the extent
permitted by applicable law, including Section 468B(g) of the Internal Revenue
Code of 1986, as amended, the Rogers Stockholders will include all amounts
earned on the Escrow Fund in their gross income for federal, state and local
income tax (collectively, "income tax") purposes and pay any income tax
resulting therefrom. The parties also agree for income tax purposes to treat
all amounts distributed to the Rogers Stockholders from the Escrow Fund as
payments of purchase price received by the Rogers Stockholders on the date of
this Escrow Agreement. Each Rogers Stockholder agrees to provide the Escrow
Agent with a certified tax identification number by signing and returning a Form
W-9 to the Escrow Agent prior to the date on which interest or other income is
first earned by the Escrow Fund. The Rogers Stockholders understand that, in
the event their tax identification numbers are not certified to the Escrow Agent
prior to the date on which interest or other income is first earned on the
Escrow Fund, the Internal Revenue Code, as amended from time to time, may
require withholding of a portion of any interest or other income earned on the
investment of the Escrow Fund.
2
<PAGE>
2.3 [Intentionally Omitted.]
3. Application of Escrow Fund. The Escrow Fund shall be held in escrow
--------------------------
under the terms of this Agreement and released by the Escrow Agent upon the
following terms.
3.1 Joint Instructions. Upon joint written notice and instruction
------------------
from Buyer and the Stockholders' Representative that the Escrow Fund, or any
portion thereof, should be disbursed, the Escrow Agent shall make such
disbursement in accordance with the directions set forth in such joint written
notice and instruction.
3.2 Indemnification Claim. If at any time, or from time to time, on
---------------------
or before the first (1st) anniversary of the Closing Date, as defined in the
Purchase Agreement (the "Termination Date"), Buyer delivers to the Escrow Agent
written notice (an "Indemnification Notice") and a copy thereof to the
Stockholders' Representative pursuant to Section 4.1 hereof asserting that Buyer
is entitled to indemnification under Section 10 of the Purchase Agreement, which
Indemnification Notice shall state the basis and amount of such indemnification
claim, then the Escrow Agent shall disburse to Buyer from the Escrow Fund, on
the thirtieth (30th) day following receipt by the Escrow Agent of the
Indemnification Notice, an amount equal to the value of such claim (the "Escrow
Payout"). Notwithstanding the foregoing, if the Escrow Agent receives written
notice from the Stockholders' Representative prior to such thirtieth (30th) day
that a dispute exists with respect to such indemnification claim (a "Dispute
Notice"), which Dispute Notice shall state the basis of such dispute and the
portion of the Escrow Payout, if any, as to which no dispute exists, the Escrow
Agent shall continue to hold the Escrow Payout that is in dispute (but shall
disburse to Buyer the portion of the Escrow Payout as to which no dispute
exists) until directed otherwise pursuant to Section 3.4 hereof.
3.3 [Intentionally Omitted.]
3.4 Dispute of Indemnification Claim. If the Escrow Agent timely
--------------------------------
receives a Dispute Notice, the Escrow Agent shall retain the Escrow Payout in
dispute until the first to occur of the following:
3.4.1 the date on which the Escrow Agent receives joint written
instructions from Buyer and the Stockholders' Representative, in which case the
Escrow Agent shall disburse the Escrow Payout (or applicable portions thereof)
as set forth in such joint written instructions; or
3.4.2 the date on which the Escrow Agent receives a final order of
a court of competent jurisdiction (the time for all appeals therefrom having
expired) (the "Indemnity Award") resolving the dispute, in which case the Escrow
Agent shall disburse the Escrow Payout (or applicable portions thereof) as set
forth in the Indemnity Award.
3
<PAGE>
3.4.3 [Intentionally Omitted.]
3.5 Automatic Disbursement on Termination Date. If, on the
------------------------------------------
Termination Date, there is any amount of the Escrow Fund remaining undisbursed
and not subject to an Indemnification Notice or Dispute Notice received by the
Escrow Agent, the Escrow Agent shall disburse such Escrow Fund to the Rogers
Stockholders in proportion to their Percentage Interests in the Escrow Fund
(rounded to the nearest whole cent).
3.6 [Intentionally Omitted.]
4. Communications with Stockholders' Representative.
------------------------------------------------
4.1 Notice of Indemnification Claims. Buyer shall provide a copy of
--------------------------------
any Indemnification Notice to the Stockholders' Representative concurrently with
the delivery thereof to the Escrow Agent.
4.2 Additional Information Regarding Indemnification Claims. Within
-------------------------------------------------------
five (5) business days after receiving a request therefor from the Stockholders'
Representative, Buyer shall furnish the Stockholders' Representative with such
additional information relating to any claim made in an Indemnification Notice
as he may reasonably request from time to time for the purpose of evaluating the
merits of the claim for indemnification.
5. Scope of Undertaking. The Escrow Agent shall have no responsibility
--------------------
or obligation of any kind in connection with this Agreement and the Escrow Fund,
and shall not be required to deliver the same or any part thereof or take any
action with respect to any matters that might arise in connection therewith,
other than to receive, hold, and make delivery of the Escrow Fund as herein
expressly provided or by reason of a judgment or order of a court of competent
jurisdiction.
6. Knowledge and Sufficiency of Documents. The Escrow Agent shall not be
--------------------------------------
bound by or have any responsibility with respect to compliance with any
agreement between any of the other parties hereto, including the Purchase
Agreement, irrespective of whether the Escrow Agent has knowledge of the
existence of any such agreement or terms and provisions thereof, the Escrow
Agent's only duty, liability, and responsibility being to receive, hold and
deliver the Escrow Fund as herein provided. The Escrow Agent shall not be
required in any way to determine the validity or sufficiency, whether in form or
in substance, of the Escrow Fund or the validity, sufficiency, genuineness or
accuracy of any instrument, document, certificate, statement or notice referred
to in this Agreement or contemplated hereby, or the adequacy of any security
interest created hereunder; or the identity or authority of the persons
executing the same, and it shall be sufficient if any writing purporting to be
such instrument, document, certificate, statement or notice is delivered to the
Escrow Agent and purports on its
4
<PAGE>
face to be correct in form and signed or otherwise executed by the party or
parties required to sign or execute the same under this Agreement.
7. Right of Interpleader. Should any controversy arise between Buyer, on
---------------------
one hand, and the Stockholders' Representative, on the other, or any other
person, firm or entity, with respect to this Agreement, the Escrow Fund or any
part thereof, or the right of any party or other person to receive the Escrow
Fund or should such parties fail to designate another Escrow Agent as provided
in Section 12 hereof, or if the Escrow Agent should be in doubt as to what
action to take, the Escrow Agent shall have the right (but not the obligation)
to (i) withhold delivery of the Escrow Fund until the controversy is resolved as
provided in Section 3.4 hereof or (ii) institute a bill of interpleader in any
court of competent jurisdiction to determine the rights of the parties hereto
(the right of the Escrow Agent to institute such bill of interpleader, however,
shall not be deemed to modify the manner in which the Escrow Agent is entitled
to make disbursements of the Escrow Fund as hereinabove set forth, other than to
tender the Escrow Fund into the registry of such court). Should a bill of
interpleader be instituted, or should the Escrow Agent be threatened with
litigation or become involved in litigation in any manner whatsoever on account
of this Agreement or the Escrow Fund, then as between themselves and the Escrow
Agent, Buyer and the Rogers Stockholders, jointly and severally, hereby bind and
obligate themselves, their successors, heirs, executors and assigns to pay the
Escrow Agent its reasonable attorneys' fees and any and all other disbursements,
expenses, losses, costs and damages of the Escrow Agent in connection with or
resulting from such threatened or actual litigation. Notwithstanding the
foregoing, as between themselves, Buyer and the Rogers Stockholders shall each
pay one-half of all amounts payable to the Escrow Agent pursuant to this
Sectio 7.
8. Scope of Duties and Errors in Judgment. It is expressly understood
--------------------------------------
and agreed that the Escrow Agent shall be under no duty or obligation to give
any notice, or to do or to omit the doing of any action or anything with respect
to the Escrow Fund, except to hold the same and to make disbursements in
accordance with the terms of this Agreement. Without limiting the generality of
the foregoing, it is acknowledged and agreed that (i) no implied duties shall be
read into this Agreement on the part of the Escrow Agent, and (ii) the Escrow
Agent shall not be obligated to take any legal or remedial action which might in
its judgment involve it in any expense or liability for which it has not been
furnished acceptable indemnification. The Escrow Agent, its directors, officers
and employees shall not be liable for any error in judgment or any act or steps
taken or permitted to be taken in good faith, or for any mistake of law or fact,
or for anything it may do or refrain from doing in connection herewith, except
for its own willful misconduct or gross negligence.
9. Indemnity. As between themselves and the Escrow Agent, Buyer and the
---------
Rogers Stockholders, jointly and severally, agree to indemnify the Escrow Agent
against and hold the Escrow Agent and its officers, employees and directors
harmless from any and all losses, costs, damages, expenses, claims, and
attorney's fees and expenses suffered or incurred
5
<PAGE>
by the Escrow Agent as a result of, in connection with or arising from or out of
the acts or omissions of the Escrow Agent in performance of or pursuant to this
Agreement, except such acts or omissions as may result from the Escrow Agent's
willful misconduct or gross negligence. In no event shall the Escrow Agent be
liable for indirect, punitive, special or consequential damages.
Buyer and the Rogers Stockholders, jointly and severally, agree to assume
any and all obligations imposed now or hereafter by any applicable tax law with
respect to the payment of Escrow Funds under this Agreement, and to indemnify
and hold the Escrow Agent harmless from and against any taxes, additions for
late payment, interest, penalties and other expenses, that may be assessed
against the Escrow Agent in any such distribution or other activities under this
Agreement. Buyer and the Stockholders' Representative undertake to instruct the
Escrow Agent in writing with respect to the Escrow Agent's responsibility for
withholding and other taxes, assessments, or other governmental charges,
certifications and governmental reporting in connection with its acting as
Escrow Agent under this Agreement. Buyer and the Rogers Stockholders, jointly
and severally, agree to indemnify and hold the Escrow Agent harmless from any
liability on account of taxes, assessments or other governmental charges,
including without limitation the withholding or deduction or the failure to
withhold or deduct the same, and any liability for failure to obtain proper
certifications or to properly report to governmental authorities, to which the
Escrow Agent may be or become subject in connection with or which arises out of
this Agreement, including costs and expenses (including reasonable attorneys'
fees and expenses), interest and penalties.
Notwithstanding the foregoing, as between themselves, Buyer and the Rogers
Stockholders shall each pay one-half of all amounts payable to the Escrow Agent
pursuant to this Section 9.
10. Consultation with Legal Counsel. The Escrow Agent may consult with
-------------------------------
its in-house counsel or other counsel satisfactory to it in respect to questions
relating to its duties or responsibilities hereunder or otherwise in connection
herewith and shall not be liable for any action taken, suffered, or omitted by
the Escrow Agent in good faith upon the advice of such counsel. The Escrow
Agent may act through its officers, employees, agents and attorneys.
11. Reimbursement of Expenses of the Escrow Agent. The Escrow Agent shall
---------------------------------------------
be entitled to reimbursement from Buyer and the Rogers Stockholders of all its
reasonable costs and expenses, including reasonable fees and expenses of legal
counsel incurred by it in connection with the preparation, operating,
administration and enforcement of this Agreement. The Escrow Agent shall be
entitled to reimbursement on demand for all expenses incurred in connection with
the administration of this Agreement or the escrow created hereby which are in
excess of its compensation for normal services hereunder, including without
limitation, payment of any legal fees and expenses incurred by the Escrow Agent
in connection with resolution of any claim by any party hereunder.
Notwithstanding the foregoing, as between themselves, Buyer and the Rogers
Stockholders shall each pay one-half of all amounts payable to the Escrow Agent
pursuant to this Section 11.
6
<PAGE>
12. Resignation. The Escrow Agent may resign upon 10 days' prior written
-----------
notice to Buyer and the Stockholders' Representative, and upon written
instruction to Buyer and the Stockholders' Representative, the Escrow Agent
shall deliver the Escrow Fund to any designated substitute Escrow Agent mutually
agreeable to such parties. If Buyer and the Stockholders' Representative fail
to designate a substitute Escrow Agent within 10 days, the Escrow Agent, in its
sole discretion and its sole option, either may (i) continue to hold the Escrow
Fund or (ii) institute a bill of interpleader as contemplated by Section 7
hereof.
13. Compensation. Buyer covenants and agrees to pay to the Escrow Agent
------------
the fee determined by the Escrow Agent, from time to time, to be applicable to
this escrow and bear all costs and expenses incurred by the Escrow Agent in
connection therewith. The Escrow Agent's fees, as in effect on the date hereof,
are attached hereto as Schedule A.
----------
14. Responsibilities of the Stockholders' Representative.
----------------------------------------------------
14.1 General. The Stockholders' Representative has been designated by
-------
the Rogers Stockholders to represent the Rogers Stockholders with respect to the
Escrow Fund pursuant to the terms of this Agreement. The duties of the
Stockholders' Representative hereunder shall be limited to the observance of the
express provisions of this Agreement. The Stockholders' Representative shall
not be subject to, or be obliged to recognize, any other agreement between the
parties hereto or directions or instructions not specifically set forth or
provided for herein or in the Purchase Agreement.
14.2 Reimbursement of Expenses of the Stockholders' Representative.
-------------------------------------------------------------
The Rogers Stockholders shall reimburse the Stockholders' Representative for
reasonable out-of-pocket expenses incurred by the Stockholders' Representative
in the performance of his duties hereunder. During the period of this
Agreement, the reimbursement provided under this Section 14.2 shall be from
sources of funds other than the Escrow Fund.
14.3 Duties. The Rogers Stockholders hereby authorize the
------
Stockholders' Representative to take all action necessary in connection with the
implementation of this Agreement on behalf of the Rogers Stockholders,
including, without limitation, giving and receiving all notices required to be
given under this Agreement, settling any dispute arising hereunder and executing
all such documents as the Stockholders' Representative shall deem necessary or
appropriate in connection with the transactions contemplated by this Agreement.
All decisions and actions by the Stockholders' Representative shall be binding
upon all of the Rogers Stockholders, and no Rogers Stockholder shall have the
right to object, dissent, protest or otherwise contest the same.
7
<PAGE>
14.4 Reliance. By their execution of this Agreement, the Rogers
--------
Stockholders agree that (i) Buyer and the Escrow Agent shall be able to rely
conclusively on the instructions and decisions of the Stockholders'
Representative as to any actions required or permitted to be taken by the Rogers
Stockholders or the Stockholders' Representative hereunder, and no party hereto
shall have any cause of action against any other for any action taken in
reliance upon the instructions or decisions of the Stockholders' Representative,
(ii) all actions, decisions and instructions of the Stockholders' Representative
shall be conclusive and binding upon all of the Rogers Stockholders and no
Rogers Stockholder shall have any cause of action against the Stockholders'
Representative or any other person for any action taken, decision made or
instruction given by the Stockholders' Representative under this Agreement,
except for gross negligence, breach of fiduciary duties owed to the Rogers
Stockholders, fraud or willful breach of this Agreement by the Stockholders'
Representative and (iii) the provisions of this Section 14 are independent and
severable, shall constitute an irrevocable power of attorney, coupled with an
interest and surviving death, granted by the Rogers Stockholders to the
Stockholders' Representative and shall be binding upon the executors, heirs,
legal representatives and successors of each Rogers Stockholder.
15. Investment. Subject to Section 2.2 of this Agreement, the available
----------
uninvested portion of the Escrow Fund shall be invested (and reinvested, as the
case may be) from time to time by the Escrow Agent in any of the following
investments (collectively, "Eligible Investments"):
(i) Short term obligations issued or guaranteed by The United States
of America or any agency or instrumentality thereof; or
(ii) Certificates of deposit of or interest bearing accounts with
national banks or corporations endowed with trust powers, including the
Escrow Agent, having capital and surplus in excess of $100,000,000; or
(iii) Insured Money Market Account short term investments with
national banks or corporations endowed with trust powers, including Escrow
Agent, having capital and surplus in excess of $100,000,000; or
(iv) Corporate bond funds with a rating of at least A+ or the
equivalent thereof by Standard & Poor's Corporation, at least A+ or thereof
by Moody's Investors Service, Inc. or an equivalent rating by another
nationally recognized rating agency.
Investments pursuant to such investment instructions described above shall
in all instances be subject to availability (including any time-of-day
requirements). In no instance shall the Escrow Agent have any obligation to
provide investment advice of any kind. The Escrow Agent shall not be required
to invest any funds held hereunder except as expressly
8
<PAGE>
provided in written instructions received from the Stockholders' Representative
pursuant to Section 2 hereof, and shall not be obligated to pay interest on
uninvested funds. All amounts received by the Escrow Agent (and any credits to
the Escrow Account) shall be conditional upon collection (and actual receipt by
the Escrow Agent of final payment). In no event shall the Escrow Agent have any
obligation to advance funds.
The Escrow Agent may be authorized at all times and from time to time to
liquidate any investment of the Escrow Fund as may be necessary to provide
available cash to make any release, disbursement or payment called for under the
terms of this Agreement. The Escrow Agent shall have no responsibility or
liability for any losses resulting from liquidation of the Escrow Fund (such as
liquidation prior to maturity).
16. Change in the Stockholders' Representative. In the event that the
------------------------------------------
Stockholders' Representative dies, become legally incapacitated or resigns from
such position, Douglas H. Holstein shall fill such vacancy and shall be deemed
to be the Stockholders' Representative for all purposes of this Agreement;
however, no change in the Stockholders' Representative shall be effective until
Buyer is given notice of such change by the Rogers Stockholders.
17. Confidentiality. All of the information provided by the parties to
---------------
this Agreement pursuant to this Agreement shall be deemed "Confidential
Information" except to the extent that such information (i) was known to the
receiving party prior to its receipt from the disclosing party, (ii) is or
becomes part of the public domain through no fault of any party hereto or (iii)
is disclosed to a party hereto by a third party that is legally free to disclose
such information. Each of the parties to this Agreement agrees that, without
the express written consent of the other parties hereto, it will (i) not use the
Confidential Information for any purpose except as required to discharge its
responsibilities under this Agreement; (ii) use reasonable efforts to prevent
the disclosure or other dissemination of the Confidential Information in its
possession to any third party; and (iii) upon discharging its responsibilities
under this Agreement, return or destroy any document in its possession
containing any Confidential Information supplied by the other parties to this
Agreement.
18. Miscellaneous.
-------------
18.1 Complete Agreement. This Agreement and any documents referred to
------------------
herein (including, without limitation, the Purchase Agreement) or executed
contemporaneously herewith constitute the parties' entire agreement with respect
to the subject matter hereof and supersede all agreements, representations,
warranties, statements, promises and understandings, whether oral or written,
with respect to the subject matter hereof. This Agreement shall be binding upon
the respective parties hereto and their heirs, executors, successors and
assigns.
9
<PAGE>
18.2 Amendments and Waivers. This Agreement may be amended, modified
----------------------
and supplemented, and compliance with any provision hereof may be waived, only
by a writing signed by Buyer, the Escrow Agent and the Stockholders'
Representative.
18.3 Assignment. This Agreement shall be binding upon and inure to
----------
the benefit of Buyer, the Escrow Agent, the Rogers Stockholders and the
Stockholders' Representative and their respective successors and permitted
assigns. Except as expressly provided in this Agreement, none of the parties
may assign any of his or its rights or obligations under this Agreement without
the prior written consent of the other parties; provided, however, that Buyer
-------- -------
may assign its rights under this Agreement in connection with a merger,
consolidation or sale of substantially all of the assets of Buyer.
18.4 Waivers Strictly Construed. With regard to any power, remedy or
--------------------------
right provided herein or otherwise available to any party hereunder (a) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (b) no alteration, modification or
impairment shall be implied by reason of any previous waiver, extension of time,
delay or omission in exercise, or other indulgence.
18.5 Severability. In case any one or more of the provisions
------------
contained in this Agreement 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 provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
18.6 Termination. Upon the final distribution of the Escrow Fund
-----------
pursuant to Section 3 hereof, this Agreement shall terminate. Anything
contained herein to the contrary notwithstanding, the provisions of Sections 7,
9 and 17 shall remain in full force and effect following the termination of this
Agreement.
18.7 Notices. All notices under this Agreement will be in writing and
-------
will be delivered by personal service or facsimile or certified mail (or, if
certified mail is not available, then by first class mail), postage prepaid, to
such address as may be designated from time to time by the relevant party, and
which will initially be as set forth below. Copies of all notices shall be
given to Buyer, the Stockholders' Representative and the Escrow Agent; provided,
--------
however, that the failure to give copies of such notice shall not render the
- -------
notice invalid or unenforceable. Any notice sent by certified mail will be
deemed to have been given three (3) days after the date on which it is mailed.
Any notice transmitted by facsimile will be deemed given upon confirmation of
receipt. All other notices will be deemed given when received. No objection
may be made to the manner of delivery of any notice actually received in writing
by an authorized agent of a party. Notices will be addressed as follows or to
such other address as the party to whom the same is directed will have specified
in conformity with the foregoing:
10
<PAGE>
(a) If to Buyer:
Merkert American Corporation
490 Turnpike Street
Canton, MA 02021
Attn: President
Facsimile: (781) 828-8274
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
53 State Street
Boston, MA 02109
Attn: Robert P. Whalen, Jr., Esq.
Facsimile: (617) 523-1231
(b) If to the Stockholders' Representative:
Curtis L. Rogers, Jr.
4601 Kuykendall Road
Charlotte, NC 28270
With a copy to:
Johnston, Allison & Hord, P.A.
610 East Morehead Street (28202)
Post Office Box 36469
Charlotte, NC 28236
Attn: H. Morrison Johnston, Esq.
(c) If to the Escrow Agent:
State Street Bank and Trust Company
Financial Markets Group
Corporate Trust
Attn: Rogers Cash Escrow Account
Two International Place
Boston, MA 02110
Facsimile: (617) 664-5742
11
<PAGE>
With a copy to:
Peabody & Arnold LLP
50 Rowes Wharf
Boston, MA 02110
Attn: Douglas C. Reynolds, Esq.
Facsimile: (617) 951-2125
18.8 Governing Law; Consent to Jurisdiction and Service. The rights
--------------------------------------------------
and liabilities of the parties under this Agreement shall be governed by the
laws of The Commonwealth of Massachusetts, regardless of the choice of laws
provisions of such state or any other jurisdiction. Buyer, each Rogers
Stockholder and the Stockholders' Representative hereby absolutely and
irrevocably consents and submits to the jurisdiction of the courts in The
Commonwealth of Massachusetts and of any Federal court located in said
Commonwealth in connection with any actions or proceedings brought against
Buyer, the Rogers Stockholders and/or the Stockholders' Representative arising
out of or relating to this Agreement. In any such action or process, Buyer,
each Rogers Stockholder and the Stockholders' Representative hereby absolutely
and irrevocably waive personal service of any summons, complaint, declaration or
other process and hereby absolutely and irrevocably agree that the service
thereof may be made by certified or registered first-class mail directed to
Buyer and the Stockholders' Representative, as the case may be, at their
respective addresses in accordance with Section 18.7 hereof.
18.9 Headings. The headings in this Agreement are inserted only as a
--------
matter of convenience, and in no way define, limit, or extend or interpret the
scope of this Agreement or of any particular Section.
18.10 Force Majeure. Neither Buyer, the Stockholders' Representative
-------------
nor the Escrow Agent shall be responsible for delays or failures in performance
resulting from acts beyond their control. Such acts shall include but not be
limited to acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters.
18.11 Reproduction of Documents. This Agreement and all documents
-------------------------
relating hereto, including, without limitation, (a) consents, waivers and
modifications which may hereafter be executed, and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such
12
<PAGE>
reproduction was made by a party in the regular course of business, and that any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
18.12 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
[Remainder of page intentionally left blank]
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
MERKERT AMERICAN CORPORATION
By: /s/ Gerald R. Leonard
---------------------------------
Gerald R. Leonard
President
STATE STREET BANK AND TRUST COMPANY,
as escrow agent
By: /s/ Arthur Blakeslee
---------------------------------
Name: Arthur Blakeslee
Title: Assistant Vice President
/s/ Curtis L. Rogers, Jr.
---------------------------------
Curtis L. Rogers, Jr., as Stockholders'
Representative
ROGERS STOCKHOLDERS:
/s/ John L. Brady, Sr.
---------------------------------
John L. Brady, Sr.
/s/ Danny L. Broadwater
---------------------------------
Danny L. Broadwater
/s/ Marty D. Carter
---------------------------------
Marty D. Carter
14
<PAGE>
/s/ Thomas S. Fincher
---------------------------------
Thomas S. Fincher
/s/ Douglas H. Holstein
---------------------------------
Douglas H. Holstein
/s/ E. Ray Johnson
---------------------------------
E. Ray Johnson
/s/ Robert J. Maccubbin, Sr.
---------------------------------
Robert J. Maccubbin, Sr.
/s/ Robert J. Maccubbin, Jr.
---------------------------------
Robert J. Maccubbin, Jr.
/s/ Curtis L. Rogers, Jr.
---------------------------------
Curtis L. Rogers, Jr.
/s/ Curtis L. Rogers, III.
---------------------------------
Curtis L. Rogers, III
15
<PAGE>
Exhibit 10.15
CREDIT AGREEMENT
AMONG
MERKERT AMERICAN CORPORATION
("Borrower"),
THE LENDERS SET FORTH ON SCHEDULE 1 HERETO
("Lenders")
AND
FIRST UNION NATIONAL BANK,
AS AGENT FOR THE LENDERS
("Agent")
December 18, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1 DEFINITIONS........................................ 1
1.1. Definitions......................................... 1
1.2. Rules of Construction............................... 15
1.3. Proforma Calculations............................... 16
SECTION 2 CREDIT FACILITY.................................... 16
2.1. The Facilities...................................... 16
2.2. Promissory Notes.................................... 16
2.3. Lenders' Participation.............................. 17
2.4. Use of Proceeds..................................... 17
2.5. Repayment........................................... 17
2.6. Interest............................................ 18
2.7. Advances............................................ 21
2.8. Reduction and Termination of Commitment............. 23
2.9. Prepayment.......................................... 23
2.10. Funding Costs and Loss of Earnings.................. 26
2.11. Payments............................................ 26
2.12. Commitment Fee...................................... 26
2.13. Agent's Fees........................................ 26
2.14. Regulatory Changes in Capital Requirements.......... 26
SECTION 2A LETTERS OF CREDIT................................. 27
2A.1. Availability of Credits............................. 27
2A.2. Commitment Availability............................. 28
2A.3. Approval and Issuance............................... 28
2A.4. Obligations of the Borrower......................... 29
2A.5. Payment by Lenders on Letters of Credit............. 30
2A.6. Collateral Security................................. 30
2A.7. General Terms of Credits............................ 31
SECTION 3 REPRESENTATIONS AND WARRANTIES..................... 32
3.1. Organization and Good Standing...................... 32
3.2. Power and Authority; Validity of Agreement.......... 32
3.3. No Violation of Laws or Agreements.................. 32
3.4. Material Contracts.................................. 33
3.5. Compliance.......................................... 33
3.6. Litigation.......................................... 33
3.7. Title to Assets..................................... 33
3.8. Accuracy of Information; Full Disclosure............ 34
i
<PAGE>
3.9. Taxes and Assessments................................ 34
3.10. Indebtedness......................................... 35
3.11. Management Agreements................................ 35
3.12. Investments.......................................... 35
3.13. ERISA................................................ 35
3.14. Fees and Commissions................................. 36
3.15. No Extension of Credit for Securities................ 36
3.16. Perfection of Security Interest...................... 36
3.17. Hazardous Wastes, Substances and Petroleum Products.. 36
3.18. Solvency............................................. 37
3.19. Employee Controversies............................... 37
SECTION 4 CONDITIONS.......................................... 38
4.1. Effectiveness........................................ 38
4.2. Advances............................................. 41
SECTION 5 AFFIRMATIVE COVENANTS............................... 41
5.1. Existence and Good Standing.......................... 41
5.2. Interim Financial Statements......................... 41
5.3. Annual Financial Statements.......................... 41
5.4. Compliance Certificate............................... 42
5.5. Additional Reports................................... 42
5.6. Public Information................................... 42
5.7. Books and Records.................................... 42
5.8. Insurance............................................ 42
5.9. Litigation; Event of Default......................... 42
5.10. Taxes................................................ 43
5.11. Costs and Expenses................................... 43
5.12. Compliance; Notification............................. 43
5.13. ERISA................................................ 44
5.14. Total Debt to EBITDA Ratio........................... 44
5.15. Senior Debt to EBITDA................................ 44
5.16. Minimum EBITDA....................................... 45
5.17. Minimum Debt Service Coverage Ratio.................. 45
5.18. Minimum Fixed Charge Coverage Ratio.................. 45
5.19. Borrowing Base....................................... 46
5.20. Management Changes................................... 46
5.21. Transactions Among Affiliates........................ 46
5.22. Joinders, etc........................................ 46
5.23. Additional Collateral Security Documents............. 46
5.24. Other Information.................................... 46
ii
<PAGE>
Page
----
SECTION 6 NEGATIVE COVENANTS.................................. 47
6.1. Indebtedness......................................... 47
6.2. Guaranties........................................... 47
6.3. Loans................................................ 47
6.4. Liens and Encumbrances............................... 48
6.5. Additional Negative Pledge........................... 48
6.6. Restricted Payments.................................. 48
6.7. Transfer of Assets; Liquidation...................... 49
6.8. Acquisitions and Investments......................... 49
6.9. Payments to Affiliates............................... 50
6.10. Certain Changes...................................... 50
6.11. Restrictive Agreements............................... 51
6.12. Use of Proceeds...................................... 51
SECTION 7 DEFAULT............................................. 51
7.1. Events of Default.................................... 51
7.2. Remedies............................................. 53
7.3. Right of Set-off..................................... 54
7.4. Turnover of Property Held by Lender's Affiliates..... 54
7.5. Remedies Cumulative; No Waiver....................... 54
SECTION 8 AGENCY PROVISIONS................................... 55
8.1. Application of Payments.............................. 55
8.2. Set-Off.............................................. 55
8.3. Modifications and Waivers............................ 55
8.4. Obligations Several.................................. 55
8.5. Lenders' Representations............................. 56
8.6. Investigation........................................ 56
8.7. Powers of Agent...................................... 56
8.8. General Duties of Agent, Immunity and Indemnity...... 56
8.9. No Responsibility for Representations or Validity,
etc................................................ 56
8.10. Action on Instruction of Lenders; Right to
Indemnity.......................................... 56
8.11. Employment of Agents................................. 57
8.12. Reliance on Documents................................ 57
8.13. Agent's Rights as a Lender........................... 57
8.14. Expenses............................................. 57
8.15. Resignation of Agent................................. 57
8.16. Successor Agent...................................... 57
8.17. Collateral Security.................................. 58
8.18. Enforcement by Agent................................. 58
SECTION 9 MISCELLANEOUS....................................... 58
9.1. Indemnification and Release Provisions............... 58
iii
<PAGE>
Page
----
9.2. Participations and Assignments....................... 59
9.3. Binding and Governing Law............................ 59
9.4. Survival............................................. 59
9.5. No Waiver; Delay..................................... 59
9.6. Modification......................................... 60
9.7. Headings............................................. 60
9.8. Notices.............................................. 60
9.9. Payment on Non-Business Days......................... 60
9.10. Time of Day.......................................... 61
9.11. Severability......................................... 61
9.12. Counterparts......................................... 61
9.13. Confidentiality...................................... 61
9.14. Consent to Jurisdiction and Service of Process....... 61
9.15. WAIVER OF JURY TRIAL................................. 62
9.16. ACKNOWLEDGMENTS...................................... 62
iv
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A-1: Advance Request Form
Exhibit A-2: Letter of Credit Request Form
Exhibit B-1: Form of Revolving Credit Note
Exhibit B-2: Form of Term Note
Exhibit C: Disclosure Pursuant to Representations and Warranties
Exhibit D: Funding Costs and Loss of Earnings Calculation
Exhibit E: Form of Compliance Certificate
Exhibit F: Form of Borrowing Base Certificate
Exhibit G: Notice of Acquisition
Exhibit H: Form of Assignment
Exhibit I: Incumbency Certificate
v
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT (this "Agreement") is made this 18th day of
December, 1998, by and among MERKERT AMERICAN CORPORATION, a Delaware
corporation ("Borrower"); FIRST UNION NATIONAL BANK, a national banking
association ("First Union") and the other financial institutions identified on
Schedule 1 attached hereto (each individually a "Lender" and individually and
collectively, "Lenders"); and FIRST UNION as agent for the Lenders ("Agent").
In consideration of the agreements hereinafter set forth, and
intending to be legally bound, the parties hereto hereby agree as follows:
SECTION 1
DEFINITIONS
-----------
1.1. Definitions. When used in this Agreement, the following terms
-----------
shall have the respective meanings set forth below.
"ABD/Bergida Dispute" means the dispute between one or more
-------------------
subsidiaries of Borrower and ABD Sales, Inc. Ronald A. Bergida, Arthur L.
Bergida, Alfred Bergida, Edward S. Parks and Stephen Costentino, which is
currently pending before the American Arbitration Association.
"Acquisition Price" shall mean, with respect to any acquisition, the
-----------------
total consideration to be paid, incurred or assumed by the Company or its
Subsidiaries in connection with such acquisition, including, without limitation,
the principal amount of any Indebtedness assumed or acquired, and the full
amount of any deferred purchase price or contingent obligations.
"Adjusted EBITDA" means, for any period, EBITDA for such period less
---------------
capital expenditures made during such period as determined in accordance with
GAAP.
"Adjusted Libor Rate" means, for any Interest Period, as applied to a
-------------------
Libor Portion, the rate per annum (rounded upwards, if necessary to the next
1/32 of 1%) determined pursuant to the following formula:
Adjusted Libor Rate = Libor Rate
------------------------
[1 - Reserve Percentage]
For purposes hereof, "Libor Rate" shall mean, as applied to a Libor Portion, the
rate which appears on the Telerate Page 3750 at approximately 9:00 a.m.
Philadelphia time two London
1
<PAGE>
Business Days prior to the commencement of such Interest Period for the offering
to leading banks in the London Interbank Market of deposits in United States
dollars ("Eurodollars") or, if such rate does not appear on the Telerate page
3750, the rate which appears (or, if two or more such rates appear, the average
rounded up to the nearest 1/32 of 1% of the rates which appear) on the Reuters
Screen LIBO Page as of 9:00 a.m. Philadelphia time two London Business Days
prior to the commencement of the Interest Period, in either case for an amount
substantially equal to such Portion as to which Borrower may elect the Adjusted
Libor Rate to be applicable with a maturity of comparable duration to the
Interest Period selected by Borrower for such Libor Portion, as may be adjusted
from time to time in accordance with Paragraph 2.6(e) hereof.
"Adjusted Rolling Period" means (i) as of March 31, 1998, the one (1)
-----------------------
fiscal quarter then ended; (ii) as of June 30, 1999, the two (2) fiscal quarters
then ended; (iii) as of September 30, 1999, the three (3) fiscal quarters then
ended, and (iv) thereafter, the most recent Rolling Period.
"Advance" means a borrowing under the Revolving Credit Commitment
-------
pursuant to Paragraph 2.7 hereof.
"Advance Request Form" means the certificate in the form attached
--------------------
hereto as Exhibit A-1 to be delivered by Borrower to Agent as a condition of
each Advance.
"Affiliate" means as to any party: (i) any Person who or entity which
---------
directly or indirectly owns, controls or holds five percent (5%) or more of the
outstanding beneficial interests in such party; (ii) any entity of which five
percent (5%) or more of the outstanding beneficial interest is directly or
indirectly owned, controlled, or held by such party; (iii) any entity which
directly or indirectly is under common control with such party; (iv) any
director or general partner of such party or any Affiliate; or (v) any immediate
family member of any Person who is an Affiliate. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of an entity,
whether through the ownership of voting securities, by contract, or otherwise.
"Agent" means First Union National Bank, in its capacity as agent for
-----
the Lenders hereunder and any successor in such capacity appointed pursuant to
Paragraphs 8.15 and 8.16 hereof.
"Agreement" means this Credit Agreement and all exhibits hereto, as
---------
each may be amended, modified, extended, consolidated or restated from time to
time.
"Applicable Margin" means the percentage per annum set forth in the
-----------------
appropriate column below that corresponds to the ratio of Funded Debt to EBITDA
for Borrower and its consolidated Subsidiaries (the Applicable Margin being the
lowest applicable percentage per annum as to which the ratio requirement has
been attained):
2
<PAGE>
<TABLE>
<CAPTION>
Revolving Credit Loan
Applicable Margin Term Loan
----------------------- ---------------------
Ratio of Total Base Rate Libor Base Rate Libor
Level Debt to EBITDA Portions Portions Portions Portions
- ------- ------------------------- ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
I Less than 1.50 to 1 0.75% 2.25% 1.00% 2.50%
II Less than 2.50 to 1 but 1.25% 2.75% 1.50% 3.00%
greater than or equal to
1.50 to 1
III Less than 3.00 to 1 but 1.50% 3.00% 1.75% 3.25%
greater than or equal to
2.50 to 1
IV Greater than or equal to 1.75% 3.25% 2.00% 3.50%
3.00 to 1
</TABLE>
Notwithstanding the foregoing, the Applicable Margin from the date hereof
through June 30, 1999 shall be based on Level IV. Thereafter, commencing with
the delivery of a Compliance Certificate for the period ended June 30, 1999, the
Applicable Margin shall adjust automatically, as appropriate, on the day
following delivery of a quarterly Compliance Certificate in accordance with
Paragraph 5.4 hereof, provided, that in the event that a quarterly compliance
certificate has not been delivered on the date required by Paragraph 5.4 then
the Applicable Margin shall adjust to the highest margin provided above as of
the date of required delivery; provided further, however, that the Applicable
Margin shall readjust on the day after delivery of such delinquent Compliance
Certificate based on the ratio set forth in such Compliance Certificate.
"Authorized Officer" means any of the officers of the Borrower
------------------
designated as such pursuant to an Incumbency Certificate in the form of Exhibit
I attached hereto delivered to Lenders from time to time. Any designated
Authorized Officer shall remain as such until Lenders and Agent shall have
actually received a superseding Incumbency Certificate.
"Base Rate" means the higher of (a) the Federal Funds Rate plus one
---------
half of one percent ( 1/2%) per annum or (b) the Prime Rate.
"Base Rate Portion" means a Portion as to which the applicable rate of
-----------------
interest is based on the Base Rate.
"Borrower" means Merkert American Corporation, a Delaware corporation.
--------
"Borrowing Base" means eighty percent (80%) of Eligible Accounts.
--------------
3
<PAGE>
"Borrowing Base Certificate" means a certificate in the form of
--------------------------
Exhibit F attached hereto delivered by Borrower to Lenders pursuant to Paragraph
5.5 or Paragraph 4.1 hereof.
"Business Day" means any day not a Saturday, Sunday or a day on which
------------
Lenders are required or permitted to be closed under the laws of the
Commonwealth of Pennsylvania.
"Capital Leases" means capital leases and subleases, as defined in
--------------
Statement 13 of the Financial Accounting Standards Board dated November 1976, as
amended and updated from time to time.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
------
and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, as amended from time to time, and all rules and
regulations promulgated pursuant thereto.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time, and regulations with respect thereto in effect from time to time.
"Collateral" means the collateral security for the Loan, including
----------
under the Collateral Security Documents, this Agreement or any other Loan
Document.
"Collateral Security Documents" means the Security Agreement, the
-----------------------------
Guaranty, the Pledge Agreements, and any other document or instrument executed
and/or delivered from time to time hereunder or in connection herewith granting
or evidencing Collateral for the Senior Obligations.
"Combination" shall mean the transactions pursuant to which, on the
-----------
Effective Date of this Agreement, Merkert Enterprises and Rogers-American shall
become wholly-owned subsidiaries of the Borrower, as described in the
Registration Statement.
"Company" means individually, and "Companies" means individually and
------- ---------
collectively, Borrower and each Guarantor.
"Compliance Certificate" means a certificate in the form of Exhibit E
----------------------
attached hereto delivered by Borrower to Lenders pursuant to Paragraph 5.5
hereof.
"Debt Service" means, for any period, the sum of interest expense and
------------
scheduled debt payments for such period.
"Default" means an event, condition or circumstance the occurrence of
-------
which would, with the giving of notice or the passage of time or both,
constitute an Event of Default.
4
<PAGE>
"EBITDA" means, for any period, net income for such period as defined
------
in accordance with GAAP, excluding any extraordinary gains, plus interest
expense, taxes, depreciation and amortization, and all other non-cash charges to
income for such period, in each case as defined in accordance with GAAP and to
the extent each has been deducted in determining net income.
"Eligible Accounts" means, as of any date of determination thereof,
-----------------
the aggregate of all trade account receivables of Borrower and its consolidated
Subsidiaries, at book value in accordance with GAAP, excluding, without
duplication:
(a) any receivable not payable in United States Dollars;
(b) any receivable as to which the account debtor is not located
within the United States, unless such receivable is backed by a letter of credit
in form and substance satisfactory to Agent and issued by a financial
institution acceptable to Agent;
(c) any receivable which by its terms is due later than the end of the
month following the month of shipment;
(d) any receivable due from any Company or any Subsidiary or Affiliate
of any Company;
(e) any receivable with respect to all or part of which a check,
promissory note, draft, trade acceptance or other instrument for the payment of
money has been presented for payment and returned uncollected for any reason;
(f) any receivable as to which Borrower or the applicable owner knows
that any one or more of the following events has occurred with respect to the
account debtor: death or judicial declaration of incompetency; the filing by or
against such account debtor of a request or petition for liquidation,
reorganization, arrangement, adjustment of debts, adjudication as a bankrupt, or
other relief under the bankruptcy, insolvency, or similar laws of the United
States, any state or territory thereof, or any foreign jurisdiction, now or
hereafter in effect; the making of any general assignment by such account debtor
for the benefit of creditors; the appointment of a receiver or trustee for such
account debtor or for any of the assets of such account debtor, including,
without limitation, the appointment of or taking possession by a "custodian," as
defined in the Bankruptcy Code; the institution by or against such account
debtor of any other type of insolvency proceeding (under the bankruptcy laws of
the United States or elsewhere) or of any formal or informal proceeding for the
dissolution or liquidation of, settlement of claims against, or winding up of
affairs of, such account debtor; the sale, assignment, or transfer of all or
substantially all of the assets of such account debtor; the inability to pay or
the nonpayment by such account debtor of its debts generally as they become due;
the cessation of the business of such account debtor as a going concern; or, in
Agent's sole reasonable judgment, unsatisfactory general financial performance
or credit standing or likelihood of unsatisfactory general financial performance
or credit standing in the near future;
5
<PAGE>
(g) any receivable which is more than sixty (60) days past the due
date;
(h) any receivable from an account debtor as to which more than fifty
percent (50%) of the amount of all outstanding receivables from such account
debtor are more than ninety (90) days past the date of invoice;
(i) any receivable as to which there is any good faith dispute,
defense, offset or counterclaim with or by the account debtor, to the extent
thereof;
(j) any receivable that has not been created in the ordinary course of
business; and
(k) any receivable representing an obligation for goods placed on
consignment and not yet sold by the consignee, or for goods on approval;
(l) any receivable payable to a Subsidiary that is not a Guarantor;
"Environmental Laws" means any federal, state, county, regional or
------------------
local laws governing the control, handling, storage, removal, spill, release or
discharge of Hazardous Substances, including without limitation CERCLA, the
Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery
Act of 1976 and the Hazardous and Solid Waste Amendments of 1984, the Federal
Water Pollution Control Act, as amended by the Clean Water Act of 1976, the
Hazardous Materials Transportation Act, the Emergency Planning and Community
Right to Know Act of 1986, the National Environmental Policy Act of 1975, the
Oil Pollution Act of 1990, any similar or implementing state law, and in each
case including all amendments thereto, and all rules and regulations promulgated
thereunder and permits issued pursuant thereto.
"EPA" means the United States Environmental Protection Agency, or any
---
successor thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, all
-----
amendments thereto and all rules and regulations in effect at any time
thereunder.
"ERISA Affiliate" means, when used with respect to any Plan, ERISA,
---------------
the PBGC or a provision of the Code pertaining to employee benefit plans, any
Person or entity that is a member of any group or organization within the
meaning of Code Sections 414(b), (c), (m) or (o) of which Borrower or any
Guarantor is a member.
"Event of Default" means an event described in Paragraph 7.1 hereof.
----------------
6
<PAGE>
"Excess Cash Flow" means, for any fiscal year, EBITDA for such fiscal
----------------
year, less (i) all payments of principal, interest, fees and expenses with
respect to Total Debt made during such year, (ii) taxes paid in cash during such
fiscal year, (iii) capital expenditures made during such fiscal year, and (iv)
the change in Working Capital since the end of the prior fiscal year (such
change in Working Capital to constitute a reduction in Excess Cash Flow to the
extent that it is negative, and an increase to Excess Cash Flow to the extent
that it is positive).
"Executive Officer" means, with respect to the Borrower, its
-----------------
President, Chief Financial Officer, Chief Operating Officer, and any other
officer who is an "executive officer" as defined in Rule 3b.7 under the
Securities Exchange Act of 1934, as amended.
"Federal Funds Rate" means, for any day, the effective rate of
------------------
interest for such day, as announced from time to time by the Board of Governors
of the Federal Reserve System as shown in publication H.15 as the "Federal Funds
Rate."
"Fixed Charges" means, for any period, the sum of Debt Service for
-------------
such period plus Capital Lease payments for such period and cash income taxes
paid during such period.
"GAAP" means generally accepted accounting principles set forth in the
----
Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and in statements of the Financial Accounting
Standards Board and in such other statements by such other entity as Agent may
reasonably approve, which are applicable in the circumstances as of the date in
question, subject to Paragraph 1.2(a) hereof; and such principles observed in a
current period shall be comparable in all material respects to those applied in
a preceding period.
"Guarantor" means individually, and "Guarantors" means individually
--------- ----------
and collectively, Merkert Enterprises, Rogers-American and their respective
Subsidiaries on the date hereof, and any Material Subsidiaries of Borrower which
may join in the Guaranty pursuant to Paragraph 5.22 hereof.
"Guaranty" means the Guaranty Agreement executed by Guarantors in
--------
favor of Lenders as required to be delivered pursuant to Paragraph 4.1 hereof
and including any joinders thereto pursuant to Paragraph 5.22 hereof, as may be
amended, modified or restated from time to time.
"Hazardous Substance" means petroleum products and items defined in
-------------------
the Environmental Laws as "hazardous substances", "hazardous wastes",
"pollutants" or "contaminants" and any other toxic, reactive, corrosive,
carcinogenic, flammable or hazardous substance or other pollutant.
"Indebtedness" of any Person as of any date of determination means and
------------
includes all obligations of such Person which, in accordance with GAAP, shall be
classified on
7
<PAGE>
a balance sheet of such Person as liabilities of such Person and in any event
shall include, without duplication, all (i) obligations of such Person for
borrowed money or which have been incurred in connection with acquisition of
property or assets, (ii) obligations secured by any lien upon property or assets
owned by such Person, notwithstanding that such Person has not assumed or become
liable for the payment of such obligations, (iii) obligations created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person, notwithstanding the fact that the rights and
remedies of the seller, lender or lessor under such agreement in the event of
default are limited to repossession or sale of property, (iv) Capital Leases,
(v) guarantees, (vi) letters of credit and letter of credit reimbursement
obligations, and (vii) any obligation with respect to an interest rate or
currency swap or similar obligation obligating such Person to make payments,
whether periodically or upon the happening of a contingency, except that if any
agreement relating to such obligation provides for the netting of amounts
payable by and to such Person thereunder or if any such agreement provides for
the simultaneous payment of amounts by and to such Person, then in each such
case, the amount of such obligation shall be the net amount thereof.
"Indemnification Escrow Agreement" means the Indemnification Escrow
--------------------------------
Agreement dated the date hereof, entered into pursuant to the Merkert
Acquisition Agreement.
"Initial Offering" means the initial public offering of shares of
----------------
common stock of Borrower pursuant to the Registration Statement.
"Interest Period" means, with respect to a Libor Portion, a period of
---------------
one (1), two (2), three (3) or six (6) months' duration, as Borrower may elect,
during which the Adjusted Libor Rate is applicable; provided, however, that (a)
if any Interest Period would otherwise end on a day which shall not be a London
Business Day, such Interest Period shall be extended to the next succeeding
London Business Day, unless such London Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding London
Business Day, subject to clause (c) below; (b) interest shall accrue from and
including the first day of each Interest Period to, but excluding, the day on
which any Interest Period expires; (c) with respect to an Interest Period which
begins on the last London Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month at the end
of such Interest Period), the Interest Period shall end on the last London
Business Day of a calendar month; and (d) Borrower may not elect an Interest
Period that would extend past the Termination Date.
"Lender" means individually, and "Lenders" means individually and
------ -------
collectively, the institutions identified on Schedule 1 attached hereto and
their respective successors and assigns so long as any such institution retains
any portion of the Revolving Credit Commitment or Loans hereunder.
"Letter of Credit" means individually, and "Letters of Credit" shall
---------------- -----------------
mean individually and collectively, the letter(s) of credit issued for the
account of Borrower, in the
8
<PAGE>
form agreed upon at the time of issuance thereof by Agent and Borrower,
participated in by all the Lenders pursuant to the terms and conditions of
Section 2A hereof.
"Letter of Credit Request Form" means the certificate in the form
-----------------------------
attached as Exhibit A-2 hereto, to be delivered to Agent as a condition of each
issuance of a Letter of Credit pursuant to Paragraph 2A.3 hereof.
"Letter of Credit Sublimit" means the portion of the Revolving Credit
-------------------------
Commitment up to which Lenders have agreed to participate in the issuance by
Agent of Letters of Credit pursuant to Section 2A hereof, being Five Million
Dollars ($5,000,000).
"Libor Portion" means a Portion as to which the applicable rate of
-------------
interest is based on the Adjusted Libor Rate.
"Loan" means individually, and "Loans" means individually and
---- -----
collectively, the Revolving Credit Loan and the Term Loan.
"Loan Documents" means the Agreement, the Notes, Collateral Security
--------------
Documents, and the other documents and agreements executed and delivered in
connection with this Agreement. The Loan Documents shall not include any
agreements or documents relating to swaps, hedges or similar arrangements with
any Lender.
"Local Authorities" means individually and collectively the state and
-----------------
local governmental authorities and administrative agencies which govern the
business, commercial activities or facilities owned or operated by any Company.
"London Business Day" means any Business Day on which banks in London,
-------------------
England are open for business.
"Material Adverse Effect" means a material adverse effect on the
-----------------------
business, financial condition or prospects of the Borrower and its consolidated
Subsidiaries taken as a whole, or on the Companies' ability to perform their
obligations under this Agreement and the other Loan Documents.
"Material Subsidiary" means any direct or indirect Subsidiary of
-------------------
Borrower which either: (i) comprises 5% or more of the assets of Borrower and
its consolidated Subsidiaries as of the last day of the most recently ended
fiscal quarter, or (ii) is responsible for 5% or more of the EBITDA of the
Borrower and its consolidated Subsidiaries for the most recent Rolling Period.
"Maximum Principal Amount" means the maximum principal amount of the
------------------------
Revolving Credit Commitment, up to which the applicable Lender has agreed to
lend funds and/or participate in the issuance of Letters of Credit as set forth
in Schedule 1 attached hereto, as such amounts may be reduced or terminated from
time to time pursuant to Paragraph 2.8 hereof.
9
<PAGE>
"Merkert Enterprises" means Merkert Enterprises, Inc., a Massachusetts
-------------------
corporation.
"Merkert Stock Purchase Agreement" means the Stock Purchase Agreement
--------------------------------
dated May 20, 1998 among the Borrower (formerly Monroe, Inc.), Merkert
Enterprises, and the stockholders of Merkert Enterprises, as amended by
Amendment No. 1 to Stock Purchase Agreement dated November 18, 1998 and by
Amendment No. 2 to Stock Purchase Agreement dated December 15, 1998.
"Net Cash Proceeds" means, with respect to any Sale of Material
-----------------
Assets, the cash proceeds (including insurance proceeds) received by the
Borrower or its Subsidiaries in such a transaction less (i) the reasonable costs
of the transaction, (ii) applicable taxes arising out of the transaction, and
(iii) payment of any Indebtedness secured by such assets pursuant to liens
permitted under Paragraph 6.4(i) or (v).
"Note" means individually and "Notes" means individually and
---- -----
collectively the Revolving Credit Notes and the Term Notes.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
----
successor thereto.
"Permitted Investments" means (i) investments in commercial paper
---------------------
maturing in 180 days or less from the date of issuance which is rated A1 or
better by Standard & Poor's Corporation or P1 or better by Moody's Investors
Services, Inc.; (ii) investments in direct obligations of the United States of
America or obligations of any agency thereof which are guaranteed by the United
States of America, provided that such obligations mature within twelve (12)
months of the date of acquisition thereof; (iii) investments in certificates of
deposit maturing within one (1) year from the date of acquisition thereof issued
by a bank or trust company organized under the laws of the United States or any
state thereof, having capital, surplus and undivided profits aggregating at
least $500,000,000 and the long-term deposits of which are rated A1 or better by
Moody's Investors Services, Inc. or equivalent by Standard & Poor's Corporation;
and (iv) money market funds registered under the Investment Company Act of 1940,
as amended, whose shares are registered under the Securities Act of 1933, as
amended, and having a rating by Standard & Poor's Corporation of AAAm-G, AAAm or
AAm.
"Permitted Liens" shall mean liens permitted pursuant to Paragraph 6.4
---------------
hereof.
"Person" shall mean any individual, corporation, partnership, company,
------
association, limited liability corporation or other legal entity.
10
<PAGE>
"Plan" means any employee pension benefit or employee welfare benefit
----
plan as defined in Sections 3(1) or (2) of ERISA maintained or sponsored by,
contributed to, or covering employees of, either Borrower or any ERISA
Affiliate.
"Pledge Agreements" shall mean the Pledge Agreement executed by
-----------------
Borrower in favor of Agent pursuant to Paragraph 4.1 hereof and any additional
Pledge Agreement executed and delivered from time to time pursuant to Paragraph
5.22 hereof, as may be amended, modified or restated from time to time.
"Portion" means a portion of the Loan as to which a specific interest
-------
rate and, in the case of a Libor Portion, an Interest Period, has been elected
by Borrower.
"Prime Rate" means the rate of interest announced by Agent from time
----------
to time as its prime rate. Such rate is an index or base rate and is not
necessarily the lowest or best rate charged by Agent to its customers or other
banks.
"Pro Rata Share" means, as to a Lender, the ratio which the
--------------
outstanding principal balance of its portion of the Loans hereunder bears to the
aggregate outstanding principal balance of the Loans at any time; or if no
indebtedness is outstanding hereunder or the context otherwise requires, its
percentage share of the Revolving Credit Commitment as set forth in Schedule 1
attached hereto.
"Registration Statement" means the registration statement filed by the
----------------------
Borrower on Form S-1, No. 333-53419, as amended and in the form as declared
effective by the Securities and Exchange Commission on December 15, 1998,
together with the prospectus contained therein, as supplemented pursuant to Rule
424(b) under the Securities Act of 1933, as amended.
"Regulation D" means Regulation D of the Board of Governors of the
------------
Federal Reserve System, comprising Part 204 of Title 12 Code of Federal
Regulations, as amended, and any successor thereto.
"Release" means any spill, leak, emission, discharge or the pumping,
-------
pouring, emptying, disposing, injecting, escaping, leaching or dumping of a
Hazardous Substance into the environment.
"Required Lenders" means those Lenders (which may include Agent in its
----------------
capacity as a Lender) holding Pro Rata Shares aggregating sixty-six and two-
thirds percent (66-2/3%) or more.
"Reserve" means, for any day, that reserve (expressed as a decimal)
-------
which is in effect (whether or not actually incurred) with respect to a Lender
(or any bank Affiliate of such Lender) on such day, as prescribed by the Board
of Governors of the Federal Reserve System (or any successor or any other
banking authority to which a Lender (or any bank Affiliate of
11
<PAGE>
such Lender) is subject including any board or governmental or administrative
agency of the United States or any other jurisdiction to which a Lender (or any
bank Affiliate of such Lender) is subject for determining the maximum reserve
requirement (including without limitation any basic, supplemental, marginal or
emergency reserves) for Eurocurrency liabilities as defined in Regulation D.
"Reserve Percentage" means, for a Lender (or any bank Affiliate of
------------------
such Lender) on any day, that percentage (expressed as a decimal) prescribed by
the Board of Governors of the Federal Reserve System (or any successor or any
other banking authority to which a Lender (or any bank Affiliate of such Lender)
is subject, including any board or governmental or administrative agency of the
United States or any other jurisdiction to which a Lender is subject), for
determining the reserve requirement (including without limitation any basic,
supplemental, marginal or emergency reserves) for (i) deposits of United States
Dollars or (ii) Eurocurrency liabilities as defined in Regulation D, in each
case used to fund a Portion subject to an Adjusted Libor Rate or any Loan made
with the proceeds of such deposit. The Adjusted Libor Rate shall be adjusted on
and as of the effective day of any change in the Reserve Percentage.
"Restricted Payments" means redemptions, repurchases, and
-------------------
distributions of any kind (including redemptions in exchange for real or
tangible personal property) in respect of the capital stock of Borrower (other
than dividends or distributions consisting solely of shares of capital stock of
Borrower), and payments of principal and interest or other amounts on
Subordinated Debt.
"Revolving Credit Commitment" means at any time the maximum aggregate
---------------------------
principal amount which Lenders have agreed to make available at such time under
Paragraph 2.1 hereof, being Twenty-Five Million Dollars ($25,000,000) in the
aggregate on the date hereof.
"Revolving Credit Loan" means the aggregate outstanding principal
---------------------
balance of Indebtedness advanced under the Revolving Credit Commitment, together
with interest accrued thereon and fees and expenses incurred in connection with
any of the foregoing.
"Revolving Credit Note" means individually, and "Revolving Credit
--------------------- ----------------
Notes" means individually and collectively, the promissory notes in the form of
- -----
Exhibit B-1 attached hereto delivered by Borrower to each Lender, as may be
amended, modified, extended, consolidated or restated from time to time.
"Rogers Stock Purchase Agreement" means the Stock Purchase Agreement
-------------------------------
dated as of May 22, 1998 among Borrower (formerly Monroe, Inc.), Rogers-
American, Curtis L. Rogers, Jr., as stockholders' representative, and the
stockholders of Rogers-American, as amended by Amendment no. 1 to the Stock
Purchase Agreement dated November 16, 1998.
12
<PAGE>
"Rogers-American" means Rogers-American Company, Inc., a North
---------------
Carolina corporation.
"Rolling Period" means a period of four consecutive fiscal quarters.
--------------
"Sale of Material Assets" means the sale or other disposition
-----------------------
(including damage, destruction or condemnation of assets) by Borrower or any of
its Subsidiaries, in a single transaction or in the aggregate as to all
transactions within any twelve (12) consecutive months, of assets (including
stock or other investments or interests in a Person) which, valued at the
greater of book value or fair market value, have a value of One Hundred Thousand
Dollars ($100,000) or more; excluding (i) the sale of inventory in the ordinary
course of business, and (ii) the sale of Permitted Investments for cash or the
conversion into cash of Permitted Investments.
"Security Agreement" means the Security Agreement executed by Borrower
------------------
and Guarantors delivered pursuant to Paragraph 4.1 hereof (including as joined
in by any additional Guarantors pursuant to Paragraph 5.22 hereof from time to
time), as may be amended, modified, or restated from time to time.
"Seller Obligations" means (i) obligations of any of the Companies or
------------------
their Subsidiaries to sellers of previously acquired businesses, including all
employment and consulting arrangements, and (ii) obligations to previous
shareholders of any of the Companies relating to repurchase of their shares.
"Senior Debt" means Total Debt less Subordinated Debt.
-----------
"Senior Obligations" means the obligations of the Borrower and its
------------------
Subsidiaries to Lenders or Agent with respect to (i) the Loans, (ii) any
currency or interest rate swap or similar obligation with any Lender, and (iii)
any other obligation under any Loan Document.
"Subordinated Debt" means indebtedness of Borrower or a Subsidiary
-----------------
subordinated to the Senior Obligations pursuant to a subordination agreement in
form and substance satisfactory to Required Lenders.
"Subsidiary" means, with respect to any Person, any other Person of
----------
which such Person, directly or indirectly, owns or controls more than fifty
percent (50%) of any class or classes of securities, membership interests,
partnership interests or other equity interests, and any partnership in which
such Person is a general partner. Unless otherwise specified, references to
"Subsidiaries" herein shall mean direct and indirect Subsidiaries of Borrower.
"Tax Escrow Agreement" means the Tax Escrow Agreement dated the date
--------------------
hereof, entered into pursuant to the Merkert Acquisition Agreement.
13
<PAGE>
"Term Loan" means the outstanding principal balance of indebtedness
---------
advanced pursuant to Paragraph 2.1(b) hereof, together with interest accrued
thereon and fees and expenses payable hereunder in connection therewith.
"Term Note" means individually, and "Term Notes" means individually
--------- ----------
and collectively, the Term Notes in the form of Exhibit C-2 attached hereto to
be delivered by Borrower to Lenders pursuant to Paragraph 4.1 hereof, as may be
amended, modified or restated from time to time.
"Termination Date" means the earlier of (i) December 31, 2001, or (ii)
----------------
the date on which the Revolving Credit Commitment is terminated pursuant to
Paragraph 2.8 hereof.
"Total Debt" means, as of the date of determination, the aggregate
----------
outstanding principal amount of all Indebtedness for: (A) borrowed money,
including without limitation the Loans hereunder and any outstanding
Subordinated Debt; (B) the purchase price for installment purchases of real or
personal property; (C) the principal portion of Capital Leases; (D) guaranties
of Indebtedness of others; (E) reimbursement obligations under letters of
credit; in each case without duplication; and (F) Seller Obligations (except to
the extent funds thereunder have been placed in escrow with Agent on terms
satisfactory to Agent).
"Working Capital" means current assets (net of cash) less current
---------------
liabilities (net of short term debt and current maturities of long term debt).
"Year 2000 Compliant" and "Year 200 Compliance"means, as to any
------------------- -------------------
material computer system or application or micro-processor dependent good or
equipment, that it will operate as designed and intended prior to, during and
after the calendar year 2000 without error relating to date data or date
information, specifically including any error relating to, or the product of,
date data or date information that represents or references different centuries
or more than one century.
1.2. Rules of Construction.
---------------------
(a) GAAP. Except as otherwise provided herein, financial and
----
accounting terms used in the foregoing definitions or elsewhere in this
Agreement, shall be defined in accordance with GAAP. If Borrower or Required
Lenders determine that a change in GAAP from that in effect on the date hereof
has altered the treatment of certain financial data to its detriment under this
Agreement, such party may, by written notice to the other within ten (10) days
after the effective date of such change in GAAP, request renegotiation of the
financial covenants affected by such change. If Borrower and Required Lenders
have not agreed on revised covenants within thirty (30) days after the delivery
of such notice, then, for purposes of this Agreement, GAAP will mean generally
accepted accounting principles on the date just prior to the date on which the
change occurred that gave rise to the notice.
14
<PAGE>
(b) Use of term "consolidated". Any term defined in Paragraph
--------------------------
1.1 hereof, when modified by the word "consolidated," shall have the meaning
given to such term herein as to Borrower and all entities whose accounts,
financial results or position, for financial accounting purposes, are
consolidated with those of Borrower in accordance with GAAP.
1.3. Proforma Calculations. In calculating EBITDA, Adjusted EBITDA,
---------------------
Debt Service, Fixed Charges, or Interest Expense, or in making any similar
calculation hereunder, for any period, in the event that the Combination or any
acquisition or Sale of Substantial Assets has been consummated during such
period, then such calculations shall be made based on proforma financial
statements setting forth the results of operations of Borrower and its
consolidated Subsidiaries as though such Combination, acquisition or Sale of
Material Assets had been consummated as of the first day of such period,
including, in the case of the Combination, integration adjustments as described
on page 34 of the Registration Statement and such additional integration
adjustments as may be agreed to by Agent.
SECTION 2
CREDIT FACILITY
---------------
2.1. The Facilities.
--------------
(a) Revolving Credit Commitment. From time to time prior to the
---------------------------
Termination Date, subject to the provisions below, each Lender severally agrees
to make Advances to Borrower up to its respective Maximum Principal Amount,
which Borrower may repay and reborrow prior to the Termination Date, for
purposes specified in Paragraph 2.4 hereof; provided, however, that the
aggregate outstanding principal amount of such Advances, together with the
undrawn amount of all outstanding Letters of Credit and all unreimbursed draws
on Letters of Credit, shall not exceed at any time the lesser of the Revolving
Credit Commitment or the Borrowing Base.
(b) Term Loan. On the Effective Date, each Lender severally
---------
agree to advance to Borrower its Maximum Principal Amount with respect to the
Term Loan, in the aggregate amount of Fifty Million Dollars ($50,000,000).
2.2. Promissory Notes. The Indebtedness of the Borrower to each Lender
----------------
under the Revolving Credit Loan will be evidenced by a Revolving Credit Note
executed by Borrower in favor of such Lender, and the Indebtedness of the
Borrower to each Lender under the Term Loan will be evidenced by a Term Note
executed by Borrower in favor of such Lender. The original principal amount of
each Lender's Revolving Credit Note and Term Note will be in the amount
identified in Schedule 1 attached hereto as its Maximum Principal Amount with
respect to the Revolving Credit Loan and the Term Loan, respectively; provided,
however, that notwithstanding the face amount of each such Note, Borrower's
liability
15
<PAGE>
thereunder shall be limited at all times to the actual indebtedness, principal,
interest, fees and expenses then outstanding to such Lender under the Revolving
Credit Loan and the Term Loan, respectively.
2.3. Lenders' Participation. Lenders shall be lenders in the Loans in
----------------------
the Maximum Principal Amounts and Pro Rata Shares set forth in Schedule 1
attached hereto.
2.4. Use of Proceeds. Funds advanced under the Loans shall be used
---------------
solely to finance a portion of the purchase price, transaction expenses and fees
with respect to the Combination, the Initial Offering and the transactions
contemplated by this Agreement; to refinance certain existing indebtedness of
Merkert Enterprises and Rogers-American; to pay Seller Obligations; to finance
the buyout of employment arrangements of departing executives of Merkert
Enterprises and Rogers-American; and for the working capital needs and general
corporate purposes of the Companies, provided that in no event shall funds
advanced hereunder be advanced to or used by Subsidiaries that are not
Guarantors.
2.5. Repayment.
---------
(a) Revolving Credit Loan. Subject to certain mandatory
---------------------
prepayments as set forth in Paragraph 2.9 hereof, the aggregate outstanding
principal balance under the Revolving Credit Loan on the Termination Date,
together with all interest, fees and costs due hereunder, shall be due and
payable in full on such Termination Date. Notwithstanding the immediately
preceding sentence, the aggregate outstanding balance of the Revolving Credit
Loan shall be due and payable immediately upon acceleration of the Revolving
Credit Loan in accordance with Paragraph 7.2 hereof.
(b) Term Loan. Subject to certain mandatory prepayments as set
---------
forth in Paragraph 2.9 hereof, the Term Loan shall be payable in quarterly
installments as follows:
Scheduled Payment Date Amount of Payment
---------------------- -----------------
March 31, 1999 $1,562,500
June 30, 1999 $1,562,500
September 30, 1999 $1,562,500
December 31, 1999 $1,562,500
March 31, 2000 $2,187,500
June 30, 2000 $2,187,500
September 30, 2000 $2,187,500
December 31, 2000 $2,187,500
March 31, 2001 $2,500,000
June 30, 2001 $2,500,000
16
<PAGE>
September 30, 2001 $2,500,000
December 31, 2001 $2,500,000
March 31, 2002 $3,125,000
June 30, 2002 $3,125,000
September 30, 2002 $3,125,000
December 31, 2002 $3,125,000
March 31, 2003 $3,125,000
June 30, 2003 $3,125,000
September 30, 2003 $3,125,000
December 31, 2003 $3,125,000
Notwithstanding the foregoing, the entire outstanding balance of the Term Loan
shall be due and payable immediately upon the acceleration of the Term Loan in
accordance with Paragraph 7.2 hereof.
2.6. Interest. Portions of the Loans shall bear interest on the
--------
outstanding principal amount thereof in accordance with the following
provisions:
(a) Interest on Loan.
----------------
(i) At the Borrower's election in accordance with the
provisions of Paragraph 2.6(b) below, in the absence of the existence and
continuance of an Event of Default hereunder and prior to maturity or judgment,
and subject to clause (ii) below, any Portion of the Loans shall bear interest
at either of the following rates:
(A) Base Rate. The Base Rate plus the Applicable
---------
Margin.
(B) Adjusted Libor Rate. The Adjusted Libor Rate plus
-------------------
the Applicable Margin.
(ii) Notwithstanding the foregoing, upon the occurrence and
during the continuance of an Event of Default hereunder, including after
maturity and upon judgment, Borrower hereby agrees to pay to Lenders interest
(A) on any outstanding Libor Portion, at the rate which is two percent (2%) per
annum in excess of the Adjusted Libor Rate plus the Applicable Margin for each
such Libor Portion through the end of the applicable Interest Period, and
thereafter, at the rate of two percent (2%) per annum in excess of the Base Rate
plus the Applicable Margin, and (B) on any Base Rate Portion, at the rate of two
percent (2%) per annum in excess of the Base Rate plus the Applicable Margin.
17
<PAGE>
(b) Procedure for Determining Interest Periods and Rates of
-------------------------------------------------------
Interest.
- --------
(i) If Borrower elects the rate based on the Base Rate to be
applicable to a Portion, Borrower must notify Agent of such election in writing
prior to eleven o'clock (11:00) a.m. Philadelphia time one (1) Business Day
prior to the proposed application of such rate. If Borrower elects the rate
based on the Adjusted Libor Rate to be applicable to a Portion, Borrower must
notify Agent of such election and the Interest Period selected prior to eleven
o'clock (11:00) a.m. Philadelphia time at least three (3) London Business Days
prior to the commencement of the proposed Interest Period. If Borrower does not
provide notice for the rate based on the Adjusted Libor Rate, then Borrower
shall be deemed to have requested that the rate based on the Base Rate shall
apply to any Portion as to which the Interest Period is expiring and to any new
Advance of the Revolving Credit Loan until Borrower shall have given proper
notice of a change in or determination of the rate of interest in accordance
with this Paragraph 2.6(b).
(ii) Borrower shall not elect more than six (6) different
Libor Portions to be applicable to the Loans at one time. Any Base Rate Portion
shall be in an amount equal to Five Hundred Thousand Dollars ($500,000) or an
even multiple of One Hundred Thousand Dollars ($100,000) in excess thereof, and
any Libor Portion shall be in an amount equal to Two Million Five Hundred
Thousand Dollars ($2,500,000) or an even multiple of One Hundred Thousand
Dollars ($100,000) in excess thereof.
(c) Payment and Calculation of Interest. With respect to
-----------------------------------
Portions which bear interest at the rate based on the Adjusted Libor Rate,
interest shall be due and payable on the last day of each Interest Period for
each such Portion, and, in the case of a Portion with an Interest Period of six
(6) months, on the ninetieth (90) day after the commencement of such Interest
Period and on the last day of the Interest Period. With respect to Portions
which bear interest at the rate based on the Base Rate, interest shall be due
and payable on the last Business Day of each March, June, September and
December. Interest shall be calculated in accordance with the provisions of
Paragraph 2.6(b) hereof; all interest shall be calculated on the basis of the
actual number of days elapsed over a year of 360 days in the case of interest
based on the Adjusted Libor Rate, or over a year of 365 or 366 days, as
applicable, in the case of interest based on the Base Rate.
(d) Reserves. If at any time when a Portion is subject to the
--------
rate based on the Adjusted Libor Rate, a Lender (or a bank Affiliate of such
Lender) is subject to and incurs a Reserve, other than a Reserve Percentage
included in the calculation of the applicable Adjusted Libor Rate, Borrower
hereby agrees to pay within five (5) Business Days of written demand thereof
from time to time, as billed by Agent on behalf of itself or any other Lender,
such amount as is necessary to reimburse such Lender (or such Lender's bank
Affiliate) for its costs in maintaining such Reserve, as described in reasonable
detail in such demand. Such amount shall be computed by taking into account the
cost incurred by such Lender (or such Lender's bank Affiliate) in maintaining
such Reserve in an amount equal to such Lender's ratable share of the Portion on
which such Reserve is incurred, which
18
<PAGE>
computation shall be set forth in any such demand by Agent on behalf of itself
or any other Lender. The good faith determination by Agent or any Lender of such
costs incurred and the allocation of such costs among Borrower and other
customers which have similar arrangements with such Lender (or such Lender's
bank Affiliate) shall be prima facie evidence of the correctness of the fact and
the amount of such additional costs. Upon notification to Borrower of any
payment required pursuant to this Paragraph 2.6(d), Borrower (A) shall make such
payment in accordance with the provisions hereof, and (B) may repay the Portion
of the Loans with respect to which such payment is required, subject to the
requirements of Paragraph 2.9 and 2.10 hereof.
(e) Special Provisions Applicable to Adjusted Libor Rate. The
----------------------------------------------------
following special provisions shall apply to the Adjusted Libor Rate:
(i) Change of Adjusted Libor Rate. The Adjusted Libor Rate
-----------------------------
may be automatically adjusted by Agent on a prospective basis to take into
account the additional or increased cost of maintaining any necessary reserves
for Eurodollar deposits or increased costs due to changes in applicable law or
regulation or the interpretation thereof occurring subsequent to the
commencement of the then applicable Interest Period, including but not limited
to changes in tax laws (except changes of general applicability in corporate
income tax laws) and changes in the reserve requirements imposed by the Board of
Governors of the Federal Reserve System (or any successor), excluding the
Reserve Percentage and any Reserve which has resulted in a payment pursuant to
subparagraph (d) above, that increase the cost to Lenders of funding the Loans
or a portion thereof bearing interest based on the Adjusted Libor Rate. Agent
shall give Borrower notice of such a good faith determination and adjustment,
described in reasonable detail, which determination shall be prima facie
evidence of the correctness of the fact and the amount of such adjustment.
Borrower may, by notice to Agent, (A) request Agent to furnish to Borrower a
statement setting forth the basis for adjusting such Adjusted Libor Rate and the
method for determining the amount of such adjustment; and/or (B) repay the
Portion of the Loans with respect to which such adjustment is made, subject to
the requirements of Paragraph 2.9 and 2.10 hereof.
(ii) Unavailability of Eurodollar Funds. In the event that
----------------------------------
Borrower shall have requested the rate based on the Adjusted Libor Rate in
accordance with Paragraph 2.6(b) and any Lender (or such Lender's bank
Affiliate) shall have reasonably determined that Eurodollar deposits equal to
the amount of the principal of the Portion and for the Interest Period specified
are unavailable, or that the rate based on the Adjusted Libor Rate will not
adequately and fairly reflect the cost of making or maintaining the principal
amount of the Portion specified by Borrower during the Interest Period
specified, or that by reason of circumstances affecting Eurodollar markets,
adequate and reasonable means do not exist for ascertaining the rate based on
the Adjusted Libor Rate applicable to the specified Interest Period, such Lender
shall give notice to Agent and Agent shall promptly give notice of such
determination to Borrower that the rate based on the Adjusted Libor Rate is not
available. A good faith determination by such Lender (or such Lender's bank
Affiliate) hereunder shall be prima facie evidence of the correctness of the
fact and amount of such additional costs or unavailability.
19
<PAGE>
Upon such a determination, (i) the obligation to advance or maintain Portions at
the rate based on the Adjusted Libor Rate shall be suspended until Agent shall
have notified Borrower and Lenders that such conditions shall have ceased to
exist, and (ii) the rate based on the Base Rate shall be applicable to all such
Portions (provided, that Borrower shall not be required to compensate the
affected Lender for funding costs or loss of earnings as a result of such change
in interest rate).
(iii) Illegality. In the event that it becomes unlawful for
----------
a Lender (or such Lender's bank Affiliate) to maintain Eurodollar liabilities
sufficient to fund any Portion of the Loans subject to the rate based on the
Adjusted Libor Rate, then such Lender shall immediately notify Borrower thereof
(with a copy to Agent) and such Lender's obligations hereunder to advance or
maintain advances at the rate based on the Adjusted Libor Rate shall be
suspended until such time as such Lender (or such Lender's bank Affiliate) may
again cause the rate based on the Adjusted Libor Rate to be applicable to any
Portion of the outstanding principal balance of the Loans and any such Lender's
share of any Portion shall then be subject to the rate based on the Base Rate
(provided, that Borrower shall not be required to compensate the affected Lender
for funding costs or loss of earnings as a result of such change in interest
rate).
2.7. Advances.
--------
(a) Advance Request. Borrower shall give Agent written notice,
---------------
not later than eleven o'clock (11:00) a.m. Philadelphia time one (1) Business
Day prior to the proposed Advance in the case of an advance to bear interest
based on the Base Rate, and three (3) Business Days prior to an advance to bear
interest based on the Adjusted Libor Rate, of each requested Advance under the
Revolving Credit Commitment specifying the date, amount and purpose thereof.
Such notice shall be in the form of the Advance Request Form attached hereto as
Exhibit A-1, shall be certified by an Authorized Officer of Borrower, and shall
contain the following information and representations, which shall be deemed
affirmed and true and correct as of and upon receipt of the date of and upon
receipt of the requested Advance:
(i) the aggregate amount of the requested Advance, which
shall be no less than $2,500,000 in the case of an Advance to bear interest
based on the Adjusted Libor Rate and no less than $500,000 in the case of an
Advance to bear interest based on the Base Rate, and in either case shall be in
an even multiple of $100,000;
(ii) confirmation of the interest rate(s) elected by the
Borrower to apply to each Advance, and, if applicable, the Interest Period
elected by the Borrower to apply to each Libor Portion to be advanced;
(iii) confirmation of Borrower's compliance with Paragraphs
5.14 through 5.19 as of the most recently ended fiscal quarter for which a
Compliance
20
<PAGE>
Certificate has been (or is required to have been) delivered, and taking into
account any Advances, including the requested Advance, and payments since such
date;
(iv) confirmation of Borrower's compliance with the
Borrowing Base, as of the end of the most recent month for which a Borrowing
Base Certificate has been (or is required to have been) delivered, and taking
into account any Advances, including the requested Advance, and payments since
such date;
(v) statements that the representations and warranties set
forth herein and in the other Loan Documents are true and correct in all
material respects as of the date thereof; no Event of Default or Default
hereunder has occurred and is then continuing or will be caused by the requested
Advance; and there has been no Material Adverse Effect since the date of this
Agreement.
(b) Procedures.
----------
(i) Upon receiving a request for an Advance in accordance
with subparagraph (a) above, Agent shall request by prompt notice to Lenders
that each Lender advance funds to Agent so that each Lender participates in the
requested Advance in the same percentage as it participates in the Revolving
Credit Commitment. Each Lender shall advance its applicable percentage of the
requested Advance to Agent by delivering federal funds immediately available at
Agent's offices prior to twelve o'clock (12:00) noon Philadelphia time on the
date of the Advance. Subject to the satisfaction of the terms and conditions
hereof, Agent shall make the requested Advance available to Borrower by
crediting such amount to Borrower's deposit account with Agent not later than
two o'clock (2:00) p.m. on the day of the requested Advance; provided, however,
that in the event Agent does not receive a Lender's share of the requested
Advance by such time as provided above, Agent shall not be obligated to advance
such Lender's share.
(ii) Unless Agent shall have been notified by a Lender
prior to the date such Lender's share of any such Advance is to be made by such
Lender that such Lender does not intend to make its share of such requested
Advance available to Agent, Agent may assume that such Lender has made such
proceeds available to Agent on such date, and Agent may, in reliance upon such
assumption (but shall not be obligated to), make available to Borrower a
corresponding amount. If such corresponding amount is not in fact made available
to Agent by such Lender on the date the Advance is made, Agent shall be entitled
to recover such amount on demand from such Lender (or, if such Lender fails to
pay such amount forthwith upon such demand, from Borrower) together with
interest thereon in respect of each day during the period commencing on the date
such amount was made available to Borrower and ending on (but excluding) the
date Agent recovers such amount, from such Lender, at a rate per annum equal to
the effective rate for overnight federal funds in New York as reported by the
Federal Reserve Lender of New York for such day (or, if such day is not a
Business Day, for the next preceding Business Day) and from Borrower, at a rate
per annum based on the Base Rate as provided in Paragraph 2.6(a) hereof.
21
<PAGE>
(c) Requests Irrevocable. Each request for an Advance pursuant
--------------------
to this Paragraph 2.7 shall be irrevocable and binding on Borrower. In the case
of any Advance bearing interest at the rate based upon the Adjusted Libor Rate,
Borrower shall indemnify Lenders against any loss, cost or expense incurred by
Lender as a result of not borrowing such funds on the requested Advance date,
including as a result of any failure to fulfill on or before the date specified
in such request for an Advance the applicable conditions set forth in Section
Four hereof, including, without limitation, any loss, cost or expense incurred
by reason of the liquidation or redeployment of deposits or other funds acquired
by Lenders to fund the Advance to be made by Lenders when such Advance, as a
result of such failure, is not made on such date, as calculated by Agent in
accordance with Exhibit D attached hereto.
2.8. Reduction and Termination of Commitment.
---------------------------------------
(a) Borrower. Borrower shall have the right at any time and
--------
from time to time, upon three (3) Business Days' prior written notice to Agent,
to reduce the Revolving Credit Commitment in increments of Five Million Dollars
($5,000,000) or multiples thereof without penalty or premium, provided that on
the effective date of such reduction Borrower shall make a prepayment of the
Revolving Credit Loan in an amount, if any, by which the aggregate outstanding
principal balance of the Revolving Credit Loan exceeds the amount of the
Revolving Credit Commitment as then so reduced, together with accrued interest
on the amount so prepaid and any amounts due pursuant to Paragraph 2.10 hereof.
(b) Lenders. Required Lenders shall have the right to terminate
-------
the Revolving Credit Commitment at any time, in their discretion and upon notice
to Borrower, upon the occurrence and during the continuance of any Event of
Default hereunder (except if an Event of Default described in Paragraph 7.1(i)
shall occur, in which case termination of the Revolving Credit Commitment shall
occur automatically without notice).
(c) Restoration Only With Consent. Any termination or reduction
-----------------------------
to the Revolving Credit Commitment pursuant to subparagraphs 2.8(a) and (b)
shall result in a pro rata reduction in each Lender's Maximum Principal Amount
with respect thereto. Any termination or reduction of the Revolving Credit
Commitment shall be permanent, and the Revolving Credit Commitment and
respective Maximum Principal Amounts cannot thereafter be restored or increased
without the written consent of all affected Lenders.
2.9. Prepayment.
----------
(a) Voluntary Prepayments. Upon one (1) Business Day's prior
---------------------
written notice by Borrower to Agent, Borrower may repay all or any portion of
the outstanding principal balance under the Revolving Credit Loan or the Term
Loan without premium or penalty, provided that any such payment shall include
all accrued interest on the amount prepaid plus any amounts which may be due
pursuant to Paragraph 2.10 hereof. Any such payments made with respect to the
Revolving Credit Loan prior to the Termination Date shall not reduce the
Revolving Credit Commitment and may be reborrowed in accordance with this
22
<PAGE>
Agreement. Any such payment with respect to the Term Loan shall be applied to
the scheduled installments thereof in the inverse order of maturity.
(b) Mandatory Payments.
------------------
(i) In addition to any other required payments hereunder,
Borrowers shall make principal payments on the Loans in the circumstances and in
the amounts set forth below:
(A) Asset Dispositions. In connection with each Sale of Material
------------------
Assets (it being understood and agreed that any such Sale of Material Assets
shall require the approval of Required Lenders, except to the extent expressly
authorized pursuant to Paragraph 6.7 hereof), the Net Cash Proceeds to the
seller of such transaction shall be paid directly to Agent for the account of
Lenders and applied to the Loans as set forth in subparagraph (D) below;
provided, however, that (i) insurance proceeds with respect to damage or
destruction of property shall not be required to be applied to the Loans
pursuant hereto if such proceeds are used to repair or replace such property
within ninety (90) days after receipt by Borrower or its Subsidiaries, and (ii)
the proceeds of the sale of the Rogers Building in Charlotte, North Carolina
pursuant to Paragraph 6.7(a) hereof shall be applied first to payment of the
mortgage thereon, and then to payment to certain shareholders of Rogers-
American.
(B) New Debt. In the event a Borrower incurs Indebtedness
--------
consented to by Required Lenders which is not otherwise permitted pursuant to
Paragraph 6.1 hereof, the net cash proceeds of such Indebtedness shall be paid
directly to Agent for the account of the Lenders and applied to the Loan as set
forth in subparagraph (D) below.
(C) Equity Issuance. In connection with any issuance of equity
---------------
the Borrower after the date of this Agreement (other than (x) pursuant to the
exercise of the underwriter's overallotment with respect to the Initial
Offering, (y) pursuant to the exercise of stock options issued to officers,
employees and directors of the Borrowers or its Subsidiaries, and (z) the
issuance of stock as consideration for acquisitions), the net cash proceeds to
the Borrower of such issuance shall be paid directly to Agent for the account of
the Lenders and applied to the Loan as set forth in subparagraph (D) below.
(D) Application of Payments. Payments made pursuant to
-----------------------
subparagraph 2.9(b)(i)(A) through (C) above shall be applied first to the
outstanding principal balance of the Term Loan in the inverse order of maturity
of the installments thereof, and then to the outstanding principal balance of
the Revolving Credit Loan.
(ii) Underwriter's Overallotment. If the actual price per
---------------------------
share in the Initial Offering is less than the anticipated price range as
indicated in the Registration
23
<PAGE>
Statement for the Initial Offering, then the net cash proceeds to the Borrower
from exercise of the underwriter's overallotment with respect to the Initial
Offering shall be applied to repayment of the Term Loan in the inverse order of
maturity of the installments thereof. If the actual price per share in the
Initial Offering is within or above the anticipated price range as indicated in
the Registration Statement for the Initial Offering, then Required Lenders may
require the net cash proceeds to the Borrower from exercise of the underwriter's
overallotment to be applied to repayment of the Revolving Credit Loan.
(ii) Excess Cash Flow. Until the Term Loan has been repaid
----------------
in full, at the time of delivery of a Compliance Certificate with respect to
each fiscal year, commencing with the fiscal year ending December 31, 1999,
Borrower shall make a prepayment in an amount equal to seventy-five percent
(75%) of Excess Cash Flow for such fiscal year, such payment to be applied to
the Term Loan in the inverse order of maturity of the installments thereof.
(iv) Additional Requirements. Any payments pursuant to this
-----------------------
Paragraph 2.9(b) shall be accompanied by all accrued and unpaid interest and
fees in connection with the amount prepaid (including any amount payable under
Paragraph 2.10 hereof); provided, however, that in the absence of an Event of
Default or Default hereunder: (x) the Borrower shall be entitled to determine
the order in which Portions of the applicable Loan shall be repaid pursuant to
such payments; and (y) if any amount would otherwise be payable by Borrower
pursuant to Paragraph 2.10 hereof as a result of a prepayment pursuant thereto,
the required amount shall, at the request of Borrower, be held by Agent in a
cash collateral account and applied to the payment of the applicable Libor
Portion(s) at the expiration of the Interest Period with respect thereto. If a
cash collateral account is established pursuant to the foregoing clause (y),
Borrowers shall be entitled to any interest on such funds while held in such
account, and the applicable Libor Portion(s) shall remain outstanding hereunder
and shall continue to accrue interest in accordance herewith until such funds
are actually applied to repay such Libor Portion(s). Any payments with respect
to the Revolving Credit Loan prior to the Termination Date shall not reduce the
Revolving Credit Commitment and may be reborrowed in accordance with this
Agreement.
(c) Borrowing Base. If at any time the aggregate outstanding
--------------
principal balance of the Revolving Credit Loan, together with the undrawn amount
of outstanding Letters of Credit and any unreimbursed draws under Letters of
Credit, is in excess of the Borrowing Base, Borrower shall immediately make a
prepayment of the Revolving Credit Loan in accordance with subparagraph (a)
above in an amount sufficient to reduce the balance of the Revolving Credit
Loan, together with the undrawn amount of outstanding Letters of Credit and any
unreimbursed draws under Letters of Credit, to an amount less than or equal to
the Borrowing Base, together with interest on the amount prepaid through the
date or prepayment and any amounts owed pursuant to Paragraph 2.10 hereof.
24
<PAGE>
(d) Effect on Other Agreements. Any prepayment hereunder shall
--------------------------
not affect the obligation of Borrower or any Subsidiary under any swap, hedge or
similar arrangement with any Lender.
2.10. Funding Costs and Loss of Earnings. In the event that Borrower
----------------------------------
shall have requested the Adjusted Libor Rate to be applicable to a Portion to be
Advanced and Borrower shall revoke the request for such Advance or shall fail to
meet the conditions to such Advance as set forth in Section Four hereof, and in
connection with any prepayment or repayment of a Portion bearing interest at the
rate based on the Adjusted Libor Rate made on other than the last day of the
applicable Interest Period, whether such prepayment or repayment is voluntary,
mandatory, by demand, acceleration or otherwise, Borrower shall pay to Lenders
all reasonable funding costs and loss of earnings which may arise in connection
with such revocation of request for or failure to meet the conditions to such
Advance or such prepayment or repayment, as calculated by Agent in accordance
with Exhibit D hereto.
2.11. Payments. All payments of principal, interest, fees and other
--------
amounts due hereunder, including any prepayments thereof, shall be made by
Borrower to Agent for the account of Lenders in immediately available funds
before two o'clock (2:00) p.m., Philadelphia time, on any Business Day at the
office of Agent set forth on Schedule 1 hereto. Borrower hereby authorizes Agent
to charge Borrower's account with Agent for all payments of principal, interest
and fees when due hereunder.
2.12. Commitment Fee. Borrower shall pay to Agent, for the benefit of
--------------
Lenders in accordance with their Pro Rata Shares, a non-refundable commitment
fee at the rate of half of one percent ( 1/2%) per annum on the unborrowed
portion of the Revolving Credit Commitment from the date hereof through the
Termination Date (as calculated by Agent), which fees shall be payable at the
offices of Agent quarterly in arrears on the last day of each March, June,
September, and December and on the Termination Date. The commitment fee shall
be calculated on the basis of the actual number of days elapsed over a year of
three hundred sixty (360) days.
2.13. Agent's Fees. Borrower shall pay to Agent fees as agreed
------------
between Borrower and Agent.
2.14. Regulatory Changes in Capital Requirements. If any Lender shall
------------------------------------------
have determined that the adoption or the effectiveness after the date hereof of
any law, rule, regulation or guideline regarding capital adequacy, or any change
in any of the foregoing or in the interpretation or administration of any of the
foregoing by any governmental authority, central Lender or comparable agency
charged with the interpretation or administration thereof, or compliance by such
Lender (or any lending office of such Lender) or such Lender's holding company
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency, has
or would have the effect of reducing the rate of return on such Lender's capital
or on the capital of such Lender's holding company, as a consequence of this
Agreement, the Revolving Credit Commitment,
25
<PAGE>
Advances or the Loans to a level below that which such Lender or its holding
company could have achieved but for such adoption, change or compliance (taking
into consideration such Lender's policies and the policies of such Lender's
holding company with respect to capital adequacy) by an amount deemed by such
Lender to be material, then from time to time Borrower shall pay to such Lender
such additional amount or amounts as will compensate such Lender or its holding
company for any such reduction suffered together with interest on each such
amount from the date demanded until payment in full thereof at the rate provided
in Paragraph 2.6(a)(ii) hereof with respect to amounts not paid when due. Such
Lender will notify Borrower of any event occurring after the date of this
Agreement that will entitle such Lender to compensation pursuant to this
Paragraph 2.14, including a description in reasonable detail of the nature of
such event and the amount of such compensation, as promptly as practicable after
it obtains knowledge thereof and determines to request such compensation, and
such compensation shall not be charged for any period more than three (3) months
prior to the date of such notice.
A certificate of such Lender setting forth such amount or amounts as
shall be necessary to compensate such Lender or its holding company as specified
above shall be delivered to Borrower and shall be conclusive absent manifest
error, if calculated and charged in a manner consistent with similar charges
made by such Lender to its other customers having similar arrangements with such
Lender. Borrower shall pay such Lender the amount shown as due on any such
certificate delivered by such Lender within ten (10) days after its receipt of
the same.
Failure on the part of any Lender to demand compensation for increased
costs or reduction in amounts received or receivable or reductions in return on
capital with respect to any period shall not constitute a waiver of such
Lender's right to demand compensation with respect to any other period except as
otherwise limited by the terms of this Paragraph 2.14.
SECTION 2A
LETTERS OF CREDIT
-----------------
2A.1. Availability of Credits. Subject to the terms and conditions
-----------------------
set forth herein, Lenders shall from time to time prior to the Termination Date
participate in the issuance by Agent of Letters of Credit for the account of
Borrower on the following terms and conditions:
(a) at the time of issuance of the Letter of Credit, the lesser
of (x) the unborrowed portion of the Revolving Credit Commitment or (y) the
available Borrowing Base, shall equal or exceed the sum of the amount available
to be drawn under such Letter of Credit and the amount available to be drawn
under and any unreimbursed draws under all other Letters of Credit;
26
<PAGE>
(b) at the time of issuance of the Letter of Credit, the amount
available to be drawn under such Letter of Credit and all other Letters of
Credit then outstanding hereunder plus any unreimbursed draws under all other
Letters of Credit shall not exceed, in the aggregate, the Letter of Credit
Sublimit;
(c) except as provided in clause (d) below, the final
expiration date of each Letter of Credit shall be on or before the earlier of
(i) one year from the date of issuance thereof or (ii) the Termination Date;
(d) "evergreen" letters of credit with automatic renewal
provisions may be issued on terms and conditions reasonably satisfactory to
Agent;
(e) there shall not exist at the time of issuance of the Letter
of Credit, or as a result thereof, any Default or Event of Default; and
(f) each Letter of Credit issued under this Section 2A shall be
for the business purposes of a Borrower or a Guarantor.
Upon issuance of each Letter of Credit by Agent, each Lender shall
have a participating interest therein based on its percentage share of the
Revolving Credit Commitment as set forth in Paragraph 2.3 hereof.
2A.2. Commitment Availability. The amount available under the
-----------------------
Revolving Credit Commitment as from time to time in effect shall be reduced by
the amount available to be drawn under all outstanding Letters of Credit and
unreimbursed amounts of any draws under Letters of Credit. The amount by which
the Revolving Credit Commitment is so reduced shall not be available for
advances under Paragraph 2.7 hereof, except advances thereunder which are made
to reimburse Agent for draws under the Letters of Credit as permitted pursuant
to Paragraph 2A.4(b) hereof.
2A.3. Approval and Issuance.
---------------------
(a) Borrower shall provide Agent not less than three (3)
Business Days' prior written notice of each request for the issuance of a Letter
of Credit by delivery of a Letter of Credit Request Form, which shall be
certified by an Authorized Officer of Borrower, and shall, in addition to the
matters described in Paragraph 2.7(a) hereof, list all Letters of Credit
outstanding for the account of Borrower at that time and, for each Letter of
Credit so listed, its face amount, outstanding undrawn balance and expiration
date. It shall be a condition to the issuance of any Letter of Credit that Agent
shall have received a Letter of Credit Request Form as described above and such
letter of credit application and agreement as Agent shall reasonably require in
connection therewith, and that the conditions set forth in Paragraph 4.2 shall
be satisfied.
27
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(b) Agent will promptly provide to Lenders written (including
fax) or telephonic notification of Agent's receipt of the Letter of Credit
Request Form which shall state (i) the amount of the Letter of Credit requested
and (ii) the expiration date of the requested Letter of Credit.
2A.4. Obligations of the Borrower.
---------------------------
(a) Borrower agrees to pay to Agent in connection with each
Letter of Credit issued hereunder: (i) immediately upon the demand of Agent on
behalf of all Lenders, the amount paid by each Lender with respect to such
Letter of Credit; (ii) immediately upon demand of Agent, the amount of any draft
presented purporting to be drawn under such Letter of Credit provided that the
draft and accompanying documents conform to the terms of the Letter of Credit
but subject to the terms of Paragraph 2A.7 (whether or not Agent has at such
time honored such draft) and any other amounts paid thereunder (it being
understood that Agent is not required to make demand upon or proceed against any
Lender or other party or to resort to any Collateral before obtaining payment
from Borrower); (iii) on the date of issuance of each Letter of Credit and on
the effective date of any renewal or extension of any Letter of Credit a fee of
one-eighth of one percent (1/8%) of the outstanding face amount of such Letter
of Credit, payable to Agent for its own account; (iv) quarterly in arrears a
non-refundable fee for the benefit of Lenders in accordance with each Lender's
percentage share of the Revolving Credit Commitment as set forth on Schedule 1
attached hereto at a rate per annum equal to the Applicable Margin with respect
to Libor Portions under the Revolving Credit Loan on the outstanding face amount
of such Letter of Credit; and (v) interest on any indebtedness outstanding with
respect to such Letter of Credit, whether for funds paid on drafts on such
Letter of Credit, or otherwise (but such indebtedness shall not include undrawn
balances of such Letter of Credit issued hereunder) at the rate applicable to
Base Rate Portions under the Revolving Credit Loan under Paragraph 2.6(a)(i)(A)
hereof from the date of payment by Agent or Lenders (if not reimbursed by
Borrower on the same day) to the date one (1) Business Day after notice to
Borrower of such payment, and thereafter at the rate applicable to such Base
Rate Portions under Paragraph 2.6(a)(ii) hereof. Interest under the preceding
clause (v) shall be paid at the times and in the manner set forth in Paragraph
2.6 hereof, and shall accrue on amounts paid on a Letter of Credit (if not
reimbursed by Borrower on the same day) from the date of payment by Agent or
Lenders, whether or not demand is made, until such amounts are reimbursed by
Borrower whether before, at or after demand.
(b) On or before the Termination Date, in the absence of a
Default or Event of Default, and subject to the provisions of Paragraph 2.7
hereof, Lenders hereby agree to advance funds to Borrower under the Revolving
Credit Loan to make the payments required under Paragraphs 2A.4(a)(i) and (ii)
hereof. If any payment by the Agent of a draft drawn under a Letter of Credit is
for any reason (including without limitation the occurrence or continuation of a
Default or Event of Default hereunder) not reimbursed prior to or on the date of
such payment, the amount of such payment shall thereupon be deemed for purposes
hereof an advance under Paragraph 2.7 hereof. Such reimbursement obligation
shall be repayable,
28
<PAGE>
prepayable, and otherwise subject to all the terms and conditions thereof as if
advanced by Lenders pursuant to Paragraph 2.7 hereof (but without duplication).
2A.5. Payment by Lenders on Letters of Credit.
---------------------------------------
(a) With respect to each Letter of Credit issued hereunder,
each Lender agrees that it is irrevocably obligated to pay to Agent, for each
such Letter of Credit, such Lender's Pro Rata Share of each and every payment
made or to be made by Agent under such Letter of Credit (each such payment to be
made, a "LOC Contribution"). Each Lender's LOC Contribution shall be due from
such Lender immediately upon, and in any event no later than the same day as,
receipt of written notice (which may be sent by telex or telecopier) from Agent
(except that if such notice is received after 3:00 p.m. on any Business Day,
payment may be made on the following Business Day, together with interest equal
to the effective rate for overnight funds in New York as reported by the Federal
Reserve Bank of New York for such day (or, if such day is not a Business Day,
for the next preceding Business Day)) that (i) it has made a payment or (ii) a
draft has been presented purporting to be drawn on a Letter of Credit issued
hereunder. Such payment shall be made at Agent's offices in immediately
available federal funds.
(b) The obligation of each Lender to make its LOC Contribution
hereunder is absolute, continuing and unconditional, and Agent shall not be
required first to make demand upon or proceed against Borrower or any guarantor
or surety, or any others liable with respect to the applicable Letter of Credit
and shall not be required first to resort to any Collateral. LOC Contributions
shall be made without regard to termination of this Agreement or the Revolving
Credit Commitment, the existence of an Event of Default or Default hereunder,
the acceleration of indebtedness hereunder or any other event or circumstance.
2A.6. Collateral Security.
-------------------
(a) The indebtedness, liabilities and obligations of Borrower
under this Section 2A, however created or incurred, whether now existing or
hereafter arising, due or to become due, absolute or contingent, direct or
indirect, secured or unsecured, are among the obligations secured by the
security interests, liens and encumbrances created by the Collateral Security
Documents delivered to Agent by Borrower, and Agent and the Lenders are entitled
to the benefit of the collateral security granted thereunder with respect to
such indebtedness.
(b) Notwithstanding the payment in full of the Loans, the
termination of the Revolving Credit Commitment or the occurrence of the
Termination Date, unless and until Borrower shall have provided the collateral
in the form of cash or U.S. Treasury bills as required by subparagraph (c)
below, the Collateral shall continue to secure the indebtedness, liabilities and
obligations of Borrower under this Section 2A until all Letters of Credit shall
29
<PAGE>
have expired and all indebtedness, liabilities and obligations under this
Section 2A shall have been paid in full.
(c) On the termination of the Revolving Credit Commitment or
the occurrence of an Event of Default, Required Lenders may require (and in the
case of an Event of Default occurring under Paragraph 7.1(i) it shall be
required automatically) that Borrower deliver to Agent, cash or U.S. Treasury
Bills with maturities of not more than 90 days from the date of delivery
(discounted in accordance with customary banking practice to present value to
determine amount) in an amount equal at all times to one hundred ten percent
(110%) of the outstanding undrawn amount of all Letters of Credit, such cash or
U.S. Treasury Bills and all interest earned thereon to constitute cash
collateral for all such Letters of Credit. At such time as such collateral is
required to be and has not been deposited, Agent on behalf of Lenders shall be
entitled to liquidate such of the other collateral for the Loans (if any) as is
necessary or appropriate in its sole judgment so as to create such cash
collateral.
(d) Any cash collateral deposited under subparagraph (c) above,
and all interest earned thereon, shall be held by Agent and invested and
reinvested at the expense and the written direction of Borrower, in U.S.
Treasury Bills with maturities of no more than ninety (90) days from the date of
investment.
2A.7. General Terms of Credits. In addition to the terms of the
------------------------
applicable letter of credit application and agreement, the following terms and
conditions apply with respect to each Letter of Credit (a "Credit")
notwithstanding anything to the contrary contained herein:
(a) Borrower assumes all risks of the acts or omissions of the
beneficiary of each Credit with respect to the use of the Credit or with respect
to the beneficiary's obligations to Borrower. None of the Lenders (other than
First Union in its capacity as Agent) nor any of their officers or directors
shall be liable or responsible for, and the Lenders hereby agree to indemnify
and hold Agent harmless (except for Agent's gross negligence or willful
misconduct) with respect to: (i) the use which may be made of the Credit or for
any acts or omissions of the beneficiary in connection therewith; (ii) the
accuracy, truth, validity, sufficiency or genuineness of documents, or of any
endorsement thereon, even if such documents should in fact prove to be in any or
all respects false, misleading, inaccurate, invalid, insufficient, fraudulent,
or forged; (iii) the payment by Agent against presentation of documents which do
not comply with the terms of the Credit, including failure of any documents to
bear any reference or adequate reference to a Credit; (iv) any other
circumstances whatsoever in making or failing to make payment under a Credit; or
(v) any inaccuracy, interruption, error or delay in transmission or delivery of
correspondence or documents by post, telegraph or otherwise. In furtherance and
not in limitation of the foregoing, Agent may after good faith inspection accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.
30
<PAGE>
(b) Notwithstanding the foregoing, with respect to any Credit,
Borrower shall have a claim against Agent, and Agent shall be liable to
Borrower, to the extent, but only to the extent, of any direct, as opposed to
indirect or consequential, damages suffered by Borrower caused by the Agent's
willful misconduct or gross negligence.
(c) To the extent not inconsistent with this Agreement, the
Uniform Customs and Practices for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500, are hereby made a part of
this Agreement with respect to obligations in connection with each Credit.
SECTION 3
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants to Lenders as follows:
3.1. Organization and Good Standing. Each Company is a corporation
------------------------------
duly incorporated and validly existing under the laws of its jurisdiction of
formation as set forth on Exhibit C, and each has the power and authority to
carry on its business as now conducted and is qualified to do business in the
states indicated on Exhibit C which constitute, except as to failures to qualify
which would not, either singly or in the aggregate, have a Material Adverse
Effect, all states in which the nature of its business or the ownership of its
properties requires such qualification.
3.2. Power and Authority; Validity of Agreement. Each Company has the
------------------------------------------
power and authority under applicable law and under its organizational documents
to enter into and perform the Loan Documents to the extent that it is a party
thereto; and all actions necessary or appropriate for the execution and
performance by each Company of the Loan Documents to which it is a party have
been taken, and, upon their execution, the same will constitute the valid and
binding obligations of each Company to the extent it is a party thereto,
enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy or equitable principles applicable
to the enforcement of creditors' rights generally.
3.3. No Violation of Laws or Agreements. The execution, delivery and
----------------------------------
performance of the Loan Documents by the Companies will not violate any
provisions of any law or regulation, federal, state or local, or its
organizational documents, or result in any breach or violation of, or constitute
a default under, any material agreement or instruments by which any Company or
its property may be bound, except for such breaches, defaults and violations of
agreements or instruments as would not, either singly or in the aggregate, have
a Material Adverse Effect.
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<PAGE>
3.4. Material Contracts. Except as set forth on Exhibit C attached
------------------
hereto, there exists no material default under any contracts material to the
businesses of the Companies or their Subsidiaries.
3.5. Compliance.
----------
(a) Each of the Companies and their Subsidiaries is in compliance
with all applicable laws and regulations, federal, state and local (including
without limitation those administered by the Local Authorities), except for such
failures to comply as would not either singly or in the aggregate, have a
Material Adverse Effect;
(b) The Companies and their Subsidiaries possess all the
franchises, permits, licenses, certificates of compliance and approval and
grants of authority, necessary or required in the conduct of their respective
businesses as of the date hereof; and except as identified on Exhibit C attached
hereto, as of the date hereof all such franchises, permits, licenses,
certificates and grants are valid, binding, enforceable and subsisting without
any defaults thereunder or enforceable adverse limitations thereon and are not
subject to any proceedings or claims opposing the issuance, development or use
thereof or contesting the validity thereof, except to the extent that the
failure to possess or maintain any of the foregoing would not, and except for
such defaults, limitations, proceedings or claims as would not, either singly or
in the aggregate, have a Material Adverse Effect; and
(c) No authorization, consent, approval, waiver, license or
formal exemptions from, nor any filing, declaration or registration with, any
court, governmental agency or regulatory authority (federal, state or local) or
non-governmental entity, under the terms of contracts or otherwise, is required
by the Companies by reason of or in connection with the Companies' execution and
performance of the Loan Documents, except those which have been obtained or have
been delivered to Agent for filing in connection with perfecting liens.
3.6. Litigation. Except as set forth on Exhibit C, there are no
----------
actions, suits, proceedings or claims which are pending or, to the best of the
Companies' knowledge or threatened against any Company or any Subsidiary which,
if adversely resolved, would, either singly or in the aggregate, have a Material
Adverse Effect.
3.7. Title to Assets. Each of the Companies and their Subsidiaries
---------------
has good and marketable title to or valid leasehold interests in all of its
properties and assets material to the conduct of its business, free and clear of
any liens and encumbrances except the security interests granted under the
Collateral Security Documents, liens and encumbrances permitted pursuant to
Paragraph 6.4 hereof and the liens and security interests identified on Exhibit
C attached hereto. All such assets are fully covered by the insurance required
under Paragraph 5.8 hereof.
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<PAGE>
3.8. Accuracy of Information; Full Disclosure.
----------------------------------------
(a) All information furnished to Lenders concerning the financial
condition and results of operations of the Companies, including the pro forma
financial statements for the Companies on a consolidated basis for the fiscal
year ended December 31, 1997 and the interim pro forma financial statements for
the Companies on a consolidated basis for the nine months ended September 30,
1998, (but not including projections) has been prepared in accordance with GAAP
(except in the case of the pro forma financial statements delivered to Lenders
giving effect to certain integration adjustments as referenced in Paragraph 1.3
hereof) and fairly presents in all material respects the financial condition and
results of operations of the Companies as of the dates and for the periods
covered and discloses all liabilities of the Companies required to be disclosed
in accordance with GAAP, except that interim statements do not have footnotes
and are subject to year-end adjustments, and there has been no material adverse
change in the financial condition or business of the Companies from the date of
such statements to the date hereof; and
(b) This Agreement, the Registration Statement and all financial
statements (excluding financial projections) and other documents furnished by
the Companies to Lenders pursuant to this Agreement and the other Loan
Documents, taken together, do not and will not contain any untrue statement of
material fact or omit to state a material fact necessary in order to make the
statements contained herein and therein not misleading. The Companies have
disclosed to the Lenders in writing (including, without limitation, in the
Registration Statement) any and all facts which would, either singly or in the
aggregate, have a Material Adverse Effect.
3.9. Taxes and Assessments. Except as described on Exhibit C hereto:
---------------------
(a) Each Company and each Subsidiary has filed all required tax
returns or has filed for extensions of time for the filing thereof, and has paid
all applicable federal, state and local taxes, other than taxes not yet due or
which may be paid hereafter without penalty; provided that no such taxes shall
be required to be paid if they are being contested in good faith by appropriate
proceedings and are covered by appropriate reserves maintained in accordance
with GAAP; and there is no material tax deficiency or additional assessment in
connection therewith not provided for in the financial statements required
hereunder; and
(b) Each Company and each Subsidiary has properly withheld all
amounts required by law to be withheld for income taxes and unemployment taxes
including without limitation, all amounts required with respect to social
security and unemployment compensation, relating to its employees, and has
remitted such withheld amounts in a timely manner to the appropriate taxing
authority, agency or body.
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<PAGE>
3.10. Indebtedness. The Companies and their Subsidiaries have no
------------
presently outstanding Indebtedness or obligations, including contingent
obligations and obligations of any of the Companies under leases of property
from others, except the Indebtedness and obligations described in Exhibit C
hereto, and indebtedness permitted pursuant to Paragraph 6.1 hereof. Without
limiting the foregoing, set forth on Exhibit C is a complete and accurate
description of all Seller Obligations, and indication of those obligations which
will be terminated upon closing as required pursuant to Paragraph 4.1(p); and
all such Seller Obligations, to the extent they remain unpaid, have been
capitalized and appear as a liability on the balance sheet of the Company and
its Consolidated Subsidiaries.
3.11. Management Agreements. No Company is a party to any management
---------------------
or consulting agreements for the provision of senior executive services to such
Company except as described on Exhibit C hereto.
3.12. Investments. Each direct and indirect Subsidiary of Borrower is
-----------
identified on Exhibit C attached hereto, which indicates the number of shares
and classes of the capital stock, membership interests, partnership interests or
other equity interests, as applicable, of each such Subsidiary, and the
ownership thereof. No Company has any other Subsidiaries or any investments in
or loans to any other individuals or business entities except for loans and
investments permitted pursuant to Paragraphs 6.3 or 6.8 hereof.
3.13. ERISA. Each of the Companies, their Subsidiaries and each ERISA
-----
Affiliate is in compliance in all material respects with all applicable
provisions of ERISA and the regulations promulgated thereunder; and,
(a) No Company nor any Subsidiary or ERISA Affiliate maintains or
contributes to or has maintained or contributed to any multiemployer plan (as
defined in section 4001 of ERISA) under which any Company, any Subsidiary or any
ERISA Affiliate could have any withdrawal liability which would, either singly
or in the aggregate, have a Material Adverse Effect;
(b) No Company nor any Subsidiary or ERISA Affiliate, sponsors or
maintains any Plan under which there is an accumulated funding deficiency within
the meaning of (S)412 of the Code, whether or not waived which would, either
singly or in the aggregate, have a Material Adverse Effect;
(c) The aggregate liability for accrued benefits and other
ancillary benefits under each defined benefit pension Plan that is sponsored or
maintained by any Company, any Subsidiary or any ERISA Affiliate (determined on
the basis of the actuarial assumptions prescribed for valuing benefits under
terminating single-employer defined benefit plans under Title IV of ERISA) does
not exceed the aggregate fair market value of the assets under each such defined
benefit pension Plan by an amount which would, either singly or in the
aggregate, have a Material Adverse Effect;
34
<PAGE>
(d) The aggregate liability of each Company, and each Subsidiary
or ERISA Affiliate arising out of or relating to a failure of any Plan to comply
with the provisions of ERISA or the Code, is not an amount which would, either
singly or in the aggregate, have a Material Adverse Effect; and
(e) There does not exist any unfunded liability (determined on
the basis of actuarial assumptions utilized by the actuary for the Plan in
preparing the most recent Annual Report) of any Company or any Subsidiary or
ERISA Affiliate under any Plan providing post-retirement life or health benefits
which would, either singly or in the aggregate, have a Material Adverse Effect.
3.14. Fees and Commissions. Except as set forth on Exhibit C, the
--------------------
Companies owe no brokers' or finders' fees or commissions of any kind, and know
of no claim for any brokers' or finders' fees or commissions, in connection with
the Companies' obtaining the Revolving Credit Commitment or the Loans from
Lenders, except those provided herein.
3.15. No Extension of Credit for Securities. The Companies are not
-------------------------------------
now, nor at any time have they been engaged principally, or as one of their
respective important activities, in the business of extending or arranging for
the extension of credit, for the purpose of purchasing or carrying any margin
stock or margin securities; nor will the proceeds of the Loans be used by any
Company directly or indirectly, for such purposes.
3.16. Perfection of Security Interest. Upon the filing of UCC
-------------------------------
financing statements with respect to the collateral covered by the Security
Agreement in the jurisdictions identified on Exhibit C attached hereto, and
taking of possession by the Agent of the certificates evidencing the shares
pledged pursuant to the Pledge Agreement, Agent, for the benefit of Lenders, has
a perfected, first-priority security interest and lien on the Collateral covered
by the Security Agreement and the Pledge Agreement, subject to the Permitted
Liens.
3.17. Hazardous Wastes, Substances and Petroleum Products. Except as
---------------------------------------------------
otherwise set forth on Exhibit C attached hereto:
(a) Each Company and each Subsidiary (i) has received all permits
and has filed all notifications required by applicable Environmental Laws to
carry on its respective business(es); and (ii) is in compliance with all
Environmental Laws, except in each case for such matters as would not, either
singly or in the aggregate, have a Material Adverse Effect.
(b) No Company or Subsidiary has given any written or oral
notice, or failed to give any required notice, to the EPA or any state or local
agency with regard to any Release or threat of Release of Hazardous Substances
on properties owned, leased or operated by such Company or used in connection
with the conduct of its business and operations which would, either singly or in
the aggregate, have a Material Adverse Effect.
35
<PAGE>
(c) No Company or Subsidiary has received written notice that it
is potentially responsible for clean-up, remediation, costs of clean-up or
remediation, fines or penalties with respect to any Release or threat of Release
of Hazardous Substances pursuant to any Environmental Law which would, either
singly or in the aggregate, have a Material Adverse Effect.
3.18. Solvency.
--------
(a) To the best of each Company's knowledge, each Company, after
giving effect to the Initial Offering and the expected use of proceeds thereof,
and after receipt and application of the first Advance under this Agreement and
taking into consideration the mutual rights and obligations among the Companies
set forth in subparagraph (b) below, will be, solvent such that (i) the fair
value of its assets (including without limitation the fair salable value of the
goodwill and other intangible property of such Company) is greater than the
total amount of its liabilities, including without limitation, contingent
liabilities, (ii) the present fair salable value of its assets (including
without limitation the fair salable value of the goodwill and other intangible
property of such Company) is not less than the amount that will be required to
pay the probable liability on their debts as they become absolute and matured,
and (iii) it is able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and other commitments as they mature in the
normal course of business. No Company intends to, nor believes that it will,
incur debts or liabilities beyond its ability to pay as such debts and
liabilities mature, and no Company is engaged in a business or transaction, or
about to engage in a business or transaction, for which its property would
constitute unreasonably small capital after giving due consideration to the
prevailing practice and industry in which it is engaged. For purposes of this
Paragraph 3.18, in computing the amount of contingent liabilities at any time,
it is intended that such liabilities will be computed at the amount which, in
light of all the facts and circumstances existing at such time, represents the
amount that reasonably can be expected to become an actual matured liability of
the applicable Company.
(b) Each Company hereby agrees that to the extent a Company shall
have paid more than its proportionate share of any payment made hereunder or
under the Guaranty, such Company shall be entitled to seek and receive
contribution from and against any other Company who has not paid its
proportionate share of such payment; provided however such Company shall not
seek any such contribution from any other Company until the Loans have been paid
in full and all commitments of the Lenders hereunder have been terminated. The
provisions of this paragraph shall in no respect limit the obligations and
liabilities of any Company to the Agent and the Lenders and each Company shall
remain liable to the Agent and the Lenders for the full amount of its
obligations hereunder and under the Guaranty.
3.19. Employee Controversies. Except as described in Exhibit C, there
----------------------
are no material controversies pending or, to the knowledge of the Companies,
threatened or anticipated between any Company and any of its respective
employees, and there are no labor
36
<PAGE>
disputes, grievances, arbitration proceedings or any strikes, work stoppages or
slowdowns pending, or to the Companies' knowledge, threatened between any
Company and its respective employees and representatives, which, in any such
case, would, either singly or in the aggregate, have a Material Adverse Effect.
SECTION 4
CONDITIONS
----------
4.1. Effectiveness. The effectiveness of this Agreement shall be
-------------
subject to Agent's receipt of the following documents and satisfaction of the
following conditions, each in form and substance satisfactory to Agent:
(a) Promissory Notes. The Notes duly executed by Borrower.
----------------
(b) Guaranty. A Guaranty Agreement executed by Merkert
--------
Enterprises and Rogers-American, and Rogers-American Company of Florida, Inc.,
jointly and severally, in favor of Lenders.
(c) Authorization Documents. A certificate of the secretary of
-----------------------
each Company attaching and certifying as to (i) the certificate or articles of
incorporation and bylaws of such Company; (ii) resolutions or other evidence of
authorization by the board of directors of such Company, authorizing its
execution and full performance of Loan Documents and all other documents and
actions required hereunder; and (iii) incumbency certificates setting forth the
name, title and specimen signature of each officer of such Company who is
authorized to execute the Loan Documents on behalf of such entity.
(d) Good Standing. Certificates of good standing or the
-------------
equivalent for each Company in its state of formation and each of the states in
which it is qualified to do business.
(e) Opinions of Counsel. Opinion letters from counsel for the
-------------------
Companies as may be reasonably satisfactory to Agent.
(f) Borrowing Base Certificates. A Borrowing Base certificate
---------------------------
in the form of Exhibit F attached hereto calculated as of November 30, 1998, for
the Borrower and its consolidated Subsidiaries on a pro forma basis based on
consummation of the Combination.
(g) Financial Statements.
--------------------
(i) Unaudited combined financial statements for the three
years ended December 31, 1997 and for the nine month period ended September 30,
1998 prepared (A) on a proforma basis for the Borrower and its consolidated
Subsidiaries after
37
<PAGE>
giving effect to the Combination and (B), with respect to the September 30, 1998
statements, as adjusted for the integration adjustments as described on page 34
of the Registration Statement, showing such adjustments for each fiscal
quarter.
(ii) Calculation of the ratio of Senior Debt as of the
Closing Date giving effect to the transactions contemplated on such date, to
EBITDA for the most recent Rolling Period ended September 30, 1998, based on pro
forma financial statements giving effect to the Combination and adjusted for the
integration adjustments as described on page 34 of the Registration Statement,
which ratio shall be not in excess of 3.0 to 1.
(h) Fees and Expenses. Payment of all fees required by
-----------------
Paragraphs 2.12 and 2.13 hereof.
(i) Searches. Uniform Commercial Code, tax and judgment searches
--------
against the Companies, with results satisfactory to Agent, in those offices and
jurisdictions as Agent shall reasonably request.
(j) Security Agreement. A Security Agreement executed by each
------------------
of the Companies in favor of Agent, for the benefit of Lenders, granting Agent,
for the benefit of Lenders, a lien on all assets of the Companies as Collateral
for the Senior Obligations, together with UCC financing statements in such
jurisdictions and such other documents and instruments as Agent shall reasonably
require, all in form and substance satisfactory to Agent.
(k) Pledge Agreement. Duly executed and delivered Pledge
----------------
Agreements pledging all of the issued and outstanding shares of capital stock of
each direct and indirect Subsidiary of Borrower, together with the stock
certificates evidencing the pledged shares and stock powers duly endorsed in
blank.
(l) Blocked Account Agreements. Blocked account agreements in
--------------------------
favor of Agent with USTrust and Wachovia Bank, N.A.
(m) Interest Rate Protection. Interest rate protection
------------------------
agreements entered into by Borrower in a form acceptable to Agent and from one
or more of the Lenders or an institution acceptable to Agent, with respect to at
least fifty percent (50%) of the Term Loan and for a period of at least three
years; provided, however, that (a) the protected rate shall be no greater than
1.50% above the all-in rate on the date hereof; (b) Borrower hereby grants a
security interest in the Collateral to the Agent for the benefit of such Lenders
as security for Borrower's obligations with respect to any such interest rate
protection agreements, which security interest shall be pari passu with the
security interests of Agent for the benefit of such Lenders for Borrower's
obligations under the Loan Documents; and (c) all documentation for such
interest rate protection shall conform to ISDA standards and must be reasonably
acceptable to Agent with respect to intercreditor issues.
38
<PAGE>
(n) Financial Projections. Projections for Borrower and its
---------------------
consolidated Subsidiaries for the period through December 31, 2005, certified by
the chief financial officer of Borrower as constituting a good faith projection
based upon assumptions believed to be reasonable.
(o) Initial Offering; Combination. A copy of the Registration
-----------------------------
Statement shall have been provided to Lenders; the Initial Offering shall have
been completed and Borrower shall have received not less than Fifty-Five Million
Dollars ($55,000,000) in gross proceeds therefrom (excluding the underwriter's
overallotment); and the Combination shall be consummated in accordance with the
Merkert Stock Purchase Agreement and the Rogers Stock Purchase Agreement
simultaneously with the first Advance, which first Advance shall not exceed (in
addition to the amount of the Term Loan) Twelve Million Dollars ($12,000,000).
(p) Repayment of Existing Debt. All outstanding bank debt, all
--------------------------
existing Seller Obligations, and all tax liabilities, shall have been paid in
full or be repaid out of the first Advance, except for (i) up to $14,003,101
principal amount of Seller Obligations which may remain outstanding as of the
closing date provided that such obligations shall be unsecured and shall be on
terms satisfactory to Agent; (ii) pending federal tax liability for fiscal years
1995 through 1997 and state tax liabilities for fiscal years 1992 through 1997,
provided that such liability has been reserved for and funds shall have been
placed in escrow with State Street Bank and Trust Company in accordance with the
Merkert Stock Purchase Agreement, the Indemnification Escrow Agreement and the
Tax Escrow Agreement and be available for payment of such tax liabilities; and
(iii) mortgage debt approved by Agent.
(q) Litigation and Arbitration. All pending litigation and/or
--------------------------
arbitration described in the Registration Statement shall have been settled on
terms satisfactory to Agent, provided that with respect to the ABD/Bergida
Dispute (i) funds in the amount of Two Million Dollars ($2,000,000) shall be
placed in escrow with State Street Bank and Trust Company and be available for
payment of any final award in such arbitration in accordance with the Merkert
Stock Purchase Agreement and the Indemnification Escrow Agreement, and (ii)
funds in the amount of Eight Million Dollars ($8,000,000) from the Term Loan
hereunder shall be held in escrow by First Union and be available for payment of
any such final award.
(r) Consents. Receipt of all required consents and approvals
--------
under applicable law or contract.
(s) Certain Agreements. Copies of the agreement(s) with Monroe &
------------------
Company, LLC, which shall be in form and substance satisfactory to Agent.
(t) Other Documents. Such additional documents as Agent
---------------
reasonably may request.
39
<PAGE>
4.2. Advances. The obligation of Lenders to make Advances under the
--------
Revolving Credit Commitment shall be subject to Borrower's compliance with
Paragraph 2.7 hereof and it shall be a condition to Lenders' obligation
hereunder to make any such Advance that (a) the representations and warranties
set forth herein and in the other Loan Documents shall be true and correct in
all material respects as if made on the date of such Advance, (b) no Event of
Default or Default shall have occurred and not have been waived on the date of
such Advance or be caused by such Advance, (c) all fees required pursuant to
Paragraphs 2.11, 2.12 and 2.13 hereof have been paid as and when due, and (d)
there shall have been no Material Adverse Effect since the date of this
Agreement.
SECTION 5
AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that so long as the Revolving Credit
Commitment of Lenders to Borrower or any Indebtedness of Borrower to Lenders is
outstanding, each of the Companies will and will cause each of its Subsidiaries
(and with respect to Paragraph 5.13, will cause each ERISA Affiliate) to:
5.1. Existence and Good Standing. Except for any merger permitted
---------------------------
pursuant to Paragraph 6.8(iii), preserve and maintain (a) its existence as a
corporation and its good standing in all states in which it conducts business
and (b) the effectiveness and validity of all its franchises, licenses, permits,
certificates of compliance or grants of authority required in the conduct of its
business, except for such instances of ineffectiveness or invalidity as would
not, either singly or in the aggregate, have a Material Adverse Effect.
5.2. Interim Financial Statements. Furnish to each Lender within
----------------------------
forty-five (45) days after the end of each of the first three quarterly periods
in each fiscal year of Borrower, unaudited quarterly consolidated and
consolidating financial statements, in form and substance as reasonably required
by Agent, including (i) a consolidated balance sheet, (ii) a consolidated
statement of income, and (iii) a statement of cash flows, prepared in accordance
with GAAP consistently applied (except that such interim statements need not
contain footnotes and may be subject to year-end adjustments).
5.3. Annual Financial Statements. Furnish to each Lender within one
---------------------------
hundred twenty (120) days after the close of each fiscal year audited
consolidated and consolidating annual financial statements, including the
information required under Paragraph 5.2 hereof, which financial statements
shall be prepared in accordance with GAAP and shall be certified without
qualification (except with respect to changes in GAAP as to which Borrower's
independent certified public accountants have concurred) by an independent
certified public accounting firm reasonably satisfactory to Agent; and cause
Agent to be furnished, at the time of the completion of the annual audit, with
copies of any management letters prepared by such
40
<PAGE>
accountants and with a certificate signed by such accountants to the effect that
to the best of their knowledge there exists no Event of Default or Default
hereunder.
5.4. Compliance Certificate. At the time of delivery of financial
----------------------
statements pursuant to Paragraph 5.2 and 5.3 hereof, deliver to Lenders a
certificate in the form of Exhibit E attached hereto executed by the chief
financial officer of Borrower or other Authorized Officer approved by Agent,
showing the calculation of the covenants set forth in Paragraph 5.14 through
5.18 hereof.
5.5. Additional Reports.
------------------
(a) Within twenty (20) days after the end of each month, furnish
to Lenders (i) a Borrowing Base Certificate in the form of Exhibit F attached
hereto, and (ii) a schedule and aging report with respect to accounts receivable
and payable of Borrower and its consolidated Subsidiaries, in form and substance
reasonably satisfactory to Agent.
(b) On or before November 1 of each year, deliver to Lenders, in
form reasonably satisfactory to Agent, a business plan for the following year
approved by the Board of Directors of Borrower.
5.6. Public Information. Deliver to Lenders promptly following
------------------
transmission thereof, copies of all financial statements, proxy statements,
notices and reports, and copies of any registration statement or annual or
quarterly reports, if any, filed with the Securities and Exchange Commission (or
successor entity) or sent to shareholders of Borrower.
5.7. Books and Records. Keep and maintain satisfactory and adequate
-----------------
books and records of account in accordance with GAAP and make or cause the same
to be made available to Agent or its agents or nominees at any reasonable time
upon reasonable notice for inspection and to make extracts thereof and permit
Agent or its agents or nominees to discuss contents of same with senior officers
of Borrower and also with outside auditors and accountants of Borrower.
5.8. Insurance. Keep and maintain all of its property and assets in
---------
good order and repair and covered by insurance with reputable and financially
sound insurance companies against such hazards and in such amounts as is
customary in the industry, under policies requiring the insurer to furnish
reasonable notice to Agent and opportunity to cure any non-payment of premiums
prior to termination of coverage and naming Agent, for the benefit of Lenders,
as loss payee and additional insured.
5.9. Litigation; Event of Default. Notify Lenders in writing
----------------------------
immediately of the institution of any litigation, the commencement of any
administrative proceedings, the happening of any event or the assertion or
threat in writing of any claim, to the extent that any of the foregoing, either
singly or in the aggregate, would, either singly or in the aggregate,
41
<PAGE>
have a Material Adverse Effect, or the occurrence of any Event of Default or
Default hereunder.
5.10. Taxes. Subject to the matters disclosed on Exhibit C pursuant to
-----
Paragraph 3.9 hereof, pay and discharge all taxes, assessments or other
governmental charges or levies imposed on it or any of its property or assets
prior to the date on which any penalty for non-payment or late payment is
incurred, unless the same are currently being contested in good faith by
appropriate proceedings, diligently prosecuted and covered by appropriate
reserves maintained in accordance with GAAP.
5.11. Costs and Expenses. Pay or reimburse Agent for all reasonable
------------------
out-of-pocket costs and reasonable expenses (including but not limited to
reasonable attorneys' fees and disbursements) Agent may reasonably pay or incur
in connection with the preparation and review of this Agreement and all waivers,
consents and amendments in connection therewith and all other documentation
related thereto, and the making of the Loan hereunder, and pay or reimburse
Lenders for all costs, liabilities and expenses (including but not limited to
reasonable attorneys' fees and disbursements) associated with the collection or
enforcement of the same, including without limitation any fees and disbursements
incurred in defense of or to retain amounts of principal, interest or fees paid
or in connection with any audit or examination of the Companies. All
obligations provided for in this Paragraph 5.11 shall survive any termination of
this Agreement or the Revolving Credit Commitment and the repayment of the Loan.
5.12. Compliance; Notification.
------------------------
(a) Comply in all material respects with all local, state and
federal laws and regulations applicable to its business, including without
limitation all laws and regulations of the Local Authorities, and with the
provisions and requirements of all franchises, permits, certificates of
compliance, approval and need issued by regulatory authorities and with other
like grants of authority held by any Company; and notify Lenders immediately in
detail of any actual or alleged failure to comply with or perform, breach,
violation or default under any such laws or regulations or under the terms of
any of such franchises, licenses or grants of authority, or of the occurrence or
existence of any facts or circumstances which with the passage of time, the
giving of notice or otherwise could create such a breach, violation or default
or could, either singly or in the aggregate, occasion the termination of any of
such franchises, licenses or grants of authority, to the extent that any of the
foregoing would, either singly or in the aggregate, have a Material Adverse
Effect.
(b) With respect to applicable Environmental Laws, promptly
notify Agent when, in connection with the conduct of the Companies' business(es)
or operations, any Person (including, without limitation, EPA or any state or
local agency) provides oral or written notification to any Company, or any
Company otherwise becomes aware, of a condition with regard to a Release or
threat of Release of Hazardous Substances which would, either singly or in the
aggregate, have a Material Adverse Effect; and notify Agent in detail
42
<PAGE>
promptly upon the receipt by a Company of a written assertion of liability under
any Environmental Laws, of any actual or alleged failure to comply with, failure
to perform, breach, violation or default under any such Environmental Laws (or
any combination thereof) which would, either singly or in the aggregate, have a
Material Adverse Effect.
5.13. ERISA. (a) Comply in all material respects with the provisions
-----
of ERISA to the extent applicable to any Plan maintained for the employees of
any Company or any ERISA Affiliate; (b) do or cause to be done all such acts and
things that are required to maintain the qualified status of each Plan which is
intended to meet the requirements of 401(a) of the Code and tax exempt status of
each trust forming part of such Plan; (c) not incur any material accumulated
funding deficiency (within the meaning of ERISA and the regulations promulgated
thereunder), or any material liability to the PBGC (as established by ERISA);
(d) not permit any event to occur with respect to any Plan sponsored by any
Company or any ERISA Affiliate (i) as described in Section 4042 of ERISA or (ii)
which may result in the imposition of a lien on its properties or assets; and
(e) notify Agent in writing promptly after it has come to the attention of
senior management of any Company of the written assertion or threat of any event
described in Section 4042 of ERISA (relating to the soundness of a Plan)
(including any "reportable event" described in Section 4042(a)(3) of ERISA) or
the PBGC's ability to assert a material liability against it or impose a lien on
any Company's, or any ERISA Affiliate's properties or assets; and (f) refrain
from engaging in any prohibited transactions or actions causing possible
liability under Section 502 of ERISA.
5.14. Total Debt to EBITDA Ratio. Maintain at all times during the
--------------------------
periods set forth in the left-hand column below, a ratio of (a) Total Debt of
Borrower and its consolidated Subsidiaries to (b) EBITDA of Borrower and its
Consolidated Subsidiaries for the most recent Rolling Period, of not greater
than the ratio set forth in the right-hand column below:
Period Ratio
------- -----
Date hereof through 3/30/00 4.00 to 1
3/31/00 through 3/30/01 3.50 to 1
3/31/01 and thereafter 3.00 to 1
5.15. Senior Debt to EBITDA. Maintain at all times during the periods
---------------------
set forth in the left-hand column below a ratio of Senior Debt of Borrower and
its consolidated Subsidiaries to EBITDA of Borrower and its consolidated
Subsidiaries for the most recent Rolling Period, of not greater than the ratio
set forth in the right-hand column below:
Period Ratio
------ -----
Date hereof through 3/30/00 3.25 to 1
3/31/00 through 3/30/01 2.75 to 1
3/31/01 and thereafter 2.25 to 1
43
<PAGE>
5.16. Minimum EBITDA. Maintain as of the last day of each fiscal
--------------
quarter set forth in the left-hand column below EBITDA of Borrower and its
consolidated Subsidiaries for the periods specified of not less than the amount
set forth in the right-hand column below:
Period Ratio
------ ------
12/31/98, for the one fiscal quarter then ended 6,750
3/31/99, for the two fiscal quarters then ended 12,000
6/30/99, for the three fiscal quarters then ended 17,350
9/30/99, for the most recent Rolling Period 23,750
12/31/99, for the most recent Rolling Period 24,600
3/31/00, for the most recent Rolling Period 24,600
6/30/00, for the most recent Rolling Period 25,250
9/30/00, for the most recent Rolling Period 25,900
12/31/00, for the most recent Rolling Period 26,600
3/31/01, for the most recent Rolling Period 27,100
6/30/01, for the most recent Rolling Period 27,600
9/30/01, for the most recent Rolling Period 28,600
12/31/01 and thereto, for the most recent Rolling Period 29,600
5.17. Minimum Debt Service Coverage Ratio. Maintain as of the last day
-----------------------------------
of each fiscal quarter during the periods set forth in the left-hand column
below (commencing with March 31, 1999) a ratio of EBITDA to Debt Service for
Borrower and its consolidated Subsidiaries for the most recent Adjusted Rolling
Period of not less than the ratio set forth in the right hand column below:
Period Ratio
------- -----
3/31/99 1.50 to 1
4/1/99 to 6/30/99 1.50 to 1
7/1/99 to 9/30/99 1.75 to 1
10/1/99 to 12/31/99 2.00 to 1
1/1/00 and thereafter 2.00 to 1
5.18. Minimum Fixed Charge Coverage Ratio. Maintain as of the last day
-----------------------------------
of each fiscal quarter a ratio of Adjusted EBITDA to Fixed Charges for Borrower
and its consolidated Subsidiaries for the most recent Adjusted Rolling Period of
not less than 1.10 to 1.
44
<PAGE>
5.19. Borrowing Base. Maintain at all times the outstanding principal
--------------
balance of the Revolving Credit Loan, together with the undrawn amount of all
outstanding Letters of Credit and all unreimbursed draws under Letters of
Credit, in an amount less than or equal to the Borrowing Base.
5.20. Management Changes. Notify Agent in writing within ten (10)
------------------
Business Days after any change of its Executive Officers.
5.21. Transactions Among Affiliates. Except pursuant to existing
-----------------------------
agreements as described on Exhibit C hereto, cause all transactions between and
among it and its Affiliates, other than transactions among the Companies, to be
on an arms-length basis and on such terms and conditions as are customary in the
applicable industry between and among unrelated entities.
5.22. Joinders, etc. If any wholly-owned Subsidiary becomes a Material
-------------
Subsidiary or if a new Material Subsidiary is formed or acquired and such
Material Subsidiary is wholly-owned, execute or cause such Material Subsidiary
to execute, as applicable, a joinder to the Guaranty and the Security Agreement
by such Material Subsidiary, a supplement to the Pledge agreements or an
additional Pledge Agreement pledging all of the shares of stock of such Material
Subsidiary, and such other documents as Agent may reasonably require in
connection therewith, including without limitation UCC-1 financing statements,
secretary's certificates and opinions of counsel.
5.23. Additional Collateral Security Documents.
----------------------------------------
(a) Use reasonable best efforts to promptly obtain and deliver to
Agent landlord consents and waivers in form and substance satisfactory to Agent
with respect to all premises at which any Collateral may be located.
(b) Within sixty (60) days after the date of this Agreement,
obtain and deliver to Agent blocked account letters with each depository
institution with which any Company maintains a deposit account and as to which
Agent has indicated that such blocked account letter is required.
(c) Execute, deliver, file and record such additional documents,
instruments or agreements as Agent shall reasonably require from time to time in
order to perfect, maintain, protect or realize upon the Collateral, including
without limitation additional UCC financing statements, landlord waivers and
consents and other documentation as may be required in connection with the
establishment by a Company of additional inventory locations.
5.24. Other Information. Provide any Lender with any other documents
-----------------
and information, financial or otherwise, reasonably requested by such Lender
from time to time.
45
<PAGE>
SECTION 6
NEGATIVE COVENANTS
------------------
So long as any Revolving Credit Commitment or any Indebtedness of
Borrower to Lenders remains outstanding hereunder, Borrower covenants and agrees
that without Required Lenders' prior written consent, each Company and its
Subsidiaries will not:
6.1. Indebtedness. Borrow any monies or create or permit to exist any
------------
Indebtedness except: (i) the Senior Obligations; (ii) trade Indebtedness in the
normal and ordinary course of business for value received; (iii) Indebtedness
and obligations incurred to purchase or lease fixed or capital assets, provided,
that the aggregate outstanding principal amount of such indebtedness and
obligations shall not exceed in the aggregate One Million Five Hundred Thousand
Dollars ($1,500,000) outstanding at any time; (iv) Subordinated Debt on terms
satisfactory to Required Lenders; (v) existing Seller Obligations as described
on Exhibit C not to exceed Fourteen Million, Three Thousand One Hundred One
Dollars ($14,003,101), as reduced from time to time by payments thereon,
provided, that by March 31, 1999 such Seller Obligations shall be reduced to an
aggregate principal amount not to exceed Eleven Million Seventy-Nine Thousand
Six Hundred Ninety-Eight Dollars ($11,079,698); (vi) the existing mortgage
indebtedness on the buildings in Canton, Massachusetts, and Charlotte, North
Carolina described on Exhibit C in the outstanding principal amount at September
30, 1998 of $9,413,062 and $3,720,000 respectively, as reduced from time to time
by payments thereon, provided that the mortgage indebtedness on the Rogers
Building in Charlotte, North Carolina, so described, shall be paid off in full
upon sale of such building; (v) tax obligations for which funds have been
escrowed as provided in Paragraph 4.1(p) hereof, and (vi) obligations which are
the subject of the ABD/Bergida Dispute for which funds have been escrowed as
provided in Paragraph 4.1(q) hereof.
6.2. Guaranties. Guarantee or assume or be or agree to become liable
----------
in any way, either directly or indirectly, for any Indebtedness or liability of
others except: (i) to endorse checks or drafts in the ordinary course of
business; (ii) pursuant to the Guaranty; (iii) the guaranty by Rogers-American
of indebtedness of Merchandising Corporation of America, Inc, as described on
Exhibit C, provided that the principal amount thereof shall not exceed at any
time Five Hundred Thousand Dollars ($500,000); and (iv) the guaranty by Borrower
of the mortgage indebtedness permitted pursuant to Paragraph 6.1(vi) hereof with
respect to the Canton, Massachusetts building.
6.3. Loans. Make or permit to exist any loans or advances to others,
-----
other than (i) loans or advances by any Company to any other Company, (ii) loans
to any Subsidiary that is not a Guarantor, subject to the limitations set forth
in paragraph 6.8(i) hereof and (iii) loans to employees outstanding on the date
hereof as described on Exhibit C, and other loans or advances to employees for
travel and entertainment expenses, or in connection with relocation of
employees, in an aggregate principal amount outstanding (for all loans under
this clause (iii)) not to exceed at any time Two Hundred Thousand Dollars
($200,000).
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<PAGE>
6.4. Liens and Encumbrances. Create, permit or suffer the creation or
----------------------
existence of any liens, security interests, or any other encumbrances on
(including any conditional sales arrangement with respect to) any of its
property, real or personal, except the security interests in favor of the Agent
on behalf of Lenders as security for the Loans, and except (i) liens arising in
favor of sellers or lessors for indebtedness and obligations incurred to
purchase or lease fixed or capital assets permitted under Paragraph 6.1(iii)
hereof, provided, however, that such liens secure only the indebtedness and
obligations created thereunder and (except with respect to the two certificates
of deposit each in the amount of $108,572 pledged to Norwest Equipment Finance
Inc.) are limited to the assets purchased or leased pursuant thereto and the
proceeds thereof; (ii) mechanic's and workman's liens, liens for taxes,
assessments or other governmental charges, federal, state or local, which are
then being currently contested in good faith by appropriate proceedings and are
covered by appropriate reserves maintained in accordance with GAAP; (iii)
pledges or deposits to secure obligations under workmen's compensation,
unemployment insurance or social security laws or similar legislation; (iv)
deposits to secure surety, appeal or custom bonds required in the ordinary
course of business and the $250,000 deposit to secure any remaining obligations
to Wachovia Bank, N.A., and (v) the existing mortgage liens pursuant to the
mortgage indebtedness permitted pursuant to Paragraph 6.1(vi) hereof.
6.5. Additional Negative Pledge. Except for existing agreements
--------------------------
relating to the mortgage debt permitted pursuant to Paragraph 6.1(v) hereof,
agree or covenant with or promise any Person or entity other than the Lenders
that it will not pledge its assets or properties or otherwise grant any liens,
security interests or encumbrances on its property.
6.6. Restricted Payments.
-------------------
(a) Make any Restricted Payments.
(b) Make any voluntary payment or prepayment of any
Indebtedness, including, without limitation, any obligations to sellers in
connection with previous acquisitions, other than the Senior Obligations, and
provided that, in the absence of an Event of Default hereunder, Borrower and its
Subsidiaries may (i) make all regularly scheduled payments of principal and
interest on account of any such Indebtedness and obligations and (ii) make
prepayments of Seller Obligations in final settlement of all obligations to a
seller in an aggregate amount not to exceed Ten Million Dollars ($10,000,000).
(c) Make any payments of management fees or consulting fees;
provided, however, that in the absence of an Event of Default hereunder, (i)
Borrower may pay consulting fees to Monroe & Company LLC (A) as described in
clause (i) of the disclosure under Paragraph 6.9 on Exhibit C, and (B) as
described in clause (ii) of the disclosure under Paragraph 6.9 of Exhibit C, in
an aggregate amount not to exceed in any twelve month period $250,000; and (ii)
Merkert Enterprises and Rogers-American may make payments required under the
agreements described under Paragraph 3.11 on Exhibit C.
47
<PAGE>
6.7. Transfer of Assets; Liquidation.
-------------------------------
(a) Sell, lease, transfer or otherwise dispose of all or any
portion of its assets, real or personal, including any sale/leaseback or similar
transaction, other than such transactions in the normal and ordinary course of
business for value received provided, however, that in the absence of an Event
of Default or Default hereunder, Borrower and its Subsidiaries may consummate
the sale of the Rogers Building, in Charlotte, North Carolina, and the
subsequent lease thereof by the Companies as described in the Registration
Statement; or
(b) discontinue, liquidate, or change in any material respect any
substantial part of its operations or business(es), except as a result of an
intercompany merger permitted pursuant to Paragraph 6.8(iii) hereof.
6.8. Acquisitions and Investments. Purchase or otherwise acquire
----------------------------
(including without limitation by way of share exchange) any part or amount of
the capital stock, partnership interests, or assets of, or make any investments
in, any other Person; or enter into any new business activities or ventures not
directly related to its present business; or merge or consolidate with or into
any other Person; or create any Subsidiary; provided, however that:
(i) the Companies may own the Subsidiaries owned by them on the
date hereof as set forth on Exhibit C attached hereto, may create or form
additional wholly-owned Subsidiaries, subject to compliance with Paragraph 5.22
hereof, if applicable and may make additional investments in any such
Subsidiaries, provided, that the aggregate amount of all investments in or loans
to Subsidiaries that are not Guarantors hereunder, together with any investments
authorized pursuant to clause (v) in Persons that are not Subsidiaries (in each
case, whether now existing or hereafter arising) shall not exceed at any time
Three Million Dollars ($3,000,000), and provided further, that the aggregate
investment in and loans to Merkert Laboratories, Inc. shall not exceed One
Hundred Thousand Dollars ($100,000).
(ii) the Companies may make Permitted Investments, subject to
the conditions and limitations set forth in the definition thereof;
(iii) any Company or wholly-owned Subsidiary may merge with
or into any Company, provided that the surviving entity shall be the Borrower or
a Guarantor hereunder;
(iv) the Companies (or a newly-formed Subsidiary which shall
become a Company pursuant to Paragraph 5.22 hereof) may make acquisitions if:
(A) excluding the acquisition of Smith Webber and Boos, in the case of any
acquisition with respect to which the aggregate Acquisition Price is in excess
of Three Million Dollars ($3,000,000), or together with the aggregate
Acquisition Price of all other acquisitions consummated after the date of this
Agreement and within twelve months prior to such acquisition is in excess of
Twenty Million Dollars ($20,000,000), Required Lenders shall have
48
<PAGE>
consented thereto, (B) at least ten (10) Business Days prior to the consummation
of such acquisition, the Company delivers to Agent a notice of acquisition in
the form of Exhibit G setting forth a description of the material terms of the
transaction, together with three (3) years of historical financial information
for the entity to be acquired and pro forma financial statements for the
preceding year and the current year, and a certificate of the chief financial
officer of the Company setting forth the calculation of the covenants set forth
in Paragraphs 5.14 through 5.19 and the following clause (C) on a pro forma
basis for the combined group as of the consummation of the acquisition and as of
the fiscal year end following the acquisition and certifying as to the matters
in clauses (D) and (E) following, (C) the ratio of Senior Debt to EBITDA,
calculated on a pro forma basis to give effect to the acquisition, will be at
the level required pursuant to Paragraph 5.15 hereof, less .25, (D) there is no
Event of Default or Default hereunder in existence at the time of such
acquisition or investment or which would be caused by such acquisition or
investment, (E) giving effect to such acquisition, the representations and
warranties set forth in Section 3 hereof will be true and correct in all
material respects as applied to Borrowers and their Subsidiaries including the
acquired company or business (including without limitation the absence or
indebtedness or liens except as permitted pursuant to Paragraphs 6.1 and 6.4
hereof), (F) in the case of the acquisition of stock, the Companies (or newly-
formed Subsidiary which shall become a Company pursuant to Paragraph 5.22
hereof) obtains ownership of not less than one hundred percent (100%) of all
classes of voting securities; and (G) such acquisition or investment has been
approved by the board of directors (or equivalent governing authority) of the
entity to be acquired in office immediately prior to the proposed acquisition;
and
(v) the Companies may make and maintain investments in one or
more Persons that are not wholly-owned Subsidiaries provided that (A) such
Person is engaged in a business substantially related to the business of the
Companies, (B) the aggregate amount of all investments in such Persons (whether
now existing or hereinafter arising) at any time shall be subject to the
limitation set forth in Paragraph 6.8(i) hereof, and (C) if such Person will be
a Subsidiary as defined herein, then notice of such investment shall be required
as set forth in clause (iv) above with respect to acquisition, and such
investment shall be subject to the other conditions set forth in such clause
(iv), other than subclause (F) thereof.
6.9. Payments to Affiliates. Pay any salaries, compensation,
----------------------
management fees, consulting fees, service fees, licensing fees, or other similar
payments to Affiliates of any Company other than on an arms-length basis for
value, and on terms and conditions as are customary in the industry between and
among unrelated entities, except pursuant to existing agreements as described on
Exhibit C hereto.
6.10. Certain Changes.
---------------
(a) Make any change in the fiscal year end of Borrower; or
(b) enter into any amendments to the financial covenants, rate or
interest, amount or time of payments with respect to other outstanding
Indebtedness which are
49
<PAGE>
more burdensome to the Companies, or which increase or accelerate any payment
thereunder; or
(c) agree to any amendment for the Tax Escrow Agreement or the
Indemnification Escrow Agreement or agree to any release of the escrowed funds
pursuant to Section 3.1 of the Indemnification Escrow Agreement or Section 4(a)
of the Tax Escrow Agreement without the consent of Agent.
6.11. Restrictive Agreements. Except for existing agreements relating
----------------------
to the mortgage debt permitted pursuant to Paragraph 6.1(v) hereof, the
Companies will not, and will not permit any of their Subsidiaries to, directly
or indirectly, enter into, incur or permit to exist any agreement or other
arrangement that prohibits, restricts or imposes any condition upon (a) the
ability of any Company or any Subsidiary to create, incur or permit to exist any
lien upon any of its material property or assets, or (b) the ability of any
Subsidiary to pay dividends or other distributions with respect to any shares of
its capital stock or to make or repay loans or advances to any Company or any
other Subsidiary or to guarantee indebtedness of any Company or any other
Subsidiary; provided that the foregoing shall not apply to restrictions and
conditions imposed by law or by this Agreement.
6.12. Use of Proceeds. Use any of the proceeds of the Loan, directly
---------------
or indirectly, to purchase or carry margin securities within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System; or engage
as its principal business in the extension of credit for purchasing or carrying
such securities.
SECTION 7
DEFAULT
-------
7.1. Events of Default. Each of the following events shall be an
-----------------
Event of Default hereunder:
(a) If Borrower shall fail to pay when due any installment of
principal, or fail to pay within three (3) Business Days of when due any
interest, fees, costs, expenses or any other sum, payable to Lenders or Agent
under the Senior Obligations; or
(b) If any representation or warranty made herein or in
connection herewith or in any statement, certificate or other document furnished
hereunder is false or misleading in any material respect when made; or
(c) If any Company shall default (after expiration of any
applicable cure or grace periods) in the payment or performance of any
obligation or Indebtedness to another either singly or in the aggregate in
excess of Five Hundred Thousand Dollars ($500,000), whether now or hereafter
incurred; or
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(d) If there shall be a default in or failure to observe at any
test date the covenants set forth in Paragraphs 5.14 through 5.19 hereof or in
Section 6 hereof; or
(e) If any Company shall default in the performance of any other
agreement or covenant contained herein (other than as provided in subparagraphs
(a), (b) or (d) above) or in any document executed or delivered in connection
herewith or otherwise in connection with the Senior Obligations, including
without limitation with respect to any Collateral, and such default shall
continue uncured for thirty (30) days after notice thereof to Borrower given by
Agent; or
(f) If Borrower shall cease to own, directly or indirectly, one
hundred percent (100%) of the outstanding capital stock of each Guarantor
(except as a result of the merger of such Guarantor into a Company as permitted
pursuant to Paragraph 6.8(iii) hereof); or
(g) If (i) any person or group within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "1934 Act") and
the rules and regulations promulgated thereunder (other than James L. Monroe and
Persons controlled by him) shall have beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act), directly or indirectly, of securities of the
Company (or other securities convertible into such securities within the time
specified in Rule 13d-3 of the 1934 Act) representing a percentage of the
combined voting power of all securities of the Borrower entitled to vote in the
election of directors in excess of the greater of (x) twenty percent (20%) or
(y) the aggregate percentage ownership held by Executive Officers and directors
of the Companies (hereinafter called a "Controlling Person"); or (ii) a majority
of the board of directors of the Borrower shall cease for any reason to consist
of (A) individuals who on the date hereof were serving as directors of Borrower
and (B) individuals who subsequently become members of the Board if such
individuals' nominations for election or elections to the Board are recommended
or approved by a majority of the Board of Directors of the Borrower. For
purposes of clause (i) above, a person or group shall not be a Controlling
Person if such person or group (x) holds voting power in good faith, and not for
the purpose of circumventing this Paragraph 7.1(g) as an agent, bank, broker,
nominee, trustee, or holder of revocable proxies given in response to a
solicitation pursuant to the 1934 Act, for one or more beneficial owners who do
not individually, or, if they are a group acting in concert, as a group, have
the voting power specified in clause (i) above, or (y) is an investment company
registered under the Investment Company Act of 1940, as amended, and has not
indicated an intent to exercise a controlling influence over the Companies;
(h) If custody or control of any substantial part of the property
of any Company shall be assumed by any governmental agency or any court of
competent jurisdiction at the instance of any governmental agency; if any
license or franchise of a Company shall be suspended, revoked, not renewed or
otherwise terminated the loss of which would, either singly or in the aggregate,
have a Material Adverse Effect; or if any material contract (as determined in
accordance with Regulation S-K under the Securities Act of 1933, as amended)
51
<PAGE>
is terminated; or if any governmental regulatory authority or judicial body
shall make any other final non-appealable determination the effect of which
would, either singly or in the aggregate, have a Material Adverse Effect; or
(i) If any Company or any Subsidiary becomes insolvent, bankrupt
or generally fails to pay its debts as such debts become due; is adjudicated
insolvent or bankrupt; admits in writing its inability to pay its debts; or
shall suffer a custodian, receiver or trustee for it or substantially all of its
property to be appointed and if appointed without its consent, not be discharged
within sixty (60) days; makes a general assignment for the benefit of creditors;
or suffers proceedings under any law related to bankruptcy, insolvency,
liquidation or the reorganization, readjustment or the release of debtors to be
instituted against it and if contested by it not dismissed or stayed within
sixty (60) days; if proceedings under any law related to bankruptcy, insolvency,
liquidation, or the reorganization, readjustment or the release of debtors is
instituted or commenced by any Company or any Subsidiary; if any order for
relief is entered relating to any of the foregoing proceedings; if any Company
or any Subsidiary shall call a meeting of its creditors with a view to arranging
a composition or adjustment of its debts; or if any Company or any Subsidiary
shall by any act or failure to act indicate its consent to, approval of or
acquiescence in any of the foregoing; or
(j) any event or condition shall occur or exist with respect to
any Hazardous Substance as a result of which event or condition, the Companies
have incurred or in the opinion of Borrower are reasonably likely to incur
liabilities in the aggregate in excess of Five Hundred Thousand Dollars
($500,000); or
(k) if any judgment, writ, warrant or attachment or execution or
similar process which calls for payment or presents liability in excess of Five
Hundred Thousand Dollars ($500,000) shall be rendered, issued or levied against
any Company or its respective property and such process shall not be paid,
waived, stayed, vacated, discharged, settled, satisfied or fully bonded within
sixty (60) days after its issuance or levy unless such judgment is covered by
insurance and the insurer has acknowledged coverage in writing with respect
thereto; or
7.2. Remedies. Upon the happening of any Event of Default and at any
--------
time during the continuance thereof, at the election of Required Lenders, and by
notice by Agent to Borrower (except if an Event of Default described in
Paragraph 7.1(i) shall occur in which case acceleration shall occur
automatically without notice), Required Lenders may declare the entire unpaid
balance, principal, interest and fees, of all Indebtedness of Borrower to
Lenders, hereunder or under any other Loan Document, to be immediately due and
payable. Upon such declaration, the Revolving Credit Commitment shall
immediately and automatically terminate and Lenders shall have no further
obligation to make any advances and they shall have the immediate right to
enforce or realize on any collateral in a commercially reasonable manner in any
manner or order they deem expedient without regard to any equitable principles
of marshaling or otherwise. Whether such a declaration has been made by
Required Lenders that the Indebtedness is due and payable following an Event of
Default, Required Lenders may
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terminate the Revolving Credit Commitments at any time during the continuance of
an Event of Default by notice thereof by Agent to Borrower. In addition to any
rights granted hereunder or in any documents delivered in connection herewith,
Lenders shall have all the rights and remedies granted by any applicable law,
all of which shall be cumulative in nature.
7.3. Right of Set-off. If any obligations hereunder or under any
----------------
other Loan Document, including under any interest rate swap or rate protection
agreement with a Lender (collectively, the "Liabilities") shall be due and
payable (subject to notice and cure periods) or any one or more Events of
Default shall have occurred and be continuing, whether or not the Agent shall
have made demand under any Loan Document and regardless of the adequacy of any
collateral for the Liabilities or other means of obtaining repayment of the
Liabilities, each Lender shall have the right, without notice to the Borrower
and is specifically authorized hereby to set-off against and apply to the then
unpaid balance of the Liabilities any items or funds of the Borrower held by
each Lender or any affiliate of such Lender, any and all deposits (whether
general or special, time or demand, matured or unmatured) or any other property
of the Borrower including, without limitation, securities and/or certificates of
deposit, now or hereafter maintained by any Borrower for its or their own
account with any Lender or any affiliate of such Lender, and any other
indebtedness at any time held or owing by any Lender or any affiliate of such
Lender, to or for the credit or the account of Borrower, even if effecting such
set-off results in a loss or reduction of interest or the imposition of a
penalty applicable to the early withdrawal of time deposits. For such purpose,
the Lenders shall have, and Borrower hereby grant to each Lender, a first lien
on and security interest in such deposits, property, funds and accounts and the
proceeds thereof.
7.4. Turnover of Property Held by Lender's Affiliates. Borrower
------------------------------------------------
further authorizes any affiliate of each Lender, upon the occurrence and during
the continuance of an Event of Default, at the request of any such Lender, and
without notice to Borrower, to turn over to the Agent any property of Borrower,
including, without limitation, funds and securities, held by any Lender's
affiliate for any such Borrower's account and to debit any deposit account
maintained by Borrower with such Lender's affiliate (even if such deposit
account is not then due or there results a loss or reduction of interest or the
imposition of a penalty in accordance with law applicable to the early
withdrawal of time deposits), in the amount requested by the Lenders up to the
amount of the Liabilities, and to pay or transfer such amount or property to the
Agent for application to the Liabilities.
7.5. Remedies Cumulative; No Waiver. The rights, powers and remedies
------------------------------
of the Lenders provided in this Agreement and any in the other Loan Documents
are cumulative and not exclusive of any right, power or remedy provided by law
or equity. No failure or delay on the part of the Agent or any Lender in the
exercise of any right, power or remedy shall operate as a waiver thereof, nor
shall any single or partial exercise preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy.
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SECTION 8
AGENCY PROVISIONS
-----------------
This Section sets forth the relative rights and duties of Agent and
Lenders respecting the Loan and, with the exception of Paragraphs 8.3 and 8.15
hereof, does not confer any enforceable rights on Borrower against Lenders or
create on the part of Lenders any duties or obligations to Borrower.
8.1. Application of Payments. Agent shall apply all payments of
-----------------------
principal, interest, commitment fee or other amounts hereunder made to Agent by
or on behalf of Borrower with respect to the Loan to Lenders on the basis of
their Pro Rata Shares of the outstanding principal balance of the Loans, except
the fees payable under Paragraph 2.13 hereof, which shall be paid solely to
Agent. Such distribution of payments shall be made promptly in federal funds
immediately available at the office of each Lender set forth above.
8.2. Set-Off. In the event a Lender, by exercise of its right of set-
-------
off, or otherwise, receives any payment of principal or interest, in an amount
greater than its Pro Rata Share of such payment based upon the Lenders'
respective shares of principal Indebtedness outstanding hereunder immediately
before such payment, such Lender shall purchase a portion of the Indebtedness
hereunder owing to each other Lender so that after such purchase each Lender
shall hold its Pro Rata Share of all the Indebtedness then outstanding
hereunder, provided that if all or any portion of such excess payment is
thereafter recovered from such Lender, such purchase shall be rescinded and the
purchase price restored to the extent of any such recovery, but without
interest.
8.3. Modifications and Waivers. No modification or amendment hereof,
-------------------------
consent hereunder or waiver of any Event of Default shall be effective except by
written consent of the Required Lenders; provided, however, that the written
consent of all Lenders shall be required to (i) modify, amend, waive, discharge,
terminate or suspend compliance with (A) any rate of interest applicable to the
Loans to the extent it is proposed to be decreased, (B) the amount of the
Revolving Credit Commitment to the extent it is proposed to be increased, or the
Lenders' respective shares thereof; (C) the date or amounts of payment of the
Loans or interest thereon, to postpone payment thereof, (D) the commitment fee
set forth in Paragraph 2.12 hereof or other amounts payable by Borrower
hereunder except if payable solely to the Agent, to the extent any such amount
is proposed to be decreased, (E) the definition of Required Lenders, (F) this
Paragraph 8.3, or (G) the definition of Pro Rata Share; (ii) release all or
substantially all of the Collateral; or (iii) release any Guarantor that is a
Material Subsidiary except pursuant to mergers permitted pursuant to Paragraph
6.8(iii) hereof.
8.4. Obligations Several. The obligations of the Lenders hereunder
-------------------
are several, and each Lender hereunder shall not be responsible for the
obligations of the other Lenders
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<PAGE>
hereunder, nor will the failure of one Lender to perform any of its obligations
hereunder relieve the other Lenders from the performance of their respective
obligations hereunder.
8.5. Lenders' Representations. Each Lender represents and warrants to
------------------------
the other Lenders that (i) it has been furnished all information it has
requested for the purpose of evaluating its proposed participation under this
Agreement; and (ii) it has decided to enter into this Agreement on the basis of
its independent review and credit analysis of Borrower, this Agreement and the
documentation in connection therewith and has not relied for such analysis on
any information or analysis provided by any other Lender.
8.6. Investigation. No Lender shall have any obligation to the others
-------------
to investigate the condition of Borrower or any of the Collateral or any other
matter concerning the Loan.
8.7. Powers of Agent. Agent shall have and may exercise those powers
---------------
specifically delegated to Agent herein, together with such powers as are
reasonably incidental thereto.
8.8. General Duties of Agent, Immunity and Indemnity. Upon receipt of
-----------------------------------------------
notices and reports delivered by Borrower to the Agent under this Agreement, the
Agent shall promptly deliver the same in the form received to the Lenders.
Required Lenders shall also have the right to request Agent to inspect
Borrower's books and records and take the other steps provided in Paragraph 5.7
hereof. In performing its duties as Agent hereunder, Agent will take the same
care as it takes in connection with loans in which it alone is interested,
subject to the limitations on liabilities contained herein; provided that Agent
shall not be obligated to ascertain or inquire as to the performance of any of
the terms, covenants or conditions hereof by Borrower. Neither Agent nor any of
its directors, officers, agents or employees, shall be liable for any action or
omission by any of them hereunder or in connection herewith except for gross
negligence or willful misconduct. Subject to such exception, each of the
Lenders hereby indemnifies Agent (in its capacity as Agent) on the basis of such
Lender's Pro Rata Share, against any liability, claim, loss or expense arising
from or relating to any action taken or omitted to be taken with respect to this
Agreement, any other Loan Document or the transactions contemplated thereby or
Borrower, to the extent that the Agent has not been reimbursed therefor by
Borrower, without affecting any obligation of Borrower to reimburse.
8.9. No Responsibility for Representations or Validity, etc. Each
------------------------------------------------------
Lender agrees that Agent shall not be responsible to any Lender for any
representations, statements, or warranties of Borrower herein or in the other
Loan Documents. Neither Agent nor any of its directors, officers, employees or
agents, shall be responsible for the validity, effectiveness, sufficiency,
perfection or enforceability of this Agreement or the other Loan Documents, or
any Collateral, or any documents relating thereto or for the priority of any of
Lenders' security interests in any such Collateral.
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8.10. Action on Instruction of Lenders; Right to Indemnity. Agent
----------------------------------------------------
shall act upon written instruction of Lenders or Required Lenders, as
appropriate, and in all cases Agent shall be fully protected in acting or
refraining from acting hereunder in accordance with such written instructions to
it signed by Required Lenders unless the consent of all the Lenders is expressly
required hereunder in which case Agent shall be so protected when acting in
accordance with such instructions from all the Lenders. Such instructions and
any action taken or failure to act pursuant thereto shall be binding on all the
Lenders, provided that except as otherwise provided herein, Agent may act
hereunder in its own discretion without requesting such instructions.
8.11. Employment of Agents. In connection with its activities
--------------------
hereunder, Agent may employ agents and attorneys-in-fact and shall not be
answerable, except as to money or securities received by it or its authorized
agents, for the default or misconduct of agents or attorneys-in-fact selected
with reasonable care.
8.12. Reliance on Documents. Agent shall be entitled to rely upon (a)
---------------------
any paper or document believed by it to be genuine and correct and to have been
signed or sent by the proper Person or Persons and (b) upon the opinion of its
counsel with respect to legal matters.
8.13. Agent's Rights as a Lender. With respect to their share of the
--------------------------
indebtedness hereunder, Agent shall have the same rights and powers hereunder as
any other Lender and may exercise the same as though it were not Agent. Each of
the Lenders may accept deposits from and generally engage in other banking or
trust business with Borrower as if it were not Agent or a Lender hereunder.
8.14. Expenses. Each of the Lenders shall reimburse Agent from time to
--------
time at the request of Agent for its Pro Rata Share of any expenses incurred by
Agent in connection with the performance of its functions hereunder without
affecting any obligation of Borrower to reimburse, provided however that in the
event Lenders shall reimburse Agent for expenses for which Borrower subsequently
reimburses Agent, then Agent shall remit to each Lender the respective amount
received from such Lender against such expenses.
8.15. Resignation of Agent. Agent may at any time resign its position
--------------------
as Agent, without affecting its position as a Lender, by giving written notice
to Lenders and Borrower. Such resignation shall take effect upon the
appointment of a successor agent in accordance with this Paragraph 8.15. In the
event Agent shall resign, Required Lenders with the consent of Borrower, which
consent will not be unreasonably withheld, shall appoint a Lender as successor
Agent. If within thirty (30) days of the Agent's notice of resignation no
successor agent shall have been appointed by Lenders and accepted such
appointment, then Agent, in its discretion may appoint any other Lender with
banking powers as a successor agent.
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8.16. Successor Agent. The successor Agent appointed pursuant to
---------------
Paragraph 8.15 shall execute and deliver to its predecessor and Lenders an
instrument in writing accepting such appointment, and thereupon such successor,
without any further act, deed or conveyance, shall become fully vested with all
the properties, rights, duties and obligations of its predecessor Agent. The
predecessor Agent shall deliver to its successor Agent forthwith all Collateral,
documents and moneys held by it as Agent, if any, whereupon such predecessor
Agent shall be discharged from its duties and obligations as Agent under this
Agreement.
8.17. Collateral Security. Agent will hold, administer and manage any
-------------------
Collateral pledged from time to time hereunder either in its own name or as
Agent on behalf of the Lenders, but each Lender shall hold a direct, undivided
pro-rata beneficial interest therein, on the basis of its Pro Rata Share, by
reason of and as evidenced by this Agreement.
8.18. Enforcement by Agent. All rights of action under this Agreement
--------------------
and under the Notes and all rights to the Collateral hereunder may be enforced
by Agent and any suit or proceeding instituted by Agent in furtherance of such
enforcement shall be brought in its name as Agent, without the necessity of
joining as plaintiffs or defendants any other Lenders, and the recovery of any
judgment shall be for the benefit of Lenders subject to the expenses of Agent.
SECTION 9
MISCELLANEOUS
-------------
9.1. Indemnification and Release Provisions. Borrower hereby agrees
--------------------------------------
to defend Agent and each Lender and their directors, officers, agents, employees
and counsel from, and hold each of them harmless against, any and all losses,
liabilities (including without limitation settlement costs and amounts, transfer
taxes, documentary taxes, or assessments or charges made by any governmental
authority), claims, damages, interest judgments, costs, or expenses, including
without limitation reasonable fees and disbursements of counsel, incurred by any
of them arising out of or in connection with or by reason of this Agreement, the
Revolving Credit Commitment, the making of the Loans or any Collateral therefor,
other than those resulting from any such party's own wilful misconduct or gross
negligence, including without limitation, any and all losses, liabilities,
claims, damages, interests, judgments, costs or expenses relating to or arising
under any Environmental Law. Borrower hereby releases Agent and each Lender and
their directors, officers, agents, employees and counsel from any and all claims
for loss, damages, costs or expenses caused or alleged to be caused by any act
or omission on the part of any of them other than those resulting from any such
party's own wilful misconduct or gross negligence. All obligations provided for
in this Paragraph 9.1 shall survive any termination of this Agreement or the
Revolving Credit Commitment and the repayment of the Loans.
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9.2. Participations and Assignments. Borrower hereby acknowledges and
------------------------------
agrees that a Lender may at any time: (a) grant participations in its share of
the Loans or any Note or of its right, title and interest therein or in or to
this Agreement (collectively, "Participations") to any other lending office or
to any other bank, lending institution or other Person which has the requisite
sophistication to evaluate the merits and risks of investments in Participations
("Participants"); provided, however, that: (i) all amounts payable by Borrower
hereunder shall be determined as if such Lender had not granted such
Participation; and (ii) any agreement pursuant to which any Lender may grant a
Participation: (A) shall provide that such Lender shall retain the sole right
and responsibility to enforce the obligations of Borrower hereunder including,
without limitation, the right to approve any amendment, modification or waiver
of any provisions of this Agreement; (B) may provide that such Lender will not
agree to any modification, amendment or waiver of this Agreement requiring
approval of all Lenders pursuant to Paragraph 8.3 hereof without the consent of
the Participant and (C) shall not relieve such Lender from its obligations,
which shall remain absolute, to make Advances as provided hereunder; and (b)
assign (i) all or any percent of its share of the Loans or any Note or right,
title and interest therein or in and to this Agreement, to (x) a Lender; (y) any
Affiliate of a Lender; or (z) any Federal Reserve Bank; or (ii) all or any part
of its share of the Loans or any Note or right, title and interest therein or in
and to this Agreement to a third party; provided, however, that in the absence
of an Event of Default or Default hereunder no assignment pursuant to (b)(ii)
above shall be made without the prior written consent of the Agent and
Borrowers, which consent shall not be unreasonably withheld. Any participations
and any assignments pursuant to subparagraph (b) shall be in an amount not less
than Five Million dollars ($5,000,000) and, shall not result in the aggregate
Maximum Principal Amount of the assigning Lender being less than Five Million
Dollars ($5,000,000) unless it is reduced to zero (0). Any assignment pursuant
to subparagraph (b) shall require payment by the applicable Lender to Agent of a
$3,500 transfer fee. Any assignment pursuant to subparagraph (b) shall be in
the form attached hereto as Exhibit H.
9.3. Binding and Governing Law. This Agreement and all documents
-------------------------
executed hereunder shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns and, except as may be
required by mandatory provisions of applicable law, shall be governed as to
their validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania.
9.4. Survival. All agreements, representations, warranties and
--------
covenants of Borrower contained herein or in any documentation required
hereunder shall survive the execution of this Agreement and the making of the
Loan hereunder, and except for Paragraphs 5.11 and 9.1 which provide otherwise
will continue in full force and effect as long as any indebtedness or other
obligation of Borrower to Lenders remains outstanding.
9.5. No Waiver; Delay. If Lenders shall waive any power, right or
----------------
remedy arising hereunder or under any applicable law, such waiver shall not be
deemed to be a waiver upon the later occurrence or recurrence of any of said
events with respect to Lenders. No
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delay by Lenders in the exercise of any power, right or remedy shall, under any
circumstances, constitute or be deemed to be a waiver, express or implied, of
the same and no course of dealing between the parties hereto shall constitute a
waiver of Lenders' powers, rights or remedies. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
9.6. Modification; Waiver. Except as otherwise provided in this
--------------------
Agreement, no modification or amendment hereof, or waiver or consent hereunder,
shall be effective unless made in a writing signed by appropriate officers of
the parties hereto.
9.7. Headings. The various headings in this Agreement are inserted
--------
for convenience only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
9.8. Notices. Any notice, request or consent required hereunder or in
-------
connection herewith shall be deemed satisfactorily given if in writing and
delivered by hand, mailed (registered or certified mail) or sent by facsimile
transmission to Agent or Borrower at their respective addresses or telecopier
number set forth below, or to Lenders at their respective addresses or
telecopier numbers set forth on Schedule 1 attached hereto, or to any party at
such other addresses or telecopier numbers as may be given by any party to the
others in writing:
if to Borrower:
Merkert American Corporation
490 Turnpike Street
Canton, MA 02021
Attention: Joseph Casey
Telecopier: (781) 828-7891
if to Agent:
First Union National Bank
1345 Chestnut Street
PA 4843
Philadelphia, PA 19107
Attention: Robert A. Brown
Telephone: (215) 973-1259
Telecopier: (215) 786-2877
9.9. Payment on Non-Business Days. Whenever any payment to be made
----------------------------
hereunder shall be stated to be due on a day other than a Business Day, such
payment may be made on the next succeeding Business Day, provided however that
such extension of time shall
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be included in the computation of interest due in conjunction with such payment
or other fees due hereunder, as the case may be.
9.10. Time of Day. All time of day restrictions imposed herein shall
-----------
be calculated using Agent's local time.
9.11. Severability. If any provision of this Agreement or the
------------
application thereof to any Person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other Persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
9.12. Counterparts. This Agreement may be executed in any number of
------------
counterparts with the same effect as if all the signatures on such counterparts
appeared on one document, and each such counterpart shall be deemed to be an
original.
9.13. Confidentiality.
---------------
(a) All Confidential Information (as defined below) received by a
Lender hereunder shall be kept confidential by such Lender and shall be used
solely in connection with such Lender's role as a Lender hereunder (or, in the
case of Agent, as Agent hereunder). "Confidential Information" shall mean all
information delivered to a Lender by Companies hereunder, other than information
which (i) is generally available to the public other than as a result of
disclosure by such Lender, or (ii) is or becomes available to such Lender from a
Person or entity other than Companies or another Lender, unless such Lender
knows, or should have known, that such Person or entity is bound by a
confidentiality agreement or covenant with Companies prohibiting such Person or
entity from publicly disclosing such information.
(b) Notwithstanding the foregoing, nothing herein shall prevent
Lenders from making disclosure (i) to any of their Affiliates, outside auditors,
counsel and other professional advisors in connection with this Agreement or as
reasonably required by any potential transferee, participant or assignee, so
long as said recipient agrees to keep such Confidential Information or
disclosures confidential pursuant to the terms of this Agreement, (ii) as
requested by any examiner, governmental agency or representative thereof or
pursuant to legal process, (iii) as reasonably necessary in connection with the
exercise of any rights or remedies or otherwise in defense of its interests
under or in connection with any Loan Document or otherwise with respect to the
Senior Obligations, or (iv) as reasonably necessary in any suit, action or
proceeding for the purpose of defending itself or reducing its liability.
9.14 Consent to Jurisdiction and Service of Process. Each Company
----------------------------------------------
irrevocably appoints each officer of Borrower as its attorney upon whom may be
served any notice, process or pleading in any action or proceeding against it
arising out of or in connection with this Agreement, the Notes, the Loan
Documents or any of the Collateral; each
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Company hereby consents that any action or proceeding against it be commenced
and maintained in any court within the Commonwealth of Pennsylvania or in the
United States District Court for the Eastern District of Pennsylvania by service
of process on any officer of Borrower; and each Company agrees that the courts
of the Commonwealth of Pennsylvania and the United States District Court for the
Eastern District of Pennsylvania shall have jurisdiction with respect to the
subject matter hereof and the person of each Company and the Collateral.
Notwithstanding the foregoing, Agent, in its absolute discretion may also
initiate proceedings in the courts of any other jurisdiction in which any
Company may be found or in which any of its properties or Collateral may be
located.
9.15. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
--------------------
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR THE NOTES OR OTHER LOAN DOCUMENTS OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF AGENT OR LENDERS. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
LENDERS' ENTERING INTO THIS AGREEMENT.
9.16. ACKNOWLEDGMENTS. BORROWER ACKNOWLEDGES THAT IT HAS HAD THE
---------------
ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS AGREEMENT AND,
SPECIFICALLY, PARAGRAPH 9.15 HEREOF, AND FURTHER ACKNOWLEDGES THAT THE MEANING
AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL HAVE BEEN FULLY EXPLAINED TO
BORROWER BY SUCH COUNSEL.
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IN WITNESS WHEREOF, the undersigned, by their duly authorized
officers, as applicable, have executed this Agreement the day and year first
above written.
Attest: MERKERT AMERICAN CORPORATION
By: /s/ Sidney D. Rogers, Jr. By: /s/ Gerald R. Leonard
------------------------- ---------------------
Name: Sidney D. Rogers, Jr. Name: Gerald R. Leonard
Title: Secretary Title: President
FIRST UNION NATIONAL BANK, for
itself and as Agent
By: /s/ John D. Brady
-----------------
Name: John D. Brady
Title: Vice President
62
<PAGE>
Schedule 1
----------
Lenders, Pro Rata Shares and
Maximum Principal Amounts
<TABLE>
<CAPTION>
Maximum Principal Amount
---------------------------------- Pro Rata
Lender Revolving Credit Loan Term Loan Share
- ------ --------------------- ----------- ---------
<S> <C> <C> <C>
First Union National Bank $25,000,000 $50,000,000 100.000%
1345 Chestnut Street
PA 4830
Philadelphia, PA 19107
Attn: Agency Services
Tel: (215) 973-6621 or 5733
Fax: (215) 973-1887
----------- ----------- -------
TOTAL: $25,000,000 $50,000,000 100.000%
</TABLE>
63
<PAGE>
Exhibit 10.16
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is made as of the
18th day of December, 1998 by MERKERT AMERICAN CORPORATION (the "Borrower"),
MERKERT ENTERPRISES, INC. ("Merkert Enterprises"), ROGERS-AMERICAN COMPANY, INC.
("Rogers-American"), and ROGERS-AMERICAN COMPANY OF FLORIDA, INC., a Florida
corporation ("R-A Florida," and together with Merkert Enterprises and Rogers-
American, the "Guarantors", and together with the Borrower and the other
Guarantors, individually and collectively, the "Companies") in favor of FIRST
UNION NATIONAL BANK, a national banking association, as agent for the Lenders
pursuant to the Credit Agreement described below ("Agent").
BACKGROUND
----------
A. Borrower has entered into that certain Credit Agreement dated of even
date herewith (as amended, restated or otherwise modified from time to time, the
"Credit Agreement") with for the lenders identified therein (together with such
additional financial institutions as may become Lenders from time to time as
therein provided, "Lenders").
B. Guarantors have executed a Guaranty in favor of the Lenders dated of
even date herewith (as amended, restated or otherwise modified from time to
time, the "Guaranty").
C. As a condition to Lenders' willingness to enter into the Credit
Agreement, the Companies are willing to execute and deliver to Agent this
Security Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the Companies and Agent hereby agree as follows:
A. Definitions. All capitalized terms used and not defined herein shall have
-----------
the respective meaning ascribed thereto in the Credit Agreement. In addition,
as used herein, the following terms shall have the following meanings:
1. Books and Records. The term "Books and Records" means all of the
Companies' books and records, including without limitation, all books
and records indicating, summarizing, or evidencing the Collateral,
including without limitation, computer runs, invoices, tapes,
processing software, processing contracts (such as contracts for
computer time and services) and any computer prepared information,
tapes, or data of every kind and description relating to the
Collateral, whether in the possession of any Companies or in the
possession of third parties..
2. Collateral. The term "Collateral" means the all present and future
assets of the Companies, whether now owned or hereafter acquired, and
any proceeds thereof, including without limitation all accounts,
contract rights, leases, and any other
1
<PAGE>
rights of the Companies to payment for goods sold or leased or for
services rendered; furniture; furnishings; fixtures; equipment;
machinery; accessories; moveable trade fixtures; goods; inventory;
building improvement and construction materials, supplies and
equipment; chattel paper; instruments; documents; funds on deposit with
Lenders and their affiliates; Books and Records, investment property,
securities entitlements, financial assets and general intangibles; as
well as all parts, replacements, substitutions, profits, products and
cash and non-cash proceeds of the foregoing (including insurance and
condemnation proceeds payable by reason of condemnation of or loss or
damage thereto) in any form and wherever located. The Collateral shall
not include rights of the Companies under interest rate protection
agreements, swaps, hedging contracts or similar arrangements (including
without limitation any swap agreement as defined in 11 U.S.C. (S)101)
with any Lender.
3. Liabilities. The term "Liabilities" means any and all obligations and
indebtedness of every kind and description of the Companies to the
Lenders pursuant to, under, or in connection with the Loan Documents,
whether such debts or obligations are primary or secondary, direct or
indirect, absolute or contingent, sole, joint or several, secured or
unsecured, due or to become due, contractual or tortious, arising by
operation of law or otherwise, or now or hereafter existing, whether
incurred by any Companies as principal, surety, endorser, guarantor,
accommodation party or otherwise, including, without limitation,
principal, interest and fees, late fees and expenses (including
attorneys' fees and costs and/or the allocated fees and costs of
Agent's in-house legal counsel, to the extent required to be paid under
the Loan Documents), or that have been or may hereafter be contracted
or incurred, and any obligations of the Companies or any of them under
interest rate protection agreements, swaps, hedging contracts or
similar arrangements with any Lender (including without limitation, any
swap agreements as defined in 11U.S.C. (S)101). If a party ceases to be
a Lender, any obligations under interest rate protection agreements,
swaps, hedging contracts or similar arrangements (including without
limitation, any swap agreements as defined in 11U.S.C. (S)101) with
that party prior to the date it ceased to be a Lender shall continue to
be Liabilities secured hereunder.
4. Loan Documents. The term "Loan Documents" means this Security
Agreement, the Credit Agreement, the Note, the Guaranty, and any other
documents and agreements executed and delivered in connection with the
Credit Agreement.
5. Security Agreement. The term "Security Agreement" means this Security
Agreement, together with all Schedules and Exhibits hereto as may be
amended, restated or otherwise modified from time to time.
6. Uniform Commercial Code. The term "Uniform Commercial Code" means the
Uniform Commercial Code, in effect from time to time in the
Commonwealth of Pennsylvania.
2
<PAGE>
Unless the context otherwise requires, all capitalized terms not
specifically defined herein which are defined in the Uniform Commercial
Code shall have the meanings stated therein.
B. Security Interest. In order to secure the due and punctual payment and
-----------------
performance of the Liabilities, the Companies hereby grant to Agent, for
the benefit of the Lenders, a continuing security interest in and general
lien upon their right, title and interest in the Collateral. The security
interests granted herein are granted as security only and shall not subject
Agent to, or in any way affect or modify, any obligation or liability of
the Companies with respect to any of the Collateral or any transaction
which gave rise thereto.
C. Further Assurances; Filing.
--------------------------
1. Delivery of Documents, etc. At any time and from time to time, upon
the demand of Agent, the Companies will, at the Companies' expense:
(i) give, execute, deliver, file, and/or record any notice, statement,
instrument, document, agreement, or other papers that may be necessary
or desirable, or that Agent may request, in order to create, preserve,
perfect, or validate any security interest granted pursuant hereto or
intended to be granted hereunder or to enable Agent to exercise or
enforce its rights hereunder or with respect to such security
interest; (ii) keep, stamp, or otherwise mark any and all documents,
instruments, chattel paper, and their respective Books and Records in
such manner as Agent may reasonably require to evidence the security
interest granted hereunder.
2. Filing of Financing Statement. At Agent's sole option, and without
the consent of the Companies, Agent may file a carbon, photographic,
or other reproduction of this Security Agreement or any financing
statement executed pursuant hereto as a financing statement in any
jurisdiction so permitting. Without the prior written consent of
Agent, no Companies shall file or authorize or permit to be filed in
any jurisdiction any such financing or like statement in which First
Union National Bank or its successor as Agent is not named as the sole
secured party as Agent for the Lender, except as permitted under the
Credit Agreement.
D. Representations and Warranties. Each Company represents and warrants to
------------------------------
Agent, which representations and warranties shall be continuing
representations and warranties until all of the Liabilities are satisfied
in full, as follows:
1. Security Agreement Questionnaire. All information provided by such
Companies to Agent and set forth on the Security Agreement
Questionnaire attached hereto as Schedule "A" and made a part hereof,
is complete, true and correct (subject to subsequent disclosure
pursuant to Paragraph E.2. hereof). If, for any reason, the Security
Agreement Questionnaire is not attached to this Security Agreement at
the time of execution, such failure shall in no way alter Agent's
right to rely upon the representations and warranties contained in
the
3
<PAGE>
Security Agreement Questionnaire and the other representations and
warranties contained in this Section D. The Companies agrees that
Agent may attach the Security Agreement Questionnaire to this Security
Agreement at any time subsequent to the execution of this Security
Agreement.
2. Deposit Accounts. Set forth on Schedule B is a complete, true and
correct listing of all deposit accounts maintained by any of the
Companies including the name of the depository institution, how the
account is titled, and the account number (subject to subsequent
disclosure pursuant to Paragraph E.2. hereof).
3. No Consents Necessary. No consent or approval of any person or
entity, including, without limitation, any debt or equity holder of
any Companies, or of any public authority, is necessary for the valid
execution, delivery and performance of this Security Agreement, or any
document or instrument executed in connection herewith, or the
exercise by Agent or Lenders of their rights and remedies hereunder
that have not been obtained.
4. Title. The Companies are, or to the extent that any Collateral will
be acquired after the date hereof, will be, the owners of the
Collateral, holding good and marketable title thereto, free from any
lien, security interest, encumbrance, or claim other than the liens
and encumbrances of Agent and have the right to grant the security
interests created by this Security Agreement subject to Permitted
Liens under the Credit Agreement.
5. No Fictitious Names. The Companies do not operate or issue invoices
under any name other than the name(s) set forth on the signature page
hereof and as otherwise disclosed on Schedule A.
6. Collateral Not Subject to Agreements or Licenses. The Collateral is
not subject to or restricted by any agreement or license relating to
patents, trademarks, trade secrets, or copyrights, except that the
Companies' computer and word processing equipment is subject to
various software licenses or otherwise disclosed on Schedule A.
E. Covenants. Each Company hereby covenants and agrees that for as long as
---------
any Liabilities are outstanding:
1. Defense of Collateral. The Companies shall defend the Collateral
against all claims and demands of all persons or entities at any time
claiming any interest therein other than Agent.
2. Notice of Changes in Location of Chief Executive Office, Residence,
Books and Records, Collateral. The Companies shall provide Agent with
prompt written notice of: (i) any intended change in the chief
executive office or residence of the Companies, and/or any office
where the Companies maintain their Books
4
<PAGE>
and Records; (ii) the location or movement of any Collateral to or at
an address other than the addresses set forth on Schedule A hereto;
and (iii) the establishment of any new deposit account, all such
notices to be received by Agent at least 30 days prior to the
effective date of any such change; provided, that no notice shall be
required pursuant to Clause (i) or (ii) above with respect to any
sales office location at which no Books and Records are maintained
other than Books and records that are duplicates of Books and Records
maintained at other locations of which Agent has notice hereunder and
at which the aggregate value of all other Collateral located at such
premises does not exceed $20,000. If any such new location as set
forth in subparagraphs (i) and (ii) hereof is on leased or mortgaged
premises, the Companies, upon request of Agent, will furnish Agent,
prior to the effective date of any such change, with landlord's or
mortgagee's waivers pertaining to such premises in form and substance
reasonably satisfactory to Agent. With respect to any new deposit
account, the Companies shall, if required by Agent, or to the first
use of such deposit account, furnish to Agent with blocked account
letters or such other agreements with the applicable depository
institution as Agent shall reasonably require, in each case in form
and substance reasonably satisfactory to Agent.
3. Security Interests in Collateral. The Companies shall keep the
Collateral free from any lien, security interest, or encumbrance
except those in favor of Agent and except as permitted pursuant to the
Credit Agreement, in good order and repair, reasonable wear and tear
excepted, and will not waste or destroy the Collateral or any part
thereof. If reasonably requested by Agent, the Companies shall give
notice of Agent's security interests in the Collateral to any third
person with whom the Companies has any actual or prospective
contractual relationship or other business dealings.
4. Maintenance, Inspection of Books and Records. The Companies shall
maintain complete and accurate Books and Records and shall make all
necessary entries therein to reflect the costs, values and locations
of the Collateral and all payments, credits and adjustments thereto.
The Companies shall keep Agent fully informed as to the location of
all such Books and Records, shall permit Agent and its authorized
agents to have full, complete and unrestricted access thereto at all
reasonable times to inspect, audit and make copies of any and all such
Books and Records (collectively, a "Records Inspection") and upon
submission to the Companies of an invoice therefor, the Companies will
reimburse Agent for any and all fees and costs related to any Records
Inspection by Agent and its authorized agents, provided that, unless
-------------
an Event of Default has occurred and is continuing : (i) Agent shall
give Companies reasonable notice of such Records Inspection; and (ii)
Agent shall not perform more than three Records Inspections (not
including ordinary course visits and meetings) at the premises of the
Companies during any twelve month period. Agent's rights hereunder
shall be enforceable at law or in equity, and the Companies consents
to the entry of judicial orders or injunctions enforcing specific
performance of such obligations hereunder.
5
<PAGE>
5. Maintenance and Inspection of Equipment. With respect to equipment
constituting Collateral, the Companies shall: (i) keep accurate books
and records with respect thereto, including, without limitation,
maintenance records; (ii) upon request, deliver to Agent all evidence
of ownership in such Collateral, including certificates of title with
Agent's interest appropriately noted on the certificate; (iii) permit
Agent and its authorized agents to inspect any or all such equipment
at all reasonable times, provided that, unless an Event of Default has
-------------
occurred: (A) Agent shall give Companies reasonable notice of such
inspection of equipment; and (B) Agent shall not perform more than
three such inspections (not including ordinary course visits and
meetings) at the premises of the Companies during any twelve month
period; (iv) preserve such equipment, excluding obsolete equipment, in
good condition and repair, and pay the cost of all replacement parts,
repairs to and maintenance of such equipment, and (v) if after the
date hereof, any of the Collateral is moved to or located upon land
(other than at locations identified on the Security Agreement
Questionnaire) which land is the subject of a lease or mortgage, at
the request of Agent, use reasonable best efforts to deliver an
agreement of subordination from the lessor or mortgagee providing that
any lien of such party shall be subordinate to the security interest
of Agent granted herein.
6. Continuing of Perfected Status of Collateral. The Companies agrees to
cooperate and join, at its expense, with Agent in taking such steps as
are necessary, in Agent's judgment, to perfect or continue the
perfected status of the security interests granted herein, including,
without limitation, the execution and delivery of any financing
statements, amendments thereto and continuation statements, the
notation of encumbrances in favor of Agent on certificates of title,
and the execution and filing of any collateral assignments and any
other instruments requested by Agent to perfect its security interest
in the Collateral and any and all general intangibles relating to the
Collateral. Agent is expressly authorized to file financing statements
without the Companies's signature.
F. General Authority.
-----------------
1. Bank as Attorney-in-Fact. Each Company hereby irrevocably appoints
Agent (and any of its attorneys, officers, employees, or agents), upon
the occurrence and during the continuation of an Event of Default, as
its true and lawful attorney-in-fact, said appointment being coupled
with an interest, with full power of substitution, in the name of the
Companies, Agent, or otherwise, for the sole use and benefit of Agent
in its sole discretion, but at the Companies's expense, to exercise,
to the extent permitted by law, in its name or in the name of the
Companies or otherwise, the powers set forth herein, whether or not
any of the Liabilities are due, such powers, including, but not
limited to, the power at any time: (i) to endorse the name of the
Companies upon any instruments of payment,
6
<PAGE>
invoice, freight, or express bill, bill of lading, storage, or
warehouse receipt relating to the Collateral; (ii) to demand, collect,
receive payment of, settle, compromise, or adjust all or any of the
Collateral; (iii) to sign and file one or more financing statements
naming the Companies as debtor and Agent as secured party and
indicating therein the types or describing the items of Collateral
herein specified; (iv) to correspond and negotiate directly with
insurance carriers; and (v) to execute any notice, statement,
instrument, agreement, or other paper that Agent may require to
create, preserve, perfect, or validate any security interest granted
pursuant hereto or to enable Agent to exercise or enforce its rights
hereunder or with respect to such security interest.
2. Liability of Bank as Attorney-in-Fact. Neither Agent nor its
attorneys, officers, employees, or agents shall be liable for acts,
omissions, any error in judgment, or mistake in fact in its/their
capacity as attorney-in-fact. Each Company hereby ratifies all acts
of Agent as its attorney-in-fact. This power, being coupled with an
interest, is irrevocable until the Liabilities have been fully
satisfied. Agent shall not be required to take any steps necessary to
preserve any rights against prior parties with respect to any of the
Collateral.
3. Effect of Extensions and Modifications. Agent may extend the time of
payment, arrange for payment in installments, or otherwise modify the
terms of, or release, any of the Collateral, without thereby incurring
responsibility to, or discharging or otherwise affecting any liability
of, any Companies or any other obligor.
G. Events of Default. The occurrence of an Event of Default under the Credit
------------------
Agreement shall constitute an Event of Default and under this Security
Agreement.
H. Remedies.
--------
1. Acceleration of Liabilities; General Rights of Bank. Upon the
occurrence and during the continuance of an Event of Default, Agent
may, in accordance with Paragraph 7.2 of the Collateral Agreement,
exercise any and all rights and remedies it has under this Security
Agreement, any other Loan Document and/or applicable law.
2. Right of Setoff. If any Liabilities shall be due and payable or any
one or more Events of Default shall have occurred and be continuing,
whether or not the Agent shall have made demand under any Loan
Document and regardless of the adequacy of any collateral for the
Liabilities or other means of obtaining repayment of the Liabilities,
each Lender shall have the right, without notice to the Borrower and
is specifically authorized hereby to set-off against and apply to the
then unpaid balance of the Liabilities any items or funds of the
Borrower held by each Lender or any affiliate of such Lender, any and
all deposits (whether general or special, time or demand, matured or
unmatured) or any other property
7
<PAGE>
of the Borrower including, without limitation, securities and/or
certificates of deposit, now or hereafter maintained by any Borrower
for its or their own account with any Lender or any affiliate of such
Lender, and any other indebtedness at any time held or owing by any
Lender or any affiliate of such Lender, to or for the credit or the
account of Borrower, even if effecting such set-off results in a loss
or reduction of interest or the imposition of a penalty applicable to
the early withdrawal of time deposits. For such purpose, the Lenders
shall have, and Borrower hereby grant to each Lender, a first lien on
and security interest in such deposits, property, funds and accounts
and the proceeds thereof, subject to Permitted Liens under the Credit
Agreement.
3. Turnover of Property Held by Affiliates. Each Company authorizes any
affiliate of each Lender, upon the occurrence and during the
continuance of an Event of Default, at the request of any such Lender,
and without notice to Borrower, to turn over to the Agent any property
of such Companies, including, without limitation, funds and
securities, held by any Lender's affiliate for any such Companies's
account and to debit any deposit account maintained by such Companies
with such Lender's affiliate (even if such deposit account is not then
due or there results a loss or reduction of interest or the imposition
of a penalty in accordance with law applicable to the early withdrawal
of time deposits), in the amount requested by the Lenders up to the
amount of the Liabilities, and to pay or transfer such amount or
property to the Agent for application to the Liabilities.
4. Additional Rights and Remedies. In addition to the rights and
remedies available to Agent as set forth above, upon the occurrence of
an Event of Default hereunder, or at any time thereafter, Agent may at
its option in accordance with the Credit Agreement, immediately and
without notice, do any or all of the following, which rights and
remedies are cumulative, may be exercised from time to time, and are
in addition to any rights and remedies available to Agent under any
other agreement or instrument by and between any Companies and Agent:
a. Exercise any and all of the rights and remedies of a secured
party under the Uniform Commercial Code, including, without
limitation, the right to require the Companies to assemble the
Collateral and make it available to Agent at a place reasonably
convenient to the parties;
b. Notify account debtors of any Companies that their obligations to
such Companies are payable directly to Agent, for benefit of the
Lenders, and collect such sums.
c. Operate, utilize, recondition and/or refurbish any of the
Collateral for the purpose of enhancing or preserving the value
thereof by any means deemed appropriate by Agent, in its sole
discretion, including, without limitation, converting raw
materials and/or work-in-process into finished goods;
8
<PAGE>
d. Demand, sue for, collect, or retrieve any money or property at
any time payable, receivable on account of, or in exchange for,
or make any compromise, or settlement deemed desirable with
respect to any of the Collateral;
e. Upon five (5) business days' prior written notice to the Borrower
(or one (1) day notice by telephone with respect to Collateral
that is perishable or threatens to decline rapidly in value),
which each Company hereby acknowledges to be sufficient,
commercially reasonable and proper, Agent may sell, lease or
otherwise dispose of any or all of the Collateral at any time and
from time to time at public or private sale, with or without
advertisement thereof. Upon a sale of the Collateral by Agent,
Agent shall apply the sale proceeds: first, to the amount of any
-----
reasonable expenses, including counsel fees and expenses,
incurred by Agent in connection with (i) the administration of
this Security Agreement, (ii) the custody, preservation, sale or
collection or realization of the Collateral, (iii) the exercise
or enforcement of Agent's rights hereunder, or (iv) the failure
of Companies to perform hereunder; second, to accrued and unpaid
------
interest and fees; and third, to the principal balance of
-----
indebtedness under the Credit Agreement to Lenders on the basis
of their pro rata shares of the outstanding principal balance of
the Loans (as defined therein), except the fees payable under
Paragraph 2.13 thereof, which shall be paid solely to Agent. Such
distribution of payments shall be made promptly in federal funds
immediately available at the office of each Lender set forth in
the Credit Agreement. Each Company waives the benefit of any
marshaling doctrine with respect to Agent's exercise of its
rights hereunder. Each Company grants a royalty-free license to
Agent for all patents, service marks, trademarks, tradenames,
copyrights, computer programs and other intellectual property and
proprietary rights sufficient to permit Agent to exercise all
rights granted to Agent under this Section. Agent or anyone else
may be the purchaser of any or all of the Collateral so sold and
thereafter hold such Collateral absolutely, free from any claim
or right of whatsoever kind, including any equity of redemption
of any Companies or any other obligor, any such notice, right
and/or equity of redemption being hereby expressly waived and
released.
I. Miscellaneous.
-------------
1. Remedies Cumulative; No Waiver. The rights, powers and remedies of
Agent provided in this Security Agreement and any of the other Loan
Documents are cumulative and not exclusive of any right, power or
remedy provided by law or equity. No failure or delay on the part of
Agent in the exercise of any right, power or remedy shall operate as a
waiver thereof, nor shall any single or partial exercise of any right,
power or remedy preclude any other or further exercise thereof, or the
exercise of any other right, power or remedy.
9
<PAGE>
2. Notices. Each Company agrees that any notice, request or consent
required to be given to such Companies hereunder or in connection
herewith may be given to Borrower on behalf of such Companies. Any
notice, request or consent required hereunder or in connection
herewith shall be deemed satisfactorily given if in writing and
delivered by hand, mailed (registered or certified mail) or sent by
facsimile transmission to Agent or Borrower at their respective
addresses or telecopier number set forth below, or to any party at
such other addresses or telecopier numbers as may be given by any
party to the others in writing:
if to Borrower:
Merkert American Corporation
490 Turnpike Street
Canton, MA 02021
Attention:
Telecopier:
if to Agent:
First Union National Bank
1345 Chestnut Street
PA 4843
Philadelphia, PA 19107
Attention: Robert A. Brown
Telephone: (215) 973-1259
Telecopier: (215) 786-2877
3. Costs and Expenses; Indemnification. Whether or not the transactions
contemplated by this Security Agreement and the other Loan Documents
are fully consummated, the Borrower shall promptly pay (or reimburse,
as Agent may elect) all reasonable costs and expenses which Agent has
incurred or may hereafter incur in connection with the negotiation,
preparation, reproduction, interpretation, perfection, monitoring and
enforcement of the Loan Documents, the collection of all amounts due
under the Loan Documents, and all amendments, modifications, consents
or waivers, if any, to the Loan Documents. Such costs and expenses
shall include, without limitation, the fees and disbursements of
counsel to Agent, the costs of appraisals, searches of public records,
costs of filing and recording documents with public offices, internal
and/or external audit and/or examination fees and costs, stamp, excise
and other taxes, the fees of Agent's accountants, consultants or other
professionals, costs and expenses from any actual or attempted sale of
all or any part of the Collateral, or any exchange, enforcement,
collection, compromise, or settlement of any of the Collateral or
10
<PAGE>
receipt of the proceeds thereof, and for the care and preparation for
sale of the Collateral (including insurance costs) and defending and
asserting the rights and claims of Agent in respect thereof, by
litigation or otherwise. Each Company shall indemnify, defend and hold
harmless Agent with respect to any and all claims, expenses, demands,
losses, costs, fines or liabilities of any kind (including, without
limitation, those involving death, personal injury or property damage
and including reasonable attorneys fees and costs) arising from the
use or ownership of the Collateral other than those resulting from
Agent's own wilful misconduct or gross negligence. The reimbursement
and indemnification obligations of the Companies under this Section
shall constitute Liabilities secured by the Collateral and shall
survive any termination of the Loan Documents.
4. Governing Law. This Security Agreement shall be construed in
accordance with and governed by the substantive laws of the
Commonwealth of Pennsylvania without reference to conflict of laws
principles.
5. Integration. This Security Agreement and the other Loan Documents
constitute the sole agreement of the parties with respect to the
subject matter hereof and thereof and supersede all oral negotiations
and prior writings with respect to the subject matter hereof and
thereof.
6. Amendment; Waiver. No amendment of this Security Agreement, and no
waiver of any one or more of the provisions hereof shall be effective
unless set forth in writing and signed by the parties hereto.
7. Successors and Assigns. This Security Agreement (i) shall be
binding upon the Companies and the Agent and, where applicable, their
respective heirs, executors, administrators, successors and permitted
assigns, and (ii) shall inure to the benefit of the Companies and the
Agent and, where applicable, their respective heirs, executors,
administrators, successors and permitted assigns; provided, however,
-------- -------
that no Companies may assign its rights hereunder or any interest
herein without the prior written consent of Agent, and any such
assignment or attempted assignment by such Companies shall be void and
of no effect with respect to Agent.
8. Severability. The illegality or unenforceability of any provision
of this Security Agreement or any instrument or agreement required
hereunder shall not in any way affect or impair the legality or
enforceability of the remaining provisions of this Security Agreement
or any instrument or agreement required hereunder. In lieu of any
illegal or unenforceable provision in this Security Agreement, there
shall be added automatically as a part of this Security Agreement a
legal and enforceable provision as similar in terms to such illegal or
unenforceable provision as may be possible.
11
<PAGE>
9. Consent to Jurisdiction and Service of Process. Each Company
irrevocably appoints each officer of Borrower as its attorney upon
whom may be served any notice, process or pleading in any action or
proceeding against it arising out of or in connection with this
Security Agreement, the Credit Agreement, the Notes, the Loan
Documents or any of the Collateral; each Company hereby consents that
any action or proceeding against it be commenced and maintained in any
court within the Commonwealth of Pennsylvania or in the United States
District Court for the Eastern District of Pennsylvania by service of
process on any officer of Borrower; and each Company agrees that the
courts of the Commonwealth of Pennsylvania and the United States
District Court for the Eastern District of Pennsylvania shall have
jurisdiction with respect to the subject matter hereof and the person
of each Company and the Collateral. Notwithstanding the foregoing,
Agent, in its absolute discretion may also initiate proceedings in the
courts of any other jurisdiction in which any Companies may be found
or in which any of its properties or Collateral may be located.
10. Inconsistencies. The Loan Documents are intended to be consistent.
However, in the event of any inconsistencies among any of the Loan
Documents, such inconsistency shall not affect the validity or
enforceability of any Loan Document. In the event of any inconsistency
or ambiguity in any of the Loan Documents, the Loan Documents shall
not be construed against any one party but shall be interpreted
consistent with Agent's policies and procedures.
11. Headings. The headings of sections and paragraphs have been included
herein for convenience only and shall not be considered in
interpreting this Security Agreement.
12. Schedules. If a Schedule and/or an Exhibit is attached hereto, the
provisions thereof are incorporated herein.
13. Waiver of Jury Trial; Acknowledgments.
a. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR THE NOTES OR OTHER LOAN
DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF AGENT OR LENDERS. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR AGENT'S ENTERING INTO THIS
AGREEMENT ON BEHALF OF THE LENDERS.
12
<PAGE>
b. BORROWER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL
IN THE REVIEW AND EXECUTION OF THIS AGREEMENT AND, SPECIFICALLY,
PARAGRAPH 13(a) HEREOF, AND FURTHER ACKNOWLEDGES THAT THE MEANING
AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL HAVE BEEN FULLY
EXPLAINED TO BORROWER BY SUCH COUNSEL.
13
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Security
Agreement as of the date above first written.
Attest: MERKERT AMERICAN CORPORATION
By:/s/ Sidney D. Rogers, Jr. By:/s/ Gerald R. Leonard
------------------------- ---------------------
Name: Sidney D. Rogers, Jr. Name: Gerald R. Leonard
Title: Secretary Title: President
Attest: MERKERT ENTERPRISES, INC.
By:/s/ Sidney D. Rogers, Jr. By:/s/ Joseph T. Casey
------------------------- -------------------
Name: Sidney D. Rogers, Jr. Name: Joseph T. Casey
Title: Secretary Title: Treasurer
Attest: ROGERS-AMERICAN COMPANY, INC.
By:/s/ Sidney D. Rogers, Jr. By:/s/ Douglas H. Holstein
------------------------- -----------------------
Name: Sidney D. Rogers, Jr. Name: Douglas H. Holstein
Title: Secretary Title: President
Attest: ROGERS-AMERICAN COMPANY OF FLORIDA, INC.
By:/s/ Sidney D. Rogers, Jr. By:/s/ Douglas H. Holstein
------------------------- -----------------------
Name: Sidney D. Rogers, Jr. Name: Douglas H. Holstein
Title: Secretary Title: President
14
<PAGE>
Exhibit 10.17
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement") is made this 18th day
of December, 1998, by and among MERKERT AMERICAN CORPORATION (the "Borrower")
and the subsidiaries of the Company signatory hereto (each individually a
"Pledgor" and individually and collectively, "Pledgors") in favor of FIRST UNION
NATIONAL BANK, a national banking association ("Agent"), as agent for the
Lenders under the Credit Agreement described below (herein "Pledgee").
W I T N E S S E T H:
-------------------
WHEREAS, Borrower has entered into that certain Credit Agreement dated
of even date herewith (as amended from time to time, the "Credit Agreement")
with the lenders identified therein (together with such additional financial
institutions as may become lenders from time to time as therein provided,
"Lenders") and First Union as Agent for the Lenders ("Agent"); and
WHEREAS, it is a condition to the Credit Agreement that Pledgors have
executed this Pledge Agreement in favor of Pledgee for the benefit of the
Lenders.
NOW THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound hereby, Pledgors hereby agrees
with Pledgee as follows:
1. For the purposes of this Pledge Agreement:
(a) Capitalized terms used and not otherwise defined herein shall
have the meanings ascribed to such terms in the Credit Agreement.
(b) The term "Collateral" shall mean all shares of stock,
partnership interests, LLC interests, or other equity interests in any direct or
indirect Subsidiary of Borrower (as defined in the Credit Agreement) (the
"Securities") now or hereafter owned by any Pledgor, together with (i) all
rights to distributions and other rights under organizational documents, or
under any other agreements, with respect thereto, and all contract rights,
general intangibles and investment property associated with or representing such
Pledgor's rights and interests with respect thereto, and (ii) all additions to,
substitutions or exchanges for, proceeds of and distributions on, any of the
foregoing, and all associated secondary rights and secondary considerations of
any kind (subscription rights, bonus shares, etc.). A list of the Securities as
of the date hereof is set forth on Schedule A attached hereto.
(c) The term "Obligations" shall mean any and all obligations and
indebtedness of every kind and description of the Pledgors to the Lenders
pursuant to, under, or in connection with the Loan Documents, whether such debts
or obligations are primary or secondary, direct or indirect, absolute or
contingent, sole, joint or several, secured or unsecured, due or to become due,
contractual or tortious, arising by operation of law or
<PAGE>
otherwise, or now or hereafter existing, whether incurred by any Pledgor as
principal, surety, endorser, guarantor, accommodation party or otherwise,
including, without limitation, principal, interest and fees, late fees and
expenses (including, attorneys' fees and costs and/or the allocated fees and
costs of Agent's in-house legal counsel to the extent required to be paid under
the Loan Documents), or that have been or may hereafter be contracted or
incurred, and any obligations of the Pledgors or any of them under interest rate
protection agreements, swaps, hedging contracts or similar arrangements with any
Lender (including, without limitation, any swap agreements as defined in 11
U.S.C. (S) 101). If a party ceases to be a Lender, any obligations under
interest rate protection agreements, swaps, hedging contracts or similar
arrangements (including, without limitation, any swap agreements as defined in
11 U.S.C. (S) 101) with such party prior to the date it ceased to be a Lender
shall continue to be Obligations secured by the pledge hereunder.
2. Pledgors hereby pledge, and grant a lien as security with respect
to, the Collateral, to Pledgee as agent for the Lenders, as collateral security
for all of the Obligations.
3. Pledgors represent and warrant that:
(a) The chief place of business, chief executive offices and the
office(s) where their records are kept concerning accounts, contract rights and
other similar Collateral, are as set forth on Schedule B attached hereto, and as
set forth on Schedule B, each Pledgor either owns such premises free and clear
of any mortgage or other liens and encumbrances except as set forth on Schedule
B or it leases such premises from the record owner identified on Schedule B.
(b) Each Pledgor conducts business under and through its legal
name as set forth on the signature page hereto, and no other names except as set
forth on Schedule B attached hereto.
(c) Pledgors have good title to the Securities free and clear of
all liens and encumbrances except the security interest created hereby; and such
Securities constitute the percentage of the issued and outstanding shares of
each class of the capital stock or other equity interests of the subsidiaries of
Pledgors identified in Schedule A.
(d) The Securities are validly issued, fully paid and
nonassessable and are not subject to any charter, bylaw, statutory, contractual
or other restrictions governing their issuance, transfer, ownership or control
except as indicated on the stock certificates for the Securities.
(e) Pledgors have delivered to Pledgee all certificates or other
similar instruments or documents representing or evidencing the Securities,
together with corresponding assignment or transfer powers duly executed in blank
by Pledgors, and this Pledge Agreement and such powers have been duly and
validly executed and are binding and enforceable against Pledgor in accordance
with their terms except as such enforceability may be affected by bankruptcy
laws and other laws of general application relating to creditors'
2
<PAGE>
enforceable against Pledgor in accordance with their terms except as such
enforceability may be affected by bankruptcy laws of general application
relating to creditors' rights; and the pledge of the Securities in accordance
with the terms hereof creates a valid and perfected first priority security
interest in the Securities securing payment of the Obligations.
(f) No authorization, approval, or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required
either (i) for the pledge by Pledgors of the Securities pursuant to this Pledge
Agreement or for the execution, delivery or performance of this Pledge Agreement
by Pledgor or (ii) for the exercise by Pledgee of the voting or other rights
provided for in this Pledge Agreement or the remedies in respect of the
Collateral pursuant to this Pledge Agreement (except as may be required in
connection with such disposition by laws affecting the offering and sale of
securities generally or the perfection of liens and security interests in
proceeds).
4. Anything herein to the contrary notwithstanding, (a) Pledgors
shall remain liable under any contracts and agreements included in the
Collateral to perform all of their respective duties and obligations thereunder
to the same extent as if this Agreement had not been executed, (b) the exercise
by Pledgee of any of its rights hereunder shall not release Pledgees from any of
their duties or obligations under any contracts and agreements included in the
Collateral, and (c) Pledgee shall not have any obligation or liability under any
contracts and agreements included in the Collateral by reason of this Agreement,
nor shall Pledgee be obligated to perform any of the obligations or duties of
Pledgors thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
5. Pledgors will promptly notify and provide Pledgee with a complete
description of the opening of any new places of business which would be required
to be disclosed pursuant to Paragraph 3(a) above (excluding sales offices at
which no books and records are maintained other than books and records that are
duplicates of books and records maintained at other locations of which Agent has
notice hereunder), the conduct of business under any names or through any
entities other than those set forth above, the relocation of any of the
Collateral, and the acquisition of any new Collateral. Pledgors will furnish to
Pledgee from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as Pledgee may reasonably request upon reasonable notice, all in
reasonable detail.
6. At any time and from time to time, upon the request of Pledgee,
Pledgors will, at their own expense:
(a) defend the Collateral against the claims and demands of all
persons.
(b) deliver and pledge to Pledgee, endorsed or accompanied by
instruments of assignment or transfer satisfactory to Pledgee, any instruments
and documents covered hereby which Pledgee may specify.
3
<PAGE>
(c) give, execute, deliver and file or record in the proper
governmental offices, any instrument, paper or document, including but not
limited to one or more financing statements under the Uniform Commercial Code,
satisfactory to Pledgee, or take any action, which Pledgee reasonably may deem
necessary or desirable in order to create, preserve, perfect, continue, modify,
terminate or otherwise affect any security interest granted pursuant hereto, or
to enable Pledgee to exercise or enforce any of its rights hereunder.
(d) keep, and stamp or otherwise mark, any of its documents and
instruments and its individual books and records relating to any of the
Collateral in such manner as Pledgee reasonably may require.
(e) pay, or reimburse Pledgee in the amount of, all reasonable
expenses (including reasonable fees and expenses of attorneys, experts and
Pledgees) incurred in any way in connection with the exercise, defense or
assertion of any rights or interests of Pledgee hereunder, the enforcement of
any provisions hereof, or the management, preservation, use, operation,
maintenance, collection, possession, disposition or enforcement of any of the
Collateral (all such expenses to be Obligations hereunder).
7. Pledgors agree not to:
(i) sell or otherwise dispose of, or grant any option
(collectively, "Transfer") with respect to, any of the Collateral, provided
however, that nothing herein shall prohibit a merger of a wholly-owned
Subsidiary into any of the Companies as permitted pursuant to Paragraph 6.8(iii)
of the Credit Agreement; or
(ii) create or permit to exist any lien, security interest,
or other charge or encumbrance upon or with respect to any of the Collateral,
except the security interest under this Pledge Agreement. Pledgors agree that
all additional shares of stock or other equity interests of any direct or
indirect Subsidiary of Borrower (as defined in the Credit Agreement) acquired by
any Pledgor after the date hereof shall automatically and without any further
action of Pledgors be pledged hereunder and constitute a part of the Collateral
hereunder, and in connection therewith, Pledgors agree to immediately deliver to
Pledgee any certificates or other instruments or documents representing or
evidencing the Securities and a supplement to Schedule A attached hereto
describing such additional Collateral.
8. Prior to the full payment and performance of the Obligations,
Pledgee shall be entitled to receive, as additional Collateral, any and all
additional shares of stock or any other property of any kind distributable on or
by reason of the Securities pledged hereunder, whether in the form of or by way
of stock dividends, warrants, partial liquidation, conversion, prepayments or
redemptions (in whole or in part), liquidation, or otherwise, other than cash
dividends. If any of such property, other than such cash dividends, shall come
into the possession or control of Pledgors, Pledgors shall hold or control and
forthwith transfer and deliver the same to Pledgee subject to the provisions
hereof.
9. So long as no default has occurred under any of the Obligations
or Loan Documents and Pledgors are in full compliance with the terms hereof:
4
<PAGE>
(a) Pledgors shall be entitled to receive and retain any normal,
regularly declared cash dividends paid on the Securities pledged hereunder.
(b) Pledgors may exercise all voting rights, if any, pertaining
to the Securities for any purpose not inconsistent with the terms hereof or of
the Obligations or Loan Documents. In the event the Securities have been
transferred into the name of Pledgee or a nominee or nominees of Pledgee prior
to default, Pledgee or its nominee will execute and deliver upon request of
Pledgors an appropriate proxy in order to permit Pledgors to vote, if
applicable, the same.
10. Pledgors shall take all actions (and execute and deliver from
time to time all instruments and documents) reasonably necessary or appropriate
or reasonably requested by Pledgee, to continue the validity, enforceability and
perfected status of the pledge of Securities hereunder.
11. Pledgee shall be under no obligation to take any actions and
shall have no liability (except for gross negligence or willful misconduct) with
respect to the preservation or protection of the pledged Securities or any
underlying interests represented thereby as against any prior or other parties.
In the event Pledgors request that Pledgee take or omit to take action(s) with
respect to the Collateral, Pledgee may refuse so to do with impunity if Pledgors
do not, upon request of Pledgee, post sufficient, creditworthy indemnities with
Pledgee which, in Pledgee's sole discretion, are sufficient to hold it harmless
from any possible liability of any kind in connection therewith.
12. Pledgors agree that Pledgee, at any time and without affecting
its rights in the pledged Securities and without notice to Pledgors, may grant
any extensions, releases or other modifications of any kind respecting the Loan
Documents, Obligations and any collateral security therefor and Pledgors, except
as otherwise provided herein or in the Loan Documents, waive all notices of any
kind in connection with the Obligations, the Loan Documents and any changes
therein or defaults or enforcement proceedings thereunder, whether against
Pledgors or any other party. Pledgors hereby waive any rights it has at equity
or in law to require Pledgee to apply any rights of marshaling or other
equitable doctrines in the circumstances.
13. After the occurrence and during the continuance of an Event of
Default under the Credit Agreement:
(a) Pledgee may transfer or cause to be transferred any of the
pledged Securities into its own or a nominee's or nominees' name or name(s).
(b) Pledgee shall be entitled to receive and apply in payment of
the Obligations any cash dividends, interest or other payment on the pledged
Securities.
(c) Pledgee shall be entitled to exercise in Pledgee's discretion
all voting rights, if any, pertaining thereto and in connection therewith and at
the written request
5
<PAGE>
of Pledgee, Pledgors shall execute any appropriate dividend, payment or
brokerage orders or proxies.
(d) Pledgors shall take any action necessary or required or
reasonably requested by Pledgee, in order to allow Pledgee fully to enforce the
pledge of the Securities hereunder and realize thereon to the fullest possible
extent, including but not limited to the filing of any claims with any court,
liquidator or trustee, custodian, receiver or other like person or party.
(e) Pledgee shall have all the rights and remedies granted or
available to it hereunder, under any statute or the common law, or under any of
the Loan Documents, including the right to sell the pledged Securities or any
portion thereof at one or more public or private sales upon ten (10) days'
written notice and to bid thereat or purchase any part or all thereof in its own
or a nominee's or nominees' names, free and clear of any equity of redemption;
and to apply the net proceeds of the sale, after deduction for any expenses of
sale, including the payment of all Pledgee's reasonable attorneys' fees in
connection with the Obligations and the sale, to the payment of the Obligations
in any manner or order which Pledgee in its sole discretion may elect, without
further notice to or consent of Pledgors and without regard to any equitable
principles of marshaling or other like equitable doctrines.
(f) Pledgee may increase, in its sole discretion, but shall not
be required to do so, the Obligations by making reasonable additional advances
or incurring reasonable expenses for the account of Pledgors deemed appropriate
or desirable by Pledgee in order to protect, enhance, preserve or otherwise
further the sale or disposition of the Collateral or any other property it holds
as security for the Obligations.
14. Pledgors recognize that Pledgee may be unable to effect a sale to
the public of all or part of the Securities by reason of certain prohibitions or
restrictions in applicable securities laws and regulations (herein collectively
called the "Securities Laws"), or the provisions of other laws, regulations or
rulings, but may be compelled to resort to one or more sales to a restricted
group of purchasers who will be required to agree to acquire the Securities for
their own account, for investment and not with a view to the further
distribution or resale thereof without restriction. Pledgors agree that any
sale(s) so made may be at prices and on other terms less favorable to Pledgors
than if the Securities were sold to the public, and that Pledgee has no
obligation to delay sale of the Securities for period(s) of time necessary to
permit the issuer thereof to register the Securities for sale to the public
under any of the Securities Laws. Pledgors agree that negotiated sales whether
for cash or credit made under the foregoing circumstances shall not be deemed
for that reason not to have been made in a commercially reasonable manner.
Pledgors shall cooperate with Pledgee to satisfy any requirements under the
Securities Laws applicable to the sale or transfer of the Securities by Pledgee.
In connection with any sale or disposition of the Collateral, Pledgee
is authorized to comply with any limitation or restriction as it may be advised
by its counsel is
6
<PAGE>
necessary or desirable in order to avoid any violation of applicable law or to
obtain any required approval of the purchasers) by any governmental regulatory
body or officer and it is agreed that such compliance shall not result in such
sale being considered not to have been made in a commercially reasonable manner
nor shall Pledgee be liable or accountable by reason of the fact that the
proceeds obtained at such sale(s) are less than might otherwise have been
obtained at public sale.
Pledgee may elect to obtain the advice of any independent nationally-
known investment banking firm, which is a member firm of the New York Stock
Exchange, with respect to the method and manner of sale or other disposition of
any of the Collateral, the best price reasonably obtainable therefor, the
consideration of cash and/or credit terms, or any other details concerning such
sale or disposition. Pledgee, in its sole discretion, may elect to sell on such
credit terms which it deems reasonable.
15. The powers conferred on Pledgee hereunder are solely to protect
its interest in the Collateral and shall not impose any duty upon it to exercise
any such powers. Except for the safe custody of any Collateral in its possession
and the accounting for monies actually received by it hereunder, Pledgee shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve any right of or against other parties pertaining to any Collateral.
Pledgors agree jointly and severally to indemnify Pledgee and each Secured Party
from and against any and all claims, losses and liabilities growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement) or Pledgee's or any Lender's interest in the Collateral, except
claims, losses or liabilities resulting from such party's gross negligence or
wilful misconduct.
16. The parties agree that this Pledge Agreement shall be governed as
to its validity, interpretation and effect by the internal laws of the
Commonwealth of Pennsylvania without regard to the conflict of laws rules
thereof; and any terms used herein which are defined in the Uniform Commercial
Code as enacted in Pennsylvania shall have the meanings therein set forth.
17. This Pledge Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
18. If Pledgee shall waive any rights or remedies arising hereunder
or under any applicable law, such waiver shall not be deemed to be a waiver upon
the later occurrence or recurrence of any of said events. No delay by Pledgee
in the exercise of any right or remedy shall under any circumstances constitute
or be deemed to be a waiver, express or implied, of the same and no course of
dealing between the parties hereto shall constitute a waiver of Pledgee's rights
or remedies.
19. Pledgor hereby irrevocably appoints Pledgee, effective upon the
occurrence and during the continuation of an Event of Default under the Credit
Agreement, as
7
<PAGE>
its attorney-in-fact to execute, deliver and record, if appropriate, from time
to time any instruments or documents in connection with the Collateral, in
Pledgors or Pledgee's names.
20. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
PLEDGE AGREEMENT OR THE CREDIT AGREEMENT OR OTHER LOAN DOCUMENTS OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS
OF AGENT OR LENDERS. THIS PROVISION IS A MATERIAL INDUCEMENT FOR AGENT'S
ENTERING INTO THIS PLEDGE AGREEMENT ON BEHALF OF THE LENDERS.
21. EACH PLEDGOR ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF
COUNSEL IN THE REVIEW AND EXECUTION OF THIS PLEDGE AGREEMENT AND, SPECIFICALLY,
PARAGRAPH 20 HEREOF, AND FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE
FOREGOING WAIVER OF JURY TRIAL HAVE BEEN FULLY EXPLAINED TO SUCH PLEDGOR BY SUCH
COUNSEL.
22. This Pledge Agreement represents the entire understanding of the
parties with respect to the subject matter and no modification or change herein
shall be effective unless contained in a writing signed by the parties hereto.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Pledge
Agreement under seal as of the day and year first above written.
Attest: MERKERT AMERICAN CORPORATION
By: /s/ Sidney D. Rogers, Jr. By: /s/ Gerald R. Leonard
---------------------------- ---------------------------
Name: Sidney D. Rogers, Jr. Name: Gerald R. Leonard
Title: Secretary Title: President
Attest: MERKERT ENTERPRISES, INC.
By: /s/ Sidney D. Rogers, Jr. By: /s/ Joseph T. Casey
--------------------------- -------------------------
Name: Sidney D. Rogers, Jr. Name: Joseph T. Casey
Title: Secretary Title: Treasurer
Attest: ROGERS-AMERICAN COMPANY, INC.
By: /s/ Sidney D. Rogers, Jr. By: /s/ Douglas H. Holstein
--------------------------- ---------------------------
Name: Sidney D. Rogers, Jr. Name: Douglas H. Holstein
Title: Secretary Title: President
9
<PAGE>
SCHEDULE A
Pledged Securities
------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Percent of
Description of Outstanding
Company Securities Certificate No. No. of Shares Equity
- ----------------- ------------------- --------------- ------------- -------------
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merkert (1) 42 955.6 shares 100%
American Rogers-American
Corporation Company, Inc.
common stock,
par value $1.00
per share
------------------- -------------- -------------- -----------
(2) Merkert C-54 1,721,974 100%
Enterprises, Inc. shares
common stock,
par value $0.01
per share
- -------------------------------------------------------------------------------------
Rogers-American Rogers-American 1 100 shares 100%
Company, Inc. Company of
Florida, Inc.
common stock,
par value $1.00
per share
- -------------------------------------------------------------------------------------
Merkert Merkert 8 61,000 shares 100%
Enterprises, Laboratories,
Inc. Inc. voting
common stock,
par value $0.01
per share
- -------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
SCHEDULE B
Disclosures -- Executive Offices
--------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Company Executive Office Location Mortgage Status
- --------------------------- ------------------------- ------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C>
Merkert American 490 Turnpike Street See Indenture of Mortgage
Corporation Canton, Massachusetts of Merkert Enterprises, Inc.
02021 below (MAC will guarantee
this Indenture)
- --------------------------------------------------------------------------------------
Merkert Enterprises, Inc. 500 Turnpike Street Indenture of Mortgage, Deed
Canton, Massachusetts of Trust, Security
02021 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
- --------------------------------------------------------------------------------------
Rogers-American Company, 7315 Pineville-Matthews Deed of Trust and Security
Inc. Road Agreement, dated as of
Charlotte, North November 2, 1992, and the
Carolina First Amendment to Deed of
28226 Trust, dated November 30,
1998 between Rogers-
American Company, Inc.
and Rexham Industries Corp.
- --------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Exhibit 10.18
GUARANTY AGREEMENT
------------------
THIS GUARANTY AGREEMENT (this "Guaranty"), dated as of December 18,
1998, is made by MERKERT ENTERPRISES, INC., a Massachusetts corporation and
ROGERS-AMERICAN COMPANY, INC., a North Carolina corporation, and ROGERS-AMERICAN
COMPANY OF FLORIDA, INC., a Florida corporation (each individually a "Guarantor"
and individually and collectively, "Guarantors"), in favor of FIRST UNION
NATIONAL BANK, a national banking association, for itself and as agent ("Agent")
and the Lenders under the Credit Agreement described below (the "Lenders").
BACKGROUND
1. Agent and the Lenders have entered into a Credit Agreement dated
of even date herewith (as may be amended from time to time, the "Credit
Agreement") with Merkert American Corporation ("Borrower"), under which the
Lenders have agreed to extend certain credit facilities to the Borrower in
consideration of, inter alia, the covenants and obligations made and assumed by
----- ----
the Guarantors as herein set forth.
2. It is a condition precedent to the extension or continued
extension of certain credit facilities by the Lenders under the Credit Agreement
that each Guarantor shall have executed and delivered to the Lenders this
Guaranty.
3. Each Guarantor is a subsidiary of the Borrower, and each
Guarantor's directors have determined that it is in the best interest of such
Guarantor to execute this Guaranty and that such Guarantor will benefit directly
and indirectly from the execution of this Guaranty.
NOW, THEREFORE, in order to induce the Lenders to extend certain
credit facilities under the Credit Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound, each Guarantor does hereby covenant and agree
with the Lenders as follows:
1. Definitions and Construction. Reference is made to the Credit
----------------------------
Agreement for a statement of the terms thereof. All terms used in this Guaranty
which are defined in the Credit Agreement and not defined herein shall have the
respective meanings ascribed to such terms in the Credit Agreement.
2. Guaranty. Each Guarantor, jointly and severally, absolutely and
--------
unconditionally, guarantees and becomes surety for the full, prompt and punctual
payment to Lenders, as and when due, whether at maturity, by acceleration or
otherwise, of any and all indebtedness, and performance of any and all
liabilities and obligations of Borrower to Lenders or any of them, including,
without limitation, reimbursement obligations under Letters of Credit, created
at any time under, or pursuant to, the terms of the Credit Agreement and the
other Loan Documents whether for principal, interest, premiums, fees, expenses
or otherwise,
<PAGE>
any obligations under interest rate protection agreements, swaps, hedging
contracts or similar arrangements with any Lender (including without limitation,
any swap agreement as defined in 11 U.S.C. (S)101), and any obligations under or
pursuant to any other documents and agreements executed in connection with any
of the foregoing, including any future advances, whether obligatory or
voluntary, or refinancings, renewals or extensions of or substitutions for, any
existing or future debt (all such indebtedness, liabilities and obligations
collectively, the "Obligations"), together with any and all reasonable expenses,
including without limitation attorneys' fees, disbursements and the costs and
expenses of in-house counsel and legal support staff, which may be incurred by
the Lenders in collecting any or all of the Obligations or enforcing any and all
rights against either Guarantor under this Guaranty (the "Expenses"). Without
limiting either Guarantor's obligations hereunder and notwithstanding any
purported termination of this Guaranty, if any bankruptcy, insolvency,
reorganization, arrangement, readjustment, composition, liquidation,
dissolution, assignment for the benefit of creditors, or similar event with
respect to the Borrower or any endorser of all or any of the Obligations shall
occur, and such occurrence shall result in the return of (or in such event any
Lender shall be requested to return) any payment or performance of any of the
Obligations or Expenses, then (a) without further notice, demand or other
action, the obligations of each Guarantor hereunder shall be reinstated with
respect to (i) such payment or performance returned (or requested to be
returned) and (ii) with respect to all further obligations arising as a result
of such return or request, and (b) each Guarantor shall thereupon be liable
therefor, without any obligation on the part of the Lenders to contest or resist
any such return. If a party ceases to be a Lender, then any obligations under
interest rate protection agreements, swaps, hedging contracts or similar
arrangements(including without limitation, any swap agreement as defined in 11
U.S.C. (S)101), with that party prior to the date it ceases to be a Lender shall
continue to be Obligations guaranteed hereunder.
3. Nature and Term of Guaranty.
---------------------------
(a) The obligations and liability of each Guarantor under this
Guaranty shall be joint and several, absolute, primary and direct, irrevocable
and unconditional, regardless of any non-perfection of any collateral security
for the Obligations; any lack of validity or enforceability of the Credit
Agreement, any other Loan Document or any of the Obligations or Expenses; the
voluntary or involuntary liquidation, dissolution, sale or other disposition of
all, or substantially all of the assets, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition with creditors or readjustment of, or
other similar proceedings affecting Borrower, any Guarantor or any other
guarantor or endorser of, any or all of the Obligations and Expenses or any of
the assets of any of them, or any contest of the validity of this Guaranty in
any such proceeding; or any law, regulation or decree now or hereafter in effect
in any jurisdiction which might in any manner affect any of such terms or
provisions or any of the rights of the Lenders with respect thereto or which
might cause or permit the Borrower or any guarantor or endorser of the
Obligations and Expenses to invoke any defense to, or any alteration in the
time, amount or manner of payment of any or all of the Obligations and Expenses
or performance of this Guaranty.
2
<PAGE>
(b) This Guaranty is a continuing guaranty and shall remain in full
force and effect until the Obligations, the Expenses and any and all other
amounts payable hereunder shall have been paid in full in cash and no further
loans or advances are available and no Letters of Credit are outstanding under
the Credit Agreement and the period during which any payment by the Borrower or
either Guarantor is or may be subject to rescission, avoidance or refund under
the United States Bankruptcy Code (or any similar state or federal statute)
shall have expired.
4. Limitation on Amount Guarantied. Anything contained in this Guaranty
-------------------------------
to the contrary notwithstanding, the obligations of each Guarantor hereunder
shall be limited to the lesser of (i) the Obligations and Expenses, or (ii) a
maximum aggregate amount equal to the largest amount that would not render its
obligations hereunder subject to avoidance as a fraudulent transfer or
conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of comparable state law (collectively, the "Fraudulent
Transfer Laws"), if and to the extent each Guarantor (or a trustee on its
behalf) has properly invoked the protections of the Fraudulent Transfer Laws, in
each case after giving effect to all other liabilities of such Guarantor,
contingent or otherwise, that are relevant under the Fraudulent Transfer Laws.
5. Payment in Accordance with Notes and Credit Agreement.
-----------------------------------------------------
(a) Each Guarantor hereby guaranties that the Obligations and Expenses
shall be paid and performed strictly in accordance with the terms of the Loan
Documents.
(i) If any Obligation or Expense is not paid or performed by the
Borrower punctually, subject to any applicable grace period, including without
limitation any Obligation due by acceleration of the maturity thereof, the
Guarantors will, upon Agent's demand (at the direction of Required Lenders, as
defined in the Credit Agreement), immediately pay or perform such Obligation or
Expense or cause the same to be paid or performed. Guarantors will pay to
Lenders, upon demand, all costs and expenses, including the Expenses, which may
be incurred by the Lenders in the collection or enforcement of either
Guarantor's obligations under this Guaranty.
6. Defaults; Rights and Remedies of Banks.
--------------------------------------
(a) An event of default hereunder shall include each of the following:
(i) an Event of Default as defined under any of the Loan
Documents;
(ii) either Guarantor's failure to perform any of its obligations
or duties under this Guaranty; and
3
<PAGE>
(iii) either Guarantor's notice to any Lender that such Guarantor
does not intend to be liable for any future Obligations or Expenses or contests
the validity or enforceability of this Guaranty.
(b) Lenders, or Agent on behalf of Lenders, in their sole discretion,
may proceed to exercise any right or remedy which they may have under this
Guaranty (in accordance with the Credit Agreement) against any Guarantor without
first pursuing or exhausting any rights or remedies which they may have against
the Borrower or against any other person or entity or any collateral security,
and may proceed to exercise any right or remedy which they may have under this
Guaranty (in accordance with the Credit Agreement) without regard to any actions
or omissions of any other person or entity, in any manner or order, without any
obligation to marshal in favor of any Guarantor or other persons or entities and
without releasing any of Guarantors' obligations hereunder with respect to any
unpaid Obligations and Expenses. Upon the occurrence and continuance of an
Event of Default, each Guarantor shall immediately pay, comply with and perform
such of the Obligations and Expenses as Agent, on behalf of Lenders, shall
direct, irrespective of whether the Obligations and Expenses to be paid,
complied with and performed by such Guarantor are those which gave rise to the
Event of Default. No remedy herein conferred upon or reserved to the Lenders or
Agent is intended to be exclusive of any other available remedy or remedies, but
each and every such remedy shall be cumulative and shall be in addition to every
other remedy given under this Guaranty or now or hereafter existing at law or in
equity.
(c) If Borrower or any other person or entity defaults under the Loan
Documents and any Lender is prevented from accelerating payment thereunder,
either by operation of any bankruptcy laws, similar laws or any court order,
such Lender shall be entitled to receive from the Guarantors, upon demand by
Agent on behalf of such Lender (in accordance with the Credit Agreement), the
sums which would have otherwise been due and payable had such acceleration
occurred.
7. Actions by Lenders Not Affecting Guaranty. Lenders may, at any time
-----------------------------------------
or from time to time, in such manner and upon such terms as they may deem
proper, extend or change the time of payment or the manner or place of payment
of, or otherwise modify or waive any of the terms of, or release, exchange,
settle or compromise any or all of the Obligations and Expenses or any
collateral security therefor, or subordinate payment of the same, or any part
thereof, to the payment of any other indebtedness, liabilities or obligations of
the Borrower which may at any time be due or owing to the Lenders or anyone, or
elect not to enforce any of the Lenders' rights with respect to any or all of
the Obligations and Expenses or any collateral security therefor, all without
notice to, or further assent of any Guarantor and without releasing or affecting
any Guarantor's obligations hereunder.
8. Payments Under Guaranty. All payments by Guarantors hereunder shall
-----------------------
be made in immediately available funds and in lawful money of the United States
of America to the Agent at the office of the Agent referred to in Paragraph 2.11
of the Credit Agreement or at such other location as the Agent shall specify by
notice to the Guarantors. All payments by
4
<PAGE>
any Guarantor under this Guaranty shall be made by such Guarantor solely from
such Guarantor's own funds and not from any funds of the Borrower.
9. Modifications and Waivers. No failure or delay on the part of any
-------------------------
Lender or Agent in exercising any power or right under this Guaranty shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power preclude any other or further exercise thereof or the
exercise of any other right or power under this Guaranty. No modification or
waiver of any provision of this Guaranty nor consent to any departure therefrom
shall, in any event, be effective unless the same is in writing signed by the
Lenders (or Required Lenders to the extent applicable under the Credit
Agreement) and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to, or demand
on either Guarantor, in any case, shall entitle such Guarantor to any other or
further notice or demand in similar or other circumstances.
10. Guarantors' Waiver. Each Guarantor hereby waives the following:
------------------
(a) promptness, diligence, presentment, demand, notice of acceptance
and any other notice with respect to any of the Obligations, the Expenses and
this Guaranty, except for such notice as may be expressly required under the
Loan Documents;
(b) any defense or circumstance which might otherwise constitute a
legal or equitable discharge of a Guarantor, including, without limitation, any
obligation of any Lender to proceed against Borrower prior to exercising any
rights hereunder;
(c) any and all right to terminate such Guarantor's obligations and
duties hereunder by delivery or written notice to any Lender or otherwise;
(d) all benefits under any present or future laws exempting any
property, real or personal, or any part of any proceeds thereof, from
attachment, levy or sale under execution, or providing for any stay of execution
to be issued on any judgment recovered under any of the Loan Documents or in any
replevin or foreclosure proceedings, or otherwise providing for any valuation,
appraisal or exemption;
(e) all rights to inquisition on any real estate, which real estate
may be levied upon pursuant to a judgment obtained under any of the Loan
Documents and sold upon any writ of execution issued thereon in whole or in
part, in any order desired by any Lender;
(f) any requirement for bonds, security or sureties required by any
statute, court rule or otherwise; and
(g) any and all procedural errors, defects and imperfections in any
action by Agent or Lenders in replevin, foreclosure or other court process or in
connection with any other action related to any of the Loan Documents or the
transactions contemplated therein.
5
<PAGE>
11. Subordination; Subrogation. Each Guarantor hereby expressly agrees
--------------------------
that it shall not exercise, against any Borrower, other guarantor, maker,
endorser or person (a) any right which such Guarantor may now have or hereafter
acquire by way of subrogation under this Guaranty, by law or otherwise or by way
of reimbursement, indemnity, exoneration, or contribution; (b) any right to
assert defenses as the primary obligor of the Obligations; (c) any other claim
which it now has or may hereafter acquire against any Borrower or any other
person or against or with respect to Borrower's property (including, without
limitation, any property which has been pledged to secure the Obligations); or
(d) any right to enforce any remedy which any Lender may now have or hereafter
acquire against Borrower or any other guarantor, maker or endorser; in any case,
whether any of the foregoing claims, remedies and rights may arise in equity,
under contract, by payment, statute, common law or otherwise until all
Obligations and Expenses have been indefeasibly paid in full in cash. If in
violation of the foregoing any amount shall be paid to any Guarantor on account
of any such rights at any time, such amount shall be held in trust for the
benefit of the Lenders and shall forthwith be paid to the Lenders to be credited
and applied against the Obligations and Expenses, whether matured or unmatured,
in accordance with the terms of the Notes and the Credit Agreement.
12. No Setoff by Guarantors. No setoff, counterclaim, deduction,
-----------------------
reduction, or diminution of any obligation, or any defense of any kind or nature
which either Guarantor has or may have against Borrower or any Lender shall be
available hereunder to either Guarantor.
13. Representations and Warranties. Guarantors hereby represent and
------------------------------
warrant that the representations and warranties set forth in Article 3 of the
Credit Agreement are true and correct in all respects including as applied to
Guarantors.
14. Covenants. Guarantors covenant and agree that, so long as the
---------
Guaranty shall remain in effect, they shall comply in all respects with the
covenants and agreements set forth in the Credit Agreement to the extent such
covenants apply to them, including without limitation, the covenants and
agreements set forth in Articles 5 and 6 thereof.
15. Addresses for Notices. All requests, consents, notices and other
---------------------
communications required or permitted hereunder or in connection herewith shall
be deemed satisfactorily given if in writing and delivered personally or by
registered or certified mail, postage pre-paid, by reliable overnight courier,
or by telecopier to the parties at their respective addresses set forth below or
at such other address as may be given by any party to the other in writing in
accordance with this Section 16:
If to Guarantors:
c/o Merkert American Corporation
490 Turnpike Street
Canton, MA 02021
Attention:
Telecopier:
6
<PAGE>
If to Borrower:
Merkert American Corporation
490 Turnpike Street
Canton, MA 02021
Attention:
Telecopier:
If to Agent:
First Union National Bank
1345 Chestnut Street
PA 4843
Philadelphia, PA 19107
Attention: Robert A. Brown
Telecopier: (215) 786-2877
16. Continuing Guaranty; Transfer of Notes. This Guaranty is a continuing
--------------------------------------
guaranty and shall (i) remain in full force and effect until the Obligations,
the Expenses and all other amounts payable under this Guaranty shall have been
paid in full and the period during which any payment Borrower or Guarantors is
or may be subject to avoidance or refund under the United States Bankruptcy Code
(or any similar statute) shall have expired, (ii) be binding upon each
Guarantor, successors and assigns of each Guarantor, and (iii) inure to the
benefit of, and be enforceable by the Lenders and Agent and their respective
successors, transferees and assigns in accordance with Paragraph 9.2 of the
Credit Agreement. Without limiting the generality of the foregoing clause
(iii), the Lenders may endorse, assign or otherwise transfer the Obligations to
any other person or entity in accordance with the provisions of the Credit
Agreement, and such other person or entity shall thereupon become vested with
all the rights in respect thereof granted to the Lenders herein or otherwise.
17. Entire Agreement. This Guaranty constitutes the entire agreement, and
----------------
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
18. Severability.
------------
(a) The invalidity or unenforceability of any one or more portions of
this Guaranty shall not affect the validity or enforceability of the remaining
portions of this Guaranty.
(b) The Guarantors and the Lenders agree that in an action or
proceeding involving any state or federal bankruptcy, insolvency or other law
affecting the rights of creditors generally:
7
<PAGE>
(i) If any clause or provision shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction and shall not in any manner affect such clause or provision in
any other jurisdiction, or any other clause or provision in this Guaranty in any
jurisdiction, or any other clause or provision in this Guaranty in any
jurisdiction.
(ii) If the guaranty hereunder by either Guarantor would be
held or determined to be void, invalid or unenforceable on account of the amount
of its aggregate liability under this Guaranty, then, notwithstanding any other
provision of this Guaranty to the contrary, the aggregate amount of such
liability shall, without any further action by any of the Guarantors, the
Lenders or any other person, be automatically limited and reduced to the highest
amount which is valid and enforceable as determined in action or proceeding.
(iii) If any other guaranty by any one or more other Guarantor
is held or determined to be void, invalid or unenforceable, in whole or in part,
such holding or determination shall not impair or affect:
(A) the validity and enforceability of the guaranty
hereunder by either Guarantor, which shall continue in full force and effect in
accordance with its terms; or
(B) the validity and enforceability of any clause or
provision not so held to be void, invalid or unenforceable.
19. Counterparts. This Guaranty may be executed by Guarantors in several
------------
separate counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
20. Governing Law. This Guaranty shall be deemed to be a contract under
-------------
the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed in accordance with such laws.
21. Consent to Jurisdiction and Service of Process. Each Guarantor
----------------------------------------------
irrevocably appoints each officer of Borrower and Guarantors as its attorney
upon whom may be served any notice, process or pleading in any action or
proceeding against it arising out of or in connection with this Guaranty, the
Loan Documents or any of the Collateral; each Guarantor hereby consents that any
action or proceeding against it be commenced and maintained in any court within
the Commonwealth of Pennsylvania or in the United States District Court for the
Eastern District of Pennsylvania by service of process on any officer of
Borrower or Guarantors; and each Guarantor agrees that the courts of the
Commonwealth of Pennsylvania and the United States District Court for the
Eastern District of Pennsylvania shall have jurisdiction with respect to the
subject matter hereof and the person of each Guarantor and the Collateral.
Notwithstanding the foregoing, Agent, in its absolute discretion, may also
initiate
8
<PAGE>
proceedings in the courts of any other jurisdiction in which either Guarantor
may be found or in which any of its properties or Collateral may be located.
22. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY,
--------------------
VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS GUARANTY OR OTHER LOAN DOCUMENTS OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF AGENT OR
LENDERS. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDERS' ENTERING INTO
THIS AGREEMENT.
23. ACKNOWLEDGMENTS. GUARANTORS ACKNOWLEDGE THAT THEY HAVE HAD THE
---------------
ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS GUARANTY AND,
SPECIFICALLY, PARAGRAPH 22 HEREOF, AND FURTHER ACKNOWLEDGES THAT THE MEANING AND
EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL HAVE BEEN FULLY EXPLAINED TO
GUARANTORS BY SUCH COUNSEL.
9
<PAGE>
IN WITNESS WHEREOF, the undersigned, by their duly authorized
officers, as applicable, have executed this Guaranty the day and year first
above written.
Attest: MERKERT ENTERPRISES, INC.
By: /s/ Sidney D. Rogers, Jr. By: /s/ Joseph T. Casey
---------------------------- ----------------------
Name: Sidney D. Rogers, Jr. Name: Joseph T. Casey
Title: Secretary Title: Treasurer
Attest: ROGERS-AMERICAN COMPANY, INC.
By: /s/ Sidney D. Rogers, Jr. By: /s/ Douglas H. Holstein
---------------------------- -------------------------
Name: Sidney D. Rogers, Jr. Name: Douglas H. Holstein
Title: Secretary Title: President
Attest: ROGERS-AMERICAN COMPANY OF
FLORIDA, INC.
By: /s/ Sidney D. Rogers, Jr. By: /s/ Douglas H. Holstein
---------------------------- --------------------------
Name: Sidney D. Rogers, Jr. Name: Douglas H. Holstein
Title: Secretary Title: President
10
<PAGE>
EXHIBIT 10.20
AMENDMENT NO. 1 TO INDENTURE
----------------------------
This Amendment No. 1 to Indenture (this "First Amendment"), dated as of
---------------
December 18, 1998, between MERKERT ENTERPRISES, INC. (together with its
permitted successors and assigns, referred to herein as "Owner") and CORPORATE
REAL ESTATE CAPITAL, LLC, a Delaware limited liability company (together with
its successors and assigns, "Lender").
------
PRELIMINARY STATEMENT
Pursuant to that certain Loan Agreement dated as of February 13, 1998,
between Owner and Lender, Lender made a Loan to Owner in the amount of
$9,500,000, which Loan is evidenced by the Note and is 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 February 13, 1998 between Owner and Lender as mortgagee, as provided therein
(the "Original Indenture"). Capitalized terms used but not defined herein shall
------------------
have the meaning ascribed to them in the Original Indenture.
The parties hereto desire to amend the Original Indenture, in accordance
with the terms of this First Amendment. The Original Indenture, as amended by
this First Amendment, is hereinafter referred to as the "Indenture".
---------
Owner desires to transfer 100% of the Equity Interest to Merkert American
Corporation ("MAC") in connection with the acquisition (the "Acquisition") of
--- -----------
Owner by MAC and MAC shall guaranty Owner's obligations under the Indenture.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter set
forth, the parties hereby agree as follows:
1. Indenture Amendments. Owner and Lender hereby agree that the Original
--------------------
Indenture is hereby amended as follows:
(1) Article I is hereby amended by adding the following definitions
immediately before the definition of "Hazardous Substance":
-------------------
"Guarantor" shall mean Merkert American Corporation, a Delaware
---------
corporation, together with its permitted successors and assigns by
merger, consolidation or acquisition of its assets substantially as an
entirety.
<PAGE>
2
"Guaranty" shall mean that certain Guaranty, dated as of December
--------
18, 1998, made by Guarantor for the benefit of Lender.
(2) Clause (Y) of Section 2.11 is hereby deleted in its entirety and
the following substituted therefor:
(Y) a duly authorized undertaking of each of (i) 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 (ii)
Guarantor stating that the Guarantor will remain obligated under the
Guaranty in accordance with its terms.
(3) Section 4.1 is hereby amended by (i) deleting the period at the
end of subparagraph (k) thereof and inserting in its place a semi-colon and (ii)
adding the following after such subparagraph:
(1) if Guarantor shall dissolve or otherwise fail to maintain its
legal existence (except as permitted by Section 10 of the
Guaranty); or fail to comply with the provisions of Section 10 of
the Guaranty;
(m) if any representation or warranty made in the Guaranty or any
other document, report, certificate, financial statement or other
instrument, agreement or document furnished by Guarantor in
connection with the Guaranty executed and delivered by Guarantor
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;
(n) if Guarantor (or any entity with whom Guarantor'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
Guarantor or such entity, or if Guarantor 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;
(o) if any Bankruptcy Proceeding shall have been filed against
Guarantor (or any entity with whom Guarantor's assets would
ordinarily be consolidated in such proceeding), and the same is
not withdrawn,
<PAGE>
3
dismissed, canceled or terminated within ninety (90) days after
the date of such filing;
(p) if a receiver, liquidator or trustee shall be appointed for
Guarantor or if Guarantor 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, Guarantor, if any, or if any proceeding for
the dissolution or liquidation of Guarantor, 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;
(q) if default by Guarantor shall be made in the due observance
or performance of any covenant or agreement contained in the
Guaranty or any other document, report, certificate, financial
statement or other instrument, agreement or document delivered by
Guarantor pursuant to the Guaranty in each case after taking into
account any grace period contained therein;
(r) if Owner shall fail to (i) pay or cause to be paid in full on
or before December 18, 1998 to the Internal Revenue Service (the
"IRS") and the Massachusetts Department of Revenue (the "DOR")
--- ---
the outstanding tax liability of Owner for tax years 1992, 1993
and 1994 equal to $15,349,244 pursuant to its settlement
agreement with the IRS, (ii) escrow or cause to be escrowed
$1,700,000 on or before December 18, 1998, such funds to be
released for the payment to the IRS and DOR of outstanding tax
lability owed by Owner for, tax years 1995, 1996 and 1997, and
(iii) cause the release on or before December 18, 1998 of related
tax liens, if any; or
(s) if any representation or warranty made in any amendment
hereto or in any report, certificate, financial statement or
other instrument, agreement or document furnished by Owner in
connection with such amendment, 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.
(4) Section 4.2 is hereby amended by adding the following subparagraph
after subparagraph (h) thereof:
<PAGE>
4
(i) In addition to any rights and remedies of Lender contained
in this Section 4.2, Lender may pursue any other rights and remedies under
the Guaranty permitted by law or equity.
2. No Other Amendments. Except as expressly amended by this First
-------------------
Amendment, the Original Indenture shall continue in full force and effect and is
confirmed and ratified
hereby.
3. Representations and Warranties; Confirmation.
--------------------------------------------
(1) The representations, warranties, covenants and certifications of
Owner contained in the Original Indenture and in the Owner's Certificate and any
other certificate delivered by Owner in connection with Section 2.16 of the
Indenture are true and correct in all materials respects on the date hereof as
if made on the date hereof.
(2) Owner certifies that (i) the aggregate payment of $15,349,244 to
the IRS and DOR represents the full and final payment of all liabilities of
Owner due and owing or delinquent to such governmental entities for tax years
1992, 1993 and 1994 and (ii) that $1,700,000 represents the reasonable estimate
of Owner of tax liabilities of Owner to the IRS and the DOR for tax years 1995,
1996 and 1997.
(3) Owner ratifies and confirms all of the obligations and duties of
Owner contained in the Loan Documents to which it is a party.
4. Miscellaneous.
-------------
(1) This First Amendment may be executed in any number of counterparts
and by different parties hereto on separate counterparts, each of which shall be
deemed to be an original. Such counterparts shall constitute but one and the
same agreement.
(2) This First Amendment shall be governed by the laws of the
Commonwealth of Massachusetts.
(3) Owner shall reimburse Lender for the reasonable fees and expenses
of its counsel in connection with this First Amendment.
[The remainder of this page intentionally left blank]
<PAGE>
5
IN WITNESS WHEREOF, the following parties have caused this First Amendment
to be duly executed as of the day and year first written above.
MERKERT ENTERPRISES, INC.
By: /s/ Sidney D. Rogers, Jr.
-------------------------
Name: Sidney D. Rogers, Jr.
Title: Clerk
By: /s/ Joseph T. Casey
-------------------
Name: Joseph T. Casey
Title: Chief Financial Officer
CORPORATE REAL ESTATE CAPITAL, LLC, a
Delaware limited liability company
By: SECURED CRC CORP., Manager
By:/s/ Michael Lesser
------------------
Name: Michael Lesser
Title: Vice President
<PAGE>
6
ACKNOWLEDGMENT
--------------
COMMONWEALTH OF MASSACHUSETTS
Suffolk- ss
On this 18th day of December, 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 Clerk 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/ Tricia J. Walker
------------------------------
Name: Tricia J. Walker
Title:
Commission Expires On: June 25, 2004
ACKNOWLEDGMENT
--------------
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss
On this 18th day of December, 1998, before me appeared Joseph T. Casey ,
-------------------
to me personally known, who, being by me duly sworn (or affirmed), did say that
(s)he is the Chief Financial Officer 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
Joseph T. Casey acknowledged said instrument to be the free act and deed
- -------------------
of said corporation.
/s/ Tricia J. Walker
------------------------------
Name: Tricia J. Walker
Title:
Commission Expires On: June 25, 2004
<PAGE>
7
ACKNOWLEDGMENT
--------------
STATE OF California
COUNTY OF Los Angeles
On this 17th day of December, 1998, before me appeared Michael Lesser ,
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of Secured CRC Corp., Manager of Corporate Real Estate Capital, LLC, a Delaware
limited liability company, to me personally known, who, being by me duly sworn
(or affirmed), did say that (s)he is the Vice President of Secured
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CRC Corp. and acknowledged the execution of the foregoing instrument to be
his/her free act and deed as the Vice President of Secured CRC Corp.,
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Manager of Corporate Real Estate Capital, LLC and acknowledged the execution of
the foregoing instrument to be the free act and deed of Corporate Real Estate
Capital, LLC.
(SEAL) /s/ Carol Zaiger
-----------------------------
Name: Carol Zaiger
Title: Notary Public
Commission expires 2-4-00
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EXHIBIT 10.29
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This AGREEMENT (the "Agreement") is made as of December 18, 1998 (the
"Effective Date"), by and between Merkert American Corporation, a Delaware
corporation (the "Employer"), and Gerald R. Leonard (the "Executive"). In
consideration of the mutual covenants contained in this Agreement, the Employer
and the Executive agree as follows:
1. Employment. The Employer agrees to employ the Executive and the
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Executive agrees to be employed by the Employer on the terms and conditions set
forth in this Agreement.
2. Capacity. The Executive shall serve the Employer as Chief Executive
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Officer and President, subject to election by the Board of Directors of the
Employer (the "Board of Directors") or in such other or additional offices as
the Executive may be requested to serve by the Board of Directors or the Chief
Executive Officer. In such capacity or capacities, the Executive shall perform
such services and duties in connection with the business, affairs and operations
of the Employer as may be assigned or delegated to the Executive from time to
time by or under the authority of the Board of Directors or the Chief Executive
Officer.
3. Term. Subject to the provisions of Section 6, the term of employment
----
pursuant to this Agreement shall be three (3) years from the Effective Date (the
"Initial Term") and shall continue from month to month thereafter (the "Extended
Term"), subject to either party's thirty (30) day advance notice of non-renewal
(a "Non-renewal Notice").
4. Compensation and Benefits. The regular compensation and benefits
-------------------------
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under this
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Agreement, the Employer shall pay the Executive a salary (the "Salary") at
the annual rate of FOUR HUNDRED THOUSAND DOLLARS ($400,000), subject to
increase from time to time in the discretion of the Board of Directors or
the Compensation Committee of the Board of Directors (the "Compensation
Committee"). The Salary shall be payable in periodic installments in
accordance with the Employer's usual practice for its senior executives.
(b) Bonus. Beginning with the fiscal year ending December 31, 1998,
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the Executive shall be entitled to participate in an annual incentive
program established by the Board of Directors or the Compensation Committee
with such terms as may be established in the sole discretion of the Board
of Directors or Compensation Committee.
(c) Regular Benefits. From and after the commencement of the Initial
----------------
Term, the Executive shall continue to participate in such employee benefit
plans of
<PAGE>
Merkert Enterprises, Inc. in which the Executive participated prior to the
acquisition of Merkert Enterprises, Inc. and which may have been adopted or
assumed by the Employer in its sole discretion (the "Predecessor Plans").
The Executive may continue to participate in each such Predecessor Plan, in
accordance with and subject to each such Predecessor Plan's terms and
conditions, as may be modified or amended from time to time by the
Employer, until such time as the Employer terminates any such Predecessor
Plan. Thereafter, the Executive shall be entitled to participate in any
employee benefit plans, including, without limitation, medical insurance
plans, life insurance plans, disability income plans, retirement plans, and
other benefit plans, which the Employer may from time to time have in
effect for all or most of its senior executives. During the Initial Term,
the Employer shall provide the Executive with medical insurance coverage
that is substantially equivalent to the medical insurance coverage
applicable to the Executive immediately prior to the acquisition of Merkert
Enterprises, Inc. The Executive's participation in any employee benefit
plan shall at all times be subject to the terms of the applicable plan
documents, generally applicable policies of the Employer, applicable law
and the discretion of the Board of Directors, the Compensation Committee or
any administrative or other committee provided for in or contemplated by
any such plan. Nothing contained in this Agreement shall be construed to
create any obligation on the part of the Employer to establish any such
plan or to maintain the effectiveness of any such plan which may be in
effect from time to time.
(d) Other Benefits and Perquisites.
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(i) Expenses. The Employer shall reimburse the Executive for
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expenses reasonably incurred by the Executive in furtherance of
his duties for the Employer hereunder. The Employer's obligation
to reimburse the Executive for such expenses shall be subject to
the Employer's expense reimbursement policies, as established,
modified or amended by the Employer from time to time, and the
submission by the Executive of documentation in a form acceptable
to the Employer.
(ii) Automobile. During the Initial Term, the Executive shall be
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entitled to use an automobile supplied by the Employer and to
receive reimbursement from the Employer for business-related
automobile expenses to the extent that and subject to
substantially equivalent terms and conditions on which Merkert
Enterprises, Inc. provided such benefits to the Executive
immediately prior to the acquisition of Merkert Enterprises, Inc.
(iii) Vacation. The Executive shall be entitled to accrue on a
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pro rata basis up to four (4) weeks of paid vacation per year.
The Executive's entitlement to carry-over unused vacation from
year to year shall be subject to vacation policies established,
and as modified or amended, from time to time by the Employer;
provided, that nothing contained herein shall be construed to
require the Employer to permit the carry-over of unused vacation.
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<PAGE>
(e) Taxation of Payments and Benefits. The Employer shall undertake
---------------------------------
to make deductions, withholdings and tax reports with respect to payments
and benefits under this Agreement to the extent that it reasonably and in
good faith believes that it is required to make such deductions,
withholdings and tax reports. Payments under this Agreement shall be in
amounts net of any such deductions or withholdings. Nothing in this
Agreement shall be construed to require the Employer to make any payments
to compensate the Executive for any adverse tax effect associated with any
payments or benefits or for any deduction or withholding from any payment
or benefit.
(f) Exclusivity of Salary and Benefits. The Executive shall not be
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entitled to any payments or benefits other than those provided under this
Agreement.
5. Extent of Service. During the Executive's employment under this
-----------------
Agreement, the Executive shall, subject to the direction and supervision of the
Board of Directors or the Chief Executive Officer, devote the Executive's full
business time, best efforts and business judgment, skill and knowledge to the
advancement of the Employer's interests and to the discharge of the Executive's
duties and responsibilities under this Agreement. The Executive shall not
engage in any other business activity, except as may be approved by the Board of
Directors; provided that nothing in this Agreement shall be construed as
preventing the Executive from:
(a) investing the Executive's assets in any company or other entity in
a manner not prohibited by Section 7(d) and in such form or manner as shall
not require any material activities on the Executive's part in connection
with the operations or affairs of the companies or other entities in which
such investments are made; or
(b) engaging in religious, charitable or other community or non-profit
activities that do not impair the Executive's ability to fulfill the
Executive's duties and responsibilities under this Agreement.
6. Termination and Termination Benefits. Notwithstanding the provisions
------------------------------------
of Section 3, the Executive's employment under this Agreement shall terminate
under the following circumstances set forth in this Section 6.
(a) Termination by the Employer for Cause. The Executive's employment
-------------------------------------
under this Agreement may be terminated for cause without further liability
on the part of the Employer effective immediately upon a vote of the Board
of Directors and written notice to the Executive. Only the following shall
constitute "cause" for such termination:
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<PAGE>
(i) dishonest statements or acts of the Executive with respect to
the Employer or any affiliate of the Employer which constitute
material disloyalty or dishonesty toward the Employer or any affiliate
of the Employer or cause significant damage to the Employer or any
affiliate of the Employer, including damage to the business reputation
of the Employer or any affiliate of the Employer;
(ii) the commission by or indictment of the Executive for (A) a
felony or (B) any misdemeanor involving moral turpitude, deceit,
dishonesty or fraud ("indictment," for these purposes, meaning an
indictment, probable cause hearing or any other procedure pursuant to
which an initial determination of probable or reasonable cause with
respect to such offense is made);
(iii) subject to the provisions of subsection (e) below, failure
to perform to the reasonable satisfaction of the Board of Directors a
substantial portion of the Executive's duties and responsibilities
reasonably assigned or delegated under this Agreement, which failure
continues, in the reasonable judgment of the Board of Directors, after
written notice given to the Executive by the Board of Directors;
(iv) gross negligence, willful misconduct or insubordination of
the Executive with respect to the Employer or any affiliate of the
Employer which is repeated or continued by the Executive, in the
reasonable judgment of the Board of Directors, after written notice
given to the Executive by the Board of Directors; or
(v) material breach by the Executive of any of the Executive's
material obligations under this Agreement, which breach is repeated or
continued by the Executive, in the reasonable judgment of the Board of
Directors, after written notice given to the Executive by the Board of
Directors.
(b) Termination by the Executive. The Executive's employment under
----------------------------
this Agreement may be terminated by the Executive by written notice to the
Board of Directors at least thirty (30) days prior to such termination.
(c) Termination by the Employer Without Cause. Subject to the payment
-----------------------------------------
of Termination Benefits pursuant to Section 6(d), the Executive's
employment under this Agreement may be terminated by the Employer without
cause upon written notice to the Executive of a vote by the Board of
Directors to terminate delivered to the Executive at least thirty (30) days
prior to such termination, provided that, the Employer, in its sole
discretion, may elect to earlier terminate the Executive without such
notice upon payment to the Executive of additional compensation for the
number days by which thirty (30) exceeds the number of days by which such
notice preceded the date of such termination.
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<PAGE>
(d) Certain Termination Benefits. Unless otherwise specifically
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provided in this Agreement or otherwise required by law, all compensation
and benefits payable to the Executive under this Agreement shall terminate
on the date of termination of the Executive's employment under this
Agreement pursuant to this Section 6 or due to delivery of a Non-renewal
Notice from either party to the other. Notwithstanding the foregoing, in
the event of termination of the Executive's employment with the Employer
pursuant to Section 6(c) above, the Employer shall provide to the Executive
the following termination benefits ("Termination Benefits"):
(i) continuation of the Salary at the rate then in effect
pursuant to Section 4(a);
(ii) continuation of group health plan benefits, (A) if permitted
by Employer's health plan or if Employer self-insures (provided
that Employer shall have no obligation to self-insure), until the
expiration of the Initial Term, or (B) if not permitted by
Employer's health plan, to the extent authorized by and
consistent with 29 U.S.C (S) 1161 et seq. (commonly known as
"COBRA"), in either case with the cost of the regular premium for
such benefits shared in the same relative proportion by the
Employer and the Executive as in effect on the date of
termination; and
(iii) continuation of automobile benefits as in effect on the
date of termination pursuant to Section 4(d)(ii).
The Termination Benefits set forth in (i) above shall continue effective
until the later of (A) the expiration of the Initial Term or (B) for twelve
months from the date of termination of employment, provided that the Executive
shall not have materially breached, (1) as of the date of termination, any of
his or her covenants or agreements contained in Sections 7 and 8 of this
Agreement or (2) thereafter, any of his or her covenants or agreements contained
in this Agreement. The Termination Benefits set forth in (ii) and (iii) above
shall continue effective until the expiration of the Initial Term, provided that
the Executive shall not have materially breached, (x) as of the date of
termination, any of his or her covenants or agreements contained in Section 7
and 8 of this Agreement or (y) thereafter, any of his or her covenants or
agreements contained in this Agreement. Notwithstanding the foregoing, nothing
in this Section 6(d) shall be construed to affect the Executive's right to
receive COBRA continuation entirely at the Executive's own cost to the extent
that the Executive may continue to be entitled to COBRA continuation after the
Executive's right to cost sharing under Section 6(d)(ii) ceases.
(e) Disability. Notwithstanding the provisions of subscription
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(a)(iii) below, if the Executive shall be disabled so as to be unable to
perform the essential functions of the Executive's then existing position
or positions under this Agreement with or without reasonable accommodation,
the Chief Executive Officer or the Board of
5
<PAGE>
Directors may remove the Executive from any responsibilities and/or
reassign the Executive to another position with the Employer for the
remainder of the Initial Term or, if the Initial Term has expired, any
Extended Term, or during the period of such disability. Notwithstanding any
such removal or reassignment, the Executive shall continue to receive the
Executive's full Salary (less any disability pay or sick pay benefits to
which the Executive may be entitled under the Employer's policies) and
benefits under Section 4 of this Agreement (except to the extent that the
Executive may be ineligible for one or more such benefits under applicable
plan terms) for a period of time equal to the remainder of the Initial Term
or, if the Initial Term has expired, any Extended Term, provided that the
Executive remains employed by the Employer during such period. In the event
that the Employer terminates the Executive's employment without cause
pursuant to Section 6(c) or the Employer delivers a Non-renewal Notice to
the Executive, in either case due to the Executive's continuing inability
to perform the essential functions of the Executive's then existing
position or positions, the Executive shall be eligible to receive
Termination Benefits subject to and in accordance with the terms and
conditions of Section 6(d), provided that the Executive's Termination
Benefit additionally shall be subject to reduction by the amount of any
payments the Executive receives under any disability benefit plan or plans
or insurance policies the Employer maintains for the Executive, or under
worker's compensation, or state or federal disability benefit programs. If
any question shall arise as to whether during any period the Executive is
disabled so as to be unable to perform the essential functions of the
Executive's then existing position or positions with or without reasonable
accommodation, the Executive may, and at the request of the Employer shall,
submit to the Employer a certification in reasonable detail by a physician
selected by the Employer to whom the Executive or the Executive's guardian
has no reasonable objection as to whether the Executive is so disabled or
how long such disability is expected to continue, and such certification
shall for the purposes of this Agreement be conclusive of the issue. The
Executive shall cooperate with any reasonable request of the physician in
connection with such certification. If such question shall arise and the
Executive shall fail to submit such certification, the Employer's
determination of such issue shall be binding on the Executive. Nothing in
this Section 6(e) shall be construed to waive the Executive's rights, if
any, under existing law including, without limitation, the Family and
Medical Leave Act of 1993, 29 U.S.C. (S)2601 et seq. and the Americans with
Disabilities Act, 42 U.S.C. (S)12101 et seq.
7. Confidential Information, Noncompetition and Cooperation.
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(a) Confidential Information. As used in this Agreement,
------------------------
"Confidential Information" means information belonging to the Employer
which is of value to the Employer in the course of conducting its business
and the disclosure of which could result in a competitive or other
disadvantage to the Employer. Confidential Information includes, without
limitation, financial information, reports, and forecasts; market or sales
information, plans, methods and techniques; pricing policies; customer
lists; price lists; inventions, improvements and other intellectual
property; trade secrets;
6
<PAGE>
know-how; designs, processes or formulae; software; and business plans,
prospects and opportunities (such as possible acquisitions or dispositions
of businesses or facilities) which have been discussed or considered by the
management of the Employer. Confidential Information includes information
developed by the Executive in the course of the Executive's employment by
the Employer, as well as other information to which the Executive may have
access in connection with the Executive's employment. Confidential
Information also includes the confidential information of others with which
the Employer has a business relationship, including without limitation its
principals, packers and suppliers. Notwithstanding the foregoing,
Confidential Information does not include information in the public domain,
unless due to breach of the Executive's duties under Section 7(b).
(b) Confidentiality. The Executive understands and agrees that the
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Executive's employment creates a relationship of confidence and trust
between the Executive and the Employer with respect to all Confidential
Information. At all times, both during the Executive's employment with the
Employer and after its termination, the Executive will keep in confidence
and trust all such Confidential Information, and will not use or disclose
any such Confidential Information without the written consent of the
Employer, except as may be necessary in the ordinary course of performing
the Executive's duties to the Employer.
(c) Documents, Records, etc. All documents, records, data, apparatus,
------------------------
equipment and other physical property, whether or not pertaining to
Confidential Information, which are furnished to the Executive by the
Employer or are produced by the Executive in connection with the
Executive's employment will be and remain the sole property of the
Employer. The Executive will return to the Employer all such materials and
property as and when requested by the Employer. In any event, the
Executive will return all such materials and property immediately upon
termination of the Executive's employment for any reason. The Executive
will not retain with the Executive any such material or property or any
copies thereof after such termination.
(d) Noncompetition and Nonsolicitation. During the Initial Term and
----------------------------------
any Extended Term(s) and for one (1) year thereafter (or during the period
during which the Executive is entitled to receive Termination Benefits, if
longer) (the "Restricted Period"), the Executive (i) will not, directly or
indirectly, whether as owner, partner, shareholder, advisor, consultant,
agent, employee, co-venturer, creditor, officer, director, trustee or
otherwise, engage, participate, assist or invest in any Restricted Business
within the Territory (as those terms are hereinafter defined); (ii) will
refrain from directly or indirectly employing, attempting to employ,
recruiting or otherwise soliciting, inducing or influencing any person to
leave employment with the Employer (other than terminations of employment
of subordinate employees undertaken in the course of the Executive's
employment with the Employer); and (iii) will refrain from soliciting or
encouraging any principal, customer or supplier to terminate or otherwise
modify adversely its business relationship with the Employer. The
Executive
7
<PAGE>
understands that the restrictions set forth in this Section 7(d) are
intended to protect the Employer's interest in its Confidential Information
and established employee, customer and supplier relationships and goodwill,
and agrees that such restrictions are reasonable and appropriate for this
purpose.
For purposes of this Agreement, the term "Restricted Business" shall mean
any business which is competitive with:
(A) any business conducted by the Employer on the date of the
termination of Executive's employment with the Employer, and
(B) any business conducted by the Employer within the twelve (12)
month period immediately preceding the termination of Executive's
employment with the Employer, and
(C) any business the Employer actively considered entering within
twelve (12) months preceding the date of the termination of
Executive's employment with the Employer if the Executive had
knowledge of such consideration and the Employer in fact commences
conducting such business during the Restricted Period.
Notwithstanding the foregoing, the Executive may own up to one percent
(1%) of the outstanding stock of a publicly held corporation which
constitutes or is affiliated with a Restricted Business.
For purposes of this Agreement, the term "Territory" shall mean:
(A) any geographic area in which the Employer engaged in business and
for which the Executive had any responsibility at the time of the
termination of the Executive's employment or within the twelve (12)
month period preceding termination, and
(B) any geographic area in which the Employer engaged in business at
the time of the termination of the Executive's employment or within
the twelve (12) month period preceding termination, and
(C) any geographic area in which the Employer actively considered
conducting business within twelve (12) months preceding the date of
the termination of Executive's employment with the Employer if the
Executive had knowledge of such consideration and the Employer in fact
commences conducting business therein during the Restricted Period.
The parties acknowledge and agree that for purpose of this Section 7,
the term "Employer" includes the Employer, its related and affiliated
entities, and their respective predecessors, successors and assigns.
8
<PAGE>
(e) Principals and Customers. For purposes of construing the
------------------------
provisions of this Section 7, any and all persons, firms and entities for
whom the Employer performs services, to whom the Employer sells or from
whom the Employer solicits and obtains orders, in the course of its
business, are and shall be deemed the principals and/or customers of the
Employer (or its principals), both during and after the Term,
notwithstanding the fact that some or all of said persons, firms or
entities may have been induced to give their business to the Employer by
the solicitation by the Executive, or by someone on his or her behalf,
either during the usual working hours of the Executive or otherwise, and
notwithstanding the fact that all or some of such persons, firms or
entities may have previously been principals or customers of (i) the
Executive, (ii) any corporation or other entity with which the Executive
was formerly employed or which was controlled or owned, in whole or in
part, by the Executive, or (iii) any principal of such corporation or
entity.
(f) Third-Party Agreements and Rights. The Executive hereby confirms
---------------------------------
that the Executive is not bound by the terms of any agreement with any
previous employer or other party which restricts in any way the Executive's
use or disclosure of information or the Executive's engagement in any
business. The Executive represents to the Employer that the Executive's
execution of this Agreement, the Executive's employment with the Employer
and the performance of the Executive's proposed duties for the Employer
will not violate any obligations the Executive may have to any such
previous employer or other party. In the Executive's work for the
Employer, the Executive will not disclose or make use of any information in
violation of any agreements with or rights of any such previous employer or
other party, and the Executive will not bring to the premises of the
Employer any copies or other tangible embodiments of non-public information
belonging to or obtained from any such previous employment or other party.
(g) Litigation and Regulatory Cooperation. During and after the
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Executive's employment, the Executive shall cooperate fully with the
Employer in the defense or prosecution of any claims or actions now in
existence or which may be brought in the future against or on behalf of the
Employer which relate to events or occurrences that transpired while the
Executive was employed by the Employer. The Executive's full cooperation
in connection with such claims or actions shall include, but not be limited
to, being available to meet with counsel to prepare for discovery or trial
and to act as a witness on behalf of the Employer at mutually convenient
times. During and after the Executive's employment, the Executive also
shall cooperate fully with the Employer in connection with any
investigation or review of any federal, state or local regulatory authority
as any such investigation or review relates to events or occurrences that
transpired while the Executive was employed by the Employer. The Employer
shall reimburse the Executive for any reasonable out-of-pocket expenses
incurred in connection with the Executive's performance of obligations
pursuant to this Section 7(g).
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<PAGE>
(h) Injunction. The Executive agrees that it would be difficult to
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measure any damages caused to the Employer which might result from any
breach by the Executive of the promises set forth in this Section 7, and
that in any event money damages would be an inadequate remedy for any such
breach. Accordingly, subject to Section 8 of this Agreement, the Executive
agrees that if the Executive breaches, or proposes to breach, any portion
of this Agreement, the Employer shall be entitled, in addition to all other
remedies that it may have, to an injunction or other appropriate equitable
relief to restrain any such breach without showing or proving any actual
damage to the Employer.
8. Arbitration of Disputes. Any controversy or claim arising out of or
-----------------------
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in Boston, Massachusetts in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the rules and
procedures applicable to the selection of arbitrators. In the event that any
person or entity other than the Executive or the Employer may be a party with
regard to any such controversy or claim, such controversy or claim shall be
submitted to arbitration subject to such other person or entity's agreement.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. This Section 8 shall be specifically enforceable.
Notwithstanding the foregoing, this Section 8 shall not preclude either party
from pursuing a court action for the sole purpose of obtaining a temporary
restraining order or a preliminary injunction in circumstances in which such
relief is appropriate; provided that any other relief shall be pursued through
an arbitration proceeding pursuant to this Section 8.
9. Consent to Jurisdiction. To the extent that any court action is
-----------------------
permitted consistent with or to enforce Section 8 of this Agreement, the parties
hereby consent to the jurisdiction of the courts of the Commonwealth of
Massachusetts and (to the extent subject matter jurisdiction exists therefor) of
the United States District Court for the District of Massachusetts.
Accordingly, with respect to any such court action, the Executive (a) submits to
the personal jurisdiction of such courts; (b) consents to service of process;
and (c) waives any other requirement (whether imposed by statute, rule of court,
or otherwise) with respect to personal jurisdiction or service of process.
10. Integration. This Agreement constitutes the entire agreement between
-----------
the parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties with respect to any related subject matter.
11. Assignment; Successors and Assigns, etc. Neither the Employer nor the
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Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided that the
10
<PAGE>
Employer may assign its rights under this Agreement without the consent of the
Executive in the event that the Employer shall effect a reorganization,
consolidate with or merge into any other corporation, partnership, organization
or other entity, or transfer all or substantially all of its properties or
assets to any other corporation, partnership, organization or other entity. This
Agreement shall inure to the benefit of and be binding upon the Employer and the
Executive and their respective successors, executors, administrators, heirs and
permitted assigns.
12. Enforceability. If any portion or provision of this Agreement
--------------
(including, without limitation, any portion or provision of any section of this
Agreement) shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
13. Waiver. No waiver of any provision hereof shall be effective unless
------
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
14. Notices. Any notices, requests, demands and other communications
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provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Chief Executive Officer, and shall be effective on the date of delivery in
person or by courier or three (3) days after the date mailed.
15. Amendment. This Agreement may be amended or modified only by a
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written instrument signed by the Executive and by a duly authorized
representative of the Employer.
16. Governing Law. This is a Massachusetts contract and shall be
-------------
construed under and be governed in all respects by the laws of the Commonwealth
of Massachusetts, without giving effect to the conflict of laws principles of
such Commonwealth. With respect to any disputes concerning federal law, such
disputes shall be determined in accordance with the law as it would be
interpreted and applied by the United States Court of Appeals for the First
Circuit.
17. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.
[End of text]
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Employer, by its duly authorized officer, and by the Executive, as of the
Effective Date.
EMPLOYER:
MERKERT AMERICAN CORPORATION
By: /s/ Joseph T. Casey
---------------------------------
Joseph T. Casey
Chief Financial Officer and Treasurer
EXECUTIVE:
/s/ Gerald R. Leonard
---------------------------------
Gerald R. Leonard
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<PAGE>
EXHIBIT 10.30
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This AGREEMENT (the "Agreement") is made as of December 18, 1998 (the
"Effective Date"), by and between Merkert American Corporation, a Delaware
corporation (the "Employer"), and Sidney D. Rogers, Jr. (the "Executive"). In
consideration of the mutual covenants contained in this Agreement, the Employer
and the Executive agree as follows:
1. Employment. The Employer agrees to employ the Executive and the
----------
Executive agrees to be employed by the Employer on the terms and conditions set
forth in this Agreement.
2. Capacity. The Executive shall serve the Employer as Chief
--------
Administrative Officer, subject to election by the Board of Directors of the
Employer (the "Board of Directors"), or in such other or additional offices as
the Executive may be requested to serve by the Board of Directors or the Chief
Executive Officer. In such capacity or capacities, the Executive shall perform
such services and duties in connection with the business, affairs and operations
of the Employer as may be assigned or delegated to the Executive from time to
time by or under the authority of the Board of Directors or the Chief Executive
Officer.
3. Term. Subject to the provisions of Section 6, the term of employment
----
pursuant to this Agreement shall be three (3) years from the Effective Date (the
"Initial Term") and shall continue from month to month thereafter (the "Extended
Term"), subject to either party's thirty (30) day advance notice of non-renewal
(a "Non-renewal Notice").
4. Compensation and Benefits. The regular compensation and benefits
-------------------------
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under this
------
Agreement, the Employer shall pay the Executive a salary (the "Salary") at
the annual rate of ONE HUNDRED NINETY-FIVE THOUSAND DOLLARS ($195,000),
subject to increase from time to time in the discretion of the Board of
Directors or the Compensation Committee of the Board of Directors (the
"Compensation Committee"). The Salary shall be payable in periodic
installments in accordance with the Employer's usual practice for its
senior executives.
(b) Bonus. Beginning with the fiscal year ending December 31, 1998,
-----
the Executive shall be entitled to participate in an annual incentive
program established by the Board of Directors or the Compensation Committee
with such terms as may be established in the sole discretion of the Board
of Directors or Compensation Committee.
<PAGE>
(c) Regular Benefits. From and after the commencement of the Initial
----------------
Term, the Executive shall continue to participate in such employee benefit
plans of Merkert Enterprises, Inc. in which the Executive participated
prior to the acquisition of Merkert Enterprises, Inc. and which may have
been adopted or assumed by the Employer in its sole discretion (the
"Predecessor Plans"). The Executive may continue to participate in each
such Predecessor Plan, in accordance with and subject to each such
Predecessor Plan's terms and conditions, as may be modified or amended from
time to time by the Employer, until such time as the Employer terminates
any such Predecessor Plan. Thereafter, the Executive shall be entitled to
participate in any employee benefit plans, including, without limitation,
medical insurance plans, life insurance plans, disability income plans,
retirement plans, and other benefit plans, which the Employer may from time
to time have in effect for all or most of its senior executives. During
the Initial Term, the Employer shall provide the Executive with medical
insurance coverage that is substantially equivalent to the medical
insurance coverage applicable to the Executive immediately prior to the
acquisition of Merkert Enterprises, Inc. The Executive's participation in
any employee benefit plan shall at all times be subject to the terms of the
applicable plan documents, generally applicable policies of the Employer,
applicable law and the discretion of the Board of Directors, the
Compensation Committee or any administrative or other committee provided
for in or contemplated by any such plan. Nothing contained in this
Agreement shall be construed to create any obligation on the part of the
Employer to establish any such plan or to maintain the effectiveness of any
such plan which may be in effect from time to time.
(d) Other Benefits and Perquisites.
------------------------------
(i) Expenses. The Employer shall reimburse the Executive for
--------
expenses reasonably incurred by the Executive in furtherance of
his duties for the Employer hereunder. The Employer's obligation
to reimburse the Executive for such expenses shall be subject to
the Employer's expense reimbursement policies, as established,
modified or amended by the Employer from time to time, and the
submission by the Executive of documentation in a form acceptable
to the Employer.
(ii) Automobile. During the Initial Term, the Executive shall be
----------
entitled to use an automobile supplied by the Employer and to
receive reimbursement from the Employer for business-related
automobile expenses to the extent that and subject to
substantially equivalent terms and conditions on which Merkert
Enterprises, Inc. provided such benefits to the Executive
immediately prior to the acquisition of Merkert Enterprises, Inc.
(iii) Vacation. The Executive shall be entitled to accrue on a
--------
pro rata basis up to four (4) weeks of paid vacation per year.
The Executive's
2
<PAGE>
entitlement to carry-over unused vacation from year to year shall
be subject to vacation policies established, and as modified or
amended, from time to time by the Employer; provided, that
nothing contained herein shall be construed to require the
Employer to permit the carry-over of unused vacation.
(e) Taxation of Payments and Benefits. The Employer shall undertake
---------------------------------
to make deductions, withholdings and tax reports with respect to payments
and benefits under this Agreement to the extent that it reasonably and in
good faith believes that it is required to make such deductions,
withholdings and tax reports. Payments under this Agreement shall be in
amounts net of any such deductions or withholdings. Nothing in this
Agreement shall be construed to require the Employer to make any payments
to compensate the Executive for any adverse tax effect associated with any
payments or benefits or for any deduction or withholding from any payment
or benefit.
(f) Exclusivity of Salary and Benefits. The Executive shall not be
----------------------------------
entitled to any payments or benefits other than those provided under this
Agreement.
5. Extent of Service. During the Executive's employment under this
-----------------
Agreement, the Executive shall, subject to the direction and supervision of the
Board of Directors or the Chief Executive Officer, devote the Executive's full
business time, best efforts and business judgment, skill and knowledge to the
advancement of the Employer's interests and to the discharge of the Executive's
duties and responsibilities under this Agreement. The Executive shall not
engage in any other business activity, except as may be approved by the Board of
Directors; provided that nothing in this Agreement shall be construed as
preventing the Executive from:
(a) investing the Executive's assets in any company or other entity in
a manner not prohibited by Section 7(d) and in such form or manner as shall
not require any material activities on the Executive's part in connection
with the operations or affairs of the companies or other entities in which
such investments are made; or
(b) engaging in religious, charitable or other community or non-profit
activities that do not impair the Executive's ability to fulfill the
Executive's duties and responsibilities under this Agreement.
6. Termination and Termination Benefits. Notwithstanding the provisions
------------------------------------
of Section 3, the Executive's employment under this Agreement shall terminate
under the following circumstances set forth in this Section 6.
(a) Termination by the Employer for Cause. The Executive's employment
-------------------------------------
under this Agreement may be terminated for cause without further liability
on the part of the Employer effective immediately upon a vote of the Board
of Directors and written notice to the Executive. Only the following shall
constitute "cause" for such termination:
3
<PAGE>
(i) dishonest statements or acts of the Executive with respect to
the Employer or any affiliate of the Employer which constitute
material disloyalty or dishonesty toward the Employer or any affiliate
of the Employer or cause significant damage to the Employer or any
affiliate of the Employer, including damage to the business reputation
of the Employer or any affiliate of the Employer;
(ii) the commission by or indictment of the Executive for (A) a
felony or (B) any misdemeanor involving moral turpitude, deceit,
dishonesty or fraud ("indictment," for these purposes, meaning an
indictment, probable cause hearing or any other procedure pursuant to
which an initial determination of probable or reasonable cause with
respect to such offense is made);
(iii) subject to the provisions of subsection (e) below, failure
to perform to the reasonable satisfaction of the Board of Directors a
substantial portion of the Executive's duties and responsibilities
reasonably assigned or delegated under this Agreement, which failure
continues, in the reasonable judgment of the Board of Directors, after
written notice given to the Executive by the Board of Directors;
(iv) gross negligence, willful misconduct or insubordination of
the Executive with respect to the Employer or any affiliate of the
Employer which is repeated or continued by the Executive, in the
reasonable judgment of the Board of Directors, after written notice
given to the Executive by the Board of Directors; or
(v) material breach by the Executive of any of the Executive's
material obligations under this Agreement, which breach is repeated or
continued by the Executive, in the reasonable judgment of the Board of
Directors, after written notice given to the Executive by the Board of
Directors.
(b) Termination by the Executive. The Executive's employment under
----------------------------
this Agreement may be terminated by the Executive by written notice to the
Board of Directors at least thirty (30) days prior to such termination.
(c) Termination by the Employer Without Cause. Subject to the payment
-----------------------------------------
of Termination Benefits pursuant to Section 6(d), the Executive's
employment under this Agreement may be terminated by the Employer without
cause upon written notice to the Executive of a vote by the Board of
Directors to terminate delivered to the Executive at least thirty (30) days
prior to such termination, provided that, the Employer, in its sole
discretion, may elect to earlier terminate the Executive without such
notice upon
4
<PAGE>
payment to the Executive of additional compensation for the number of days
by which thirty (30) exceeds the number of days by which such notice
preceded the date of such termination.
(d) Certain Termination Benefits. Unless otherwise specifically
----------------------------
provided in this Agreement or otherwise required by law, all compensation
and benefits payable to the Executive under this Agreement shall terminate
on the date of termination of the Executive's employment under this
Agreement pursuant to this Section 6 or due to delivery of a Non-renewal
Notice from either party to the other. Notwithstanding the foregoing, in
the event of termination of the Executive's employment with the Employer
pursuant to Section 6(c) above, the Employer shall provide to the Executive
the following termination benefits ("Termination Benefits"):
(i) continuation of the Salary at the rate then in effect
pursuant to Section 4(a);
(ii) continuation of group health plan benefits, (A) if permitted
by Employer's health plan or if Employer self-insures (provided
that Employer shall have no obligation to self-insure), until the
expiration of the Initial Term, or (B) if not permitted by
Employer's health plan, to the extent authorized by and
consistent with 29 U.S.C (S) 1161 et seq. (commonly known as
"COBRA"), in either case with the cost of the regular premium for
such benefits shared in the same relative proportion by the
Employer and the Executive as in effect on the date of
termination; and
(iii) continuation of automobile benefits as in effect on the
date of termination pursuant to Section 4(d)(ii).
The Termination Benefits set forth in (i) above shall continue effective
until the later of (A) the expiration of the Initial Term or (B) for twelve
months from the date of termination of employment, provided that the Executive
shall not have materially breached, (1) as of the date of termination, any of
his or her covenants or agreements contained in Sections 7 and 8 of this
Agreement or (2) thereafter, any of his or her covenants or agreements contained
in this Agreement. The Termination Benefits set forth in (ii) and (iii) above
shall continue effective until the expiration of the Initial Term, provided that
the Executive shall not have materially breached, (x) as of the date of
termination, any of his or her covenants or agreements contained in Section 7
and 8 of this Agreement or (y) thereafter, any of his or her covenants or
agreements contained in this Agreement. Notwithstanding the foregoing, nothing
in this Section 6(d) shall be construed to affect the Executive's right to
receive COBRA continuation entirely at the Executive's own cost to the extent
that the Executive may continue to be entitled to COBRA continuation after the
Executive's right to cost sharing under Section 6(d)(ii) ceases.
5
<PAGE>
(e) Disability. Notwithstanding the provisions of subsection (a)(iii)
----------
above, if the Executive shall be disabled so as to be unable to perform the
essential functions of the Executive's then existing position or positions
under this Agreement with or without reasonable accommodation, the Chief
Executive Officer or the Board of Directors may remove the Executive from
any responsibilities and/or reassign the Executive to another position with
the Employer for the remainder of the Initial Term or, if the Initial Term
has expired, any Extended Term, or during the period of such disability.
Notwithstanding any such removal or reassignment, the Executive shall
continue to receive the Executive's full Salary (less any disability pay or
sick pay benefits to which the Executive may be entitled under the
Employer's policies) and benefits under Section 4 of this Agreement (except
to the extent that the Executive may be ineligible for one or more such
benefits under applicable plan terms) for a period of time equal to the
remainder of the Initial Term or, if the Initial Term has expired, any
Extended Term, provided that the Executive remains employed by the Employer
during such period. In the event that the Employer terminates the
Executive's employment without cause pursuant to Section 6(c) or the
Employer delivers a Non-renewal Notice to the Executive, in either case due
to the Executive's continuing inability to perform the essential functions
of the Executive's then existing position or positions, the Executive shall
be eligible to receive Termination Benefits subject to and in accordance
with the terms and conditions of Section 6(d), provided that the
Executive's Termination Benefit additionally shall be subject to reduction
by the amount of any payments the Executive receives under any disability
benefit plan or plans or insurance policies the Employer maintains for the
Executive, or under worker's compensation, or state or federal disability
benefit programs. If any question shall arise as to whether during any
period the Executive is disabled so as to be unable to perform the
essential functions of the Executive's then existing position or positions
with or without reasonable accommodation, the Executive may, and at the
request of the Employer shall, submit to the Employer a certification in
reasonable detail by a physician selected by the Employer to whom the
Executive or the Executive's guardian has no reasonable objection as to
whether the Executive is so disabled or how long such disability is
expected to continue, and such certification shall for the purposes of this
Agreement be conclusive of the issue. The Executive shall cooperate with
any reasonable request of the physician in connection with such
certification. If such question shall arise and the Executive shall fail
to submit such certification, the Employer's determination of such issue
shall be binding on the Executive. Nothing in this Section 6(e) shall be
construed to waive the Executive's rights, if any, under existing law
including, without limitation, the Family and Medical Leave Act of 1993, 29
U.S.C. (S)2601 et seq. and the Americans with Disabilities Act, 42 U.S.C.
(S)12101 et seq.
7. Confidential Information, Noncompetition and Cooperation.
--------------------------------------------------------
(a) Confidential Information. As used in this Agreement,
------------------------
"Confidential Information" means information belonging to the Employer
which is of value to the Employer in the course of conducting its business
and the disclosure of which could
6
<PAGE>
result in a competitive or other disadvantage to the Employer. Confidential
Information includes, without limitation, financial information, reports,
and forecasts; market or sales information, plans, methods and techniques;
pricing policies; customer lists; price lists; inventions, improvements and
other intellectual property; trade secrets; know-how; designs, processes or
formulae; software; and business plans, prospects and opportunities (such
as possible acquisitions or dispositions of businesses or facilities) which
have been discussed or considered by the management of the Employer.
Confidential Information includes information developed by the Executive in
the course of the Executive's employment by the Employer, as well as other
information to which the Executive may have access in connection with the
Executive's employment. Confidential Information also includes the
confidential information of others with which the Employer has a business
relationship, including without limitation its principals, packers and
suppliers. Notwithstanding the foregoing, Confidential Information does not
include information in the public domain, unless due to breach of the
Executive's duties under Section 7(b).
(b) Confidentiality. The Executive understands and agrees that the
---------------
Executive's employment creates a relationship of confidence and trust
between the Executive and the Employer with respect to all Confidential
Information. At all times, both during the Executive's employment with the
Employer and after its termination, the Executive will keep in confidence
and trust all such Confidential Information, and will not use or disclose
any such Confidential Information without the written consent of the
Employer, except as may be necessary in the ordinary course of performing
the Executive's duties to the Employer.
(c) Documents, Records, etc. All documents, records, data, apparatus,
------------------------
equipment and other physical property, whether or not pertaining to
Confidential Information, which are furnished to the Executive by the
Employer or are produced by the Executive in connection with the
Executive's employment will be and remain the sole property of the
Employer. The Executive will return to the Employer all such materials and
property as and when requested by the Employer. In any event, the
Executive will return all such materials and property immediately upon
termination of the Executive's employment for any reason. The Executive
will not retain with the Executive any such material or property or any
copies thereof after such termination.
(d) Noncompetition and Nonsolicitation. During the Initial Term and
----------------------------------
any Extended Term(s) and for one (1) year thereafter (or during the period
during which the Executive is entitled to receive Termination Benefits, if
longer) (the "Restricted Period"), the Executive (i) will not, directly or
indirectly, whether as owner, partner, shareholder, advisor, consultant,
agent, employee, co-venturer, creditor, officer, director, trustee or
otherwise, engage, participate, assist or invest in any Restricted Business
within the Territory (as those terms are hereinafter defined); (ii) will
refrain from directly or indirectly employing, attempting to employ,
recruiting or otherwise soliciting, inducing or influencing any person to
leave employment with the Employer
7
<PAGE>
(other than terminations of employment of subordinate employees undertaken
in the course of the Executive's employment with the Employer); and (iii)
will refrain from soliciting or encouraging any principal, customer or
supplier to terminate or otherwise modify adversely its business
relationship with the Employer. The Executive understands that the
restrictions set forth in this Section 7(d) are intended to protect the
Employer's interest in its Confidential Information and established
employee, customer and supplier relationships and goodwill, and agrees that
such restrictions are reasonable and appropriate for this purpose.
For purposes of this Agreement, the term "Restricted Business" shall mean
any business which is competitive with:
(A) any business conducted by the Employer on the date of the
termination of Executive's employment with the Employer, and
(B) any business conducted by the Employer within the twelve (12)
month period immediately preceding the termination of Executive's
employment with the Employer, and
(C) any business the Employer actively considered entering within
twelve (12) months preceding the date of the termination of
Executive's employment with the Employer if the Executive had
knowledge of such consideration and the Employer in fact commences
conducting such business during the Restricted Period.
Notwithstanding the foregoing, the Executive may own up to one percent
(1%) of the outstanding stock of a publicly held corporation which
constitutes or is affiliated with a Restricted Business.
For purposes of this Agreement, the term "Territory" shall mean:
(A) any geographic area in which the Employer engaged in business and
for which the Executive had any responsibility at the time of the
termination of the Executive's employment or within the twelve (12)
month period preceding termination, and
(B) any geographic area in which the Employer engaged in business at
the time of the termination of the Executive's employment or within
the twelve (12) month period preceding termination, and
(C) any geographic area in which the Employer actively considered
conducting business within twelve (12) months preceding the date of
the termination of Executive's employment with the Employer if the
Executive had knowledge of such consideration and the Employer in fact
commences conducting business therein during the Restricted Period.
8
<PAGE>
The parties acknowledge and agree that for purpose of this Section 7,
the term "Employer" includes the Employer, its related and affiliated
entities, and their respective predecessors, successors and assigns.
(e) Principals and Customers. For purposes of construing the
------------------------
provisions of this Section 7, any and all persons, firms and entities for
whom the Employer performs services, to whom the Employer sells or from
whom the Employer solicits and obtains orders, in the course of its
business, are and shall be deemed the principals and/or customers of the
Employer (or its principals), both during and after the Term,
notwithstanding the fact that some or all of said persons, firms or
entities may have been induced to give their business to the Employer by
the solicitation by the Executive, or by someone on his or her behalf,
either during the usual working hours of the Executive or otherwise, and
notwithstanding the fact that all or some of such persons, firms or
entities may have previously been principals or customers of (i) the
Executive, (ii) any corporation or other entity with which the Executive
was formerly employed or which was controlled or owned, in whole or in
part, by the Executive, or (iii) any principal of such corporation or
entity.
(f) Third-Party Agreements and Rights. The Executive hereby confirms
---------------------------------
that the Executive is not bound by the terms of any agreement with any
previous employer or other party which restricts in any way the Executive's
use or disclosure of information or the Executive's engagement in any
business. The Executive represents to the Employer that the Executive's
execution of this Agreement, the Executive's employment with the Employer
and the performance of the Executive's proposed duties for the Employer
will not violate any obligations the Executive may have to any such
previous employer or other party. In the Executive's work for the
Employer, the Executive will not disclose or make use of any information in
violation of any agreements with or rights of any such previous employer or
other party, and the Executive will not bring to the premises of the
Employer any copies or other tangible embodiments of non-public information
belonging to or obtained from any such previous employment or other party.
(g) Litigation and Regulatory Cooperation. During and after the
-------------------------------------
Executive's employment, the Executive shall cooperate fully with the
Employer in the defense or prosecution of any claims or actions now in
existence or which may be brought in the future against or on behalf of the
Employer which relate to events or occurrences that transpired while the
Executive was employed by the Employer. The Executive's full cooperation
in connection with such claims or actions shall include, but not be limited
to, being available to meet with counsel to prepare for discovery or trial
and to act as a witness on behalf of the Employer at mutually convenient
times. During and after the Executive's employment, the Executive also
shall cooperate fully with the Employer in connection with any
investigation or review of any federal, state or local regulatory authority
as any such investigation or review relates to events or occurrences that
transpired while the Executive was employed by the Employer. The Employer
shall reimburse the Executive for any reasonable out-of-pocket expenses
incurred in connection with the Executive's performance of obligations
pursuant to this Section 7(g).
9
<PAGE>
(h) Injunction. The Executive agrees that it would be difficult to
----------
measure any damages caused to the Employer which might result from any
breach by the Executive of the promises set forth in this Section 7, and
that in any event money damages would be an inadequate remedy for any such
breach. Accordingly, subject to Section 8 of this Agreement, the Executive
agrees that if the Executive breaches, or proposes to breach, any portion
of this Agreement, the Employer shall be entitled, in addition to all other
remedies that it may have, to an injunction or other appropriate equitable
relief to restrain any such breach without showing or proving any actual
damage to the Employer.
8. Arbitration of Disputes. Any controversy or claim arising out of or
-----------------------
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in Boston, Massachusetts in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the rules and
procedures applicable to the selection of arbitrators. In the event that any
person or entity other than the Executive or the Employer may be a party with
regard to any such controversy or claim, such controversy or claim shall be
submitted to arbitration subject to such other person or entity's agreement.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. This Section 8 shall be specifically enforceable.
Notwithstanding the foregoing, this Section 8 shall not preclude either party
from pursuing a court action for the sole purpose of obtaining a temporary
restraining order or a preliminary injunction in circumstances in which such
relief is appropriate; provided that any other relief shall be pursued through
an arbitration proceeding pursuant to this Section 8.
9. Consent to Jurisdiction. To the extent that any court action is
-----------------------
permitted consistent with or to enforce Section 8 of this Agreement, the parties
hereby consent to the jurisdiction of the courts of the Commonwealth of
Massachusetts and (to the extent subject matter jurisdiction exists therefor) of
the United States District Court for the District of Massachusetts.
Accordingly, with respect to any such court action, the Executive (a) submits to
the personal jurisdiction of such courts; (b) consents to service of process;
and (c) waives any other requirement (whether imposed by statute, rule of court,
or otherwise) with respect to personal jurisdiction or service of process.
10. Integration. This Agreement constitutes the entire agreement between
-----------
the parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties with respect to any related subject matter.
10
<PAGE>
11. Assignment; Successors and Assigns, etc. Neither the Employer nor the
---------------------------------------
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided that the Employer may assign its rights under this Agreement
without the consent of the Executive in the event that the Employer shall effect
a reorganization, consolidate with or merge into any other corporation,
partnership, organization or other entity, or transfer all or substantially all
of its properties or assets to any other corporation, partnership, organization
or other entity. This Agreement shall inure to the benefit of and be binding
upon the Employer and the Executive and their respective successors, executors,
administrators, heirs and permitted assigns.
12. Enforceability. If any portion or provision of this Agreement
--------------
(including, without limitation, any portion or provision of any section of this
Agreement) shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
13. Waiver. No waiver of any provision hereof shall be effective unless
------
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
14. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Chief Executive Officer, and shall be effective on the date of delivery in
person or by courier or three (3) days after the date mailed.
15. Amendment. This Agreement may be amended or modified only by a
---------
written instrument signed by the Executive and by a duly authorized
representative of the Employer.
16. Governing Law. This is a Massachusetts contract and shall be
-------------
construed under and be governed in all respects by the laws of the Commonwealth
of Massachusetts, without giving effect to the conflict of laws principles of
such Commonwealth. With respect to any disputes concerning federal law, such
disputes shall be determined in accordance with the law as it would be
interpreted and applied by the United States Court of Appeals for the First
Circuit.
11
<PAGE>
17. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.
[End of text]
12
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Employer, by its duly authorized officer, and by the Executive, as of the
Effective Date.
EMPLOYER:
MERKERT AMERICAN CORPORATION
By: /s/ Gerald R. Leonard
---------------------------------
Gerald R. Leonard
President
EXECUTIVE:
/s/ Sidney D. Rogers, Jr.
---------------------------------
Sidney D. Rogers, Jr.
13
<PAGE>
EXHIBIT 10-31
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This AGREEMENT (the "Agreement") is made as of December 18, 1998 (the
"Effective Date"), by and between Merkert Enterprises, Inc., a Massachusetts
corporation (the "Employer"), and Glenn F. Gillam (the "Executive"). In
consideration of the mutual covenants contained in this Agreement, the Employer
and the Executive agree as follows:
1. Employment. The Employer agrees to employ the Executive and the
----------
Executive agrees to be employed by the Employer on the terms and conditions set
forth in this Agreement.
2. Capacity. The Executive shall serve the Employer as President,
--------
subject to election by the Board of Directors of the Employer (the "Board of
Directors") or in such other or additional offices as the Executive may be
requested to serve by the Board of Directors or the Chief Executive Officer. In
such capacity or capacities, the Executive shall perform such services and
duties in connection with the business, affairs and operations of the Employer
as may be assigned or delegated to the Executive from time to time by or under
the authority of the Board of Directors or the Chief Executive Officer.
3. Term. Subject to the provisions of Section 6, the term of employment
----
pursuant to this Agreement shall be three (3) years from the Effective Date (the
"Initial Term") and shall continue from month to month thereafter (the "Extended
Term"), subject to either party's thirty (30) day advance notice of non-renewal
(a "Non-renewal Notice").
4. Compensation and Benefits. The regular compensation and benefits
-------------------------
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under this
------
Agreement, the Employer shall pay the Executive a salary (the "Salary") at
the annual rate of THREE HUNDRED THOUSAND DOLLARS ($300,000), subject to
increase from time to time in the discretion of the Board of Directors or
the Compensation Committee of the Board of Directors (the "Compensation
Committee"). The Salary shall be payable in periodic installments in
accordance with the Employer's usual practice for its senior executives.
(b) Bonus. Beginning with the fiscal year ending December 31, 1998,
-----
the Executive shall be entitled to participate in an annual incentive
program established by the Board of Directors or the Compensation Committee
with such terms as may be established in the sole discretion of the Board
of Directors or Compensation Committee.
<PAGE>
(c) Regular Benefits. From and after the commencement of the Initial
----------------
Term, the Executive shall continue to participate in such employee benefit
plans of Merkert Enterprises, Inc. in which the Executive participated
prior to the acquisition of Merkert Enterprises, Inc. and which may have
been adopted or assumed by the Employer in its sole discretion (the
"Predecessor Plans"). The Executive may continue to participate in each
such Predecessor Plan, in accordance with and subject to each such
Predecessor Plan's terms and conditions, as may be modified or amended from
time to time by the Employer, until such time as the Employer terminates
any such Predecessor Plan. Thereafter, the Executive shall be entitled to
participate in any employee benefit plans, including, without limitation,
medical insurance plans, life insurance plans, disability income plans,
retirement plans, and other benefit plans, which the Employer may from time
to time have in effect for all or most of its senior executives. During
the Initial Term, the Employer shall provide the Executive with medical
insurance coverage that is substantially equivalent to the medical
insurance coverage applicable to the Executive immediately prior to the
acquisition of Merkert Enterprises, Inc. The Executive's participation in
any employee benefit plan shall at all times be subject to the terms of the
applicable plan documents, generally applicable policies of the Employer,
applicable law and the discretion of the Board of Directors, the
Compensation Committee or any administrative or other committee provided
for in or contemplated by any such plan. Nothing contained in this
Agreement shall be construed to create any obligation on the part of the
Employer to establish any such plan or to maintain the effectiveness of any
such plan which may be in effect from time to time.
(d) Other Benefits and Perquisites.
------------------------------
(i) Expenses. The Employer shall reimburse the Executive for
--------
expenses reasonably incurred by the Executive in furtherance of
his duties for the Employer hereunder. The Employer's obligation
to reimburse the Executive for such expenses shall be subject to
the Employer's expense reimbursement policies, as established,
modified or amended by the Employer from time to time, and the
submission by the Executive of documentation in a form acceptable
to the Employer.
(ii) Automobile. During the Initial Term, the Executive shall be
----------
entitled to use an automobile supplied by the Employer and to
receive reimbursement from the Employer for business-related
automobile expenses to the extent that and subject to
substantially equivalent terms and conditions on which Merkert
Enterprises, Inc. provided such benefits to the Executive
immediately prior to the acquisition of Merkert Enterprises, Inc.
(iii) Vacation. The Executive shall be entitled to accrue on a
--------
pro rata basis up to four (4) weeks of paid vacation per year.
The Executive's entitlement to carry-over unused vacation from
year to year shall be subject to vacation policies established,
and as modified or amended, from time to time by the Employer;
provided, that nothing contained herein shall be construed to
require the Employer to permit the carry-over of unused vacation.
2
<PAGE>
(e) Taxation of Payments and Benefits. The Employer shall undertake
---------------------------------
to make deductions, withholdings and tax reports with respect to payments
and benefits under this Agreement to the extent that it reasonably and in
good faith believes that it is required to make such deductions,
withholdings and tax reports. Payments under this Agreement shall be in
amounts net of any such deductions or withholdings. Nothing in this
Agreement shall be construed to require the Employer to make any payments
to compensate the Executive for any adverse tax effect associated with any
payments or benefits or for any deduction or withholding from any payment
or benefit.
(f) Exclusivity of Salary and Benefits. The Executive shall not be
----------------------------------
entitled to any payments or benefits other than those provided under this
Agreement.
5. Extent of Service. During the Executive's employment under this
-----------------
Agreement, the Executive shall, subject to the direction and supervision of the
Board of Directors or the Chief Executive Officer, devote the Executive's full
business time, best efforts and business judgment, skill and knowledge to the
advancement of the Employer's interests and to the discharge of the Executive's
duties and responsibilities under this Agreement. The Executive shall not
engage in any other business activity, except as may be approved by the Board of
Directors; provided that nothing in this Agreement shall be construed as
preventing the Executive from:
(a) investing the Executive's assets in any company or other entity in
a manner not prohibited by Section 7(d) and in such form or manner as shall
not require any material activities on the Executive's part in connection
with the operations or affairs of the companies or other entities in which
such investments are made; or
(b) engaging in religious, charitable or other community or non-profit
activities that do not impair the Executive's ability to fulfill the
Executive's duties and responsibilities under this Agreement.
6. Termination and Termination Benefits. Notwithstanding the provisions
------------------------------------
of Section 3, the Executive's employment under this Agreement shall terminate
under the following circumstances set forth in this Section 6.
(a) Termination by the Employer for Cause. The Executive's employment
-------------------------------------
under this Agreement may be terminated for cause without further liability
on the part of the Employer effective immediately upon a vote of the Board
of Directors and written notice to the Executive. Only the following shall
constitute "cause" for such termination:
3
<PAGE>
(i) dishonest statements or acts of the Executive with respect to
the Employer or any affiliate of the Employer which constitute
material disloyalty or dishonesty toward the Employer or any affiliate
of the Employer or cause significant damage to the Employer or any
affiliate of the Employer, including damage to the business reputation
of the Employer or any affiliate of the Employer;
(ii) the commission by or indictment of the Executive for (A) a
felony or (B) any misdemeanor involving moral turpitude, deceit,
dishonesty or fraud ("indictment," for these purposes, meaning an
indictment, probable cause hearing or any other procedure pursuant to
which an initial determination of probable or reasonable cause with
respect to such offense is made);
(iii) subject to the provisions of subsection (e) below, failure
to perform to the reasonable satisfaction of the Board of Directors a
substantial portion of the Executive's duties and responsibilities
reasonably assigned or delegated under this Agreement, which failure
continues, in the reasonable judgment of the Board of Directors, after
written notice given to the Executive by the Board of Directors;
(iv) gross negligence, willful misconduct or insubordination of
the Executive with respect to the Employer or any affiliate of the
Employer which is repeated or continued by the Executive, in the
reasonable judgment of the Board of Directors, after written notice
given to the Executive by the Board of Directors; or
(v) material breach by the Executive of any of the Executive's
material obligations under this Agreement, which breach is repeated or
continued by the Executive, in the reasonable judgment of the Board of
Directors, after written notice given to the Executive by the Board of
Directors.
(b) Termination by the Executive. The Executive's employment under
----------------------------
this Agreement may be terminated by the Executive by written notice to the
Board of Directors at least thirty (30) days prior to such termination.
(c) Termination by the Employer Without Cause. Subject to the payment
-----------------------------------------
of Termination Benefits pursuant to Section 6(d), the Executive's
employment under this Agreement may be terminated by the Employer without
cause upon written notice to the Executive of a vote by the Board of
Directors to terminate delivered to the Executive at least thirty (30) days
prior to such termination, provided that, the Employer, in its sole
discretion, may elect to earlier terminate the Executive without such
notice upon payment to the Executive of additional compensation for the
number of days by which thirty (30) exceeds the number of days by which
such notice preceded the date of such termination.
4
<PAGE>
(d) Certain Termination Benefits. Unless otherwise specifically
----------------------------
provided in this Agreement or otherwise required by law, all compensation
and benefits payable to the Executive under this Agreement shall terminate
on the date of termination of the Executive's employment under this
Agreement pursuant to this Section 6 or due to delivery of a Non-renewal
Notice from either party to the other. Notwithstanding the foregoing, in
the event of termination of the Executive's employment with the Employer
pursuant to Section 6(c) above, the Employer shall provide to the Executive
the following termination benefits ("Termination Benefits"):
(i) continuation of the Salary at the rate then in effect
pursuant to Section 4(a);
(ii) continuation of group health plan benefits, (A) if permitted
by Employer's health plan or if Employer self-insures (provided
that Employer shall have no obligation to self-insure), until the
expiration of the Initial Term, or (B) if not permitted by
Employer's health plan, to the extent authorized by and
consistent with 29 U.S.C (S) 1161 et seq. (commonly known as
"COBRA"), in either case with the cost of the regular premium for
such benefits shared in the same relative proportion by the
Employer and the Executive as in effect on the date of
termination; and
(iii) continuation of automobile benefits as in effect on the
date of termination pursuant to Section 4(d)(ii).
The Termination Benefits set forth in (i) above shall continue effective
until the later of (A) the expiration of the Initial Term or (B) for twelve
months from the date of termination of employment, provided that the Executive
shall not have materially breached, (1) as of the date of termination, any of
his or her covenants or agreements contained in Sections 7 and 8 of this
Agreement or (2) thereafter, any of his or her covenants or agreements contained
in this Agreement. The Termination Benefits set forth in (ii) and (iii) above
shall continue effective until the expiration of the Initial Term, provided that
the Executive shall not have materially breached, (x) as of the date of
termination, any of his or her covenants or agreements contained in Section 7
and 8 of this Agreement or (y) thereafter, any of his or her covenants or
agreements contained in this Agreement. Notwithstanding the foregoing, nothing
in this Section 6(d) shall be construed to affect the Executive's right to
receive COBRA continuation entirely at the Executive's own cost to the extent
that the Executive may continue to be entitled to COBRA continuation after the
Executive's right to cost sharing under Section 6(d)(ii) ceases.
(e) Disability. Notwithstanding the provisions of subsection (a)(iii)
----------
above, if the Executive shall be disabled so as to be unable to perform the
essential functions of the Executive's then existing position or positions
under this Agreement with or without reasonable accommodation, the Chief
Executive Officer or the Board of Directors may
5
<PAGE>
remove the Executive from any responsibilities and/or reassign the
Executive to another position with the Employer for the remainder of the
Initial Term or, if the Initial Term has expired, any Extended Term, or
during the period of such disability. Notwithstanding any such removal or
reassignment, the Executive shall continue to receive the Executive's full
Salary (less any disability pay or sick pay benefits to which the Executive
may be entitled under the Employer's policies) and benefits under Section 4
of this Agreement (except to the extent that the Executive may be
ineligible for one or more such benefits under applicable plan terms) for a
period of time equal to the remainder of the Initial Term or, if the
Initial Term has expired, any Extended Term, provided that the Executive
remains employed by the Employer during such period. In the event that the
Employer terminates the Executive's employment without cause pursuant to
Section 6(c) or the Employer delivers a Non-renewal Notice to the
Executive, in either case due to the Executive's continuing inability to
perform the essential functions of the Executive's then existing position
or positions, the Executive shall be eligible to receive Termination
Benefits subject to and in accordance with the terms and conditions of
Section 6(d), provided that the Executive's Termination Benefit
additionally shall be subject to reduction by the amount of any payments
the Executive receives under any disability benefit plan or plans or
insurance policies the Employer maintains for the Executive, or under
worker's compensation, or state or federal disability benefit programs. If
any question shall arise as to whether during any period the Executive is
disabled so as to be unable to perform the essential functions of the
Executive's then existing position or positions with or without reasonable
accommodation, the Executive may, and at the request of the Employer shall,
submit to the Employer a certification in reasonable detail by a physician
selected by the Employer to whom the Executive or the Executive's guardian
has no reasonable objection as to whether the Executive is so disabled or
how long such disability is expected to continue, and such certification
shall for the purposes of this Agreement be conclusive of the issue. The
Executive shall cooperate with any reasonable request of the physician in
connection with such certification. If such question shall arise and the
Executive shall fail to submit such certification, the Employer's
determination of such issue shall be binding on the Executive. Nothing in
this Section 6(e) shall be construed to waive the Executive's rights, if
any, under existing law including, without limitation, the Family and
Medical Leave Act of 1993, 29 U.S.C. (S)2601 et seq. and the Americans with
Disabilities Act, 42 U.S.C. (S)12101 et seq.
7. Confidential Information, Noncompetition and Cooperation.
--------------------------------------------------------
(a) Confidential Information. As used in this Agreement,
------------------------
"Confidential Information" means information belonging to the Employer
which is of value to the Employer in the course of conducting its business
and the disclosure of which could result in a competitive or other
disadvantage to the Employer. Confidential Information includes, without
limitation, financial information, reports, and forecasts; market or sales
information, plans, methods and techniques; pricing policies; customer
lists; price lists; inventions, improvements and other intellectual
property; trade secrets;
6
<PAGE>
know-how; designs, processes or formulae; software; and business plans,
prospects and opportunities (such as possible acquisitions or dispositions
of businesses or facilities) which have been discussed or considered by the
management of the Employer. Confidential Information includes information
developed by the Executive in the course of the Executive's employment by
the Employer, as well as other information to which the Executive may have
access in connection with the Executive's employment. Confidential
Information also includes the confidential information of others with which
the Employer has a business relationship, including without limitation its
principals, packers and suppliers. Notwithstanding the foregoing,
Confidential Information does not include information in the public domain,
unless due to breach of the Executive's duties under Section 7(b).
(b) Confidentiality. The Executive understands and agrees that the
---------------
Executive's employment creates a relationship of confidence and trust
between the Executive and the Employer with respect to all Confidential
Information. At all times, both during the Executive's employment with the
Employer and after its termination, the Executive will keep in confidence
and trust all such Confidential Information, and will not use or disclose
any such Confidential Information without the written consent of the
Employer, except as may be necessary in the ordinary course of performing
the Executive's duties to the Employer.
(c) Documents, Records, etc. All documents, records, data, apparatus,
------------------------
equipment and other physical property, whether or not pertaining to
Confidential Information, which are furnished to the Executive by the
Employer or are produced by the Executive in connection with the
Executive's employment will be and remain the sole property of the
Employer. The Executive will return to the Employer all such materials and
property as and when requested by the Employer. In any event, the
Executive will return all such materials and property immediately upon
termination of the Executive's employment for any reason. The Executive
will not retain with the Executive any such material or property or any
copies thereof after such termination.
(d) Noncompetition and Nonsolicitation. During the Initial Term and
----------------------------------
any Extended Term(s) and for one (1) year thereafter (or during the period
during which the Executive is entitled to receive Termination Benefits, if
longer) (the "Restricted Period"), the Executive (i) will not, directly or
indirectly, whether as owner, partner, shareholder, advisor, consultant,
agent, employee, co-venturer, creditor, officer, director, trustee or
otherwise, engage, participate, assist or invest in any Restricted Business
within the Territory (as those terms are hereinafter defined); (ii) will
refrain from directly or indirectly employing, attempting to employ,
recruiting or otherwise soliciting, inducing or influencing any person to
leave employment with the Employer (other than terminations of employment
of subordinate employees undertaken in the course of the Executive's
employment with the Employer); and (iii) will refrain from soliciting or
encouraging any principal, customer or supplier to terminate or otherwise
modify adversely its business relationship with the Employer. The
Executive
7
<PAGE>
understands that the restrictions set forth in this Section 7(d) are
intended to protect the Employer's interest in its Confidential Information
and established employee, customer and supplier relationships and goodwill,
and agrees that such restrictions are reasonable and appropriate for this
purpose.
For purposes of this Agreement, the term "Restricted Business" shall mean
any business which is competitive with:
(A) any business conducted by the Employer on the date of the
termination of Executive's employment with the Employer, and
(B) any business conducted by the Employer within the twelve (12)
month period immediately preceding the termination of Executive's
employment with the Employer, and
(C) any business the Employer actively considered entering within
twelve (12) months preceding the date of the termination of
Executive's employment with the Employer if the Executive had
knowledge of such consideration and the Employer in fact commences
conducting such business during the Restricted Period.
Notwithstanding the foregoing, the Executive may own up to one percent
(1%) of the outstanding stock of a publicly held corporation which
constitutes or is affiliated with a Restricted Business.
For purposes of this Agreement, the term "Territory" shall mean:
(A) any geographic area in which the Employer engaged in business and
for which the Executive had any responsibility at the time of the
termination of the Executive's employment or within the twelve (12)
month period preceding termination, and
(B) any geographic area in which the Employer engaged in business at
the time of the termination of the Executive's employment or within
the twelve (12) month period preceding termination, and
(C) any geographic area in which the Employer actively considered
conducting business within twelve (12) months preceding the date of
the termination of Executive's employment with the Employer if the
Executive had knowledge of such consideration and the Employer in fact
commences conducting business therein during the Restricted Period.
The parties acknowledge and agree that for purpose of this Section 7,
the term "Employer" includes the Employer, its related and affiliated
entities, and their respective predecessors, successors and assigns.
8
<PAGE>
(e) Principals and Customers. For purposes of construing the
------------------------
provisions of this Section 7, any and all persons, firms and entities for
whom the Employer performs services, to whom the Employer sells or from
whom the Employer solicits and obtains orders, in the course of its
business, are and shall be deemed the principals and/or customers of the
Employer (or its principals), both during and after the Term,
notwithstanding the fact that some or all of said persons, firms or
entities may have been induced to give their business to the Employer by
the solicitation by the Executive, or by someone on his or her behalf,
either during the usual working hours of the Executive or otherwise, and
notwithstanding the fact that all or some of such persons, firms or
entities may have previously been principals or customers of (i) the
Executive, (ii) any corporation or other entity with which the Executive
was formerly employed or which was controlled or owned, in whole or in
part, by the Executive, or (iii) any principal of such corporation or
entity.
(f) Third-Party Agreements and Rights. The Executive hereby confirms
---------------------------------
that the Executive is not bound by the terms of any agreement with any
previous employer or other party which restricts in any way the Executive's
use or disclosure of information or the Executive's engagement in any
business. The Executive represents to the Employer that the Executive's
execution of this Agreement, the Executive's employment with the Employer
and the performance of the Executive's proposed duties for the Employer
will not violate any obligations the Executive may have to any such
previous employer or other party. In the Executive's work for the
Employer, the Executive will not disclose or make use of any information in
violation of any agreements with or rights of any such previous employer or
other party, and the Executive will not bring to the premises of the
Employer any copies or other tangible embodiments of non-public information
belonging to or obtained from any such previous employment or other party.
(g) Litigation and Regulatory Cooperation. During and after the
-------------------------------------
Executive's employment, the Executive shall cooperate fully with the
Employer in the defense or prosecution of any claims or actions now in
existence or which may be brought in the future against or on behalf of the
Employer which relate to events or occurrences that transpired while the
Executive was employed by the Employer. The Executive's full cooperation
in connection with such claims or actions shall include, but not be limited
to, being available to meet with counsel to prepare for discovery or trial
and to act as a witness on behalf of the Employer at mutually convenient
times. During and after the Executive's employment, the Executive also
shall cooperate fully with the Employer in connection with any
investigation or review of any federal, state or local regulatory authority
as any such investigation or review relates to events or occurrences that
transpired while the Executive was employed by the Employer. The Employer
shall reimburse the Executive for any reasonable out-of-pocket expenses
incurred in connection with the Executive's performance of obligations
pursuant to this Section 7(g).
9
<PAGE>
(h) Injunction. The Executive agrees that it would be difficult to
----------
measure any damages caused to the Employer which might result from any
breach by the Executive of the promises set forth in this Section 7, and
that in any event money damages would be an inadequate remedy for any such
breach. Accordingly, subject to Section 8 of this Agreement, the Executive
agrees that if the Executive breaches, or proposes to breach, any portion
of this Agreement, the Employer shall be entitled, in addition to all other
remedies that it may have, to an injunction or other appropriate equitable
relief to restrain any such breach without showing or proving any actual
damage to the Employer.
8. Arbitration of Disputes. Any controversy or claim arising out of or
-----------------------
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in Boston, Massachusetts in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the rules and
procedures applicable to the selection of arbitrators. In the event that any
person or entity other than the Executive or the Employer may be a party with
regard to any such controversy or claim, such controversy or claim shall be
submitted to arbitration subject to such other person or entity's agreement.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. This Section 8 shall be specifically enforceable.
Notwithstanding the foregoing, this Section 8 shall not preclude either party
from pursuing a court action for the sole purpose of obtaining a temporary
restraining order or a preliminary injunction in circumstances in which such
relief is appropriate; provided that any other relief shall be pursued through
an arbitration proceeding pursuant to this Section 8.
9. Consent to Jurisdiction. To the extent that any court action is
-----------------------
permitted consistent with or to enforce Section 8 of this Agreement, the parties
hereby consent to the jurisdiction of the courts of the Commonwealth of
Massachusetts and (to the extent subject matter jurisdiction exists therefor) of
the United States District Court for the District of Massachusetts.
Accordingly, with respect to any such court action, the Executive (a) submits to
the personal jurisdiction of such courts; (b) consents to service of process;
and (c) waives any other requirement (whether imposed by statute, rule of court,
or otherwise) with respect to personal jurisdiction or service of process.
10. Integration. This Agreement constitutes the entire agreement between
-----------
the parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties with respect to any related subject matter.
11. Assignment; Successors and Assigns, etc. Neither the Employer nor the
---------------------------------------
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided that the
10
<PAGE>
Employer may assign its rights under this Agreement without the consent of the
Executive in the event that the Employer shall effect a reorganization,
consolidate with or merge into any other corporation, partnership, organization
or other entity, or transfer all or substantially all of its properties or
assets to any other corporation, partnership, organization or other entity. This
Agreement shall inure to the benefit of and be binding upon the Employer and the
Executive and their respective successors, executors, administrators, heirs and
permitted assigns.
12. Enforceability. If any portion or provision of this Agreement
--------------
(including, without limitation, any portion or provision of any section of this
Agreement) shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
13. Waiver. No waiver of any provision hereof shall be effective unless
------
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
14. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Chief Executive Officer, and shall be effective on the date of delivery in
person or by courier or three (3) days after the date mailed.
15. Amendment. This Agreement may be amended or modified only by a
---------
written instrument signed by the Executive and by a duly authorized
representative of the Employer.
16. Governing Law. This is a Massachusetts contract and shall be
-------------
construed under and be governed in all respects by the laws of the Commonwealth
of Massachusetts, without giving effect to the conflict of laws principles of
such Commonwealth. With respect to any disputes concerning federal law, such
disputes shall be determined in accordance with the law as it would be
interpreted and applied by the United States Court of Appeals for the First
Circuit.
17. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.
[End of text]
11
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Employer, by its duly authorized officer, and by the Executive, as of the
Effective Date.
EMPLOYER:
MERKERT ENTERPRISES, INC.
By: /s/ Joseph T. Casey
---------------------------------
Joseph T. Casey
Chief Financial Officer and Treasurer
EXECUTIVE:
/s/ Glenn F. Gillam
---------------------------------
Glenn F. Gillam
12
<PAGE>
EXHIBIT 10.32
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This AGREEMENT (the "Agreement") is made as of December 18, 1998 (the
"Effective Date"), by and between Rogers-American Company, Inc., a North
Carolina corporation (the "Employer"), and Douglas H. Holstein (the
"Executive"). In consideration of the mutual covenants contained in this
Agreement, the Employer and the Executive agree as follows:
1. Employment. The Employer agrees to employ the Executive and the
----------
Executive agrees to be employed by the Employer on the terms and conditions set
forth in this Agreement.
2. Capacity. The Executive shall initially serve the Employer as
--------
President, subject to election by the Board of Directors of the Employer (the
"Board of Directors"). The Executive shall also serve the Employer in such
other or additional offices as the Executive may be requested to serve by the
Board of Directors or the Chief Executive Officer. In such capacity or
capacities, the Executive shall perform such services and duties in connection
with the business, affairs and operations of the Employer as may be assigned or
delegated to the Executive from time to time by or under the authority of the
Board of Directors or the Chief Executive Officer.
3. Term. Subject to the provisions of Section 6, the term of employment
----
pursuant to this Agreement shall be three (3) years from the Effective Date (the
"Initial Term") and shall continue from month to month thereafter (the "Extended
Term"), subject to either party's thirty (30) day advance notice of non-renewal
(a "Non-renewal Notice").
4. Compensation and Benefits. The regular compensation and benefits
-------------------------
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under this
------
Agreement, the Employer shall pay the Executive a salary (the "Salary") at
the annual rate of THREE HUNDRED THOUSAND DOLLARS ($300,000), subject to
increase from time to time in the discretion of the Board of Directors or
the Compensation Committee of the Board of Directors (the "Compensation
Committee"). The Salary shall be payable in periodic installments in
accordance with the Employer's usual practice for its senior executives.
(b) Bonus. Beginning with the fiscal year ending December 31, 1998,
-----
the Executive shall be entitled to participate in an annual incentive
program established by the Board of Directors or the Compensation Committee
with such terms as may be established in the sole discretion of the Board
of Directors or Compensation Committee.
<PAGE>
(c) Regular Benefits. From and after the commencement of the Initial
----------------
Term, the Executive shall continue to participate in such employee benefit
plans of Rogers-American Company, Inc. in which the Executive participated
prior to the acquisition of Rogers-American Company, Inc. and which may
have been adopted or assumed by the Employer in its sole discretion (the
"Predecessor Plans"). The Executive may continue to participate in each
such Predecessor Plan, in accordance with and subject to each such
Predecessor Plan's terms and conditions, as may be modified or amended from
time to time by the Employer, until such time as the Employer terminates
any such Predecessor Plan. Thereafter, the Executive shall be entitled to
participate in any employee benefit plans, including, without limitation,
medical insurance plans, life insurance plans, disability income plans,
retirement plans, and other benefit plans, which the Employer may from time
to time have in effect for all or most of its senior executives. During
the Initial Term, the Employer shall provide the Executive with medical
insurance coverage that is substantially equivalent to the medical
insurance coverage applicable to the Executive immediately prior to the
acquisition of Rogers-American Company, Inc. The Executive's participation
in any employee benefit plan shall at all times be subject to the terms of
the applicable plan documents, generally applicable policies of the
Employer, applicable law and the discretion of the Board of Directors, the
Compensation Committee or any administrative or other committee provided
for in or contemplated by any such plan. Nothing contained in this
Agreement shall be construed to create any obligation on the part of the
Employer to establish any such plan or to maintain the effectiveness of any
such plan which may be in effect from time to time.
(d) Other Benefits and Perquisites.
------------------------------
(i) Expenses. The Employer shall reimburse the Executive for
--------
expenses reasonably incurred by the Executive in furtherance of
his duties for the Employer hereunder. The Employer's obligation
to reimburse the Executive for such expenses shall be subject to
the Employer's expense reimbursement policies, as established,
modified or amended by the Employer from time to time, and the
submission by the Executive of documentation in a form acceptable
to the Employer.
(ii) Automobile. During the Initial Term, the Executive shall be
----------
entitled to use an automobile supplied by the Employer and to
receive reimbursement from the Employer for business-related
automobile expenses to the extent that and subject to
substantially equivalent terms and conditions on which Rogers-
American Company, Inc. provided such benefits to the Executive
immediately prior to the acquisition of Rogers-American Company,
Inc.
2
<PAGE>
(iii) Vacation. The Executive shall be entitled to accrue on a
--------
pro rata basis up to four (4) weeks of paid vacation per year.
The Executive's entitlement to carry-over unused vacation from
year to year shall be subject to vacation policies established,
and as modified or amended, from time to time by the Employer;
provided, that nothing contained herein shall be construed to
require the Employer to permit the carry-over of unused vacation.
(e) Taxation of Payments and Benefits. The Employer shall undertake
---------------------------------
to make deductions, withholdings and tax reports with respect to payments
and benefits under this Agreement to the extent that it reasonably and in
good faith believes that it is required to make such deductions,
withholdings and tax reports. Payments under this Agreement shall be in
amounts net of any such deductions or withholdings. Nothing in this
Agreement shall be construed to require the Employer to make any payments
to compensate the Executive for any adverse tax effect associated with any
payments or benefits or for any deduction or withholding from any payment
or benefit.
(f) Exclusivity of Salary and Benefits. The Executive shall not be
----------------------------------
entitled to any payments or benefits other than those provided under this
Agreement.
5. Extent of Service. During the Executive's employment under this
-----------------
Agreement, the Executive shall, subject to the direction and supervision of the
Board of Directors or the Chief Executive Officer, devote the Executive's full
business time, best efforts and business judgment, skill and knowledge to the
advancement of the Employer's interests and to the discharge of the Executive's
duties and responsibilities under this Agreement. The Executive shall not
engage in any other business activity, except as may be approved by the Board of
Directors; provided that nothing in this Agreement shall be construed as
preventing the Executive from:
(a) investing the Executive's assets in any company or other entity in
a manner not prohibited by Section 7(d) and in such form or manner as shall
not require any material activities on the Executive's part in connection
with the operations or affairs of the companies or other entities in which
such investments are made; or
(b) engaging in religious, charitable or other community or non-profit
activities that do not impair the Executive's ability to fulfill the
Executive's duties and responsibilities under this Agreement.
6. Termination and Termination Benefits. Notwithstanding the provisions
------------------------------------
of Section 3, the Executive's employment under this Agreement shall terminate
under the following circumstances set forth in this Section 6.
(a) Termination by the Employer for Cause. The Executive's employment
-------------------------------------
under this Agreement may be terminated for cause without further liability
on the part of the Employer effective immediately upon a vote of the Board
of Directors and written notice to the Executive. Only the following shall
constitute "cause" for such termination:
3
<PAGE>
(i) dishonest statements or acts of the Executive with respect to
the Employer or any affiliate of the Employer which constitute
material disloyalty or dishonesty toward the Employer or any affiliate
of the Employer or cause significant damage to the Employer or any
affiliate of the Employer, including damage to the business reputation
of the Employer or any affiliate of the Employer;
(ii) the commission by or indictment of the Executive for (A) a
felony or (B) any misdemeanor involving moral turpitude, deceit,
dishonesty or fraud ("indictment," for these purposes, meaning an
indictment, probable cause hearing or any other procedure pursuant to
which an initial determination of probable or reasonable cause with
respect to such offense is made);
(iii) failure to perform to the reasonable satisfaction of the
Board of Directors a substantial portion of the Executive's duties and
responsibilities reasonably assigned or delegated under this
Agreement, which failure continues, in the reasonable judgment of the
Board of Directors, after written notice given to the Executive by the
Board of Directors;
(iv) gross negligence, willful misconduct or insubordination of
the Executive with respect to the Employer or any affiliate of the
Employer which is repeated or continued by the Executive, in the
reasonable judgment of the Board of Directors, after written notice
given to the Executive by the Board of Directors; or
(v) material breach by the Executive of any of the Executive's
obligations under this Agreement, which breach is repeated or
continued by the Executive, in the reasonable judgment of the Board of
Directors, after written notice given to the Executive by the Board of
Directors.
Notwithstanding the foregoing, the Executive's employment may not be
terminated for cause as a result of the Executive's refusal to comply with any
request by the Employer to relocate the Executive's principal place of
employment to a new location that is beyond a fifty (50) mile radius from the
Executive's current principal place of employment.
(b) Termination by the Executive. The Executive's employment under
----------------------------
this Agreement may be terminated by the Executive by written notice to the
Board of Directors at least thirty (30) days prior to such termination.
4
<PAGE>
(c) Termination by the Employer Without Cause. Subject to the payment
-----------------------------------------
of Termination Benefits pursuant to Section 6(d), the Executive's
employment under this Agreement may be terminated by the Employer without
cause upon written notice to the Executive by a vote of the Board of
Directors at least thirty (30) days prior to such termination, provided
that, the Employer, in its sole discretion, may elect to provide the
Executive with pay in lieu of all or a portion of such notice.
(d) Certain Termination Benefits. Unless otherwise specifically
----------------------------
provided in this Agreement or otherwise required by law, all compensation
and benefits payable to the Executive under this Agreement shall terminate
on the date of termination of the Executive's employment under this
Agreement pursuant to this Section 6 or due to delivery of a Non-renewal
Notice from either party to the other. Notwithstanding the foregoing, in
the event of termination of the Executive's employment with the Employer
pursuant to Section 6(c) above, the Employer shall provide to the Executive
the following termination benefits ("Termination Benefits"):
(i) continuation of the Salary at the rate then in effect
pursuant to Section 4(a);
(ii) continuation of group health plan benefits, (A) if permitted
by Employer's health plan or if Employer self-insures (provided
that Employer shall have no obligation to self-insure), until the
expiration of the Initial Term, or (B) if not permitted by
Employer's health plan, to the extent authorized by and
consistent with 29 U.S.C (S) 1161 et seq. (commonly known as
"COBRA"), in either case with the cost of the regular premium for
such benefits shared in the same relative proportion by the
Employer and the Executive as in effect on the date of
termination; and
(iii) continuation of automobile benefits as in effect on the
date of termination pursuant to Section 4(d)(ii).
The Termination Benefits set forth in (i) above shall continue effective
until the later of (A) the expiration of the Initial Term or (B) for twelve
months from the date of termination of employment, provided that the Executive
shall not have breached, (1) as of the date of termination, any of his or her
covenants or agreements contained in Sections 7 and 8 of this Agreement or (2)
thereafter, any of his or her covenants or agreements contained in this
Agreement. The Termination Benefits set forth in (ii) and (iii) above shall
continue effective until the expiration of the Initial Term, provided that the
Executive shall not have breached, (x) as of the date of termination, any of his
or her covenants or agreements contained in Section 7 and 8 of this Agreement or
(y) thereafter, any of his or her covenants or agreements contained in this
Agreement. In the event that the Executive commences any employment or self-
employment during the period during which the Executive is entitled to receive
Termination Benefits (the "Termination Benefits Period"), the remaining amount
of Salary due
5
<PAGE>
for the period from the commencement of such employment or self-employment to
the end of the Termination Benefits Period shall be reduced by one-half and the
Termination Benefits provided under Sections 6(d)(ii) and (iii) shall cease
effective as of the date of commencement of such employment or self-employment.
The Employer's liability for Salary continuation pursuant to Section 6(d)(i)
shall be reduced by the amount of any severance pay due or otherwise paid to the
Executive pursuant to any severance pay plan or stay bonus plan of the Employer.
Notwithstanding the foregoing, nothing in this Section 6(d) shall be construed
to affect the Executive's right to receive COBRA continuation entirely at the
Executive's own cost to the extent that the Executive may continue to be
entitled to COBRA continuation after the Executive's right to cost sharing under
Section 6(d)(ii) ceases. The Executive shall be obligated to give prompt notice
of the date of commencement of any employment or self-employment during the
Termination Benefits Period and shall respond promptly to any reasonable
inquiries concerning any employment or self-employment in which the Executive
engages during the Termination Benefits Period.
(e) Disability. If the Executive shall be disabled so as to be unable
----------
to perform the essential functions of the Executive's then existing
position or positions under this Agreement with or without reasonable
accommodation, the Chief Executive Officer or the Board of Directors may
remove the Executive from any responsibilities and/or reassign the
Executive to another position with the Employer for the remainder of the
Initial Term or, if the Initial Term has expired, any Extended Term, or
during the period of such disability. Notwithstanding any such removal or
reassignment, the Executive shall continue to receive the Executive's full
Salary (less any disability pay or sick pay benefits to which the Executive
may be entitled under the Employer's policies) and benefits under Section 4
of this Agreement (except to the extent that the Executive may be
ineligible for one or more such benefits under applicable plan terms) for a
period of time equal to the remainder of the Initial Term or, if the
Initial Term has expired, any Extended Term, provided that the Executive
remains employed by the Employer during such period. In the event that the
Employer terminates the Executive's employment without cause pursuant to
Section 6(c) or the Employer delivers a Non-renewal Notice to the
Executive, in either case due to the Executive's continuing inability to
perform the essential functions of the Executive's then existing position
or positions, the Executive shall be eligible to receive Termination
Benefits subject to and in accordance with the terms and conditions of
Section 6(d), provided that the Executive's Termination Benefits
additionally shall be subject to reduction by the amount of any payments
the Executive receives under any disability benefit plan or plans or
insurance policies the Employer maintains for the Executive, or under
worker's compensation, or state or federal disability benefit programs. If
any question shall arise as to whether during any period the Executive is
disabled so as to be unable to perform the essential functions of the
Executive's then existing position or positions with or without reasonable
accommodation, the Executive may, and at the request of the Employer shall,
submit to the Employer a certification in reasonable detail by a physician
selected by the Employer to whom the Executive or the Executive's guardian
has no reasonable objection as to whether the Executive is so disabled or
how long such
6
<PAGE>
disability is expected to continue, and such certification shall for the
purposes of this Agreement be conclusive of the issue. The Executive shall
cooperate with any reasonable request of the physician in connection with
such certification. If such question shall arise and the Executive shall
fail to submit such certification, the Employer's determination of such
issue shall be binding on the Executive. Nothing in this Section 6(e) shall
be construed to waive the Executive's rights, if any, under existing law
including, without limitation, the Family and Medical Leave Act of 1993, 29
U.S.C. (S)2601 et seq. and the Americans with Disabilities Act, 42 U.S.C.
(S)12101 et seq.
(f) Deductibility of Payments. It is the intention of the Executive
-------------------------
and of the Employer that no payments by the Employer to or for the benefit
of the Executive under this Agreement or any other agreement or plan, if
any, pursuant to which the Executive is entitled to receive payments or
benefits shall be nondeductible to the Employer by reason of the operation
of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), relating to parachute payments or any like statutory or regulatory
provision. Accordingly, and notwithstanding any other provision of this
Agreement or any such agreement or plan, if by reason of the operation of
said Section 280G or any like statutory or regulatory provision, any such
payments exceed the amount which can be deducted by the Employer, such
payments shall be reduced to the maximum amount which can be deducted by
the Employer. To the extent that payments exceeding such maximum
deductible amount have been made to or for the benefit of the Executive,
such excess payments shall be refunded to the Employer with interest
thereon at the applicable Federal rate determined under Section 1274(d) of
the Code, compounded annually, or at such other rate as may be required in
order that no such payments shall be nondeductible to the Employer by
reason of the operation of said Section 280G or any like statutory or
regulatory provision. To the extent that there is more than one method of
reducing the payments to bring them within the limitations of said Section
280G or any like statutory or regulatory provision, the Executive shall
determine which method shall be followed, provided that if the Executive
fails to make such determination within forty-five (45) days after the
Employer has given notice of the need for such reduction, the Employer may
determine the method of such reduction in its sole discretion.
7. Confidential Information, Noncompetition and Cooperation.
--------------------------------------------------------
(a) Confidential Information. As used in this Agreement,
------------------------
"Confidential Information" means information belonging to the Employer
which is of value to the Employer in the course of conducting its business
and the disclosure of which could result in a competitive or other
disadvantage to the Employer. Confidential Information includes, without
limitation, financial information, reports, and forecasts; market or sales
information, plans, methods and techniques; pricing policies; customer
lists; price lists; inventions, improvements and other intellectual
property; trade secrets; know-how; designs, processes or formulae;
software; and business plans, prospects and
7
<PAGE>
opportunities (such as possible acquisitions or dispositions of businesses
or facilities) which have been discussed or considered by the management of
the Employer. Confidential Information includes information developed by
the Executive in the course of the Executive's employment by the Employer,
as well as other information to which the Executive may have access in
connection with the Executive's employment. Confidential Information also
includes the confidential information of others with which the Employer has
a business relationship, including without limitation its principals,
packers and suppliers. Notwithstanding the foregoing, Confidential
Information does not include information in the public domain, unless due
to breach of the Executive's duties under Section 7(b).
(b) Confidentiality. The Executive understands and agrees that the
---------------
Executive's employment creates a relationship of confidence and trust
between the Executive and the Employer with respect to all Confidential
Information. At all times, both during the Executive's employment with the
Employer and after its termination, the Executive will keep in confidence
and trust all such Confidential Information, and will not use or disclose
any such Confidential Information without the written consent of the
Employer, except as may be necessary in the ordinary course of performing
the Executive's duties to the Employer.
(c) Documents, Records, etc. All documents, records, data, apparatus,
------------------------
equipment and other physical property, whether or not pertaining to
Confidential Information, which are furnished to the Executive by the
Employer or are produced by the Executive in connection with the
Executive's employment will be and remain the sole property of the
Employer. The Executive will return to the Employer all such materials and
property as and when requested by the Employer. In any event, the
Executive will return all such materials and property immediately upon
termination of the Executive's employment for any reason. The Executive
will not retain with the Executive any such material or property or any
copies thereof after such termination.
(d) Noncompetition and Nonsolicitation. During the Initial Term and
----------------------------------
any Extended Term(s) and for one (1) year thereafter (or during the
Termination Benefits Period, if longer) (the "Restricted Period"), the
Executive (i) will not, directly or indirectly, whether as owner, partner,
shareholder, advisor, consultant, agent, employee, co-venturer, creditor,
officer, director, trustee or otherwise, engage, participate, assist or
invest in any Restricted Business within the Territory (as those terms are
hereinafter defined); (ii) will refrain from directly or indirectly
employing, attempting to employ, recruiting or otherwise soliciting,
inducing or influencing any person to leave employment with the Employer
(other than terminations of employment of subordinate employees undertaken
in the course of the Executive's employment with the Employer); and (iii)
will refrain from soliciting or encouraging any principal, customer or
supplier to terminate or otherwise modify adversely its business
relationship with the Employer. The Executive understands that the
restrictions set forth in this Section 7(d) are intended to protect the
Employer's interest in its Confidential Information and established
employee, customer and supplier relationships and goodwill, and agrees that
such restrictions are reasonable and appropriate for this purpose.
8
<PAGE>
For purposes of this Agreement, the term "Restricted Business" shall mean
any business which is competitive with:
(A) any business conducted by the Employer on the date of the
termination of Executive's employment with the Employer, and
(B) any business conducted by the Employer within the twelve (12)
month period immediately preceding the termination of Executive's
employment with the Employer, and
(C) any business the Employer actively considered entering within
twelve (12) months preceding the date of the termination of
Executive's employment with the Employer if the Executive had
knowledge of such consideration and the Employer in fact commences
conducting such business during the Restricted Period.
Notwithstanding the foregoing, the Executive may own up to one percent
(1%) of the outstanding stock of a publicly held corporation which
constitutes or is affiliated with a Restricted Business.
For purposes of this Agreement, the term "Territory" shall mean:
(A) any geographic area in which the Employer engaged in business and
for which the Executive had any responsibility at the time of the
termination of the Executive's employment or within the twelve (12)
month period preceding termination, and
(B) any geographic area in which the Employer engaged in business at
the time of the termination of the Executive's employment or within
the twelve (12) month period preceding termination, and
(C) any geographic area in which the Employer actively considered
conducting business within twelve (12) months preceding the date of
the termination of Executive's employment with the Employer if the
Executive had knowledge of such consideration and the Employer in fact
commences conducting business therein during the Restricted Period.
The parties acknowledge and agree that for purpose of this Section 7,
the term "Employer" includes the Employer, its related and affiliated
entities, and their respective predecessors, successors and assigns.
9
<PAGE>
(e) Principals and Customers. For purposes of construing the
------------------------
provisions of this Section 7, any and all persons, firms and entities for
whom the Employer performs services, to whom the Employer sells or from
whom the Employer solicits and obtains orders, in the course of its
business, are and shall be deemed the principals and/or customers of the
Employer (or its principals), both during and after the Term,
notwithstanding the fact that some or all of said persons, firms or
entities may have been induced to give their business to the Employer by
the solicitation by the Executive, or by someone on his or her behalf,
either during the usual working hours of the Executive or otherwise, and
notwithstanding the fact that all or some of such persons, firms or
entities may have previously been principals or customers of (i) the
Executive, (ii) any corporation or other entity with which the Executive
was formerly employed or which was controlled or owned, in whole or in
part, by the Executive, or (iii) any principal of such corporation or
entity.
(f) Third-Party Agreements and Rights. The Executive hereby confirms
---------------------------------
that the Executive is not bound by the terms of any agreement with any
previous employer or other party which restricts in any way the Executive's
use or disclosure of information or the Executive's engagement in any
business. The Executive represents to the Employer that the Executive's
execution of this Agreement, the Executive's employment with the Employer
and the performance of the Executive's proposed duties for the Employer
will not violate any obligations the Executive may have to any such
previous employer or other party. In the Executive's work for the
Employer, the Executive will not disclose or make use of any information in
violation of any agreements with or rights of any such previous employer or
other party, and the Executive will not bring to the premises of the
Employer any copies or other tangible embodiments of non-public information
belonging to or obtained from any such previous employment or other party.
(g) Litigation and Regulatory Cooperation. During and after the
-------------------------------------
Executive's employment, the Executive shall cooperate fully with the
Employer in the defense or prosecution of any claims or actions now in
existence or which may be brought in the future against or on behalf of the
Employer which relate to events or occurrences that transpired while the
Executive was employed by the Employer. The Executive's full cooperation
in connection with such claims or actions shall include, but not be limited
to, being available to meet with counsel to prepare for discovery or trial
and to act as a witness on behalf of the Employer at mutually convenient
times. During and after the Executive's employment, the Executive also
shall cooperate fully with the Employer in connection with any
investigation or review of any federal, state or local regulatory authority
as any such investigation or review relates to events or occurrences that
transpired while the Executive was employed by the Employer. The Employer
shall reimburse the Executive for any reasonable out-of-pocket expenses
incurred in connection with the Executive's performance of obligations
pursuant to this Section 7(g).
10
<PAGE>
(h) Injunction. The Executive agrees that it would be difficult to
----------
measure any damages caused to the Employer which might result from any
breach by the Executive of the promises set forth in this Section 7, and
that in any event money damages would be an inadequate remedy for any such
breach. Accordingly, subject to Section 8 of this Agreement, the Executive
agrees that if the Executive breaches, or proposes to breach, any portion
of this Agreement, the Employer shall be entitled, in addition to all other
remedies that it may have, to an injunction or other appropriate equitable
relief to restrain any such breach without showing or proving any actual
damage to the Employer.
8. Arbitration of Disputes. Any controversy or claim arising out of or
-----------------------
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in Charlotte, North Carolina in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the rules and
procedures applicable to the selection of arbitrators. In the event that any
person or entity other than the Executive or the Employer may be a party with
regard to any such controversy or claim, such controversy or claim shall be
submitted to arbitration subject to such other person or entity's agreement.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. This Section 8 shall be specifically enforceable.
Notwithstanding the foregoing, this Section 8 shall not preclude either party
from pursuing a court action for the sole purpose of obtaining a temporary
restraining order or a preliminary injunction in circumstances in which such
relief is appropriate; provided that any other relief shall be pursued through
an arbitration proceeding pursuant to this Section 8.
9. Consent to Jurisdiction. To the extent that any court action is
-----------------------
permitted consistent with or to enforce Section 8 of this Agreement, the parties
hereby consent to the jurisdiction of the courts of the State of North Carolina
and (to the extent subject matter jurisdiction exists therefor) of the United
States District Court for the Western District of North Carolina. Accordingly,
with respect to any such court action, the Executive (a) submits to the personal
jurisdiction of such courts; (b) consents to service of process; and (c) waives
any other requirement (whether imposed by statute, rule of court, or otherwise)
with respect to personal jurisdiction or service of process.
10. Integration. This Agreement constitutes the entire agreement between
-----------
the parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties with respect to any related subject matter.
11. Assignment; Successors and Assigns, etc. Neither the Employer nor the
---------------------------------------
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided that the
11
<PAGE>
Employer may assign its rights under this Agreement without the consent of the
Executive in the event that the Employer shall effect a reorganization,
consolidate with or merge into any other corporation, partnership, organization
or other entity, or transfer all or substantially all of its properties or
assets to any other corporation, partnership, organization or other entity. This
Agreement shall inure to the benefit of and be binding upon the Employer and the
Executive and their respective successors, executors, administrators, heirs and
permitted assigns.
12. Enforceability. If any portion or provision of this Agreement
--------------
(including, without limitation, any portion or provision of any section of this
Agreement) shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
13. Waiver. No waiver of any provision hereof shall be effective unless
------
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
14. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Chief Executive Officer, and shall be effective on the date of delivery in
person or by courier or three (3) days after the date mailed.
15. Amendment. This Agreement may be amended or modified only by a
---------
written instrument signed by the Executive and by a duly authorized
representative of the Employer.
16. Governing Law. This is a North Carolina contract and shall be
-------------
construed under and be governed in all respects by the laws of the State of
North Carolina, without giving effect to the conflict of laws principles of such
State. With respect to any disputes concerning federal law, such disputes shall
be determined in accordance with the law as it would be interpreted and applied
by the United States Court of Appeals for the Fourth Circuit.
17. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.
[End of text]
12
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Employer, by its duly authorized officer, and by the Executive, as of
the Effective Date.
EMPLOYER:
ROGERS-AMERICAN COMPANY, INC.
By: /s/ Marty D. Carter
---------------------------------
Marty D. Carter
Chief Financial Officer
EXECUTIVE:
/s/ Douglas H. Holstein
---------------------------------
Douglas H. Holstein
13
<PAGE>
EXHIBIT 10.33
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This AGREEMENT (the "Agreement") is made as of December 18, 1998 (the
"Effective Date"), by and between Rogers-American Company, Inc., a North
Carolina corporation (the "Employer"), and Marty D. Carter (the "Executive").
In consideration of the mutual covenants contained in this Agreement, the
Employer and the Executive agree as follows:
1. Employment. The Employer agrees to employ the Executive and the
----------
Executive agrees to be employed by the Employer on the terms and conditions set
forth in this Agreement.
2. Capacity. The Executive shall initially serve the Employer as Chief
--------
Financial Officer, subject to election by the Board of Directors of the Employer
(the "Board of Directors"). The Executive shall also serve the Employer in such
other or additional offices as the Executive may be requested to serve by the
Board of Directors or the Chief Executive Officer. In such capacity or
capacities, the Executive shall perform such services and duties in connection
with the business, affairs and operations of the Employer as may be assigned or
delegated to the Executive from time to time by or under the authority of the
Board of Directors or the Chief Executive Officer.
3. Term. Subject to the provisions of Section 6, the term of employment
----
pursuant to this Agreement shall be three (3) years from the Effective Date (the
"Initial Term") and shall continue from month to month thereafter (the "Extended
Term"), subject to either party's thirty (30) day advance notice of non-renewal
(a "Non-renewal Notice").
4. Compensation and Benefits. The regular compensation and benefits
-------------------------
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under this
------
Agreement, the Employer shall pay the Executive a salary (the "Salary") at
the annual rate of ONE HUNDRED SEVENTY-FIVE THOUSAND DOLLARS ($175,000),
subject to increase from time to time in the discretion of the Board of
Directors or the Compensation Committee of the Board of Directors (the
"Compensation Committee"). The Salary shall be payable in periodic
installments in accordance with the Employer's usual practice for its
senior executives.
(b) Bonus. Beginning with the fiscal year ending December 31, 1998,
-----
the Executive shall be entitled to participate in an annual incentive
program established by the Board of Directors or the Compensation Committee
with such terms as may be established in the sole discretion of the Board
of Directors or Compensation Committee.
<PAGE>
(c) Regular Benefits. From and after the commencement of the Initial
----------------
Term, the Executive shall continue to participate in such employee benefit
plans of Rogers-American Company, Inc. in which the Executive participated
prior to the acquisition of Rogers-American Company, Inc. and which may
have been adopted or assumed by the Employer in its sole discretion (the
"Predecessor Plans"). The Executive may continue to participate in each
such Predecessor Plan, in accordance with and subject to each such
Predecessor Plan's terms and conditions, as may be modified or amended from
time to time by the Employer, until such time as the Employer terminates
any such Predecessor Plan. Thereafter, the Executive shall be entitled to
participate in any employee benefit plans, including, without limitation,
medical insurance plans, life insurance plans, disability income plans,
retirement plans, and other benefit plans, which the Employer may from time
to time have in effect for all or most of its senior executives. During
the Initial Term, the Employer shall provide the Executive with medical
insurance coverage that is substantially equivalent to the medical
insurance coverage applicable to the Executive immediately prior to the
acquisition of Rogers-American Company, Inc. The Executive's participation
in any employee benefit plan shall at all times be subject to the terms of
the applicable plan documents, generally applicable policies of the
Employer, applicable law and the discretion of the Board of Directors, the
Compensation Committee or any administrative or other committee provided
for in or contemplated by any such plan. Nothing contained in this
Agreement shall be construed to create any obligation on the part of the
Employer to establish any such plan or to maintain the effectiveness of any
such plan which may be in effect from time to time.
(d) Other Benefits and Perquisites.
------------------------------
(i) Expenses. The Employer shall reimburse the Executive for
--------
expenses reasonably incurred by the Executive in furtherance of
his duties for the Employer hereunder. The Employer's obligation
to reimburse the Executive for such expenses shall be subject to
the Employer's expense reimbursement policies, as established,
modified or amended by the Employer from time to time, and the
submission by the Executive of documentation in a form acceptable
to the Employer.
(ii) Automobile. During the Initial Term, the Executive shall be
----------
entitled to use an automobile supplied by the Employer and to
receive reimbursement from the Employer for business-related
automobile expenses to the extent that and subject to
substantially equivalent terms and conditions on which Rogers-
American Company, Inc. provided such benefits to the Executive
immediately prior to the acquisition of Rogers-American Company,
Inc.
2
<PAGE>
(iii) Vacation. The Executive shall be entitled to accrue on a
--------
pro rata basis up to four (4) weeks of paid vacation per year.
The Executive's entitlement to carry-over unused vacation from
year to year shall be subject to vacation policies established,
and as modified or amended, from time to time by the Employer;
provided, that nothing contained herein shall be construed to
require the Employer to permit the carry-over of unused vacation.
(e) Taxation of Payments and Benefits. The Employer shall undertake
---------------------------------
to make deductions, withholdings and tax reports with respect to payments
and benefits under this Agreement to the extent that it reasonably and in
good faith believes that it is required to make such deductions,
withholdings and tax reports. Payments under this Agreement shall be in
amounts net of any such deductions or withholdings. Nothing in this
Agreement shall be construed to require the Employer to make any payments
to compensate the Executive for any adverse tax effect associated with any
payments or benefits or for any deduction or withholding from any payment
or benefit.
(f) Exclusivity of Salary and Benefits. The Executive shall not be
----------------------------------
entitled to any payments or benefits other than those provided under this
Agreement.
5. Extent of Service. During the Executive's employment under this
-----------------
Agreement, the Executive shall, subject to the direction and supervision of the
Board of Directors or the Chief Executive Officer, devote the Executive's full
business time, best efforts and business judgment, skill and knowledge to the
advancement of the Employer's interests and to the discharge of the Executive's
duties and responsibilities under this Agreement. The Executive shall not
engage in any other business activity, except as may be approved by the Board of
Directors; provided that nothing in this Agreement shall be construed as
preventing the Executive from:
(a) investing the Executive's assets in any company or other entity in
a manner not prohibited by Section 7(d) and in such form or manner as shall
not require any material activities on the Executive's part in connection
with the operations or affairs of the companies or other entities in which
such investments are made; or
(b) engaging in religious, charitable or other community or non-profit
activities that do not impair the Executive's ability to fulfill the
Executive's duties and responsibilities under this Agreement.
6. Termination and Termination Benefits. Notwithstanding the provisions
------------------------------------
of Section 3, the Executive's employment under this Agreement shall terminate
under the following circumstances set forth in this Section 6.
(a) Termination by the Employer for Cause. The Executive's employment
-------------------------------------
under this Agreement may be terminated for cause without further liability
on the part of the Employer effective immediately upon a vote of the Board
of Directors and written notice to the Executive. Only the following shall
constitute "cause" for such termination:
3
<PAGE>
(i) dishonest statements or acts of the Executive with respect to
the Employer or any affiliate of the Employer which constitute
material disloyalty or dishonesty toward the Employer or any affiliate
of the Employer or cause significant damage to the Employer or any
affiliate of the Employer, including damage to the business reputation
of the Employer or any affiliate of the Employer;
(ii) the commission by or indictment of the Executive for (A) a
felony or (B) any misdemeanor involving moral turpitude, deceit,
dishonesty or fraud ("indictment," for these purposes, meaning an
indictment, probable cause hearing or any other procedure pursuant to
which an initial determination of probable or reasonable cause with
respect to such offense is made);
(iii) failure to perform to the reasonable satisfaction of the
Board of Directors a substantial portion of the Executive's duties and
responsibilities reasonably assigned or delegated under this
Agreement, which failure continues, in the reasonable judgment of the
Board of Directors, after written notice given to the Executive by the
Board of Directors;
(iv) gross negligence, willful misconduct or insubordination of
the Executive with respect to the Employer or any affiliate of the
Employer which is repeated or continued by the Executive, in the
reasonable judgment of the Board of Directors, after written notice
given to the Executive by the Board of Directors; or
(v) material breach by the Executive of any of the Executive's
obligations under this Agreement, which breach is repeated or
continued by the Executive, in the reasonable judgment of the Board of
Directors, after written notice given to the Executive by the Board of
Directors.
Notwithstanding the foregoing, the Executive's employment may not be
terminated for
cause as a result of the Executive's refusal to comply with any request by
the Employer to relocate the Executive's principal place of employment to a
new location that is beyond a fifty (50) mile radius from the Executive's
current principal place of employment.
(b) Termination by the Executive. The Executive's employment under
----------------------------
this Agreement may be terminated by the Executive by written notice to the
Board of Directors at least thirty (30) days prior to such termination.
4
<PAGE>
(c) Termination by the Employer Without Cause. Subject to the payment
-----------------------------------------
of Termination Benefits pursuant to Section 6(d), the Executive's
employment under this Agreement may be terminated by the Employer without
cause upon written notice to the Executive by a vote of the Board of
Directors at least thirty (30) days prior to such termination, provided
that, the Employer, in its sole discretion, may elect to provide the
Executive with pay in lieu of all or a portion of such notice.
(d) Certain Termination Benefits. Unless otherwise specifically
----------------------------
provided in this Agreement or otherwise required by law, all compensation
and benefits payable to the Executive under this Agreement shall terminate
on the date of termination of the Executive's employment under this
Agreement pursuant to this Section 6 or due to delivery of a Non-renewal
Notice from either party to the other. Notwithstanding the foregoing, in
the event of termination of the Executive's employment with the Employer
pursuant to Section 6(c) above, the Employer shall provide to the Executive
the following termination benefits ("Termination Benefits"):
(i) continuation of the Salary at the rate then in effect
pursuant to Section 4(a);
(ii) continuation of group health plan benefits, (A) if permitted
by Employer's health plan or if Employer self-insures (provided
that Employer shall have no obligation to self-insure), until the
expiration of the Initial Term, or (B) if not permitted by
Employer's health plan, to the extent authorized by and
consistent with 29 U.S.C (S) 1161 et seq. (commonly known as
"COBRA"), in either case with the cost of the regular premium for
such benefits shared in the same relative proportion by the
Employer and the Executive as in effect on the date of
termination; and
(iii) continuation of automobile benefits as in effect on the
date of termination pursuant to Section 4(d)(ii).
The Termination Benefits set forth in (i) above shall continue effective
until the later of (A) the expiration of the Initial Term or (B) for twelve
months from the date of termination of employment, provided that the Executive
shall not have breached, (1) as of the date of termination, any of his or her
covenants or agreements contained in Sections 7 and 8 of this Agreement or (2)
thereafter, any of his or her covenants or agreements contained in this
Agreement. The Termination Benefits set forth in (ii) and (iii) above shall
continue effective until the expiration of the Initial Term, provided that the
Executive shall not have breached, (x) as of the date of termination, any of his
or her covenants or agreements contained in Section 7 and 8 of this Agreement or
(y) thereafter, any of his or her covenants or agreements contained in this
Agreement. In the event that the Executive commences any employment or self-
employment during the period during which the Executive is entitled to receive
Termination Benefits (the "Termination Benefits Period"), the remaining amount
of Salary due
5
<PAGE>
for the period from the commencement of such employment or self-employment to
the end of the Termination Benefits Period shall be reduced by one-half and the
Termination Benefits provided under Sections 6(d)(ii) and (iii) shall cease
effective as of the date of commencement of such employment or self-employment.
The Employer's liability for Salary continuation pursuant to Section 6(d)(i)
shall be reduced by the amount of any severance pay due or otherwise paid to the
Executive pursuant to any severance pay plan or stay bonus plan of the Employer.
Notwithstanding the foregoing, nothing in this Section 6(d) shall be construed
to affect the Executive's right to receive COBRA continuation entirely at the
Executive's own cost to the extent that the Executive may continue to be
entitled to COBRA continuation after the Executive's right to cost sharing under
Section 6(d)(ii) ceases. The Executive shall be obligated to give prompt notice
of the date of commencement of any employment or self-employment during the
Termination Benefits Period and shall respond promptly to any reasonable
inquiries concerning any employment or self-employment in which the Executive
engages during the Termination Benefits Period.
(e) Disability. If the Executive shall be disabled so as to be unable
----------
to perform the essential functions of the Executive's then existing
position or positions under this Agreement with or without reasonable
accommodation, the Chief Executive Officer or the Board of Directors may
remove the Executive from any responsibilities and/or reassign the
Executive to another position with the Employer for the remainder of the
Initial Term or, if the Initial Term has expired, any Extended Term, or
during the period of such disability. Notwithstanding any such removal or
reassignment, the Executive shall continue to receive the Executive's full
Salary (less any disability pay or sick pay benefits to which the Executive
may be entitled under the Employer's policies) and benefits under Section 4
of this Agreement (except to the extent that the Executive may be
ineligible for one or more such benefits under applicable plan terms) for a
period of time equal to the remainder of the Initial Term or, if the
Initial Term has expired, any Extended Term, provided that the Executive
remains employed by the Employer during such period. In the event that the
Employer terminates the Executive's employment without cause pursuant to
Section 6(c) or the Employer delivers a Non-renewal Notice to the
Executive, in either case due to the Executive's continuing inability to
perform the essential functions of the Executive's then existing position
or positions, the Executive shall be eligible to receive Termination
Benefits subject to and in accordance with the terms and conditions of
Section 6(d), provided that the Executive's Termination Benefits
additionally shall be subject to reduction by the amount of any payments
the Executive receives under any disability benefit plan or plans or
insurance policies the Employer maintains for the Executive, or under
worker's compensation, or state or federal disability benefit programs. If
any question shall arise as to whether during any period the Executive is
disabled so as to be unable to perform the essential functions of the
Executive's then existing position or positions with or without reasonable
accommodation, the Executive may, and at the request of the Employer shall,
submit to the Employer a certification in reasonable detail by a physician
selected by the Employer to whom the Executive or the Executive's guardian
has no reasonable objection as to whether the Executive is so disabled or
how long such
6
<PAGE>
disability is expected to continue, and such certification shall for the
purposes of this Agreement be conclusive of the issue. The Executive shall
cooperate with any reasonable request of the physician in connection with
such certification. If such question shall arise and the Executive shall
fail to submit such certification, the Employer's determination of such
issue shall be binding on the Executive. Nothing in this Section 6(e) shall
be construed to waive the Executive's rights, if any, under existing law
including, without limitation, the Family and Medical Leave Act of 1993, 29
U.S.C. (S)2601 et seq. and the Americans with Disabilities Act, 42 U.S.C.
(S)12101 et seq.
(f) Deductibility of Payments. It is the intention of the Executive
-------------------------
and of the Employer that no payments by the Employer to or for the benefit
of the Executive under this Agreement or any other agreement or plan, if
any, pursuant to which the Executive is entitled to receive payments or
benefits shall be nondeductible to the Employer by reason of the operation
of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), relating to parachute payments or any like statutory or regulatory
provision. Accordingly, and notwithstanding any other provision of this
Agreement or any such agreement or plan, if by reason of the operation of
said Section 280G or any like statutory or regulatory provision, any such
payments exceed the amount which can be deducted by the Employer, such
payments shall be reduced to the maximum amount which can be deducted by
the Employer. To the extent that payments exceeding such maximum
deductible amount have been made to or for the benefit of the Executive,
such excess payments shall be refunded to the Employer with interest
thereon at the applicable Federal rate determined under Section 1274(d) of
the Code, compounded annually, or at such other rate as may be required in
order that no such payments shall be nondeductible to the Employer by
reason of the operation of said Section 280G or any like statutory or
regulatory provision. To the extent that there is more than one method of
reducing the payments to bring them within the limitations of said Section
280G or any like statutory or regulatory provision, the Executive shall
determine which method shall be followed, provided that if the Executive
fails to make such determination within forty-five (45) days after the
Employer has given notice of the need for such reduction, the Employer may
determine the method of such reduction in its sole discretion.
7. Confidential Information, Noncompetition and Cooperation.
--------------------------------------------------------
(a) Confidential Information. As used in this Agreement,
------------------------
"Confidential Information" means information belonging to the Employer
which is of value to the Employer in the course of conducting its business
and the disclosure of which could result in a competitive or other
disadvantage to the Employer. Confidential Information includes, without
limitation, financial information, reports, and forecasts; market or sales
information, plans, methods and techniques; pricing policies; customer
lists; price lists; inventions, improvements and other intellectual
property; trade secrets; know-how; designs, processes or formulae;
software; and business plans, prospects and
7
<PAGE>
opportunities (such as possible acquisitions or dispositions of businesses
or facilities) which have been discussed or considered by the management of
the Employer. Confidential Information includes information developed by
the Executive in the course of the Executive's employment by the Employer,
as well as other information to which the Executive may have access in
connection with the Executive's employment. Confidential Information also
includes the confidential information of others with which the Employer has
a business relationship, including without limitation its principals,
packers and suppliers. Notwithstanding the foregoing, Confidential
Information does not include information in the public domain, unless due
to breach of the Executive's duties under Section 7(b).
(b) Confidentiality. The Executive understands and agrees that the
---------------
Executive's employment creates a relationship of confidence and trust
between the Executive and the Employer with respect to all Confidential
Information. At all times, both during the Executive's employment with the
Employer and after its termination, the Executive will keep in confidence
and trust all such Confidential Information, and will not use or disclose
any such Confidential Information without the written consent of the
Employer, except as may be necessary in the ordinary course of performing
the Executive's duties to the Employer.
(c) Documents, Records, etc. All documents, records, data, apparatus,
------------------------
equipment and other physical property, whether or not pertaining to
Confidential Information, which are furnished to the Executive by the
Employer or are produced by the Executive in connection with the
Executive's employment will be and remain the sole property of the
Employer. The Executive will return to the Employer all such materials and
property as and when requested by the Employer. In any event, the
Executive will return all such materials and property immediately upon
termination of the Executive's employment for any reason. The Executive
will not retain with the Executive any such material or property or any
copies thereof after such termination.
(d) Noncompetition and Nonsolicitation. During the Initial Term and
----------------------------------
any Extended Term(s) and for one (1) year thereafter (or during the
Termination Benefits Period, if longer) (the "Restricted Period"), the
Executive (i) will not, directly or indirectly, whether as owner, partner,
shareholder, advisor, consultant, agent, employee, co-venturer, creditor,
officer, director, trustee or otherwise, engage, participate, assist or
invest in any Restricted Business within the Territory (as those terms are
hereinafter defined); (ii) will refrain from directly or indirectly
employing, attempting to employ, recruiting or otherwise soliciting,
inducing or influencing any person to leave employment with the Employer
(other than terminations of employment of subordinate employees undertaken
in the course of the Executive's employment with the Employer); and (iii)
will refrain from soliciting or encouraging any principal, customer or
supplier to terminate or otherwise modify adversely its business
relationship with the Employer. The Executive understands that the
restrictions set forth in this Section 7(d) are intended to protect the
Employer's interest in its Confidential Information and established
employee, customer and supplier relationships and goodwill, and agrees that
such restrictions are reasonable and appropriate for this purpose.
8
<PAGE>
For purposes of this Agreement, the term "Restricted Business" shall mean
any business which is competitive with:
(A) any business conducted by the Employer on the date of the
termination of Executive's employment with the Employer, and
(B) any business conducted by the Employer within the twelve (12)
month period immediately preceding the termination of Executive's
employment with the Employer, and
(C) any business the Employer actively considered entering within
twelve (12) months preceding the date of the termination of
Executive's employment with the Employer if the Executive had
knowledge of such consideration and the Employer in fact commences
conducting such business during the Restricted Period.
Notwithstanding the foregoing, the Executive may own up to one percent
(1%) of the outstanding stock of a publicly held corporation which
constitutes or is affiliated with a Restricted Business.
For purposes of this Agreement, the term "Territory" shall mean:
(A) any geographic area in which the Employer engaged in business and
for which the Executive had any responsibility at the time of the
termination of the Executive's employment or within the twelve (12)
month period preceding termination, and
(B) any geographic area in which the Employer engaged in business at
the time of the termination of the Executive's employment or within
the twelve (12) month period preceding termination, and
(C) any geographic area in which the Employer actively considered
conducting business within twelve (12) months preceding the date of
the termination of Executive's employment with the Employer if the
Executive had knowledge of such consideration and the Employer in fact
commences conducting business therein during the Restricted Period.
The parties acknowledge and agree that for purpose of this Section 7,
the term "Employer" includes the Employer, its related and affiliated
entities, and their respective predecessors, successors and assigns.
9
<PAGE>
(e) Principals and Customers. For purposes of construing the
------------------------
provisions of this Section 7, any and all persons, firms and entities for
whom the Employer performs services, to whom the Employer sells or from
whom the Employer solicits and obtains orders, in the course of its
business, are and shall be deemed the principals and/or customers of the
Employer (or its principals), both during and after the Term,
notwithstanding the fact that some or all of said persons, firms or
entities may have been induced to give their business to the Employer by
the solicitation by the Executive, or by someone on his or her behalf,
either during the usual working hours of the Executive or otherwise, and
notwithstanding the fact that all or some of such persons, firms or
entities may have previously been principals or customers of (i) the
Executive, (ii) any corporation or other entity with which the Executive
was formerly employed or which was controlled or owned, in whole or in
part, by the Executive, or (iii) any principal of such corporation or
entity.
(f) Third-Party Agreements and Rights. The Executive hereby confirms
---------------------------------
that the Executive is not bound by the terms of any agreement with any
previous employer or other party which restricts in any way the Executive's
use or disclosure of information or the Executive's engagement in any
business. The Executive represents to the Employer that the Executive's
execution of this Agreement, the Executive's employment with the Employer
and the performance of the Executive's proposed duties for the Employer
will not violate any obligations the Executive may have to any such
previous employer or other party. In the Executive's work for the
Employer, the Executive will not disclose or make use of any information in
violation of any agreements with or rights of any such previous employer or
other party, and the Executive will not bring to the premises of the
Employer any copies or other tangible embodiments of non-public information
belonging to or obtained from any such previous employment or other party.
(g) Litigation and Regulatory Cooperation. During and after the
-------------------------------------
Executive's employment, the Executive shall cooperate fully with the
Employer in the defense or prosecution of any claims or actions now in
existence or which may be brought in the future against or on behalf of the
Employer which relate to events or occurrences that transpired while the
Executive was employed by the Employer. The Executive's full cooperation
in connection with such claims or actions shall include, but not be limited
to, being available to meet with counsel to prepare for discovery or trial
and to act as a witness on behalf of the Employer at mutually convenient
times. During and after the Executive's employment, the Executive also
shall cooperate fully with the Employer in connection with any
investigation or review of any federal, state or local regulatory authority
as any such investigation or review relates to events or occurrences that
transpired while the Executive was employed by the Employer. The Employer
shall reimburse the Executive for any reasonable out-of-pocket expenses
incurred in connection with the Executive's performance of obligations
pursuant to this Section 7(g).
10
<PAGE>
(h) Injunction. The Executive agrees that it would be difficult to
----------
measure any damages caused to the Employer which might result from any
breach by the Executive of the promises set forth in this Section 7, and
that in any event money damages would be an inadequate remedy for any such
breach. Accordingly, subject to Section 8 of this Agreement, the Executive
agrees that if the Executive breaches, or proposes to breach, any portion
of this Agreement, the Employer shall be entitled, in addition to all other
remedies that it may have, to an injunction or other appropriate equitable
relief to restrain any such breach without showing or proving any actual
damage to the Employer.
8. Arbitration of Disputes. Any controversy or claim arising out of or
-----------------------
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in Charlotte, North Carolina in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the rules and
procedures applicable to the selection of arbitrators. In the event that any
person or entity other than the Executive or the Employer may be a party with
regard to any such controversy or claim, such controversy or claim shall be
submitted to arbitration subject to such other person or entity's agreement.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. This Section 8 shall be specifically enforceable.
Notwithstanding the foregoing, this Section 8 shall not preclude either party
from pursuing a court action for the sole purpose of obtaining a temporary
restraining order or a preliminary injunction in circumstances in which such
relief is appropriate; provided that any other relief shall be pursued through
an arbitration proceeding pursuant to this Section 8.
9. Consent to Jurisdiction. To the extent that any court action is
-----------------------
permitted consistent with or to enforce Section 8 of this Agreement, the parties
hereby consent to the jurisdiction of the courts of the State of North Carolina
and (to the extent subject matter jurisdiction exists therefor) of the United
States District Court for the Western District of North Carolina. Accordingly,
with respect to any such court action, the Executive (a) submits to the personal
jurisdiction of such courts; (b) consents to service of process; and (c) waives
any other requirement (whether imposed by statute, rule of court, or otherwise)
with respect to personal jurisdiction or service of process.
10. Integration. This Agreement constitutes the entire agreement between
-----------
the parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties with respect to any related subject matter.
11. Assignment; Successors and Assigns, etc. Neither the Employer nor the
---------------------------------------
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided that the
11
<PAGE>
Employer may assign its rights under this Agreement without the consent of the
Executive in the event that the Employer shall effect a reorganization,
consolidate with or merge into any other corporation, partnership, organization
or other entity, or transfer all or substantially all of its properties or
assets to any other corporation, partnership, organization or other entity. This
Agreement shall inure to the benefit of and be binding upon the Employer and the
Executive and their respective successors, executors, administrators, heirs and
permitted assigns.
12. Enforceability. If any portion or provision of this Agreement
--------------
(including, without limitation, any portion or provision of any section of this
Agreement) shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
13. Waiver. No waiver of any provision hereof shall be effective unless
------
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
14. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Chief Executive Officer, and shall be effective on the date of delivery in
person or by courier or three (3) days after the date mailed.
15. Amendment. This Agreement may be amended or modified only by a
---------
written instrument signed by the Executive and by a duly authorized
representative of the Employer.
16. Governing Law. This is a North Carolina contract and shall be
-------------
construed under and be governed in all respects by the laws of the State of
North Carolina, without giving effect to the conflict of laws principles of such
State. With respect to any disputes concerning federal law, such disputes shall
be determined in accordance with the law as it would be interpreted and applied
by the United States Court of Appeals for the Fourth Circuit.
17. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.
[End of text]
12
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Employer, by its duly authorized officer, and by the Executive, as of
the Effective Date.
EMPLOYER:
ROGERS-AMERICAN COMPANY, INC.
By: /s/ Douglas H. Holstein
---------------------------------
Douglas H. Holstein
President
EXECUTIVE:
/s/ Marty D. Carter
---------------------------------
Marty D. Carter
13
<PAGE>
EXHIBIT 10.36
STOCK PURCHASE AGREEMENT
by and among
MERKERT AMERICAN CORPORATION
as Buyer
SELL, INC.
as the Company
and
THE STOCKHOLDERS OF THE COMPANY
January 20, 1999
<PAGE>
STOCK PURCHASE AGREEMENT
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. SALE OF SHARES AND PURCHASE PRICE............................ 1
1.1 Transfer of Company Shares...................................... 1
1.2 Purchase Price and Payment...................................... 1
1.3 Time and Place of Closing....................................... 2
1.4 Stockholders' Representative.................................... 2
1.5 Further Assurances.............................................. 3
1.6 Transfer Taxes.................................................. 3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
STOCKHOLDERS................................................. 3
2.1 Making of Representations and Warranties........................ 3
2.2 Organization and Qualifications of the Company.................. 4
2.3 Capital Stock of the Company; Beneficial Ownership.............. 4
2.4 Subsidiaries; Acquisitions...................................... 4
2.5 Authority of the Company and the Stockholders................... 5
2.6 No Conflicts.................................................... 5
2.7 Real and Personal Property...................................... 6
(a) Real Property............................................... 6
(i) Status of Leases..................................... 6
(ii) Consents............................................. 6
(iii) Condition of Real Property........................... 7
(iv) Compliance with the Law.............................. 7
(b) Personal Property........................................... 7
2.8 Financial Statements............................................ 8
2.9 Taxes........................................................... 9
2.10 Collectibility of Accounts Receivable.......................... 10
2.11 Inventories.................................................... 10
2.12 Absence of Certain Changes..................................... 10
2.13 Ordinary Course................................................ 12
2.14 Approvals; Consents............................................ 12
2.15 Banking Relations.............................................. 12
2.16 Intellectual Property.......................................... 13
2.17 Contracts...................................................... 13
2.18 Litigation..................................................... 15
2.19 Compliance with Laws........................................... 15
2.20 Insurance...................................................... 15
2.21 Powers of Attorney............................................. 16
</TABLE>
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2.22 Finder's Fee................................................... 16
2.23 Permits; Burdensome Agreements................................. 16
2.24 Corporate Records; Copies of Documents......................... 16
2.25 Transactions with Interested Persons........................... 16
2.26 Employee Benefit Programs...................................... 17
2.27 Environmental Matters.......................................... 20
2.28 List of Directors and Officers................................. 21
2.29 Employees; Labor Matters....................................... 21
2.30 Principals..................................................... 22
2.31 Absence of Improper Payments................................... 23
2.32 Transfer of Shares............................................. 23
2.33 Stock Repurchases.............................................. 23
2.34 Disclosure..................................................... 23
SECTION 3. COVENANTS OF THE COMPANY AND THE STOCKHOLDERS................ 23
3.1 Making of Covenants and Agreements.............................. 23
3.2 Cooperation..................................................... 24
3.3 Consents........................................................ 24
3.4 Notice of Default............................................... 24
3.5 [Intentionally omitted]......................................... 24
3.6 [Intentionally omitted.......................................... 24
3.7 [Intentionally omitted.......................................... 24
3.8 Confidentiality................................................. 24
3.9 Tax Returns..................................................... 24
3.10 Options and Other Rights....................................... 25
3.11 Consummation of Agreement...................................... 25
3.12 Leases......................................................... 25
(a) Cincinnati Lease............................................ 25
(b) Kentucky Lease.............................................. 24
(c) Personal Property........................................... 26
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER...................... 26
4.1 Making of Representations and Warranties........................ 26
4.2 Organization of Buyer........................................... 26
4.3 Authority of Buyer.............................................. 26
4.4 Litigation...................................................... 26
4.5 Finder's Fee.................................................... 26
4.6 No Conflicts.................................................... 26
SECTION 5. COVENANTS OF BUYER........................................... 27
5.1 Making of Covenants and Agreements.............................. 27
5.2 Consents........................................................ 27
5.3 Executive Supplemental Health Plan.............................. 27
</TABLE>
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SECTION 6. CONDITIONS................................................... 27
6.1 Conditions to the Obligations of Buyer.......................... 27
(a) Representations; Warranties; Covenants...................... 27
(b) Authorization............................................... 27
(c) Intentionally omitted....................................... 28
(d) No Material Adverse Change.................................. 28
(e) Approval of Buyer's Counsel................................. 28
(f) Opinion of Counsel.......................................... 28
(g) No Litigation............................................... 28
(h) Consents.................................................... 28
(i) [Intentionally omitted.].................................... 29
(j) Employment Agreements....................................... 29
(k) Business Relations.......................................... 29
(l) Employee Programs........................................... 29
(m) Resignations................................................ 29
(n) Releases.................................................... 29
(o) Due Diligence and Disclosure Schedules...................... 29
(p) Good Standing............................................... 29
6.2 Conditions to Obligations of the Company and the Stockholders... 29
(a) Representations; Warranties; Covenants...................... 29
(b) Approval of the Company's Counsel........................... 30
(c) No Litigation............................................... 30
(d) Authorization............................................... 30
(e) Good Standing............................................... 30
SECTION 7................................................................ 30
SECTION 8. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING................. 30
8.1 Survival of Warranties.......................................... 30
SECTION 9. INDEMNIFICATION.............................................. 31
9.1 Indemnification by the Stockholders............................. 31
9.2 Limitations on Indemnification by the Stockholders.............. 32
(a) Threshold................................................... 32
(b) Maximum Indemnification..................................... 32
(c) No Limitation on Certain Claims............................. 32
(d) Time Limitation............................................. 32
9.3 Indemnification by Buyer........................................ 33
9.4 Limitation on Indemnification by Buyer.......................... 33
9.5 Special Loss Sharing............................................ 33
9.6 Notice; Defense of Claims....................................... 33
9.7 Satisfaction of Stockholder Indemnification Obligations......... 34
SECTION 11. MISCELLANEOUS............................................... 38
11.1 Fees and Expenses.............................................. 38
11.2 Governing Law.................................................. 38
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11.3 Notices........................................................ 38
11.4 Entire Agreement............................................... 39
11.5 Assignability; Binding Effect.................................. 39
11.6 Captions and Gender............................................ 40
11.7 Execution in Counterparts...................................... 40
11.8 Amendments..................................................... 40
11.9 Publicity and Disclosures...................................... 40
11.10 Dispute Resolution; Consent to Jurisdiction................... 40
11.11 Consent to Jurisdiction....................................... 41
11.12 Specific Performance.......................................... 41
11.13 No Third-Party Beneficiaries.................................. 41
11.14 Severability.................................................. 41
</TABLE>
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LIST OF EXHIBITS AND SCHEDULES
Exhibit A: List of Stockholders, Stockholdings and Consideration to be Paid
Exhibit B: Form of Subordinated Promissory Note
Exhibit C: Form of Opinion of Counsel for the Company and the Stockholders
Exhibit D: Form of Employment and Noncompetition Agreement
Exhibit E: Form of General Releases
Schedule 2.3 Capital Stock of the Company; Beneficial Ownership
2.4(a) Subsidiaries
2.4(b) Acquisition Rights
2.7(a) Real Property
2.7(b) Personal Property
2.8 Financial Statements
2.9 Taxes
2.10 Collectibility of Accounts Receivable
2.12 Absence of Certain Changes
2.14 Approval; Consents
2.15 Banking Relations
2.16 Intellectual Property and Intellectual Property Rights
2.17 Contracts, etc.
2.18 Litigation
2.19 Compliance with Laws
2.20 Insurance
2.21 Powers of Attorney
2.23 Permits, Burdensome Agreements
2.25 Transactions with Interested Persons
2.26 Employee Benefit Programs
2.27 Environmental Matters
2.28 List of Officers and Directors
2.30 Principals
2.31 Market Development/Promotional Accounts
2.33 Stock Repurchases
3.12 Leases
4.6 Conflicts
6.1(n) Releasing Parties
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STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement") entered into as of
January 20, 1999 by and among Merkert American Corporation, a Delaware
corporation ("Buyer"), Sell, Inc., an Ohio corporation (the "Company"), and the
holders of the Company's capital stock listed on Exhibit A such stockholders
---------
being herein collectively referred to as the "Stockholders" and individually as
a "Stockholder").
W I T N E S S E T H
-------------------
WHEREAS, the Stockholders own, or will own as of the Closing (as defined
below), of record and beneficially all of the issued and outstanding shares (the
"Company Shares") of the common stock, no par value (the "Common Stock"), of the
Company; and
WHEREAS, the Stockholders desire to sell all of the Company Shares to
Buyer, and Buyer desires to acquire all of the Company Shares.
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
SECTION 1. SALE OF SHARES AND PURCHASE PRICE.
- ---------------------------------------------
1.1 Transfer of Company Shares. Upon the terms and subject to the
--------------------------
conditions set forth in this Agreement, Buyer hereby purchases, and each
Stockholder hereby sells, assigns, conveys, transfers and delivers to Buyer all
of such Stockholder's right, title and interest in any and all of the Company
Shares owned beneficially or of record by such Stockholder free and clear of any
and all liens, encumbrances, charges, claims or adverse interests of any kind at
an aggregate purchase price for all of the Company Shares of SIX MILLION ONE
HUNDRED THIRTY THOUSAND TWO HUNDRED FORTY-ONE AND 62/100 DOLLARS ($6,130,241.62)
(the "Purchase Price"). At the Closing, each Stockholder shall deliver or cause
to be delivered to Buyer certificates representing all of the Company Shares
owned by such Stockholder, as set forth in Exhibit A attached hereto. Such stock
---------
certificates shall be duly endorsed in blank for transfer or shall be presented
with stock powers duly executed in blank, with such signature guarantees and
such other documents as may be reasonably required by Buyer to effect a valid
transfer of such Company Shares by such Stockholder in accordance with this
Agreement. Each Stockholder by execution of this Agreement hereby appoints
Buyer as his attorney-in-fact to effectuate transfer of the Company Shares at
the Closing.
1.2 Purchase Price and Payment. In consideration of the sale by
--------------------------
Stockholders to Buyer of the Company Shares and in reliance upon the
representations and warranties of the Company and the Stockholders herein
contained and made at the Closing and subject to the satisfaction of all of the
conditions contained herein, Buyer agrees that, subject to certain adjustments
set forth in this Agreement at the Closing it will pay to the Stockholders an
aggregate amount of SIX MILLION ONE HUNDRED THIRTY THOUSAND TWO HUNDRED FORTY-
ONE AND 62/100
1
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DOLLARS ($6,130,241.62) (the "Total Consideration") which shall be paid (i) TWO
MILLION THREE HUNDRED SIXTY-TWO THOUSAND FIVE HUNDRED DOLLARS ($2,362,500) at
the Closing (the "Initial Payment") and (ii) by the delivery of the Buyer's
subordinated promissory notes in an aggregate principal amount of THREE MILLION
SEVEN HUNDRED SIXTY-SEVEN THOUSAND SEVEN HUNDRED FORTY-ONE AND 62/100 DOLLARS
($3,767,741.62) plus interest thereon as provided therein, which notes shall be
substantially in the form of Exhibit B, attached hereto (the "Subordinated
---------
Promissory Notes"). Upon payment of the Initial Payment and all principal and
interest payable under the Subordinated Promissory Notes, the aggregate
consideration payable to the Stockholders shall be SIX MILLION SEVEN HUNDRED
FIFTY THOUSAND DOLLARS ($6,750,000). At the time of the Closing, the Company
shall not have any indebtedness for borrowed money.
1.3 Time and Place of Closing. The closing of the purchase and sale
-------------------------
provided for in this Agreement (herein called the "Closing") shall be held on
January 20, 1999 at the offices of Keating, Muething & Klekamp, 1800 Provident
Tower, One East Fourth Street, Cincinnati, Ohio 45202 or at such other place or
an earlier or later date or time as may be mutually agreed upon by the parties.
1.4 Stockholders' Representative.
----------------------------
(a) In order to administer efficiently (i) the implementation of the
Agreement by the Stockholders, (ii) the waiver of any condition to the
obligations of the Stockholders to consummate the transactions contemplated
hereby, and (iii) the settlement of any dispute with respect to the Agreement,
the Stockholders hereby designate Richard F. Von Hoene as their representative
(the "Stockholders' Representative").
(b) The Stockholders hereby authorize the Stockholders' Representative
(i) to take all action necessary in connection with the implementation of the
Agreement on behalf of the Stockholders, the waiver of any condition to the
obligations of the Stockholders to consummate the transactions contemplated
hereby, or the settlement of any dispute, (ii) to give and receive all notices
required to be given under the Agreement and (iii) to take any and all
additional action as is contemplated to be taken by or on behalf of the
Stockholders by the terms of this Agreement, including without limitation, the
execution and delivery of documents to transfer the Company Shares to Buyer.
(c) In the event that the Stockholders' Representative dies, becomes
legally incapacitated or resigns from such position, R. Wayne Nally shall fill
such vacancy and shall be deemed to be the Stockholders' Representative for all
purposes of this Agreement; however, no change in the Stockholders'
Representative shall be effective until Buyer is given notice of it by the
Stockholders.
(d) All decisions and actions by the Stockholders' Representative
shall be binding upon all of the Stockholders, and no Stockholder shall have the
right to object, dissent, protest or otherwise contest the same.
2
<PAGE>
(e) By their execution of this Agreement, the Stockholders agree that:
(i) Buyer shall be able to rely conclusively on the instructions
and decisions of the Stockholders' Representative as to any actions
required or permitted to be taken by the Stockholders or the Stockholders'
Representative hereunder, and no party hereunder shall have any cause of
action against Buyer for any action taken by Buyer in reliance upon the
instructions or decisions of the Stockholders' Representative;
(ii) all actions, decisions and instructions of the Stockholders'
Representative shall be conclusive and binding upon all of the Stockholders
and no Stockholder shall have any cause of action against the Stockholders'
Representative for any action taken, decision made or instruction given by
the Stockholders' Representative under this Agreement, except for fraud or
willful breach of this Agreement by the Stockholders' Representative;
(iii) remedies available at law for any breach of the provisions
of this Section 1.4 are inadequate; therefore, Buyer shall be entitled to
temporary and permanent injunctive relief without the necessity of proving
damages if Buyer brings an action to enforce the provisions of this Section
1.4; and
(iv) the provisions of this Section 1.4 are independent and
severable, shall constitute an irrevocable power of attorney, coupled with
an interest and surviving death, granted by the Stockholders to the
Stockholders' Representative and shall be binding upon the executors,
heirs, legal representatives and successors of each Stockholder.
(f) All fees and expenses incurred by the Stockholders' Representative
shall be paid by the Stockholders.
1.5 Further Assurances. The Stockholders from time to time after the
------------------
Closing at the request of Buyer and without further consideration shall execute
and deliver further instruments of transfer and assignment and take such other
action as Buyer may reasonably require to effectively transfer and assign to,
and vest in, Buyer the Company Shares and all rights thereto, and to fully
implement the provisions of this Agreement.
1.6 Transfer Taxes. All transfer taxes, transfer or similar fees and
--------------
duties under applicable law incurred in connection with the sale and transfer of
the Company Shares under this Agreement will be borne and paid by the
Stockholders, and the Stockholders shall promptly reimburse the Company and
Buyer for any such tax, fee or duty which any of them is required to pay under
applicable law.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS.
--------------------------------------------------------------------------
2.1 Making of Representations and Warranties. As a material inducement to
----------------------------------------
Buyer to enter into this Agreement and consummate the transactions contemplated
hereby, the Company and each of the Stockholders jointly and severally hereby
make to Buyer the representations and warranties contained in this Section 2.
For the purposes of this Agreement, to the extent that any
3
<PAGE>
disclosure made by the Company or any Stockholder would be required to be made
on more than one Schedule delivered hereunder, the Company and each Stockholder
may make such disclosure by a cross-reference to information set forth on any
other Schedule delivered hereunder. Capitalized terms used and not otherwise
defined in the Schedules shall have the meanings ascribed thereto in this
Agreement.
2.2 Organization and Qualifications of the Company. The Company is a
----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Ohio with full corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is currently conducted or
proposed to be conducted. The copies of the Company's Articles of
Incorporation, as amended to date, certified by the Secretary of the Company,
and of the Company's Code of Regulations, as amended to date, certified by the
Company's Secretary, and heretofore delivered to Buyer's counsel, are complete
and correct, and no amendments thereto are pending. The Company is not in
violation of any term of its Articles of Incorporation or Code of Regulations.
The Company is qualified to do business as a foreign corporation in all
jurisdictions in which the nature of the business conducted by the Company or
the characters of the assets owned or leased by it make such qualification
necessary or prudent except for those jurisdictions wherein a failure to be so
qualified would not have a material adverse effect on the Company.
2.3 Capital Stock of the Company; Beneficial Ownership.
--------------------------------------------------
(a) The authorized capital stock of the Company consists of (i) 250
shares of Common Stock, of which 30 shares are duly and validly issued,
outstanding, fully paid and non-assessable and of which 220 shares are
authorized but unissued. Except as disclosed on Schedule 2.3 attached hereto,
------------
no person or entity other than the Stockholders holds any shares of the capital
stock of the Company. Except as set forth in Schedule 2.3, There are no
------------
outstanding subscriptions, calls, options, warrants, rights, commitments,
preemptive rights, arrangements or agreements of any kind for or relating to the
issuance sale transfer, registration or voting of, or outstanding securities
convertible into, exchangeable for or carrying the right to purchase, subscribe
for or otherwise acquire, any shares of capital stock of any class or any other
equity security of the Company. None of the Company's capital stock has been
issued in violation of any applicable federal or state securities law. Except
as set forth in the Schedule 2.3 attached hereto, there are no voting trusts,
------------
voting agreements, proxies or other agreements, instruments or undertakings with
respect to the voting of the Company Shares to which the Company or any of the
Stockholders is a party.
(b) Each of the Stockholders owns beneficially and of record the
Company Shares set forth opposite such Stockholder's name on Exhibit A hereto
---------
free and clear of any lien, security interest, charge, pledge, restriction,
encumbrance or adverse interest of any kind or nature (collectively, "Liens").
2.4 Subsidiaries; Acquisitions. (a) The Company's subsidiaries and
--------------------------
investments in any other corporation or business organization are listed in
Schedule 2.4(a) (collectively, the "Subsidiaries" or individually, a
- ---------------
"Subsidiary"). Except as set forth in Schedule 2.4(a), each Subsidiary of the
---------------
Company is a duly organized, validly existing corporation in good standing under
4
<PAGE>
the laws of the jurisdiction of its incorporation with full corporate power and
authority to own or lease its properties and to conduct its business in the
manner and in the places where such properties are owned or leased or such
business is currently conducted or proposed to be conducted. Except as
disclosed in Schedule 2.4(a), all of the outstanding shares of capital stock of
---------------
each Subsidiary are owned beneficially and of record by the Company free of any
Lien and said shares have been duly and validly issued and are outstanding,
fully paid and non-assessable. The copies of the Articles of Incorporation as
amended to date, of each Subsidiary certified by the Secretary of State of the
jurisdiction in which each Subsidiary is organized and of each Subsidiary's Code
of Regulations, as amended to date, certified by the Company's Secretary, and
heretofore delivered to Buyer's counsel, are complete and correct, and no
amendments thereto are pending. None of the Subsidiaries is in violation of any
term of its Articles of Incorporation (or comparable document) or Code of
Regulations. Each Subsidiary is duly qualified to do business as a foreign
corporation where the nature of the conduct of its business makes its
qualification so necessary, except where the failure to be so qualified could
not reasonably be expected to have a material adverse effect on the business,
assets, properties, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as a whole (a "Material
Adverse Effect"). Except as disclosed in Schedule 2.4(a), there are no
---------------
outstanding, subscriptions, calls, warrants, options, rights, commitments,
preemptive rights or arrangements or agreements to purchase or acquire any of
the shares of capital stock of any Subsidiary, or any outstanding securities
convertible into such shares or outstanding warrants, options or other rights to
acquire any such convertible securities.
(b) Except as set forth in Schedule 2.4(b) attached hereto, the
---------------
Company does not have any rights, warrants or options (the "Acquisition Rights")
to purchase or acquire the capital stock or all or substantially all of the
assets of any other corporation or business organization (an "Acquisition").
Schedule 2.4(b) attached hereto sets forth the name of each of the entities
- ---------------
subject to any Acquisition Rights, the type of transaction contemplated by the
parties in each Acquisition, the termination rights, if any, associated with
such Acquisition Rights, and whether or not the consummation of the transactions
contemplated by this Agreement requires the consent of any other party to such
transaction. Each of the Acquisition Rights is fully enforceable, and will
remain so, after the Closing.
2.5 Authority of the Company and the Stockholders. The Company has full
---------------------------------------------
right, authority and corporate power, and each Stockholder has full right,
power, authority and capacity, to enter into this Agreement and each agreement,
document and instrument to be executed and delivered by the Company or any
Stockholder pursuant to this Agreement and to carry out the transactions
contemplated hereby and thereby. The execution, delivery and performance by the
Company and each Stockholder of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action of the
Company and/or such Stockholder and no other action on the part of the Company
or any Stockholder is required in connection therewith.
2.6 No Conflicts. This Agreement and each agreement, document and
------------
instrument executed and delivered by the Company and/or any Stockholder pursuant
to this Agreement constitutes, or when executed and delivered will constitute,
valid and binding obligations of the Company and/or such Stockholder enforceable
in accordance with their terms. The execution,
5
<PAGE>
delivery and performance by the Company of this Agreement and each other
agreement, document or instrument to be executed, delivered or performed by the
Company or any Stockholder (the "Transaction Documents") does not and will not,
with or without the giving of notice or the lapse of time or both, (i) violate
any provision of the Articles of Incorporation or Code of Regulations of the
Company or any Subsidiary; (ii) violate any laws of the United States or any
state or other jurisdiction applicable to the Company or any Stockholder or
require the Company, any Subsidiary or any Stockholder to obtain any approval,
consent or waiver of, or make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made; and (iii) except
as described in Section 9.5, result in a breach of, constitute a default under,
accelerate any obligation under, or give rise to a right of termination of any
indenture or loan or credit agreement or any other agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award to which the Company, any
Subsidiary or any Stockholder is a party or by which the property of the
Company, any Subsidiary or any Stockholder is bound or affected, or result in
the creation or imposition of any mortgage, pledge, or other Lien in any of the
Company's assets or the Company Shares.
2.7 Real and Personal Property.
--------------------------
(a) Real Property. Neither the Company nor any of its Subsidiaries
-------------
owns any real property. All of the real property leased by the Company or any
of its Subsidiaries is identified on Schedule 2.7(a) (herein referred to as the
---------------
"Leased Real Property," or as the "Real Property.")
(i) Status of Leases. To the knowledge of the Company, the
----------------
lessors of Leased Real Property have good, valid and marketable title to
the Leased Real Property, and the Company and its Subsidiaries have good,
valid, and marketable title to enforceable leasehold interests in the
Leased Real Property, in each case free and clear of all Encumbrances (as
defined in Section 10) other than Permitted Encumbrances (as defined in
Section 10), subject only to the right of reversion of the lessor, except
as set forth in Schedule 2.7(a). All leases relating to Leased Real
---------------
Property are identified on Schedule 2.7(a), and true and complete copies
---------------
thereof have been delivered to Buyer. Each of said leases has been duly
authorized and executed by the Company and is in full force and effect.
To the knowledge of the Company and the Stockholders, each such lease has
been duly authorized and executed by the other party thereto and is binding
and enforceable against such party. Neither the Company nor any of its
Subsidiaries is in default under any of said leases, nor has any event
occurred which, with notice or the passage of time, or both, would give
rise to such a default. To the knowledge of the Company or any
Stockholder, the other party to each of said leases is not in default under
any of said leases and there is no event which, with notice or the passage
of time, or both, would give rise to such a default.
(ii) Consents. Except as set forth in Schedule 2.7(a), (A) no
-------- ---------------
consent or approval is required with respect to the transactions
contemplated by this Agreement from the other parties to any lease of
Leased Real Property or from any regulatory authority, and (B) no filing
with any regulatory authority is required in connection therewith, and to
the extent that any such consents, approvals or filings are required, the
Company or the Stockholders will obtain or complete them before the
Closing.
6
<PAGE>
(iii) Condition of Real Property. Except as set forth in
--------------------------
Schedule 2.7(a), there are no defects in the physical condition of any
--------------
land, buildings or improvements constituting part of the Real Property that
can reasonably be expected to have a Material Adverse Effect, including
without limitation, structural elements, mechanical systems, parking and
loading areas, and all such buildings and improvements are in good
operating condition and repair, have been well maintained and are free from
infestation by rodents or insects. To the knowledge of the Company or any
Stockholder, none of the Real Property is located in an area designated by
any governmental authority as being within a flood plain or subject to
special flood or other hazards. Access to the Real Property is by a public
way or public street. To the knowledge of the Company or any Stockholder,
all water, sewer, gas, electric, telephone, drainage and other utilities
required by law or necessary for the current or planned operation of the
Real Property have been connected under valid permits and pursuant to valid
easements where required, and are sufficient to service the Real Property
and in good operating condition.
(iv) Compliance with the Law. Neither the Company nor any
-----------------------
Subsidiary has received any notice from any governmental authority of any
violation of any law, ordinance, regulation, license, permit or
authorization issued with respect to any Real Property that has not been
heretofore corrected and no such violation exists which, individually or in
the aggregate, could have a Material Adverse Effect. All improvements
located on or constituting part of the Real Property and their use and
operation by the Company and its Subsidiaries were and are now in
compliance in all material respects with all applicable laws, ordinances,
regulations, licenses, permits and authorizations, except as set forth in
Schedule 2.7(a). No approval or consent to the transactions contemplated
---------------
by this Agreement is required of any governmental authority with
jurisdiction over any aspect of the Real Property or its use or operations
except where the failure to obtain any such approval or consent could not,
individually or in the aggregate, have a Material Adverse Effect. Neither
the Company nor any Subsidiary has received any notice of any real estate
tax deficiency or assessment or is aware of any proposed deficiency, claim
or assessment with respect to any of the Real Property, or any pending or
threatened condemnation thereof.
(b) Personal Property. A list of the material machinery and equipment
-----------------
of the Company and each of its Subsidiaries is contained in Schedule 2.7(b)
---------------
hereto. Except as specifically disclosed in said Schedule or in the Base
Balance Sheet (as hereinafter defined), the Company and each of its Subsidiaries
has good and marketable title to all of its personal property. Except as set
forth in Schedule 2.7(b), none of such personal property or assets is subject to
---------------
any mortgage, pledge, conditional sale agreement or Lien except as specifically
disclosed in said Schedule or in the Base Balance Sheet. The Base Balance Sheet
reflects all personal property (other than personal property acquired after the
date thereof) of the Company and each of its Subsidiaries. Except as otherwise
specified in Schedule 2.7(b) hereto, all leasehold improvements, furnishings,
---------------
machinery and equipment of the Company and each of its Subsidiaries are in good
repair (ordinary wear and tear excepted), have been well maintained, and
substantially comply with all applicable laws, ordinances and regulations, and
such machinery and equipment is in good working order.
7
<PAGE>
2.8 Financial Statements.
--------------------
(a) The Company has delivered to Buyer the following financial
statements, copies of which are attached hereto as Schedule 2.8:
------------
(i) Balance sheets of the Company and its Subsidiaries as of
November 30, 1996 and 1997 and statements of income, retained earnings and
cash flows for the two years then ended, which consolidated statements have
been audited by Collins Cornell Heeb Miller & Co., Inc., independent public
accountants (such financial statements, the "Audited Financial
Statements"). The Company's audited balance sheet as of November 30, 1997,
is sometimes referred to herein as the "Base Balance Sheet").
(ii) Balance sheets of the Company and its Subsidiaries as of
November 30, 1998 (herein the "Interim Balance Sheet") and statements of
income for the twelve month period then ended, certified by the Company's
chief financial officer (the "Interim Financial Statements"). The Audited
Financial Statements and the Interim Financial Statements are referred to
herein, collectively, as the "Financial Statements."
Except as set forth on Schedule 2.8, said Audited Financial Statements have
------------
been prepared in accordance with generally accepted accounting principles
("GAAP") applied consistently during the periods covered thereby, are complete
and correct in all material respects and present fairly in all material respects
the financial condition of the Company and each of its Subsidiaries at the dates
of said statements and the results of its operations for the periods covered
thereby. Except as set forth on Schedule 2.8, the Interim Financial Statements
------------
have been prepared in accordance with GAAP in all material respects.
(b) As of the date of the Base Balance Sheet, neither the Company nor
any Subsidiary had any liabilities of any nature, whether accrued, absolute,
contingent or otherwise, asserted or unasserted, known or unknown (including
without limitation, liabilities as guarantor or otherwise with respect to
obligations of others, liabilities for taxes due or then accrued or to become
due, or contingent or potential liabilities relating to activities of the
Company or any Subsidiary or the conduct of their business prior to the date of
the Base Balance Sheet regardless of whether claims in respect thereof had been
asserted as of such date), except (i) liabilities stated or adequately reserved
against on the Base Balance Sheet or reflected on the notes to the Audited
Financial Statements, (ii) reflected in Schedules furnished to Buyer hereunder
as of the date hereof or (iii) incurred in the ordinary course of business of
the Company which are not required to be reflected on the Base Balance Sheet in
accordance with GAAP.
(c) As of the date hereof and as of the Closing, neither the Company
nor any Subsidiary has had or will have any liabilities of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted, known or
unknown (including without limitation, liabilities as guarantor or otherwise
with respect to obligations of others, or liabilities for taxes due or then
accrued or to become due or contingent or potential liabilities relating to
activities of the Company or any Subsidiary or the conduct of their business
prior to the date hereof or the Closing, as the case may be, regardless of
whether claims in respect thereof had been asserted as of such date), except
8
<PAGE>
liabilities (i) stated or adequately reserved against on the Interim Balance
Sheet or the notes thereto, (ii) reflected on Schedule 2.8(c) attached hereto
---------------
furnished to Buyer hereunder on the date hereof, or (iii) incurred after
November 30, 1998 in the ordinary course of business of the Company or any
Subsidiary consistent with the terms of this Agreement and which would not be
required to be disclosed on a balance sheet of the Company prepared in
accordance with GAAP.
2.9 Taxes.
-----
(a) The Company and each of its Subsidiaries has paid or caused to be
paid all federal, state, local, foreign, and other taxes, including without
limitation, income taxes, estimated taxes, alternative minimum taxes, excise
taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes,
franchise taxes, capital stock taxes, employment and payroll-related taxes,
withholding taxes, stamp taxes, transfer taxes, windfall profit taxes,
environmental taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties owed by it (collectively, "Taxes"), required to be paid by
it through the date hereof except for Taxes not yet due and payable or
delinquent or being contested in good faith by appropriate means and for which
adequate reserves have been recorded on the Base Balance Sheet or the Interim
Balance Sheet.
(b) Except as disclosed on Schedule 2.9, the Company and each of its
------------
Subsidiaries has in accordance with applicable law timely filed (or obtained an
extension of time to file) all federal, state, local and foreign tax returns
required to be filed by it through the date hereof ("Tax Returns"), and all such
returns correctly and accurately set forth in all material respects, the amount
of any Taxes relating to the applicable period. A list of all federal, state,
local and foreign income tax returns filed with respect to the Company and its
Subsidiaries for taxable periods ended on or after November 30, 1993 is set
forth in Schedule 2.9 attached hereto, and said Schedule indicates those returns
------------
that have been audited or currently are the subject of an audit. For each
taxable period of the Company and its Subsidiaries ended on or after November
30, 1993, the Company has delivered to Buyer correct and complete copies of all
Tax Returns, examination reports and statements of deficiencies assessed against
or agreed to by the Company or any of its Subsidiaries.
(c) Neither the United States Internal Revenue Service (the "IRS") nor
any other governmental authority is now asserting or, to the knowledge of the
Company or any Stockholder, threatening to assert against the Company or any
Subsidiary any deficiency or claim for additional Taxes. To the knowledge of
the Company or any Stockholder, no claim has ever been made by an authority in a
jurisdiction where the Company or any Subsidiary does not file reports and
returns that the Company or such Subsidiary is or may be subject to taxation by
that jurisdiction, which claim remains unresolved. There are no security
interests on any of the assets of the Company or any Subsidiary that arose in
connection with any failure (or alleged failure) to pay any Taxes. Neither the
Company nor any Subsidiary has ever entered into a closing agreement pursuant to
Section 7121 of the United States Internal Revenue Code of 1986, as amended (the
"Code").
(d) Except as set forth in Schedule 2.9 attached hereto, there has not
------------
been any audit of any Tax Return for a tax period ended on or after November 30,
1993, filed by the Company or any Subsidiary, no such audit is in progress, and
neither the Company nor any Subsidiary has
9
<PAGE>
been notified by any tax authority that any such audit is contemplated or
pending. Except as set forth in Schedule 2.9, no extension of time with respect
------------
to any date on which a Tax Return was or is to be filed by the Company or any
Subsidiary is in force, and no waiver or agreement by the Company or any
Subsidiary is in force for the extension of time for the assessment or payment
of any Taxes.
(e) Except as set forth in Schedule 2.9 attached hereto, neither the
------------
Company nor any Subsidiary has ever been (or has ever had any liability for
unpaid Taxes because it once was) a member of an "affiliated group" (as defined
in Section 1504(a) of the Code). Except as set forth in Schedule 2.9, neither
------------
the Company nor any Subsidiary has ever filed, and has ever been required to
file, a consolidated, combined or unitary tax return with any other entity.
Except as set forth in Schedule 2.9, since November 30, 1992, neither the
------------
Company nor any Subsidiary owns and has ever owned a direct or indirect interest
in any trust, partnership, corporation or other entity. Except as set forth in
Schedule 2.9 attached hereto, neither the Company nor any Subsidiary is a party
- ------------
to any tax sharing agreement.
(f) For purposes of this Agreement, all references to Sections of the
Code shall include any predecessor provisions to such Sections and any similar
provisions of federal, state, local or foreign law.
2.10 Collectibility of Accounts Receivable. Except as set forth on
-------------------------------------
Schedule 2.10, all of the accounts receivable of the Company or any Subsidiary
- -------------
shown or reflected on the Interim Balance Sheet or existing at the date hereof
(less the reserve for bad debts set forth on the Interim Balance Sheet) are or
will be at the Closing valid and enforceable claims, fully collectible and
subject to no setoff or counterclaim. Neither the Company nor any Subsidiary
has any accounts or loans receivable from any person, firm or corporation which
is affiliated with the Company or any Subsidiary or from any director, officer
or employee of the Company or any Subsidiary, except as disclosed on Schedule
--------
2.10 hereto, and all accounts and loans receivable from any such person, firm or
- ----
corporation shall be paid in cash prior to the Closing.
2.11 Inventories. [Intentionally omitted.]
-----------
2.12 Absence of Certain Changes. Except as disclosed in Schedule 2.12
-------------------------- -------------
attached hereto, since the date of the Interim Balance Sheet there has not been:
(a) Any change in the condition (financial or otherwise), properties,
assets, liabilities, business, operations or prospects of the Company or any of
its Subsidiaries, which change by itself or in conjunction with all other such
changes, whether or not arising in the ordinary course of business, could have a
Material Adverse Effect;
(b) Any amendment or termination, or to the knowledge of the Company,
proposed or threatened amendment or termination, whether written or oral, of any
Contract (as defined in Section 2.17) or material lease;
10
<PAGE>
(c) Any contingent liability incurred by the Company or any of its
Subsidiaries as guarantor or otherwise with respect to the obligations of others
or any cancellation of any material debt or claim owing to, or waiver of any
material right of, the Company or any of its Subsidiaries;
(d) Any Encumbrance or Lien placed on any of the properties of the
Company or any of its Subsidiaries which remains in existence on the date hereof
or will remain on the Closing Date;
(e) Any cancellation of any material debt or claim owing to, or waiver
of a material right of, the Company or any Subsidiary;
(f) Any obligation or liability of any nature, whether accrued,
absolute, contingent or otherwise, asserted or unasserted, known or unknown
(including without limitation, liabilities for Taxes due or to become due or
contingent or potential liabilities relating to products or services provided by
the Company or any of its Subsidiaries or the conduct of the business of the
Company or any of its Subsidiaries since the date of the Base Balance Sheet
regardless of whether claims in respect thereof have been asserted), incurred by
the Company or any of its Subsidiaries other than obligations and liabilities
incurred in the ordinary course of business consistent with the terms of this
Agreement (it being understood that product or service liability claims shall
not be deemed to be incurred in the ordinary course of business);
(g) Any purchase, sale or other disposition, or any agreement or other
arrangement for the purchase, sale or other disposition, of any of the
properties or assets of the Company or any of its Subsidiaries other than in the
ordinary course of business;
(h) Any damage, destruction or loss, whether or not covered by
insurance, having a Material Adverse Effect;
(i) Any declaration, setting aside or payment of any dividend by the
Company or any of its Subsidiaries, or the making of any other distribution in
respect of the capital stock of the Company or any of its Subsidiaries, or any
direct or indirect redemption, purchase or other acquisition by the Company or
any of its Subsidiaries of its own capital stock;
(j) Any labor trouble or claim of unfair labor practices involving the
Company or any of its Subsidiaries; any change in the compensation payable or to
become payable by the Company or any of its Subsidiaries to any of its officers,
employees, agents or independent contractors other than normal merit increases
in accordance with its usual practices; or any bonus payment or arrangement made
to or with any of such officers, employees, agents or independent contractors;
(k) Any change with respect to the officers or management of the
Company or any of its Subsidiaries;
11
<PAGE>
(l) Any payment or discharge of a material lien or liability of the
Company or any of its Subsidiaries which was not shown on the Interim Balance
Sheet or incurred in the ordinary course of business thereafter;
(m) Any obligation or liability incurred by the Company or any of its
Subsidiaries to any of its officers, directors, stockholders or employees, or
any loans or advances made by the Company or any of its Subsidiaries to any of
its officers, directors, stockholders or employees, except normal compensation
and expense allowances payable to officers or employees;
(n) Any or termination of the Company's representation of any
Principal (as defined hereinafter) (with respect to all or any of the products
of such Principal or with respect to any Customers, as defined hereinafter), or
any change in commission rate paid by any Principal, or any notice of same (for
purposes of this Agreement, "Principal" shall mean any manufacturer, grower,
processor, producer, distributor or other wholesaler, or any supplier whose
goods, products or lines are offered for sale or for retail merchandising by the
Company, and "Customer" shall mean any individual, firm, corporation or other
business entity from which the Company obtains product orders on behalf of its
Principals);
(o) Any change in accounting methods or practices, credit practices or
collection policies used by the Company or any of its Subsidiaries;
(p) Any other material transaction entered into by the Company or any
of its Subsidiaries other than transactions in the ordinary course of business;
or
(q) Any agreement or understanding whether in writing or otherwise,
for the Company or any of its Subsidiaries to take any of the actions specified
in paragraphs (a) through (p) above.
2.13 Ordinary Course. Since the date of the Interim Balance Sheet, the
---------------
Company and each of its Subsidiaries has conducted its business only in the
ordinary course and consistently with its prior practices.
2.14 Approvals; Consents. Except as set forth on Schedule 2.14 attached
------------------- -------------
hereto, no approval, consent, authorization or exemption from or filing with any
person or entity not a party to this Agreement is required to be obtained or
made by the Company or any Subsidiary in connection with the execution and
delivery of this Agreement and the Transaction Documents or the consummation of
the transactions contemplated hereby and thereby.
2.15 Banking Relations. All of the arrangements which the Company or any
-----------------
of its Subsidiaries has with any banking institution are completely and
accurately described in Schedule 2.15 attached hereto, indicating with respect
-------------
to each of such arrangements the type of arrangement maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the person
or persons authorized in respect thereof.
12
<PAGE>
2.16 Intellectual Property.
---------------------
(a) Schedule 2.16 describes all patents, copyrights, trade secrets,
-------------
trademarks and other proprietary rights (collectively, "Intellectual Property")
used in the conduct of the business of the Company and each of its Subsidiaries,
each item of which the Company or such Subsidiary either has all freely
transferable right, title and interest in or rights under contract to use.
Except as disclosed in Schedule 2.16, (i) all registrations with and
-------------
applications to United States governmental authorities with respect to
Intellectual Property owned by the Company and any of its Subsidiaries disclosed
in Schedule 2.16 are valid and in full force and effect, (ii) neither the
-------------
Company nor any Subsidiary is, nor has it received any notice that it is in
default (or with the giving of notice or lapse of time or both, would be in
default) in any material respect under any contract to use its Intellectual
Property and (iii) to the knowledge of the Company and the Stockholders, such
Intellectual Property is not being infringed by any other person or entity.
Neither the Company nor any Subsidiary has received notice that it is infringing
any Intellectual Property of any other person or entity. No such claim is
pending or, to the knowledge of the Company or any Stockholder, has been
threatened or made to such effect that has not been resolved and neither the
Company nor any Subsidiary is infringing any Intellectual Property of any other
person or entity the effect of which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole. Any and all claims of such nature asserted
against the Company or any Subsidiary since December 31, 1994 are summarized on
Schedule 2.16, whether or not resolved as of the date hereof. To the knowledge
- -------------
of the Company and the Stockholders, there exists no unexpired patent or patent
application which includes claims that would be infringed by or otherwise
adversely affect the products, activities or business of the Company or any
Subsidiary. Except as described in Schedule 2.16, the Company and each of its
-------------
Subsidiaries has the right to use, free and clear of claims or rights of other
persons, all customer lists, designs, manufacturing or other processes, computer
software, systems, data compilations, research results and other information
required for or incident to its products or its business as presently conducted
or contemplated.
(b) Except as set forth in Schedule 2.16, neither the Company or any
-------------
Subsidiary nor, to the knowledge of the Company and the Stockholders, any of
their employees have any agreements or arrangements with any persons other than
the Company or its Subsidiaries related to confidential information or trade
secrets of such persons or restricting any such employee's ability to engage in
business activities of any nature. The activities of their employees on behalf
of the Company or any Subsidiary do not violate any such agreements or
arrangements known to the Company.
(c) The Company is engaged in a Year 2000 compliance process as set
forth on Schedule 2.16 and, to the knowledge of the Company or any Stockholder,
-------------
except as set forth on Schedule 2.16, is Year 2000 compliant in all material
-------------
respects.
2.17 Contracts. Except for contracts, commitments, plans, agreements and
---------
licenses described in Schedule 2.17 (true and complete copies of which have been
-------------
delivered to Buyer), neither the Company nor any of its Subsidiaries is a party
to or subject to:
13
<PAGE>
(a) any agreement for the sale, lease or other disposition of products
or other assets not made in the ordinary course of business;
(b) any plan or contract providing for bonuses, pensions, options,
stock purchases, deferred compensation, retirement payments, profit sharing,
collective bargaining or the like, or any contract or agreement with any labor
union;
(c) any employment contract or contract for services which requires
the payment of more than $75,000 annually or which is not terminable within 30
days by the Company or a Subsidiary without liability for any penalty or
severance payment;
(d) any contract or agreement for the purchase of any commodity,
material or equipment except purchase orders in the ordinary course for less
than $10,000 each;
(e) any other contracts or agreements creating any obligations of the
Company or any of its Subsidiaries of $25,000 or more on an individual basis or
$75,000 or more on an aggregate basis, with respect to any such contract or
agreement not specifically disclosed elsewhere under this Agreement;
(f) any contract or agreement providing for the purchase of all or
substantially all of its requirements of a particular product from a supplier;
(g) any contract or agreement which by its terms does not terminate or
is not terminable without penalty by the Company or a Subsidiary or their
successors within one year after the date hereof;
(h) any contract or arrangement with any sales agent or distributor of
products of the Company or any of its Subsidiaries;
(i) any contract containing covenants limiting the freedom of the
Company or any of its Subsidiaries to compete in any line of business or with
any person or entity;
(j) any contract or agreement for the purchase of any fixed asset for
a price in excess of $25,000 whether or not such purchase is in the ordinary
course of business;
(k) any license agreement (as licensor or licensee);
(l) any indenture, mortgage, promissory note, loan agreement, guaranty
or other agreement or commitment for the borrowing of money; or
(m) any contract or agreement with any officer, employee, director or
stockholder of the Company or any of its Subsidiaries or with any persons or
organizations controlled by or affiliated with any of them.
14
<PAGE>
Except as set forth on Schedule 2.17, neither the Company nor any of its
-------------
Subsidiaries is in default under any such contracts, commitments, plans,
agreements or licenses described in said Schedule (individually a "Contract" and
collectively the "Contracts") and neither the Company nor any Subsidiary has any
knowledge of conditions or facts which with notice or passage of time, or both,
would constitute a default, except where any of the foregoing could not,
individually or in the aggregate, have a Material Adverse Effect. Each of the
Contracts is valid and in full force and effect against the Company, and to the
knowledge of the Company, is enforceable by the Company against the other party
thereto in accordance with its terms, except for any non-competition provision
or agreement limiting the freedom of any party thereto to compete in any line of
business or with any person or entity, the benefits of which run to the Company
or any Subsidiary, the enforceability of which may be limited by the principles
governing the availability of equitable remedies.
2.18 Litigation.
----------
(a) Schedule 2.18 hereto lists all currently pending litigation and
-------------
governmental or administrative proceedings or investigations to which the
Company or any of its Subsidiaries is a party. Except for matters described in
Schedule 2.18, there is no litigation or governmental or administrative
- -------------
proceeding or investigation pending or, to the knowledge of the Company or the
Stockholders, threatened against the Company or any of its Subsidiaries or their
affiliates (i) which, individually or in the aggregate, could have a Material
Adverse Effect or (ii) which would prevent or hinder the consummation of the
transactions contemplated by this Agreement. With respect to each matter set
forth therein, Schedule 2.18 sets forth a description of the matter, the forum
-------------
(if any) in which it is being conducted, the parties thereto and the type and
amount of relief sought.
(b) Except as set forth on Schedule 2.18, there are no existing or
-------------
threatened product liability, warranty or other similar claims, or any facts
upon which a material claim of such nature could be based, against the Company
or any of its Subsidiaries for products or services which are defective or fail
to meet any product or service warranties except as disclosed in Schedule 2.18
-------------
hereto. Except as disclosed in Schedule 2.18, no claim has been asserted
-------------
against the Company or any of its Subsidiaries for renegotiation or price
redetermination of any business transaction, and there are no facts upon which
any such claim could be based.
2.19 Compliance with Laws. Except as set forth in Schedule 2.19 hereto,
-------------------- -------------
the Company and each of its Subsidiaries is in compliance with all applicable
statutes, ordinances, orders, judgments, decrees, rules and regulations
promulgated by any federal, state, municipal entity, agency, court or other
governmental authority which apply to the Company or any Subsidiary or to the
conduct of its business except where the failure to be in compliance could not,
individually or in the aggregate, have a Material Adverse Effect, and neither
the Company nor any of its Subsidiaries has received notice of a material
violation or alleged material violation of any such statute, ordinance, order,
rule or regulation.
2.20 Insurance. The physical properties and assets of the Company and each
---------
of its Subsidiaries are insured to the extent disclosed in Schedule 2.20
-------------
attached hereto and all such insurance policies and arrangements are disclosed
in said Schedule. Said insurance policies and arrangements are in full force
and effect, all premiums with respect thereto are currently paid, and
15
<PAGE>
the Company and each of its Subsidiaries is in compliance in all material
respects with the terms thereof. Said insurance is adequate and customary for
the business engaged in by the Company and each Subsidiary and is sufficient for
compliance by the Company and each Subsidiary with all requirements of law and
as required by all agreements and leases to which the Company or any Subsidiary
is a party.
2.21 Powers of Attorney. Except as set forth on Schedule 2.21, neither the
------------------ -------------
Company nor any Subsidiary has granted to any other person or entity any
outstanding power of attorney. Each Stockholder has full right and authority to
execute, deliver and perform this Agreement.
2.22 Finder's Fee. Neither the Company nor any of its Subsidiaries has
------------
incurred or become liable for any broker's commission or finder's fee relating
to or in connection with the transactions contemplated by this Agreement.
2.23 Permits; Burdensome Agreements. Schedule 2.23 lists all material
------------------------------ -------------
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from federal, state or local
authorities in order for the Company and each of its Subsidiaries to conduct its
business. The Company and each of its Subsidiaries has obtained all such
Approvals, which are valid and in full force and effect, and is operating in
compliance therewith. Such Approvals include, but are not limited to, those
required under federal, state, or local statutes, ordinances, orders,
requirements, rules, regulations, or laws pertaining to environmental
protection, public health and safety, worker health and safety, buildings,
highways or zoning. Except as disclosed in Schedule 2.23, neither the Company
-------------
nor any of its Subsidiaries is subject to or bound by any judgment, decree or
order which may, individually or in the aggregate, have a Material Adverse
Effect. To the knowledge of the Company and the Stockholders, the Company has
all Approvals necessary for use in the business of the Company.
2.24 Corporate Records; Copies of Documents. The corporate record books
--------------------------------------
of the Company and each of its Subsidiaries accurately record all corporate
action taken by their respective stockholders and board of directors and
committees. The copies of the corporate records of the Company and each of its
Subsidiaries, as made available to Buyer for review, are true and complete
copies of the originals of such documents. The Company has made available for
inspection and copying by Buyer and its counsel true and correct copies of all
documents referred to in this Section or in the Schedules delivered to Buyer
pursuant to this Agreement.
2.25 Transactions with Interested Persons. Except as set forth in Schedule
------------------------------------ --------
2.25 hereto, neither the Company, any of its Subsidiaries, nor any Stockholder,
- ----
officer, supervisory employee or director of the Company or any of its
Subsidiaries nor, to the knowledge of Company, any of their respective spouses
or family members, (i) owns directly or indirectly on an individual or joint
basis any material interest in, or serves as an officer or director or in
another similar capacity of, any competitor or supplier of Company or any of its
Subsidiaries, or any organization (other than a Principal or Customer) which has
a material contract or arrangement with the Company or any of its Subsidiaries
or (ii) has directly or indirectly engaged in any transaction involving any
lease or the transfer of any material (measured as of the time of such
transaction or as of the date hereof) cash,
16
<PAGE>
property or rights to or from the Company from, to or for the benefit of any
affiliate or former affiliate of the Company.
2.26 Employee Benefit Programs.
-------------------------
(a) Schedule 2.26 sets forth a list of every Employee Program, as
-------------
defined hereinafter, that has been maintained by the Company or an Affiliate, as
defined hereinafter, (including, without limitation, any entity or business
which the Company or any Subsidiary has acquired by asset purchase, stock
purchase, merger, consolidation or other similar transaction) at any time during
the three-year period ending on the Closing Date.
(b) Each Employee Program has ever been maintained by the Company or
an Affiliate and which has been intended to qualify under Section 401(a) or
501(c)(9) of the Code has received a favorable determination or approval letter
from the IRS regarding its qualification under such section and has, in fact,
been qualified under the applicable section of the Code from the effective date
of such Employee Program through and including the Closing Date (or, if earlier,
the date that all of such Employee Program's assets were distributed). No event
or omission has occurred which would cause any such Employee Program to lose its
qualification or otherwise fail to satisfy the relevant requirements to provide
tax-favored benefits under the applicable Code Section (including without
limitation Code Sections 105, 125, 401(a) and 501(c)(9)). Each asset held under
any such Employee Program may be liquidated or terminated without the imposition
of any redemption fee, surrender charge or comparable liability. No partial
termination (within the meaning of Section 411(d)(3) of the Code) has occurred
with respect to any Employee Program.
(c) Neither the Company nor any Affiliate knows, nor should any of
them reasonably know, of any failure of any party to comply with any laws
applicable with respect to the Employee Programs that have ever been maintained
by the Company or any Affiliate. With respect to any Employee Program ever
maintained by the Company or any Affiliate, there has been no (i) "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or Code Section 4975, (ii) failure to
comply, in any material respect, with any provision of ERISA, other applicable
law, or any agreement, or (iii) non-deductible contribution, which, in the case
of any of (i), (ii), or (iii), could subject the Company or any Affiliate to
liability either directly or indirectly (including, without limitation, through
any obligation of indemnification or contribution) for any damages, penalties,
or taxes, or any other loss or expense. No litigation or governmental
administrative proceeding (or investigation) or other proceeding (other than
those relating to routine claims for benefits) is pending or threatened with
respect to any such Employee Program. All payments and/or contributions
required to have been made (under the provisions of any agreements or other
governing documents or applicable law) with respect to all Employee Programs
ever maintained by the Company or any Affiliate, for all periods prior to the
Closing Date, either have been made or have been accrued (and all such unpaid
but accrued amounts are described on Schedule 2.26).
-------------
(d) Except as set forth on Schedule 2.26, neither the Company nor
-------------
any Affiliate has incurred any liability under Title IV of ERISA which has not
been paid in full prior to the Closing. There has been no "accumulated funding
deficiency" (whether or not waived) with respect
17
<PAGE>
to any Employee Program ever maintained by the Company or any Affiliate and
subject to Code Section 412 or ERISA Section 302. With respect to any Employee
Program maintained by the Company or any Affiliate and subject to Title IV of
ERISA, there has been no (nor will there be any as a result of the transactions
contemplated by this Agreement) (i) "reportable event," within the meaning of
ERISA Section 4043 or the regulations thereunder, for which the notice
requirement is not waived by the regulations thereunder, and (ii) event or
condition which presents a material risk of a plan termination or any other
event that may cause the Company or any Affiliate to incur liability or have a
lien imposed on its assets under Title IV of ERISA. Except as described in
Schedule 2.26, no Employee Program maintained by the Company or any Affiliate
- -------------
and subject to Title IV of ERISA (other than a Multiemployer Plan) has any
"unfunded benefit liabilities" within the meaning of ERISA Section 4001(a)(18),
as of the Closing Date. Neither the Company nor any Affiliate has ever
maintained a Multiemployer Plan. Except as set forth in Schedule 2.26, none of
-------------
the Employee Programs ever maintained by the Company or any Affiliate (i) has
ever provided health care or any other non-pension benefits to any employees
after their employment is terminated (other than as required by part 6 of
subtitle B of Title I of ERISA), (ii) has ever promised to provide such post-
termination benefits or (iii) has ever provided health care or any other non-
pension benefits to any individuals who were previously employed by the Company.
(e) With respect to each Employee Program maintained by the Company
within the six years preceding the Closing Date, complete and correct copies of
the following documents (if applicable to such Employee Program) have previously
been delivered to Buyer: (i) all documents embodying or governing such Employee
Program, and any funding medium for the Employee Program (including, without
limitation, trust agreements) as they may have been amended to the date hereof;
(ii) the most recent IRS determination or approval letter with respect to such
Employee Program under Code Section 401(a) or 501(c)(9), and any applications
for determination or approval subsequently filed with the IRS; (iii) the three
most recently filed IRS Forms 5500, with all applicable schedules and
accountants' opinions attached thereto; (iv) the three most recent actuarial
valuation reports completed with respect to such Employee Program; (v) the
summary plan description for such Employee Program (or other descriptions of
such Employee Program provided to employees) and all modifications thereto; (vi)
any insurance policy (including any fiduciary liability insurance policy or
fidelity bond) related to such Employee Program; (vii) any registration
statement or other filing made pursuant to any federal or state securities law
and (viii) all correspondence to and from any state or federal agency within the
last three years with respect to such Employee Program.
(f) Except as otherwise noted on Schedule 2.28, each Employee Program
-------------
required to be listed on Schedule 2.26 may be amended, terminated, or otherwise
-------------
modified by the Company to the greatest extent permitted by applicable law,
including the elimination of any and all future benefit accruals under any
Employee Program and no employee communications or provision of any Employee
Program document has failed to effectively reserve the right of the Company or
the Affiliate to so amend, terminate or otherwise modify such Employee Program,
except as would not, individually or in the aggregate, have a Material Adverse
Effect.
(g) Each Employee Program ever maintained by the Company (including
each non-qualified deferred compensation arrangement) has been maintained in
compliance, in all
18
<PAGE>
material respects, with all applicable requirements of federal and state
securities laws including (without limitation, if applicable) the requirements
that the offering of interests in such Employee Program be registered under the
Securities Act of 1933, as amended, and/or state "Blue Sky" laws, except as
could not have a Material Adverse Effect.
(h) Each Employee Program ever maintained by the Company or an
Affiliate has complied with the applicable notification and other applicable
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985,
Health Insurance Portability and Accountability Act of 1996, the Newborns' and
Mothers' Health Protection Act of 1996, the Mental Health Parity Act of 1996 and
the Women's Health and Cancer Rights Act of 1998.
(i) For purposes of this section:
(i) "Employee Program" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited
to, multiple employer welfare arrangements (within the meaning of
ERISA Section 3(40), plans to which more than one unaffiliated
employer contributes and employee benefit plans (such as foreign or
excess benefit plans) which are not subject to ERISA; (B) all stock
option plans, stock purchase plans, bonus or incentive award plans,
severance pay policies or agreements, deferred compensation
agreements, supplemental income arrangements, vacation plans, and all
other employee benefit plans, agreements, and arrangements (including
any informal arrangements) not described in (A) above, including
without limitation, any arrangement intended to comply with Code
Section 120, 125, 127, 129 or 137; and (C) all plans or arrangements
providing compensation to employee and non-employee directors. In the
case of an Employee Program funded through a trust described in Code
Section 401(a) or an organization described in Code Section 501(c)(9),
or any other funding vehicle, each reference to such Employee Program
shall include a reference to such trust, organization or other
vehicle.
(ii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides benefits under or through such
Employee Program, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under or through
such Employee Program, or if such Employee Program provides benefits
to or otherwise covers employees of such entity (or their spouses,
dependents, or beneficiaries).
(iii) An entity is an "Affiliate" of the Company if it would
have ever been considered a single employer with the Company under
ERISA Section 4001(b) or part of the same "controlled group" as the
Company for purposes of ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means an employee pension or welfare
benefit plan to which more than one unaffiliated employer contributes
and which is maintained pursuant to one or more collective bargaining
agreements.
19
<PAGE>
2.27 Environmental Matters.
---------------------
(a) Except as set forth in Schedule 2.27 hereto, (i) neither the
-------------
Company nor any of its Subsidiaries has ever generated, transported, used,
stored, treated, disposed of, or managed any Hazardous Waste (as defined below);
(ii) to the knowledge of the Company or any Stockholder, no Hazardous Material
(as defined below) has ever been or is threatened to be spilled, released, or
disposed of at any site presently or formerly owned, operated, leased, or used
by the Company or any of its Subsidiaries, or has ever been located in the soil
or groundwater at any such site; (iii) to the knowledge of the Company or any
Stockholder, no Hazardous Material has ever been transported from any site
presently or formerly owned, operated, leased, or used by the Company or any of
its Subsidiaries for treatment, storage, or disposal at any other place; (iv) to
the knowledge of the Company or any Stockholder, neither the Company nor any of
its Subsidiaries presently owns, operates, leases, or uses, nor has it
previously owned, operated, leased, or used any site on which underground
storage tanks are or were located; and (v) no lien has ever been imposed by any
governmental agency on any property, facility, machinery, or equipment owned,
operated, leased, or used by the Company or any of its Subsidiaries in
connection with the presence of any Hazardous Material.
(b) Except as set forth in Schedule 2.27 hereto, (i) neither the
-------------
Company nor any of its Subsidiaries has any liability under, nor has it ever
violated, any Environmental Law (as defined below); (ii) the Company and each of
its Subsidiaries, any property owned, operated, leased, or used by any of them,
and any facilities and operations thereon, are presently in compliance with all
applicable Environmental Laws; (iii) neither the Company nor any of its
Subsidiaries has ever entered into or been subject to any judgment, consent
decree, compliance order, or administrative order with respect to any
environmental or health and safety matter or received any request for
information, notice, demand letter, administrative inquiry, or formal or
informal complaint or claim with respect to any environmental or health and
safety matter or the enforcement of any Environmental Law; and (iv) neither the
Company nor any of its Subsidiaries has any reason to believe that any of the
items enumerated in clause (iii) of this subsection will be forthcoming.
(c) To the knowledge of the Company or any Stockholder, except as set
forth in Schedule 2.27 hereto, no site owned, operated, leased, or used by the
-------------
Company or any of its Subsidiaries contains any asbestos or asbestos-containing
material, any polychlorinated biphenyls (PCBs) or equipment containing PCBs, or
any urea formaldehyde foam insulation.
(d) The Company has provided to Buyer copies of all documents,
records, and information in the possession or control of the Company or any of
its Subsidiaries concerning any environmental or health and safety matter
relevant to the Company or any of its Subsidiaries, whether generated by the
Company, its Subsidiaries, or others, including without limitation,
environmental audits, environmental risk assessments, site assessments,
documentation regarding off-site disposal of Hazardous Materials, spill control
plans, and reports, correspondence, permits, licenses, approvals, consents, and
other authorizations related to environmental or health and safety matters
issued by any governmental agency.
20
<PAGE>
(e) For purposes of this Section 2.27, (i) "Hazardous Material" shall
------------
mean and include any hazardous waste, hazardous material, hazardous substance,
petroleum product, oil, toxic substance, pollutant, contaminant, or other
substance which may pose a threat to the environment or to human health or
safety, as defined or regulated under any Environmental Law; (ii) "Hazardous
Waste" shall mean and include any hazardous waste as defined or regulated under
any Environmental Law; (iii) "Environmental Law" shall mean any environmental or
health and safety-related law, regulation, rule, ordinance, or by-law at the
foreign, federal, state, or local level, whether existing as of the date hereof,
previously enforced, or subsequently enacted; and (iv) "Company" shall mean and
include Company, each of its Subsidiaries and all other entities for whose
conduct the Company or any of its Subsidiaries is or may be held responsible
under any Environmental Law.
2.28 List of Directors and Officers. Schedule 2.28 hereto contains a true
------------------------------ -------------
and complete list of all current directors and officers of the Company and each
of its Subsidiaries. In addition, Schedule 2.28 hereto contains a list of all
-------------
managers, employees and consultants of the Company and any Subsidiary who,
individually, have received or are scheduled to receive compensation from the
Company or any of its Subsidiaries for the fiscal year ending 1998 in excess of
$75,000 in each case such Schedule includes the current job title and aggregate
annual compensation of each such individual.
2.29 Employees; Labor Matters. The Company and its Subsidiaries employ a
------------------------
total of 111 full-time employees and 115 part-time employees. Neither the
Company nor any of its Subsidiaries is delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for it to the date hereof or amounts
required to be reimbursed to such employees. Upon termination of the employment
of any of said employees, neither the Company, any Subsidiary nor Buyer will by
reason of the transactions contemplated under this Agreement or anything done
prior to the Closing be liable to any of said employees for so-called "severance
pay" or any other similar payments. Neither the Company nor any Subsidiary has
any policy, practice, plan or program of paying severance pay or any form of
severance compensation in connection with the termination of employment. The
Company and each of its Subsidiaries is in compliance in all material respects
with all applicable laws and regulations respecting labor, employment, fair
employment practices, work place safety and health, terms and conditions of
employment, wages and hours and the withholding of taxes and the reporting of
income. There are no charges of employment discrimination or unfair labor
practices, nor are there any strikes, slowdowns, stoppages of work, or any other
concerted interference with normal operations which are existing, pending or, to
the knowledge of the Company or any Stockholder, threatened against or involving
the Company or any of its Subsidiaries. No question concerning labor
representation exists respecting any employees of the Company or any of its
Subsidiaries. There are no grievances, complaints or charges that have been
filed against the Company or any of its Subsidiaries under any dispute
resolution procedure (including, but not limited to, any proceedings under any
dispute resolution procedure under any collective bargaining agreement) that,
individually or in the aggregate could have a Material Adverse Effect, and there
is no arbitration or similar proceeding pending and no claim therefor has been
asserted. No collective bargaining agreement is in effect or is currently being
or is about to be negotiated by the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has received any information
21
<PAGE>
during the past six years indicating that any of its employment policies or
practices is currently being audited or investigated by any federal, state or
local government agency. The Company and each of its Subsidiaries is, and at all
times since November 6, 1986 has been, in compliance with the requirements of
the Immigration Reform Control Act of 1986.
2.30 Principals.
----------
(a) The list of the Company's Principals and the aggregate brokerage
commission revenues received by the Company during the twelve months ended
November 30, 1998 from each such Principal, attached hereto as Schedule 2.30, is
-------------
true, correct and complete. The Company has delivered to Buyer true and
complete copies of all written brokerage agreements and/or letters of
appointment with or from the Company's ten Principals, which paid the greatest
amount of commission revenues for the twelve (12) months ended November 30,
1998, in effect as of the date of this Agreement. Set forth on Schedule 2.30 is
-------------
a list of all other agreements and documents with or involving any person or
entity and relating to financial obligations of the Company with respect to
commissions or other payments received by the Company (or an affiliate of the
Company) from Principals. Except as set forth on Schedule 2.30, since November
-------------
30, 1998, the Company has had no commitment, understanding or agreement with any
Principal or any other person or entity relating to payments to be made by the
Company to any person or entity computed in whole or in part with respect to
sales of or commissions paid or to be paid by any Principal.
(b) Except as set forth on Schedule 2.30, the Company is not
-------------
currently, and since November 30, 1998 has not been, subject to any notice of
probation from any Principal. Except as set forth on Schedule 2.30, since
-------------
November 30, 1998, the Company has not received any oral or written
communication from any Principal which places the Company on probation or
otherwise suggests, threatens or implies possible termination of the Company's
appointment as broker for such Principal, any reduction in the commission rate
paid to the Company or any reduction as to the geographic area, Customers or
products represented by the Company, conditionally or unconditionally.
(c) To the best knowledge of the Company and the Stockholders, no
Principal intends to, or is considering, amending the terms of the Company's
brokerage agreement with such Principal in order or reappoint, or continue the
appointment of, the Company as broker with respect to a lesser portion of the
applicable territory than the greatest portion of such area in which, or with
respect to fewer than the greatest number of product items or Customers than,
the Company acted as broker for such Principal during the twelve month period
ended November 30, 1998, or at a lower commission rate than the highest rate
paid by such Principal to the Company with respect to sales during such period.
The relationships of the Company with its Principals are good commercial working
relationships.
(d) Except as set forth on Schedule 2.30, there are, and since
-------------
November 30, 1998 there have been, no disputes or claims involving individually
in excess of $25,000 or in the aggregate in excess of $75,000, (i) between the
Company and any Principal, (ii) between the Company and any Customer, or (iii)
to the knowledge of the Company, between any Principal and any Customer. As
used in this Section 2.30(d), the terms "disputes" or "claims" shall mean (A)
22
<PAGE>
matters which, to the knowledge of the Company, have been referred to counsel or
are the subject of litigation, or (B) matters as to which a Principal has
threatened to seek recourse against the Company, or may be reasonably expected
to seek recourse against the Company, if such matter is not resolved to the
satisfaction of such Principal.
2.31 Absence of Improper Payments. The Company: (a) has not made any
----------------------------
contributions, payments or gifts of its property to or for the private use of
any governmental official, employee or agent where either the payment or the
purpose of such contribution, payments or gift is illegal under the laws of the
United States, any state thereof or any other jurisdiction (foreign or
domestic), (b) except as set forth in Schedule 2.31, has not established or
-------------
maintained any unrecorded fund or asset for any purpose, or made any false or
artificial entries on its books or records for any reason, (c) has not made any
payments to any person where the Company intended or understood that any part of
such payment was to be used for any other purpose other than that described in
the documents supporting the payment, (d) has not made any contribution, or
reimbursed any political gift or contribution made by any other person, to
candidates for public office, whether federal, state or local, where such
contribution would be in violation of applicable law or (e) has not misused,
misapplied or improperly handled, administered or managed market development or
promotional funds or market development or promotional fund accounts in any
material respect.
2.32 Transfer of Shares. No holder of stock of the Company or any
------------------
Subsidiary has at any time transferred any of such stock to any employee of the
Company or any Subsidiary, which transfer constituted or could be viewed as
compensation for services rendered to the Company or any Subsidiary by said
employee.
2.33 Stock Repurchases. Except as set forth on Schedule 2.33, since
----------------- -------------
December 31, 1996, neither the Company nor any Subsidiary has redeemed or
repurchased, or entered into any written or oral agreement to redeem or
repurchase, any of its capital stock.
2.34 Disclosure. The representations, warranties and statements contained
----------
in this Agreement and in the agreements, documents, instruments, certificates,
exhibits and schedules delivered by the Company pursuant to this Agreement to
Buyer do not contain any untrue statement of a material fact, and, when taken
together, do not omit to state a material fact required to be stated therein or
necessary in order to make such representations, warranties or statements not
misleading in light of the circumstances under which they were made.
SECTION 3. COVENANTS OF THE COMPANY AND THE STOCKHOLDERS.
---------------------------------------------------------
3.1 Making of Covenants and Agreements. The Company, each Subsidiary and
----------------------------------
each Stockholder jointly and severally hereby make the covenants and agreements
set forth in this Section 3 and the Stockholders agree to use their reasonable
efforts to cause the Company and its Subsidiaries to comply with such agreements
and covenants.
23
<PAGE>
3.2 Cooperation. The Company, each Subsidiary and each Stockholder shall
-----------
cooperate with all reasonable requests of the Buyer or any of its
representatives and agents to more effectively consummate the transactions
contemplated hereby and the transactions referred to herein.
3.3 Consents. The Company and each Subsidiary shall obtain or cooperate
--------
with the Buyer in obtaining all consents, authorizations and approvals of third
parties including, without limitation, any requisite consent of any governmental
authorities, regulatory agencies and other entities necessary in connection with
the consummation of the transactions contemplated hereby or referred to herein.
3.4 Notice of Default. Promptly upon the occurrence of, or promptly upon
-----------------
the Company, any Subsidiary or any Stockholder becoming aware of the impending
or threatened occurrence of, any event which would cause or constitute a breach
or default, or would have caused or constituted a breach or default had such
event occurred or been known to the Company, any Subsidiary or any Stockholder
prior to the date hereof, of any of the representations, warranties or covenants
of the Company or any Stockholder contained in or referred to in this Agreement
or in any Schedule or Exhibit referred to in this Agreement, the Company, any
Subsidiary or any Stockholder shall give detailed written notice thereof to the
Buyer and the Company, such Subsidiary or each Stockholder shall use its or his
reasonable best efforts to prevent or promptly remedy the same.
3.5 [Intentionally omitted].
3.6 [Intentionally omitted].
3.7 [Intentionally omitted].
3.8 Confidentiality. The Company, each Subsidiary and the Stockholders
---------------
shall hold in strict confidence, and will not use, any confidential or
proprietary data or information obtained from Buyer with respect to the Buyer's
business or financial condition except for the purpose of evaluating,
negotiating and completing the transaction contemplated hereby. Information
generally known in the Buyer's industry or which has been disclosed to the
Company, any Subsidiary or any Stockholder by third parties which have a right
to do so shall not be deemed confidential or proprietary information for
purposes of this Agreement. If the transaction contemplated by this Agreement
is not consummated, the Company, each Subsidiary and each Stockholder will
return to the Buyer all copies of such data and information, including but not
limited to financial information, customer lists, business and corporate
records, worksheets, test reports, tax returns, lists, memoranda, and other
documents prepared by or made available to the Company, any Subsidiary or any
Stockholder in connection with the transaction.
3.9 Tax Returns. The Company, each Subsidiary and each Stockholder (so
-----------
long as such Stockholder is authorized) shall use its or his best efforts to
cause the Company and each Subsidiary, in accordance with applicable law, (i) to
promptly prepare and file on or before the due date or any extension thereof all
federal, state and local tax returns required to be filed by them with respect
to taxable periods of the Company that include any period ending on or before
the Closing Date and (ii) to pay all Taxes of the Company shown on such returns
attributable to periods ending on or before the Closing Date.
24
<PAGE>
3.10 Options and Other Rights. The Company, each Subsidiary and each
------------------------
Stockholder shall use its or his best efforts to cause each person or entity
which holds options, warrants or other rights or securities exercisable for or
convertible into shares of any class of equity security of the Company or any
Subsidiary to agree to the termination or cancellation of such rights or
securities pursuant to a written agreement in form and substance satisfactory to
the Buyer and its counsel.
3.11 Consummation of Agreement. The Company, each Subsidiary and each
-------------------------
Stockholder shall use its or his best efforts to perform and fulfill all
conditions and obligations on his part to be performed and fulfilled under this
Agreement to the end that the transactions contemplated by this Agreement be
fully carried out.
3.12 Leases.
------
(a) Cincinnati Lease. Following the Closing, the Stockholders will
----------------
use their best efforts to cause the landlord (the "Cincinnati Landlord") of the
Cincinnati Facility to execute and deliver an amendment (the "Cincinnati Lease
Amendment") to the lease relating to the Cincinnati Facility to provide for (i)
a term ending not later than January 31, 2004, (ii) a monthly rental rate of
$12,916.67 (the "Market Rent") and (iii) providing for the assumption liability
for real property taxes by the Cincinnati Landlord. In the event that the Lease
Amendment is not executed and delivered by the Cincinnati Landlord on or prior
to the day which is the ninetieth day after the Closing Date, the Buyer shall be
indemnified by the Stockholders in an amount equal to the excess of (i) the rent
actually paid by Buyer or the Company under such lease over (ii) the Market Rent
(such amount the "Excess Rent Payment"). The Buyer shall have the right
hereunder, on behalf of the Company, first to set off and apply the amount of
any obligation of the Stockholders under this Section 3.12(a) against amounts
payable to the Stockholders pursuant to the Subordinated Promissory Notes.
Following the payment in full of the Subordinated Promissory Notes, the Buyer,
on behalf of the Company, shall be entitled to indemnification for the full
amount of such Excess Rent Payment; provided that the amount of such setoff and
of any such indemnification payments shall be deemed to reduce the Maximum
Indemnification. Notwithstanding any other provision hereof to the contrary,
the Stockholders acknowledge and agree that in no event shall any reasonable
exercise by Buyer of its rights under Section 3.12 (whether or not upon final
determination Buyer was entitled to exercise such rights) constitute or be
deemed to constitute a failure to make a payment of principal, interest or other
charge under any Subordinated Promissory Note or a breach of any term or
provision of such Subordinated Promissory Note.
(b) Kentucky Lease. Following the Closing, the Stockholders shall use
---------------
their best efforts to cause the landlord of the Company's Louisville, Kentucky
facility to execute and deliver to the Company an amendment to the lease for
such facility to provide for a term that will expire not later than January 31,
2004.
25
<PAGE>
(c) Personal Property. Following the Closing, the Company and the
-----------------
Stockholders shall negotiate in good faith to amend each lease of personal
property by and between the Company and any affiliate of the Company (i.e., any
person or entity controlling, controlled by or under common control with the
Company) to provide for a term ending not later than December 31, 2000.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
- ---------------------------------------------------
4.1 Making of Representations and Warranties. As a material inducement to
----------------------------------------
the Company and the Stockholders to enter into this Agreement and consummate the
transactions contemplated hereby, Buyer hereby makes the representations and
warranties to the Company and the Stockholders contained in this Section 4.
4.2 Organization of Buyer. Buyer is a corporation duly organized, validly
---------------------
existing and in good standing under the laws of the State of Delaware with full
corporate power to own or lease its properties and to conduct its business in
the manner and in the places where such properties are owned or leased or such
business is conducted by it.
4.3 Authority of Buyer. Buyer has full right, authority and power to
------------------
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by Buyer pursuant to this Agreement and to carry out the
transactions contemplated hereby. The execution, delivery and performance by
Buyer of this Agreement and each such other agreement, document and instrument
have been duly authorized by all necessary corporate action of Buyer and no
other action on the part of Buyer is required in connection therewith. This
Agreement and each other agreement, document and instrument executed and
delivered by Buyer pursuant to this Agreement constitute, or when executed and
delivered will constitute, valid and binding obligations of Buyer enforceable in
accordance with their terms.
4.4 Litigation. There is no litigation or governmental or administrative
----------
proceeding or investigation pending or, to the Buyer's knowledge, threatened
against Buyer which would prevent or hinder the consummation of the transactions
contemplated by this Agreement.
4.5 Finder's Fee. Except for the arrangement between the Buyer and Monroe
------------
& Company, LLC as previously disclosed to the Company, Buyer has not incurred or
become liable for any broker's commission or finder's fee relating to or in
connection with the transactions contemplated by this Agreement. The
Stockholders shall have no liability with respect to such commission or fee.
4.6 No Conflicts. The execution, delivery and performance by Buyer of
------------
this Agreement and each other agreement, document or instrument to be executed,
delivered or performed by Buyer (the "Buyer Documents") does not and will not
with or without the giving of notice or the lapse of time or both, (a) violate
any provision of Buyer's Certificate of Incorporation, as amended to date, (b)
constitute a violation of, or conflict with or result in any breach of,
acceleration of any obligation under, right of termination under, or default
under, any agreement or instrument to which Buyer is
26
<PAGE>
a party or by which either of them is bound, (c) violate any judgment, decree,
order, statute, law, rule or regulation applicable to Buyer (d) except as set
forth on Schedule 4.6 attached hereto, require Buyer to obtain any approval,
------------
consent or waiver of, or to make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made or (e) result in
the creation or imposition of any Lien on any of property or assets of Buyer.
SECTION 5. COVENANTS OF BUYER.
- ------------------------------
5.1 Making of Covenants and Agreements. The Buyer hereby makes to the
----------------------------------
Company and the Stockholders the covenants and agreements set forth in this
Section 5, and agrees to use reasonable efforts to comply with and perform all
covenants and agreements contained in this Section 5.
5.2 Consents. The Buyer shall obtain all consents, authorizations and
--------
approvals of third parties including, without limitation, any requisite consent
of any governmental authorities, regulatory agencies and other entities
necessary in connection with the consummation of the transactions contemplated
hereby or referred to herein.
5.3 Executive Supplemental Health Plan. Following the Closing, Buyer
----------------------------------
shall cause the Company to maintain the Company's Executive Supplemental Health
Plan for the benefit of the current participants in such plan until the last to
survive of such participants shall have died; provided, however, that nothing
contained herein shall preclude or in any way limit the right of Buyer and the
Company to terminate benefits under such Executive Supplemental Health Plan with
respect to persons other than those participants in such plan as of the Closing
Date identified on Schedule 2.8. For the purposes of this Section 5.3, the
------------
participants shall include any subsequent spouse of a participant who is (i)
listed in such Schedule and (ii) a former stockholder-employee of the Company.
SECTION 6. CONDITIONS.
----------- ----------
6.1 Conditions to the Obligations of Buyer. The obligation of Buyer to
--------------------------------------
consummate this Agreement and the transactions contemplated hereby are subject
to the fulfillment, prior to or at the Closing, of the following conditions
precedent:
(a) Representations; Warranties; Covenants. Each of the
--------------------------------------
representations and warranties of the Company and the Stockholders contained in
Section 2 shall be true and correct as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing; and the Company and
each of the Stockholders shall, on or before the Closing, have performed all of
their obligations hereunder which by the terms hereof are to be performed on or
before the Closing; each of the conditions specified in this Section 6.1 shall
have been satisfied or waived (in whole or in part) in writing by the Buyer; and
on the Closing Date a certificate to such effect executed on behalf of each the
Company and the Stockholder shall be delivered to the Buyer.
(b) Authorization. The Board of Directors of the Company (the
-------------
"Company Board") shall have duly adopted resolutions in form reasonably
satisfactory to the Buyer and shall have taken all action necessary for the
purpose of authorizing the Company to consummate the transactions contemplated
by this Agreement in accordance with the terms thereof.
27
<PAGE>
(c) Intentionally omitted.
(d) No Material Adverse Change. There shall have been no material
--------------------------
adverse change in the financial condition, prospects, properties, assets,
liabilities, operations, business or prospects of the Company or any Subsidiary
since the date of the Interim Balance Sheet, whether or not in the ordinary
course of business.
(e) Approval of Buyer's Counsel. All actions, proceedings,
---------------------------
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this Agreement shall have been approved by Goodwin, Procter & Hoar LLP as
counsel for Buyer, and such counsel shall have received on behalf of Buyer such
other certificates and other documents in form satisfactory to such counsel, as
Buyer may reasonably require from the Company and the Stockholders to evidence
compliance with the terms and conditions hereof as of the Closing and the
correctness as of the Closing of the representations and warranties of the
Stockholders and the Company and the fulfillment of their respective covenants.
(f) Opinion of Counsel. On the Closing Date, Buyer shall have
------------------
received from Keating, Muething & Klekamp, counsel for the Company and the
Stockholders, an opinion as of said date, substantially in the form attached
hereto as Exhibit C.
---------
(g) No Litigation. There shall have been no determination by Buyer,
-------------
acting in good faith, that the consummation of the transactions contemplated by
this Agreement has become inadvisable or impracticable by reason of the
institution or threat by any person or any federal, state, or other governmental
authority of litigation, proceedings or other action against Buyer, the Company,
any Subsidiary or any Stockholder. The transactions contemplated hereby shall
not be in violation of any law or regulation and shall not be subject to any
injunction, stay or restraining order.
(h) Consents. The Company or the Stockholders shall have made all
--------
filings with and notifications of governmental authorities, regulatory agencies
and other entities required to be made by the Company, its Subsidiaries or the
Stockholders in connection with the execution and delivery of this Agreement,
the performance of the transactions contemplated hereby and the continued
operation of the business of the Company and its Subsidiaries by Buyer
subsequent to the Closing; and the Company, the Stockholders and Buyer shall
have received all authorizations, waivers, consents and permits, in form and
substance reasonably satisfactory to Buyer, from all third parties, including,
without limitation, applicable governmental authorities, regulatory agencies,
lessors, lenders and contract parties, required to permit the continuation of
the business of the Company and each Subsidiary and the consummation of the
transactions contemplated by this Agreement, and to avoid a breach, default,
termination, acceleration or modification of any indenture, loan or credit
agreement or any other agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree, determination
or arbitration award as a result of, or in connection with, the execution and
performance of this Agreement.
28
<PAGE>
(i) [Intentionally omitted.]
(j) Employment Agreements. Each of Richard F. Von Hoene, R. Wayne
---------------------
Nally and William Bates shall have executed and delivered to Buyer an Employment
and Noncompetition Agreement in substantially the form of Exhibit D attached
---------
hereto.
(k) Business Relations. Buyer shall be reasonably satisfied based on
------------------
personal interviews with the Customers and Principals that such Customers and
Principals intend to continue their current level of business with the Company
and its Subsidiaries after the closing.
(l) Employee Programs. The Company shall have taken all steps
-----------------
necessary under the relevant documents and applicable law to maintain the
qualification of each Employee Program identified on Schedule 2.26
-------------
notwithstanding the purchase of the Company Shares by Buyer.]
(m) Resignations. The Company shall have delivered to Buyer the
------------
resignations of all of the directors and officers of the Company and each
Subsidiary, such resignations to be effective at the Closing.
(n) Releases. The Company shall have delivered to Buyer general
--------
releases signed by each of the Stockholders and the other parties identified on
Schedule 6.1(n) of all claims which any of them have against the Company and any
- ---------------
Subsidiary in the form attached here to as Exhibit E.
---------
(o) Due Diligence and Disclosure Schedules. Buyer, in its sole
--------------------------------------
discretion, shall be satisfied, with the results of its legal, accounting,
business, environmental, title and other due diligence review of the Company and
the Subsidiaries. Buyer, in its sole discretion, shall, be satisfied with the
form and substance of the Disclosure Schedules to this Agreement which shall
have been delivered to Buyer by the Sellers on or prior to the date hereof.
(p) Good Standing. At or prior to the Closing, Buyer shall have
-------------
received from the Company and each Subsidiary a certificate of good standing
from the Secretary of State of the State of Ohio and each other jurisdiction in
which the Company is qualified to do business.
6.2 Conditions to Obligations of the Company and the Stockholders. The
-------------------------------------------------------------
obligation of the Company and the Stockholders to consummate this Agreement and
the transactions contemplated hereby is subject to the fulfillment, prior to or
at the Closing, of the following conditions precedent:
(a) Representations; Warranties; Covenants. The representations and
--------------------------------------
warranties of the Buyer contained in this Agreement shall be true and correct on
the date hereof and as of the Closing Date; each of the conditions specified in
this Section 6.2 shall have been satisfied or waived (in whole or in part) in
writing by the Stockholder Representative; and on the Closing Date a certificate
to such effect executed on behalf of the Buyer shall be delivered to the
Stockholder Representative.
29
<PAGE>
(b) Approval of the Company's Counsel. All actions, proceedings,
---------------------------------
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this agreement shall have been approved by Keating, Muething & Klekamp as
counsel for the Company and the Stockholders, and such counsel shall have
received on behalf of the Company and the Stockholders such certificates and
other documents, in form satisfactory to such counsel as the Company may
reasonably require from Buyer to evidence compliance with the terms and
conditions hereof as of the Closing and the correctness as of the Closing of the
representations and warranties of Buyer and the fulfillment of its covenants.
(c) No Litigation. There shall have been no determination by the
-------------
Company, acting in good faith, that the consummation of the transactions
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by any person or any federal, state or other
governmental authority of material litigation, proceedings or other action
against Buyer, the Company, any Subsidiary or any Stockholder. The transactions
contemplated hereby shall not be in violation of any law or regulation, and
shall not be subject to any injunction, stay or restraining order.
(d) Authorization. The Board of Directors of Buyer (the "Board")
-------------
shall have duly adopted resolutions in form reasonably satisfactory to the
Company and shall have taken all action necessary for the purpose of authorizing
the Buyer to consummate the transactions contemplated by this Agreement in
accordance with the terms thereof.
(e) Good Standing. At or prior to the Closing, the Company and the
-------------
Stockholders shall have received from the Buyer a certificate of good standing
from the Secretary of State of the State of Delaware and each other jurisdiction
in which Buyer is qualified to do business.
SECTION 7. [INTENTIONALLY OMITTED].
- ----------
SECTION 8. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
- --------------------------------------------------------
8.1 Survival of Warranties. Each of the representations, warranties,
----------------------
agreements, covenants and obligations herein or in any schedule, exhibit,
certificate or financial statement delivered by any party to the other party
incident to the transactions contemplated hereby are material, shall be deemed
to have been relied upon by the other party and shall survive the Closing for a
period equal to the survival period set forth in Section 9 regardless of any
investigation and shall not merge in the performance of any obligation by either
party hereto.
30
<PAGE>
SECTION 9. INDEMNIFICATION.
- ---------------------------
9.1 Indemnification by the Stockholders. The Stockholders jointly and
-----------------------------------
severally agree subsequent to the Closing to indemnify and hold the Company, the
Subsidiaries, Buyer and their respective subsidiaries and affiliates and persons
serving as officers, directors, partners or employees thereof (individually a
"Buyer Indemnified Party" and collectively the "Buyer Indemnified Parties")
harmless from and against any damages, liabilities, losses, taxes, fines,
penalties, costs, and expenses (including, without limitation, reasonable fees
of counsel) of any kind or nature whatsoever (whether or not arising out of
third-party claims and including all amounts paid in investigation, defense or
settlement of the foregoing) which may be sustained or suffered by any of them
arising out of or based upon any of the following matters:
(a) fraud, intentional misrepresentation or a deliberate or willful
breach by the Company or any Stockholder of any of their representations,
warranties, agreements or covenants under this Agreement or in any agreement,
document, instrument, certificate, schedule or exhibit delivered pursuant
hereto;
(b) any other breach of any representation or warranty of the Company
or any Stockholder under this Agreement or in any agreement, document,
instrument, certificate, schedule or exhibit delivered pursuant hereto, or by
reason of any claim, action or proceeding asserted or instituted arising out of
any matter or thing constituting a breach of such representations or warranties;
(c) any other breach of any agreement or covenant of the Company or
any Stockholder under this Agreement or in any agreement, document, instrument,
certificate, schedule or exhibit delivered pursuant hereto, or by reason of any
claim, action or proceeding asserted or instituted arising out of any matter or
thing constituting a breach of any such agreement or covenant.
(d) any liability of the Company or any Subsidiary for Taxes arising
from an event or transaction prior to the Closing or as a result of the Closing
which have not been paid or provided for or adequately reserved against by the
Company or a Subsidiary, including without limitation, any increase in Taxes due
to the unavailability of any loss or deduction claimed by the Company or a
Subsidiary which in fact did not exist for the Company as of the Closing Date.
(e) [Intentionally omitted].
(f) [Intentionally omitted].
(g) any liability of the Buyer, the Company or any Subsidiary in
respect of any claim made by any third party and relating to, arising out of or
in connection with any right (or, with respect to clause (i) below, any alleged
right of such party) to acquire or purchase shares of the capital stock or any
other equity interest in the Company whether (i) pursuant to Article XII of that
certain Code of Regulations and Closed Corporation Agreement by and among the
Company and its current and former stockholders or (ii) otherwise.
31
<PAGE>
(h) Each Stockholder hereby acknowledges and agrees that no
Stockholder shall have any right of indemnity or contribution from the Company
with respect to any breach of any representation or warranty hereunder.
9.2 Limitations on Indemnification by the Stockholders.
--------------------------------------------------
(a) Threshold. Subject to the exceptions set forth in Section 9.2(c)
---------
below, no indemnification shall be payable by the Stockholders with respect to
claims except to the extent that the cumulative amount of all such claims first
exceed Seventy Thousand Dollars ($70,000) in the aggregate (the "Threshold
Amount"), whereupon the Buyer Indemnified Parties shall be entitled to dollar-
for-dollar indemnification from the first dollar in accordance with the terms
hereof.
(b) Maximum Indemnification. Subject to the exceptions set forth in
-----------------------
Section 9.2(c) below, and in the provisions of Section 9.7 below the
Stockholders shall not be obligated to indemnify any Buyer Indemnified Party for
any amount of otherwise indemnifiable losses in excess of $1,500,000 (the
"Maximum Indemnification").
(c) No Limitation on Certain Claims. Notwithstanding anything herein
-------------------------------
to the contrary, Buyer Indemnified Parties (i) shall be entitled to dollar-for-
dollar indemnification from the first dollar, (ii) shall not be subject to the
Threshold Amount, (iii) shall not be subject to the Maximum Indemnification,
(iv) shall be entitled to claim directly against any Stockholder and (v) shall
not be subject to any limitation as to time (except as provided in Section
9.2(d)), in seeking indemnification from the Stockholders with respect to any of
the following:
(i) Losses involving a breach by the Company or any Stockholder
of any of the representations and warranties contained in Section 2.3, 2.5,
2.9, 2.22, 2.26 or 2.27; or
(ii) Losses described in Sections 9.1(a), or 9.1(d) - 9.1(g).
(d) Time Limitation No indemnification shall be payable to a Buyer
---------------
Indemnified Party with respect to claims asserted pursuant to Section 9.1(b) and
9.1(c) (other than any claims for indemnification for Taxes or based upon or
related to a breach of any representation, warranty or covenant with respect to
title to the Company Shares, environmental matters, Taxes or tax related
matters) after the date which is eighteen (18) months after the Closing Date
(the "Indemnification Cut-Off Date"); provided that (i) any claim as to which
notice is given by a Buyer Indemnified Party to the Stockholders prior to the
Indemnification Cut-Off Date shall survive the Indemnification Cut-Off Date
until final resolution of such claim; (ii) claims based upon or related to a
breach of any representation or warranty contained in Sections 2.5, 2.9, 2.22,
2.26 or 2.27 or in Sections 9.1(d) may be asserted until the 60th day following
expiration of the statute of limitations (if any) applicable to such claim; and
(iii) claims based upon a breach of any representation or warranty contained in
Section 2.3 or pursuant to Section 9.1(a) or 9.1(g) shall continue without
limitation as to time.
32
<PAGE>
9.3 Indemnification by Buyer. Buyer agrees to indemnify and hold the
------------------------
Stockholders (individually a "Stockholder Indemnified Party" and collectively
the "Stockholder Indemnified Parties") harmless from and against any damages,
liabilities, losses and expenses (including, without limitation, reasonable fees
of counsel) of any kind or nature whatsoever (whether or not arising out of
third-party claims and including all amounts paid in investigation, defense or
settlement of the foregoing) which may be sustained or suffered by any of them
arising out of or based upon any breach of any representation, warranty or
covenant made by Buyer in this Agreement or in any certificate delivered by
Buyer hereunder, or by reason of any claim, action or proceeding asserted or
instituted growing out of any matter or thing constituting such a breach.
9.4 Limitation on Indemnification by Buyer. Notwithstanding the
--------------------------------------
foregoing, no indemnification shall be payable to the Stockholders with respect
to claims asserted pursuant to Section 9.3 above after the Indemnification Cut-
Off Date, provided that any claims as to which notice is given by a Stockholder
Indemnified Party prior to the Indemnification Cut-Off Date shall survive the
Indemnification Cut-Off Date until final resolution of such claim; provided ,
however, that (i) claims based upon or related to a breach of any representation
or warranty contained in Section 4.5 may be asserted until the 60th day
following expiration of the statute of limitations (if any) applicable to such
claim; and (ii) claims based upon a breach of the covenant set forth in Section
5.3 shall survive as provided therein.
9.5 Special Loss Sharing. Notwithstanding the provisions of Section 2.6
--------------------
of this Agreement, with respect to any and all damages, liabilities, losses,
taxes, fines, penalties, costs, expenses (including, without limitation,
reasonable fees of counsel) of any kind or nature whatsoever (the "MS Losses")
which may be sustained or suffered by any of the Buyer, the Company or any
Stockholder arising solely out of, or solely in connection with or solely
relating to any breach or alleged breach by the Company or any Stockholder of
that certain Confidentiality Agreement, dated September, 1998, by and between
Marketing Specialists Sales Company and Sell, Inc. (d/b/a The Sell Group -
Cincinnati, Inc.) (i) MS Losses of up to and including $1,000,000 shall be
shared equally by the Buyer and the Company, on one hand, and by the
Stockholders, on the other hand, and (ii) MS Losses in excess of $1,000,000 (the
"Excess MS Losses") shall be paid by Buyer or the Company and Buyer shall
indemnify the Stockholders in full with respect to Excess MS Losses. The
Company and the Buyer, on one hand, and each Stockholder, on the other, agree to
indemnify and hold each other harmless in accordance with, and subject to the
limitations set forth in, this Section 9.5. Claims for indemnification under
this Section 9.5 may be asserted by the Buyer, the Company or any Stockholder
until the sixtieth (60th) day following the expiration of the statute of
limitations, if any, applicable to such claim.
9.6 Notice; Defense of Claims. An indemnified party may make claims for
-------------------------
indemnification hereunder by giving written notice thereof to the indemnifying
party within the period in which indemnification claims can be made hereunder.
If indemnification is sought for a claim or liability asserted by a third party,
the indemnified party shall also give written notice thereof to the indemnifying
party promptly after it receives notice of the claim or liability being
asserted, but the failure to do so shall not relieve the indemnifying party from
any liability except to the extent that it is prejudiced by the failure or delay
in giving such notice. Such notice shall summarize the bases for the claim for
indemnification and any claim or liability being asserted by a third party.
33
<PAGE>
Within 20 days after receiving such notice the indemnifying party shall give
written notice to the indemnified party stating whether it disputes the claim
for indemnification and whether it will defend against any third party claim or
liability at its own cost and expense. If the indemnifying party fails to give
notice that it disputes an indemnification claim within 20 days after receipt of
notice thereof, it shall be deemed to have accepted and agreed to the claim,
which shall become immediately due and payable. The indemnifying party shall be
entitled to direct the defense against a third party claim or liability with
counsel selected by it (subject to the consent of the indemnified party, which
consent shall not be unreasonably withheld) as long as the indemnifying party is
conducting a good faith and diligent defense. The indemnified party shall at
all times have the right to fully participate in the defense of a third party
claim or liability at its own expense directly or through counsel; provided,
however, that if the named parties to the action or proceeding include both the
indemnifying party and the indemnified party and the indemnified party is
advised that representation of both parties by the same counsel would be
inappropriate under applicable standards professional conduct, the indemnified
party may engage separate counsel at the expense of the indemnifying party. If
no such notice of intent to dispute and defend a third party claim or liability
is given by the indemnifying party, or if such good faith and diligent defense
is not being or ceases to be conducted by the indemnifying party, the
indemnified party shall have the right, at the expense of the indemnifying
party, to undertake the defense of such claim or liability (with counsel
selected by the indemnified party), and to compromise or settle it, exercising
reasonable business judgment. If the third party claim or liability is one that
by its nature cannot be defended solely by the indemnifying party, then the
indemnified party shall make available such information (other than any
information which would require the indemnified party to waive the attorney-
client privilege) and assistance as the indemnifying party may reasonably
request and shall cooperate with the indemnifying party in such defense, at the
expense of the indemnifying party.
9.7 Satisfaction of Stockholder Indemnification Obligations. In order to
-------------------------------------------------------
satisfy the indemnification obligations of the Stockholders pursuant to Section
9.1 above and without limiting any right of any Buyer Indemnified Party with
respect to any claim for indemnification under Section 9.1, each Buyer
Indemnified Party shall recover the amount of such indemnification obligation
(i) first, by setting off and applying the amount of such obligation against
amounts payable under any Subordinated Promissory Notes and (ii) thereafter, by
seeking to collect directly from the Stockholders. Each Stockholder hereby
acknowledges and agrees that under no circumstances shall any reasonable
exercise by any Buyer Indemnified Party of the rights of such party under this
Section 9.7 (whether or not upon final determination such party was entitled to
exercise such rights) constitute or be deemed to constitute a failure to make a
payment of principal, interest or any other charge thereunder or a breach of any
term or provision of such Subordinated Promissory Note.
SECTION 10. DEFINITIONS.
- -------------------------
For the purposes of this Agreement, the capitalized terms set forth below
shall have the meanings indicated.
"Accumulated funding deficiency" shall have the meaning set forth in
Section 2.26 hereof.
34
<PAGE>
"Acquisition" shall have the meaning set forth in Section 2.4 hereof.
"Acquisition Rights" shall have the meaning set forth in Section 2.4
hereof.
"Affiliate" shall have the meaning set forth in Section 2.26 hereof.
"Affiliated group" shall have the meaning set forth in Section 2.9 hereof.
"Agreement" shall have the meaning set forth in the Recitals hereto.
"Approvals" shall have the meaning set forth in Section 2.23 hereof.
"Audited Financial Statements" shall have the meaning set forth in Section
2.8 hereof.
"Base Balance Sheet" shall have the meaning set forth in Section 2.8
hereof.
"Blue Sky" shall refer to the applicable state securities laws.
The "Board" shall have the meaning set forth in Section 6.2 hereof.
"Buyer" shall have the meaning set forth in the Recitals hereto.
"Buyer Documents" shall have the meaning set forth in Section 4.6 hereof.
"Buyer Indemnified Party" and "Buyer Indemnified Parties" shall have the
meaning set forth in Section 9.1 hereof.
The "Cincinnati Facility" shall mean the facilities, including the
warehouse and offices, located at 11243 Cornell Park Drive, Cincinnati, Ohio
45242-1890.
The "Cincinnati Landlord" shall have the meaning set forth in Section 3.12.
"Closing" shall have the meaning set forth in Section 1.3 hereof.
"Closing Date" shall mean the date on which the Closing occurs.
"Code" shall have the meaning set forth in Section 2.9 hereof.
"Common Stock" shall have the meaning set forth in the Recitals hereto.
"Company" shall have the meaning set forth in the Recitals hereto, except
as set forth in Section 2.27.
"Company Board" shall have the meaning set forth in Section 6.1 hereof.
35
<PAGE>
"Company Shares" shall have the meaning set forth in the Recitals hereto.
"Contract" and "Contracts" shall have the meaning set forth in Section 2.17
hereof.
"Controlled group" shall have the meaning set forth in Section 2.26 hereof.
"CPR Rules" shall have the meaning set forth in Section 11.10 hereof.
"Customers" shall have the meaning set forth in Section 2.12 hereof.
"Employee Program" shall have the meaning set forth in Section 2.26 hereof.
"Encumbrance" shall mean all easements, covenants, restrictions, leases,
mortgages, liens, assessments, claims, rights, judgments, encroachments or other
matters affecting title.
"Environmental Law" shall have the meaning set forth in Section 2.27
hereof.
"ERISA" shall have the meaning set forth in Section 2.26 hereof.
"Excess MS Losses" shall have the meaning set forth in Section 9.5 hereof.
"Financial Statements" shall have the meaning set forth in Section 2.8
hereof.
"GAAP" shall have the meaning set forth in Section 2.8 hereof.
"Gatton Jones Redemption" shall mean the redemption or other repurchase by
the Company of shares of Common Stock from Billy Gatton Jones as of January 19,
1999.
"Hazardous Material" shall have the meaning set forth in Section 2.27
hereof.
"Hazardous Waste" shall have the meaning set forth in Section 2.27 hereof.
"Indemnification Cut-Off Date" shall have the meaning set forth in Section
9.2 hereof.
"Initial Payment" shall have the meaning set forth in Section 1.2 hereof.
"Intellectual Property" shall have the meaning set forth in Section 2.16
hereof.
"Interim Balance Sheet" shall have the meaning set forth in Section 2.8
hereof.
"Interim Financial Statements" shall have the meaning set forth in Section
2.8 hereof.
"IRS" shall have the meaning set forth in Section 2.9 hereof.
"Leased Real Property" shall have the meaning set forth in Section 2.7
hereof.
36
<PAGE>
"Liens" shall have the meaning set forth in Section 2.3 hereof.
"Loss Sharing Termination Date" shall have the meaning set forth in Section
9.5 hereof.
"Maintains" shall have the meaning set forth in Section 2.26 hereof.
"Material Adverse Effect" shall have the meaning set forth in Section 2.4
hereof.
"MS Losses" shall have the meaning set forth in Section 9.5 hereof.
"Maximum Indemnification" shall have the meaning set forth in Section 9.2
hereof.
"Multiemployer Plan" shall have the meaning set forth in Section 2.26
hereof.
"Permitted Encumbrances" shall include the following:
(i) easements, covenants, restrictions and similar encumbrances that do
not and could not materially interfere with the use of the Real
Property as currently used and improved;
(ii) minor encroachments that do not and could not materially adversely
affect the value or use of the Real Property as currently used and
improved and that could be removed without material cost; and
(iii) liens for Taxes (as defined below) not yet due and payable or
delinquent or being contested in good faith by appropriate means and
statutory liens arising in the ordinary course of business by
operation of law that are not yet due or delinquent
"Principal" shall have the meaning set forth in Section 2.12.
"Prohibited transaction" shall have the meaning set forth in Section 2.26
hereof.
"Purchase Price" shall have the meaning set forth in Section 1.1 hereof.
"Real Property" shall have the meaning set forth in Section 2.7 hereof.
"Reportable event" shall have the meaning set forth in Section 2.26 hereof.
"Severance Pay" shall have the meaning set forth in Section 2.29 hereof.
"Stockholder" and "Stockholders" shall have the meaning set forth in the
Recitals hereto.
"Stockholder Indemnified Party" and "Stockholder Indemnified Parties" shall
have the meaning set forth in Section 9.3 hereof.
"Stockholders' Representative" shall have the meaning set forth in Section
1.4 hereof.
37
<PAGE>
"Subordinated Promissory Notes" shall have the meaning set forth in Section
1.2 hereof
"Subsidiary" and "Subsidiaries" shall have the meaning set forth in Section
2.4 hereof.
"Taxes" shall have the meaning set forth in Section 2.9 hereof.
"Tax Returns" shall have the meaning set forth in Section 2.9 hereof.
"Threshold Amount" shall have the meaning set forth in Section 9.2 hereof.
"Total Consideration" shall have the meaning set forth in Section 1.2
hereof.
"Transaction Documents" shall have the meaning set forth in Section 2.6
hereof.
"Unfunded benefit liabilities" shall have the meaning set forth in Section
2.26 hereof.
SECTION 11. MISCELLANEOUS.
- ---------------------------
11.1 Fees and Expenses.
-----------------
(a) Buyer, on one hand, and the Stockholders on the other, shall pay
all of its or their respective fees, expenses and costs incurred in connection
with the preparation and negotiation of this Agreement and the consummation of
the transactions contemplated hereby and none of such fees, expenses or costs
incurred by or on behalf of the Stockholders shall be paid by the Company;
provided however, that the Company shall pay the fees and expenses of attorneys
and accountants for the Stockholders incurred in connection with the
transactions contemplated hereby up to a maximum aggregate amount of $35,000.
(b) The Stockholders will pay all costs incurred, whether at or
subsequent to the Closing, in connection with the transfer of the Company Shares
to Buyer as contemplated by this Agreement, including without limitation, all
transfer taxes and charges applicable to such transfer, and all costs of
obtaining permits, waivers, registrations or consents with respect to any
assets, rights or contracts of the Company or any Subsidiary.
11.2 Governing Law. This Agreement shall be construed under and governed
-------------
by the internal laws of the State of Ohio without regard to its conflict of laws
provisions.
11.3 Notices. Any notice, request, demand or other communication required
-------
or permitted hereunder shall be in writing and shall be deemed to have been
given if delivered or sent by facsimile transmission, upon receipt, or if sent
by registered or certified mail, upon the sooner of the date on which receipt is
acknowledged or the expiration of three days after deposit in United States post
office facilities properly addressed with postage prepaid. All notices to a
party will be sent to the addresses set forth below or to such other address or
person as such party may designate by notice to each other party hereunder:
38
<PAGE>
TO BUYER: Merkert American Corporation
- -------- 500 Turnpike Street
Canton, MA 02021
Attn: Chief Executive Officer
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn.: Stuart M. Cable, P.C.
TO COMPANY: The Sell Group - Cincinnati, Inc.
- ---------- 11243 Cornell Park Drive
Cincinnati, OH 45242
Attn: Mr. Richard F. Von Hoene
With a copy to: Keating, Muething & Klekamp
1800 Provident Tower
One East Fourth Street
Cincinnati, OH 45202 10019
Attn: Joseph Rouse, Esq.
TO ANY STOCKHOLDER: The Sell Group - Cincinnati, Inc.
- ------------------ 11243 Cornell Park Drive
Cincinnati, OH 45242
Attn: Mr. Richard F. Von Hoene
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
11.4 Entire Agreement. This Agreement, including the Schedules and
----------------
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby, is complete, reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous written
or oral negotiations, commitments and writings. No promises, representations,
understandings, warranties and agreements have been made by any of the parties
hereto except as referred to herein or in such Schedules and Exhibits or in such
other writings; and all inducements to the making of this Agreement relied upon
by either party hereto have been expressed herein or in such Schedules or
Exhibits or in such other writings.
11.5 Assignability; Binding Effect. This Agreement shall only be
-----------------------------
assignable by Buyer to a corporation, partnership or other entity controlling,
controlled by or under common control with Buyer upon written notice to the
Company and the Stockholders. This Agreement may not be assigned by the
Stockholders or the Company without the prior written consent of Buyer. This
Agreement shall be binding upon and enforceable by, and shall inure to the
benefit of, the parties hereto and their respective successors and permitted
assigns.
39
<PAGE>
11.6 Captions and Gender. The captions in this Agreement are for
-------------------
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter,
as the context may require.
11.7 Execution in Counterparts. For the convenience of the parties and to
-------------------------
facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
11.8 Amendments. This Agreement may not be amended or modified, nor may
----------
compliance with any condition or covenant set forth herein be waived, except by
a writing duly and validly executed by each party hereto, or in the case of a
waiver, the party waiving compliance.
11.9 Publicity and Disclosures. No press releases or public disclosure,
-------------------------
either written or oral, of the transactions contemplated by this Agreement,
shall be made by a party to this Agreement without the prior knowledge and
written consent of Buyer and the Company.
11.10 Dispute Resolution; Consent to Jurisdiction.
-------------------------------------------
(a) Except as provided below, any dispute arising out of or relating
to this Agreement or the breach, termination or validity hereof shall be finally
settled by arbitration conducted expeditiously in accordance with the Center for
Public Resources Rules for Nonadministered Arbitration of Business Disputes (the
"CPR Rules"). The Center for Public Resources shall appoint a neutral advisor
from its National CPR Panel. The arbitration shall be governed by the United
States Arbitration Act, 9 U.S.C. (S)(S)1-16, and judgment upon the award
rendered by the arbitrators may be entered by any court having jurisdiction
thereof.
(b) Any such arbitration shall be conducted in accordance with the
following:
(i) The arbitrator shall be authorized, but not required, to
award to the prevailing party the costs of arbitration, including the
reasonable fees and expenses of attorneys and accountants.
(ii) The arbitrator shall not be authorized or empowered to award
damages in excess of compensatory damages.
(iii) The arbitrator shall enforce the following agreed upon
procedures: (A) mandatory exchange of all relevant documents to be
accomplished within 30 days of the initiation of the arbitration procedure;
(B) hearings before the arbitrator shall be limited to a summary
presentation by each party not to exceed three hours for each party; (C)
all hearings shall have concluded not more than 60 days after the
initiation of the arbitration procedure; and (D) the arbitrator's decision
shall be rendered not more than 10 days after the conclusion of such
hearings.
40
<PAGE>
(c) Notwithstanding anything to the contrary contained herein, the
provisions of this Section 11.10 shall not apply with regard to any equitable
remedies to which any party may be entitled hereunder.
(d) Each of the parties hereto (i) hereby irrevocably submits to the
jurisdiction of the any state or federal court sitting in St. Louis, Missouri
for the purpose of enforcing the award or decision in any such proceeding, (ii)
hereby waives, and agrees not to assert, by way of motion, as a defense, or
otherwise, in any such suit, action or proceeding, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution, that the suit, action
or proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper or that this Agreement or the subject matter
hereof may not be enforced in or by such court, and (iii) hereby waives and
agrees not to seek any review by any court of any other jurisdiction which may
be called upon to grant an enforcement of the judgment of any such court. Each
of the parties hereto hereby consents to service of process by registered mail
at the address to which notices are to be given. Each of the parties hereto
agrees that its submission to jurisdiction and its consent to service of process
by mail is made for the express benefit of the other parties hereto. Final
judgment against any party hereto in any such action, suit or proceeding may be
enforced in other jurisdictions by suit, action or proceeding on the judgment,
or in any other manner provided by or pursuant to the laws of such other
jurisdiction; provided, however, that any party hereto may at its option bring
-------- -------
suit, or institute other judicial proceedings, in any state or federal court of
the United States or of any country or place where the other parties or their
assets, may be found.
11.11 Consent to Jurisdiction. Each of the parties hereby consents to
-----------------------
personal jurisdiction, service of process and venue in the federal or state
courts sitting in St. Louis, Missouri for any claim, suit or proceeding arising
under this Agreement, or in the case of a third party claim subject to
indemnification hereunder, in the court where such claim is brought.
11.12 Specific Performance. The parties agree that it would be difficult
--------------------
to measure damages which might result from a breach of this Agreement by the
Company or the Stockholders and that money damages would be an inadequate remedy
for such a breach. Accordingly, if there is a breach or proposed breach of any
provision of this Agreement by the Company or the Stockholders, Buyer shall be
entitled, in addition to any other remedies which it may have, to an injunction
or other appropriate equitable relief to restrain such breach without having to
show or prove actual damage to Buyer.
11.13 No Third-Party Beneficiaries. This Agreement is intended solely for
----------------------------
the benefit of the parties hereto. Neither this Agreement nor any of the
transactions contemplated hereby shall be deemed to create or enlarge any rights
in any party not a party hereto.
11.14 Severability. The parties agree that, in the event that any
------------
provision of this Agreement or the application of any such provision to any
party is held by a court of competent jurisdiction to be contrary to law, the
provision in question shall be construed so as to be lawful and the remaining
provisions of this Agreement shall remain in full force and effect.
[Remainder of Page Intentionally Left Blank]
41
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date first set forth above by their duly authorized
representatives.
MERKERT AMERICAN CORPORATION
By: /s/ Marty D. Carter
---------------------------------
Name: Marty D. Carter
Title: Vice President of Acquisitions
SELL, INC.
By: /s/ Richard F. Von Hoene
----------------------------------------
Name: Richard F. Von Hoene
Title: Chairman/CEO
STOCKHOLDERS:
------------
/s/ Richard F. Von Hoene
----------------------------------------
Richard F. Von Hoene
/s/ R. Wayne Nally
--------------------------------------------
R. Wayne Nally
/s/ William Bates
----------------------------------------------
William Bates
42
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF MERKERT AMERICAN CORPORATION
Merkert American Co., Inc.*
_______
* Effective March 31, 1999, Merkert American Corporation merged its several
operating subsidiaries and now operates with one wholly-owned subsidiary,
Merkert American Co., Inc. (formerly known as Merkert Enterprises, Inc.).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAR-04-1998
<PERIOD-END> DEC-31-1998
<CASH> 11,166
<SECURITIES> 0
<RECEIVABLES> 23,708
<ALLOWANCES> (1,374)
<INVENTORY> 1,623
<CURRENT-ASSETS> 38,788
<PP&E> 17,470
<DEPRECIATION> (53)
<TOTAL-ASSETS> 188,410
<CURRENT-LIABILITIES> 40,896
<BONDS> 74,673
0
0
<COMMON> 72
<OTHER-SE> 72,523
<TOTAL-LIABILITY-AND-EQUITY> 188,410
<SALES> 8,395
<TOTAL-REVENUES> 8,395
<CGS> 2,368
<TOTAL-COSTS> 9,582
<OTHER-EXPENSES> 6
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 273
<INCOME-PRETAX> (1,466)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,466)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,466)
<EPS-PRIMARY> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
