<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] 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
MARKETING SPECIALISTS CORPORATION
-----------------------------------
(F/K/A 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.)
17855 N. Dallas Parkway, Suite 200
Dallas, Texas 75287
(972) 349-6200
(Address, including zip code and telephone number, including area code of
Registrant's principal executive office)
-----------------------------------
Former name and address
Merkert American Corporation
490 Turnpike Street
Canton, Massachusetts 02021
-----------------------------------
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 [ ]
The number of shares of the Registrant's Common Stock and Restricted
Common Stock outstanding as of November 6, 1999 was 13,838,144 and 335,700,
respectively.
<PAGE> 2
MARKETING SPECIALISTS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
PART I. FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
September 30, 1999 (unaudited) and December 31, 1998 ............................. 3
Condensed Consolidated Statements of Operations
Three and nine months ended September 30, 1999 (unaudited)........................ 4
Condensed Consolidated Statement of Cash Flows
Nine months ended September 30, 1999 (unaudited).................................. 5
Notes to Consolidated Financial Statements (unaudited)................................ 6
Predecessor Company-Merkert Enterprises, Inc. and Subsidiary
Consolidated Statements of Operations
Three and nine months ended September 30, 1998 (unaudited)...................... 11
Predecessor Company-Merkert Enterprises, Inc. and Subsidiary
Consolidated Statement of Cash Flows
Nine months ended September 30, 1998 (unaudited)................................ 12
Predecessor Company-Rogers American Company, Inc. and Subsidiary
Consolidated Statements of Operations
Three and nine months ended September 30, 1998 (unaudited)...................... 13
Predecessor Company-Rogers American Company, Inc. and Subsidiary
Consolidated Statement of Cash Flows
Nine months ended September 30, 1998 (unaudited)................................ 14
Predecessor Company-Notes to Consolidated Financial Statements (unaudited)............ 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS......................................................................... 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................ 23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................................................... 23
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................................. 23
ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................................... 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................... 23
ITEM 5. OTHER INFORMATION..................................................................... 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................................... 24
SIGNATURES............................................................................ 25
</TABLE>
2
<PAGE> 3
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
(FORMERLY MERKERT AMERICAN CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash ..................................................................... $ 4,438 $ 1,185
Restricted cash .......................................................... 9,538 9,981
Accounts receivable, less allowance for doubtful accounts
of $5,023 at September 30, 1999 and $1,374 at December 31, 1998 ........ 55,495 22,334
Income taxes receivable .................................................. 126 2,647
Inventories .............................................................. 1,150 1,623
Prepaid expenses and other ............................................... 5,444 1,018
------------ ------------
Total current assets ................................................ 76,191 38,788
------------ ------------
Property, plant and equipment, net ............................................. 40,044 17,417
Noncompete agreements, net ..................................................... 12,477 1,986
Goodwill, net .................................................................. 323,604 124,475
Other assets ................................................................... 12,178 5,744
------------ ------------
Total assets ........................................................ $ 464,494 $ 188,410
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and notes payable ................... $ 24,878 $ 10,523
Accounts payable ......................................................... 9,002 9,293
Accrued expenses ......................................................... 42,049 21,080
------------ ------------
Total current liabilities ........................................... 75,929 40,896
------------ ------------
Long-term debt, net of current portion ......................................... 245,914 74,673
------------ ------------
Other liabilities .............................................................. 21,060 246
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value - Authorized - 54,000,000 shares
Issued and outstanding - 14,173,844 and 7,218,000, respectively ........ 142 72
Additional paid in capital ............................................... 143,034 75,489
Note for sale of common stock ............................................ (1,500) (1,500)
Retained deficit ......................................................... (19,638) (1,466)
Treasury stock, at cost .................................................. (447) --
------------ ------------
Total stockholders' equity .......................................... 121,591 72,595
------------ ------------
Total liabilities and stockholders' equity .......................... $ 464,494 $ 188,410
============ ============
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 4
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
(FORMERLY MERKERT AMERICAN CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Commissions ......................................................... $ 66,158 $ 151,166
Sales .............................................................. 10,710 32,797
Revenues ..................................................... 76,868 183,963
Cost of sales ...................................................... 9,390 29,235
Salaries ........................................................... 37,787 85,663
Fringe benefits .................................................... 6,167 14,193
Automobiles and related expenses ................................... 5,981 13,797
Sales and marketing ................................................ 3,874 10,021
General and administrative expenses ................................ 10,907 21,661
Restructuring charge ............................................... 13,290 13,290
Depreciation and amortization ...................................... 3,163 6,171
------------------ ------------------
90,559 194,031
Operating loss ............................................... (13,691) (10,068)
Interest expense, net .............................................. 4,158 8,104
------------------ ------------------
Loss before provision for income taxes ....................... (17,849) (18,172)
Provision (benefit) for income taxes ............................... (760) --
------------------ ------------------
Net loss ..................................................... $ (17,089) $ (18,172)
================== ==================
Net loss per share - basic and diluted ............................. $ (1.61) $ (2.12)
================== ==================
Shares used in computing net loss per share - basic and diluted .... 10,637,257 8,555,514
================== ==================
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE> 5
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
(FORMERLY MERKERT AMERICAN CORPORATION)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED AND AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................................................... $ (18,172)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization .............................................. 6,171
Changes in assets and liabilities, exclusive of acquisitions:
(Increase) decrease in -
Restricted cash ......................................................... 701
Accounts receivable ..................................................... 8,207
Income tax receivable ................................................... 2,556
Inventories ............................................................. 472
Prepaid expenses and other .............................................. (1,775)
Increase (decrease) in -
Accounts payable ........................................................ (9,502)
Accrued expenses ........................................................ 9,927
---------
Net cash used in operating activities ................................. (1,415)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired ......................................... (4,103)
Purchase of property, plant and equipment .................................. (1,167)
Decrease in cash surrender value of life insurance ......................... 58
---------
Net cash used in investing activities ................................. (5,212)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility ................................. 16,300
Repayments of long-term debt ............................................... (12,151)
Issuance of common stock, net of expenses .................................. 4,046
Restricted cash ............................................................ 1,685
Net cash provided by financing activities ............................. 9,880
Net increase in cash .................................................. 3,253
CASH AT BEGINNING OF PERIOD ...................................................... 1,185
---------
CASH AT END OF PERIOD ............................................................ $ 4,438
=========
SUPPLEMENTAL DISCLOSURES OF:
Cash flow information -
Cash payments for -
Interest .............................................................. $ 6,827
=========
Income taxes .......................................................... $ 27
=========
Non-cash flow information-
Purchase price financed with debt ..................................... $ 10,473
=========
Purchase price financed with equity ................................... $ 63,431
=========
Net liabilities assumed ............................................... $ 128,814
=========
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE> 6
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Marketing Specialists Corporation (formerly Merkert American
Corporation) in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments consisting
of normal recurring accruals considered necessary to present fairly the
financial position, results of operations and cash flows of the Company for the
periods indicated have been made. The results of operations for the interim
periods in 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999.
This financial information should be read in conjunction with the
consolidated financial statements and notes thereto for the period ended
December 31, 1998, included in the Annual Report on Form 10-K of Marketing
Specialists Corporation and Subsidiaries (formerly Merkert American
Corporation), for the period ended December 31, 1998.
2. OPERATIONS AND ACQUISITIONS
Marketing Specialists Corporation (formerly Merkert American Corporation,
the "Company") was incorporated on March 4, 1998. The Company's only operations
for the period between March 4, 1998 and September 30, 1998 related to the
public offering of the Company's stock and the acquisition of Merkert
Enterprises, Inc. and Rogers-American Company, Inc. In April 1998, the Company
recorded a non-recurring compensation charge of $1.3 million relating to the
purchase of 275,222 shares of the Company's stock by the now current President
and Chief Executive Officer of the Company.
The acquisitions of Merkert Enterprises and Rogers-American were
consummated on December 18, 1998 and have been accounted for using the purchase
method of accounting. Accordingly, the results of operations of both Merkert
Enterprises and Rogers-American have been included in the Company's consolidated
statement of operations since the date of acquisition. Due to the significance
of the operations of the Company's predecessors (Merkert Enterprises and
Rogers-American), the Company has included the statements of operations and cash
flows for the periods ended September 30, 1998 for each of Merkert Enterprises
and Rogers-American in this Form 10-Q.
In January 1999, the Company completed the acquisition of Sell, Inc.
("Sell"), a full service brokerage firm in the Midwest region of the United
States, for an aggregate purchase price of approximately $3 million in cash and
$3.8 million in notes. The acquisition was accounted for using the purchase
method of accounting. Goodwill resulting from the acquisition is being amortized
over its estimated useful life. The operating results of Sell are included in
the operating results of the Company since the acquisition date.
In April 1999, the Company completed the acquisition of United Brokerage
Company ("UBC"), for an aggregate purchase price having a present value
(calculated at an eight percent (8%) discount rate) of approximately $3.3
million in notes in addition to debt assumed. The acquisition was accounted for
using the purchase method of accounting. Goodwill resulting from the acquisition
is being amortized over its estimated useful life. The operating results of UBC
are included in the operating results of the Company since the acquisition date.
UBC has operated in the Midwest region of the United States under an alliance
known as "The Sell Group" since 1998.
6
<PAGE> 7
In July 1999, the Company completed the acquisition of Buckeye Sales and
Marketing ("Buckeye"), for an aggregate purchase price having a present value
(calculated at an eight percent (8%) discount rate) of approximately $2.6
million in notes in addition to debt assumed. The acquisition was accounted for
using the purchase method of accounting. Goodwill resulting from the acquisition
is being amortized over its estimated useful life. The operating results of
Buckeye are included in the operating results of the Company since the
acquisition date. Buckeye has operated in the Cleveland, Ohio; Pittsburgh,
Pennsylvania; and upstate New York markets.
On August 18, 1999, the Company completed a merger with Dallas, Texas-based
Richmont Marketing Specialists Inc., ("Richmont"). For financial reporting
purposes the Company is presented as the accounting acquiror since the Company's
stockholders own the largest portion of the common stock of the combined
company. The purchase price was allocated to the net assets of Richmont on a
preliminary basis and is subject to revision. The results of operations of
Richmont have been included in the Company's consolidated statement of
operations since the date of the acquisition. Goodwill resulting from the
acquisition is being amortized over its estimated useful life. Under the terms
of the transaction, the stockholders of Richmont received 6,705,551 shares of
the Company's common stock. In addition, the Company granted to certain
stockholders and employees of Richmont options to purchase an additional 800,000
shares of the Company's stock at a per share price equal to $13.50. In
connection with the merger, the Company assumed all of Richmont's outstanding
debt, which, net of cash on hand at August 18, 1999, totaled approximately
$164.0 million, and changed its name to Marketing Specialists Corporation.
The following unaudited pro forma combined statement of operations
information gives effect to the merger with Richmont as if it had occurred on
January 1, 1998, and excludes non-recurring restructuring charge (unaudited and
amounts in thousands, except share and per share amounts):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Commissions .................................... $ 93,552 $ 287,150
Sales .......................................... $ 10,710 $ 32,797
EBITDA ......................................... 5,079 15,674
Net loss ....................................... (7,744) (27,913)
Net loss per share:
Basic and diluted ......................... (0.55) (1.97)
Shares used in computing net loss per share:
Basic and diluted ......................... 14,173,844 14,173,844
</TABLE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Commissions .................................... $ 97,372 $ 291,460
Sales .......................................... $ 9,974 $ 31,511
EBITDA ......................................... 6,721 18,506
Net loss ....................................... (8,858) (29,560)
Net loss per share:
Basic and diluted ......................... (0.62) (2.09)
Shares used in computing net loss per share:
Basic and diluted ......................... 14,173,844 14,173,844
</TABLE>
7
<PAGE> 8
3. LOSS PER SHARE
The following table sets forth the computation of basic and diluted
loss per share (unaudited and amounts in thousands, except share and per share
amounts):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Numerator:
Net loss ...................................... $ (17,089) $ (18,172)
Denominator:
Weighted average shares - basic ............... 10,637,257 8,555,514
Dilutive stock options ........................ -- --
------------------ ------------------
Weighted average shares - assuming dilution ... 10,637,257 8,555,514
================== ==================
Number of options excluded as they would
be antidilutive ............................. 1,518,400 1,518,400
================== ==================
Net loss per share:
Basic and diluted ............................. $ (1.61) $ (2.12)
================== ==================
</TABLE>
4. SEGMENT INFORMATION
The Company operates in two principal 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. The Private Label segment 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.
Information on the Company's business segments is as follows (unaudited and
amounts in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Revenues:
Food Brokerage ...................................................... $ 66,158 $ 151,166
Private Label ....................................................... 10,710 32,797
------------------ ------------------
$ 76,868 $ 183,963
================== ==================
Operating Profit (Loss):
Food Brokerage ...................................................... $ 8,318 $ 18,484
Private Label ....................................................... 1,320 3,562
General corporate expenses .......................................... (23,329) (32,114)
------------------ ------------------
Operating loss ...................................................... $ (13,691) $ (10,068)
================== ==================
At September 30, 1999:
Identifiable Assets:
Food Brokerage ...................................................... $ 52,449
Private Label ....................................................... 4,516
General corporate assets ............................................ 407,529
------------------
$ 464,494
==================
</TABLE>
8
<PAGE> 9
5. DEBT
Long-term debt consists of the following (unaudited and amounts in
thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
$100,000,000, 10.125% Senior Subordinated
Notes, due December 15, 2007 ................ $ 100,000 $ --
Credit Facility:
Revolving Credit ............................ 16,300 --
Term Loan ................................... 45,313 50,000
Noncompete and other acquisition obligations ..... 39,983 20,750
Bank - mortgage loans ............................ 12,863 13,078
Notes payable .................................... 22,509 778
Deferred compensation ............................ 32,348 --
Lease obligations ................................ 1,457 306
Other ............................................ 19 284
------------- -------------
270,792 85,196
Less current maturities .......................... (24,878) (10,523)
------------- -------------
Net long-term debt .......................... $ 245,914 $ 74,673
============= =============
</TABLE>
The Company's credit facility was amended on August 18, 1999. The
amended credit facility continues to provide for a $50 million term loan ($45.3
million outstanding at September 30, 1999) and a $25 million revolving line of
credit ($16.3 million outstanding at September 30, 1999). The amended credit
facility requires the payment of a consent fee equal to 1% of the aggregate
amount of the credit facility payable upon the earlier of (i) syndication or
refinancing the facility, (ii) March 31, 2000 if the credit facility has not
been syndicated by that time, with additional fees of $350,000 at June 30, 2000
and $150,000 at the end of each month thereafter until the credit facility has
been syndicated. The amended credit facility also requires interest on
borrowings under the credit facility be based on the Prime Rate option instead
of the LIBOR option. The Borrowing Base and certain other financial ratio
compliance measures were also expanded to reflect the merger with Richmont. The
Company w as in compliance with all of its covenants at September 30, 1999.
6. RESTRUCTURING CHARGE
During the third quarter, subsequent to the merger with Richmont
described above in Note 2, the Company recorded a restructuring charge of
approximately $13.3 million to provide for the costs associated with reducing
the redundant work force and offices of the Company. This charge is comprised of
approximately $8.6 million relating to non-cancelable lease obligations on 29
abandoned facilities and $4.7 million related to severance payments to
approximately 100 employees terminated following the merger at September 30,
1999. Approximately, $13.1 million remained in the restructuring accrual after
severance and lease payments in the third quarter. As the Company continues its
integration plans, future restructuring charges may be required.
7. INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the fair
value of the net assets of various businesses acquired. The recorded goodwill is
amortized over forty years. Non-compete assets are recorded at fair value and
being amortized over six years.
9
<PAGE> 10
8. INCOME TAXES
The Company's income tax provision varies from the statutory rate primarily
because of the difference in book and tax treatment of intangible assets, the
non-deductibility of certain portions of meal and entertainment expenses and
officer's life insurance premiums, state income taxes imposed by the various
states on the Company's operations and the valuation allowance provided for
deferred tax assets that may not be realizable in the future.
9. Subsequent Event
In October 1999, the Company completed the acquisition of Paul Inman
Associates ("Inman"), a brokerage firm located in the East Central region of the
United States, for total consideration of $12.2 million. The purchase price
consisted of $8.7 million in cash (net of $1.1 million in cash and other
proceeds assumed) and $3.5 million in assumed debt and notes. The Company
accounted for the acquisition using the purchase method. Goodwill resulting from
the acquisition will be amortized over its estimated useful life. The operating
results of Inman subsequent to the acquisition date will be included in the
fourth-quarter operating results of the Company. 27
10
<PAGE> 11
PREDECESSOR COMPANY
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and amounts in thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues:
Commissions ........................... $ 22,689 $ 68,993
Sales ................................. 9,974 31,511
------------------ ------------------
32,663 100,504
Operating expenses:
Selling expenses ...................... 14,548 45,820
Cost of sales ......................... 9,130 28,721
General and administrative ............ 6,857 22,371
Restructuring charge .................. 1,783 2,303
Depreciation and amortization ......... 1,023 3,415
------------------ ------------------
Operating loss ................... (678) (2,126)
------------------ ------------------
Other expense:
Interest expense ...................... 1,150 3,506
Other expense ......................... 292 532
------------------ ------------------
Total other expense .............. 1,442 4,038
------------------ ------------------
Loss before provision for income taxes ...... (2,120) (6,164)
Provision for income taxes .................. -- 100
------------------ ------------------
Net loss ......................... (2,120) (6,264)
Preferred stock dividends ................... 100 300
------------------ ------------------
Net loss applicable to common shareholders .. $ (2,220) $ (6,564)
================== ==================
</TABLE>
11
<PAGE> 12
PREDECESSOR COMPANY
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED AND AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................................... $ (6,264)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization ............................................ 3,415
Gain on disposal of fixed assets ......................................... (224)
Changes in assets and liabilities, exclusive of acquisitions:
(Increase) decrease in
Accounts receivable, net ............................................ 3,260
Inventories, prepaid expenses and advances .......................... (1,495)
Other assets ........................................................ (797)
Increase (decrease) in:
Accounts payable .................................................... (3,866)
Accrued expenses .................................................... 3,910
----------
Net cash used in operating activities ............................... (2,061)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ............................... (1,671)
Net proceeds from sale of property, plant and
Equipment .............................................................. 512
Increase in cash surrender value, net of
increase in policy loans ............................................... (10)
----------
Net cash used in investing activities ............................... (1,169)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit ................................ 603
Issuance of long-term debt ............................................... 3,367
Issuance of convertible preferred stock .................................. 27
Repayment of notes payable ............................................... (1,309)
----------
Net cash provided by financing activities ........................... 2,688
----------
Net decrease in cash ................................................ (542)
CASH AT BEGINNING OF YEAR ................................................ 1,161
----------
CASH AT END OF PERIOD .................................................... $ 619
==========
Supplemental disclosures of cash flow information:
Cash payments for -
Interest ............................................................ $ 2,422
==========
Income taxes ........................................................ $ 1,756
==========
</TABLE>
12
<PAGE> 13
PREDECESSOR COMPANY
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues:
Commissions .................................. $ 20,941 $ 62,584
Operating expenses:
Selling expenses ............................. 16,007 47,792
General and administrative ................... 3,466 10,088
Depreciation and amortization ................ 734 1,887
------------------ ------------------
Operating income ........................ 734 2,817
Interest expense ................................... 686 1,980
Other expense ...................................... 120 --
------------------ ------------------
Income (loss) before provision for income taxes .... (72) 837
Provision (benefit) for income taxes ............... (34) 425
------------------ ------------------
Net income (loss) ....................... $ (38) $ 412
================== ==================
</TABLE>
13
<PAGE> 14
PREDECESSOR COMPANY
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED AND AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................................... $ 412
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization .............................................. 1,887
Changes in assets and liabilities, exclusive of acquisitions:
(Increase) decrease in:
Restricted cash ....................................................... 75
Accounts receivable, net .............................................. (2,055)
Prepaid expenses and advances ......................................... (293)
Increase (decrease) in:
Accounts payable ...................................................... 800
Accrued expenses ...................................................... (584)
Other liabilities ..................................................... --
----------
Net cash provided by operating activities ............................. 242
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ................................. (6)
Increase in cash surrender value, net of policy loans ...................... (270)
Acquisition of business, net of cash acquired .............................. --
----------
Net cash used in investing activities ................................. (276)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit .................................. 1,518
Repayment of long-term debt ................................................ (1,373)
----------
Net cash provided by financing activities ............................. 145
Net increase in unrestricted cash ..................................... 111
CASH AT BEGINNING OF YEAR .................................................. 556
----------
CASH AT END OF PERIOD ...................................................... $ 667
==========
Supplemental disclosures of cash flow information:
Cash payments for -
Interest .............................................................. $ 446
==========
Income taxes .......................................................... $ 261
==========
</TABLE>
14
<PAGE> 15
PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. PRESENTATION
The Merkert Enterprises and Rogers-American consolidated financial
statements are presented as predecessors of Marketing Specialists Corporation
(formerly Merkert American Corporation) and have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments consisting of normal recurring
accruals considered necessary for a fair presentation have been included.
This financial information should be read in conjunction with the
consolidated financial statements and notes thereto for the period ended
December 31, 1998, included in the Annual Report on Form 10-K of the Company and
Subsidiaries for the period ended December 31, 1998. The results of operations
for the interim periods are not necessarily indicative of the operating results
for the year.
15
<PAGE> 16
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The words "believe,"
"expect," "anticipate," "intend," "estimate," "assume" and other similar
expressions, which are predictions of or indicate future events and trends that
do no relate solely to historical matters, identify forward-looking statements.
Reliance should not be placed on forward-looking statements because they involve
known and unknown risks, uncertainties and other factors, that in some cases are
beyond the control of the Company. These items may cause the actual results,
performance or achievements of the Company to differ materially from the
anticipated future results, performance or achievements expressed or implied by
such forward-looking statements.
OVERVIEW
The Company was organized in March 1998 to create the leading food
brokerage firm providing outsourced sales, merchandising and marketing services
to manufacturers, suppliers and producers of food products and consumer goods
("Manufacturers"). The Company acts as an independent sales and marketing
representative, selling grocery and consumer products on behalf of Manufacturers
and coordinating the execution of Manufacturers' marketing programs with
retailers and wholesalers ("Retailers"). The Company's principal source of
revenue is commissions it receives from Manufacturers. The Company's other
activities include managing private label programs on behalf of selected
Retailers.
On December 18, 1998, the Company sold 4.4 million shares of its common
stock at a price of $15.00 per share (the "Offering") and received net proceeds
of approximately $57.8 million. Simultaneously with the Offering, the Company
purchased in separate transactions (together 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. In January 1999, the Company
issued 290,000 shares of its common stock in connection with the exercise of a
portion of the over-allotment option by the underwriters of the Offering,
raising net proceeds of approximately $4.1 million.
Prior to December 18, 1998, the Company conducted operations only in
connection with the Combination and the Offering. Therefore, the Company's
operations for the period ended September 30, 1998 related only to the
Combination and the Offering and included a non-recurring compensation charge of
$1,271,000 relating to the purchase of Company stock by the now current
President and Chief Executive Officer of the Company. Prior to the Combination,
including during the nine months ended September 30, 1998, Merkert and Rogers
operated as independently owned entities.
In January 1999, the Company acquired Sell, Inc. ("Sell"), a full service
brokerage firm in the Midwest region of the United States. The operating results
of Sell are included in the operating results of the Company from the date of
acquisition.
In April 1999, the Company acquired United Brokerage Company ("UBC"). UBC
has operated in the Midwest region of the United States under an alliance known
as "The Sell Group" since 1998. The operating results of UBC are included in the
operating results of the Company from the date of acquisition.
In July 1999, the Company completed the acquisition of Buckeye Sales and
Marketing ("Buckeye"). Buckeye operated in the Cleveland, Ohio; Pittsburgh,
Pennsylvania; and upstate New York markets.
16
<PAGE> 17
On August 18, 1999, the Company completed a merger with Dallas, Texas-based
Richmont Marketing Specialists Inc. ("Richmont"). For financial reporting
purposes the Company is presented as the accounting acquirer, since the
Company's stockholders own the largest portion of the common stock of the
combined Company. Accordingly, the results of operations of Richmont have been
included in the Company's consolidated statements of operations since the date
of the acquisition. Under the terms of the transaction, the stockholders of
Richmont received 6,705,551 shares of the Company's common stock. In addition,
the Company granted to certain stockholders and employees of Richmont options to
purchase an additional 800,000 shares of the Company's stock at a per share
price equal to $13.50. In connection with the merger, the Company assumed all of
Richmont's outstanding debt, which, net of cash on hand at August 18, 1999,
totaled approximately $164 million and changed its name to Marketing Specialists
Corporation.
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with the accompanying
condensed consolidated financial statements and the notes thereto and the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
HISTORICAL RESULTS OF OPERATIONS
The following defined terms are used in conjunction with the Company's
discussion of operating results.
Revenue. 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. The
Company 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.
Cost of sales. Cost of sales are primarily the direct cost of private label
products sold by the Company, such as the cost of packaging and frozen
vegetables purchased from suppliers.
Selling, general and administrative expenses. Selling expenses
predominately consist of salaries, contract labor and fringe benefits 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. Depreciation and amortization expenses
relate to property, plant and equipment and intangible assets, including
goodwill and noncompete agreements.
17
<PAGE> 18
The following table sets forth the results of operations of the Company for
the periods indicated. The 1998 amounts represent the combined, historical
results of the Company, Merkert Enterprises and Rogers-American and do not
reflect the effect of any pro forma adjustments (unaudited and dollars in
thousands).
<TABLE>
<CAPTION>
Three Months
Ended September 30,
-------------------------------------
1999 1998
---------- ----------
<S> <C> <C> <C> <C>
Commissions ........................ $ 66,158 $ 43,630
Sales .............................. 10,710 9,974
---------- ----------
Revenues ....................... 76,868 100.0% 53,604 100.0%
Selling expenses ................... 45,805 59.6 30,555 57.0
Cost of sales ...................... 9,390 12.2 9,130 17.0
General and administrative ......... 18,911 24.6 10,323 19.3
Restructuring charge ............... 13,290 17.3 1,783 3.3
Depreciation and amortization ...... 3,163 4.1 1,757 3.3
---------- ---------- ---------- ----------
Operating Expenses ............. 90,559 117.8 53,548 99.9
---------- ---------- ---------- ----------
Operating income (loss) ............ (13,691) (17.8) 56 0.1
Interest expense, net .............. 4,158 5.4 1,836 3.4
Other expenses, net ................ -- -- 412 .7
---------- ---------- ---------- ----------
Loss before income taxes ........... (17,849) (23.2) (2,192) (4.1)
Provision (benefit) for income taxes (760) (1.0) (34) (0.1)
---------- ---------- ---------- ----------
Net loss ........................... $ (17,089) (22.2) $ (2,158) (4.0)
========== ========== ========== ==========
<CAPTION>
Nine Months
Ended September 30,
-------------------------------------
1999 1998
---------- ----------
<S> <C> <C> <C> <C>
Commissions ........................ $ 151,166 $ 131,577
Sales .............................. 32,797 31,511
---------- ----------
Revenues ....................... 183,963 100.0% 163,088 100.0%
Selling expenses ................... 101,478 55.2 94,883 58.2
Cost of sales ...................... 29,235 15.9 28,721 17.6
General and administrative ......... 43,857 23.8 32,459 19.9
Restructuring charge ............... 13,290 7.2 2,303 1.4
Depreciation and amortization ...... 6,171 3.3 5,302 3.3
---------- ---------- ---------- ----------
Operating Expenses ............. 194,031 5.4 163,668 100.4
---------- ---------- ---------- ----------
Operating income (loss) ............ (10,068) (5.5) (580) 0.4
Interest expense, net .............. 8,104 4.4 5,486 3.4
Other expenses, net ................ -- -- 532 .3
---------- ---------- ---------- ----------
Loss before income taxes ........... (18,172) (9.9) (6,598) (4.1)
Provision (benefit) for income taxes -- -- 525 .3
---------- ---------- ---------- ----------
Net loss ........................... $ (18,172) (9.9) $ (7,123) (4.4)
========== ========== ========== ==========
</TABLE>
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
The Company's commission revenue for the three months ended September 30,
1999 increased 51.6% to $66.2 million compared to $43.6 million for the three
months ended September 30, 1998 primarily as the result of the merger with
Richmont and other acquisitions. Exclusive of acquisitions, revenues during the
three-month period ending September 30, 1999 decreased $8.1 million or 18.5%,
compared to the comparable period in the prior year. The decrease in commissions
in the third quarter of 1999 is due primarily to Manufacturer conflicts
resulting from the merger with Richmont and other acquisitions. In addition, the
continued consolidation of manufacturer representation by food brokers has
negatively affected results.
Sales for the three months ended September 30, 1999 increased 7.4% to $10.7
million compared to $10.0 million for the three months ended September 30, 1998.
The increase in sales for the 1999 period was primarily due to increased sales
in the private label segment. Gross profit on sales for the three months ended
September 30, 1999 was $1.3 million compared to $0.8 million for the same period
in 1998.
Selling, general and administrative expenses increased $23.8 million, or
58.3%, to $64.7 million (or 84.2% of revenue) for the three months ended
September 30, 1999 from $40.9 million (or 76.3% of revenue) for the three months
ended September 30, 1998, primarily due to the merger with Richmont. Exclusive
of acquisitions, selling, general and administrative expenses for the three
months ended September 30, 1999 decreased $3.1 million, or 7.6%, compared to the
comparable period in the prior year. These costs did however increase, as a
percentage of revenue, to 81.5% for the three months ended September 30, 1999
from 76.3% for the three months ended September 30, 1998. Although significant
cost saving measures had been planned as part of the merger relating to the
elimination of duplicative facilities and salaries in both companies, the
execution of management's plans were delayed until it was assured that the
merger would be consummated in late August 1999.
Earnings before interest, taxes, depreciation and amortization and
restructuring charge for the three months ended September 30, 1999 were $2.8
million compared to $3.6 million for the same period in 1998 as a result of the
factors above.
18
<PAGE> 19
Operating expenses (excluding the restructuring charge, depreciation and
amortization), as a percentage of revenue, increased to 96.4% for the quarter
ended September 30, 1999, from 93.3% for the same period in 1998. As a result of
the above factors, the Company's operating loss increased to $13.7 million for
the third quarter of 1999 from an operating profit of $0.1 million for the same
period in 1998.
Depreciation and amortization expenses were $3.2 million and $1.8 million
for the three months ended September 30, 1999 and 1998, respectively. The
increase in the 1999 period is primarily due to amortization of incremental
intangible amounts resulting from acquisitions made during the year.
In the third quarter of 1999, the Company completed the merger with
Richmont. Following the merger, a decision was made to close a number of offices
and eliminate duplicative staff. This resulted in the recognition of a $13.3
million restructuring charge in the third quarter subsequent to the merger. The
charge is comprised of approximately $8.6 million relating to non-cancelable
lease obligations on abandoned facilities and $4.7 million relating to severance
and related personnel amounts.
Interest expense was $4.2 million for the quarter ended September 30, 1999,
as compared to $1.8 million for the comparable period in 1998. The increase in
1999 is primarily due to increased borrowings in the third quarter and interest
on the assumed debt of Richmont since the merger date.
The Company has not fully benefited the losses for the three months ended
September 30, 1999 since its future realizability is not assured.
As a result of the factors noted above, the Company's net loss increased to
$17.1 million, or $1.61 per share on a diluted basis, for the three months ended
September 30, 1999 from $2.2 million for the three months ended September 30,
1998.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
The Company's commission revenue for the nine months ended September 30,
1999 increased 14.9% to $151.2 million compared to $131.6 million for the nine
months ended September 30, 1998 primarily as a result of acquisitions. Excluding
revenue from acquisitions, commissions decreased approximately $16.4 million or
12.4%. The decrease in commissions for 1999 is due primarily to Manufacturer
conflicts resulting from the combination of Merkert Enterprises and
Rogers-American on December 18, 1998 and those arising from the merger with
Richmont. In addition, the continued consolidation of manufacturer
representation by food brokers has negatively effected results.
Sales for the nine months ended September 1999 and 1998 increased to $32.8
million from $31.5 million, respectively. Gross profit on sales for the three
months ended September 30, 1999 was $3.6 million compared to $2.8 million for
the same period in 1998.
Selling, general and administrative expenses increased $18.0 million, or
14.1%, to $145.3 million (or 79.0% of revenue) for the nine months ended
September 30, 1999, from $127.3 million (or 78.1% of revenue) for the same
period in 1998 primarily as a result of acquisitions. Exclusive of acquisitions,
selling, general and administrative expenses for the nine months ending
September 30, 1999 decreased $14.3 million or 11.2%, compared to the same period
in the prior year. These costs also decreased as a percentage of revenue, to
76.4% for the nine months ended September 30, 1999 to 78.0% for the same period
in 1998. The decrease is primarily related to net personnel and related cost
reductions resulting from the integration of the operations of Merkert and
Rogers-American following the merger in December 1998.
Earnings before interest, taxes, depreciation and amortization and
restructuring charge for the nine months ended September 30, 1999 were $9.4
million compared to $7.0 million for the same period in 1998 as a result of the
factors above.
Depreciation and amortization expense increased to $6.2 million for the
nine months ended September 30, 1999 from $5.3 million for the same period in
1998. The increase in 1999 is primarily due to amortization of incremental
intangible amounts resulting from acquisitions made during the year.
19
<PAGE> 20
Operating expenses (excluding the restructuring charge, depreciation and
amortization), as a percentage of revenue, decreased to 94.9% for the nine
months ended September 30, 1999 from 95.7% for the same period in 1998. As a
result of the factors noted above, the Company's operating loss increased to
$10.0 million for the nine months ended September 30, 1999 from $0.6 million for
the same period in 1998.
During the third quarter ended September 30, 1999, the Company recorded a
restructuring charge of $13.3 million based upon currently available estimates
resulting from the merger with Richmont. The charge is comprised of
approximately $8.6 million relating to non-cancelable lease obligations on
abandoned facilities and $4.7 million relating to severance and related
personnel amounts.
Interest expense was $8.1 million for the nine months ended September 30,
1999, as compared to $5.5 million for the same period 1998. The increase in 1999
is primarily due to increased borrowings in the third quarter and interest on
the assumed debt of Richmont since the merger date.
The Company has not recorded the full tax benefit associated with the
losses for the nine months ended September 30, 1999 since its future
realizability is not assured.
As a result of the factors noted above, the Company's net loss increased to
$18.2 million, or $2.12 per share on a diluted basis, for the nine months ended
September 30, 1999 from $7.1 million for the same period in 1998. Excluding the
restructuring charges recognized in 1999 and 1998, the Company's net loss would
have been $4.9 million for the nine months ended September 30, 1999 and $4.8
million for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
In January 1999, the Company issued 290,000 shares of its common stock in
connection with the exercise of a portion of the over-allotment option by the
underwriters of the offering, raising net proceeds of approximately $4.1
million.
On August 18, 1999, the Company merged with Richmont. Under the terms of
the merger, Richmont received 6,705,551 shares of the Company's common stock,
and the Company assumed all of Richmont's outstanding debt, which, net of cash
on hand at August 18, 1999, totaled approximately $164 million.
In connection with the Offering and Combination, the Company obtained a $75
million Credit Facility from First Union National Bank and First Union Capital
Markets. 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 balance outstanding under
the Credit Facility was $61.6 million at September 30, 1999 ($16.3 million under
the revolver and $45.3 million under the term loan). The Company's Credit
Facility was amended on August 18, 1999. The amended credit facility continues
to provide for a $50 million term loan and a $25 million revolving line of
credit. The amended credit facility requires the payment of a consent fee equal
to 1% of the aggregate amount of the credit facility payable upon the earlier of
(i) syndication or refinancing the facility, (ii) March 31, 2000 or (iii)
default under the facility. The amended credit facility also requires the
payment of a syndication fee of $250,000 on March 31, 2000 if the credit
facility has not been syndicated by that time, with additional fees of $350,000
at June 30, 2000 and $150,000 at the end of each month thereafter until the
credit facility has been syndicated. The amended credit facility also requires
interest on borrowings under the credit facility be based on the Prime Rate
option instead of the LIBOR option. Certain financial ratio compliance measures
were also expanded to reflect the merger with Richmont. The Company was in
compliance with all covenants at September 30, 1999.
Net cash used in operating activities for the nine months ended September
30, 1999 was $1.4 million. The use of cash for operations in 1999 resulted
primarily from a decrease in accounts payable partially offset by a decrease in
accounts receivable.
20
<PAGE> 21
Net cash used in investing activities for the nine months ended September
30, 1999 was $5.2 million, primarily as a result of the acquisitions of Sell,
UBC and Buckeye ($4.1 million) and the purchase of equipment ($1.2 million).
Net cash provided by financing activities for the nine months ended
September 30, 1999 was $9.9 million, primarily as a result of the issuance of
additional shares of Common Stock ($4.1 million) and borrowings under the
Revolving Credit ($16.3 million), offset by term loan repayments ($12.2
million).
SEASONALITY
The Company expects to experience fluctuations in quarterly revenues and
operating results as a result of seasonal patterns. Results of operations for
any particular quarter therefore are not necessarily indicative of the results
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.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results or
developments could differ materially from those projected in such statements as
a result of certain factors set forth in this section and elsewhere in this
report. The Company undertakes no obligation to publicly update or revise any
forward looking statements, whether as a result of new information, future
events or otherwise.
Some of the factors that might cause these differences include, but are not
limited to, the following: the degree to which the Company is leveraged may
effect its ability to obtain additional financing for future working capital,
capital expenditures and acquisitions as well as limit its flexibility to adjust
to changing market conditions; the Company's ability to resolve or deal with
Manufacturer representation conflicts; the loss of Manufacturer representation
due to conflicts; the Company's ability to successfully identify and
integrate acquisition candidates; the Company's ability to obtain acquisition
financing on acceptable terms; the Company's ability to integrate Richmont into
its management and operations; seasonal fluctuations in revenue; competition and
consolidation within the food brokerage industry; the ability of the Company and
manufacturers and retailers and third party vendors with whom it does business
to address the year 2000 issue; and other risks and uncertainties set forth in
the Company's annual, quarterly and current reports and proxy statements.
YEAR 2000 COMPLIANCE
The year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. When 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 information technology (IT) systems and non-IT systems to incorrectly
process data, resulting in among other things, a temporary inability to process
transactions or otherwise engage in normal business activities. Non-IT systems
include climate control, copy machines, telephone systems and other comparable
systems.
The business depends largely upon the ability of customers, including
grocery stores and mass merchandisers, to place orders through us for our
manufacturer's products. Approximately eighty percent of all sales placed
through Marketing Specialists are done so electronically. Upon receipt of
orders, the Company processes and forwards these orders electronically to its
manufacturers. This order management system only works efficiently if the
Company's computer systems and those of the retailers and manufacturers function
properly. Through this order management system, records are also maintained
regarding the sales volume we place, which is necessary in determining our
earned commissions.
The Company has completed our assessment of both our IT and non-IT systems
for potential exposure to problems associated with year 2000 issues. These
assessment and evaluation efforts have included extensive testing of both IT and
non-IT systems, discussions with third parties and participation in
industry-wide committees dedicated to addressing year 2000 issues and other
research.
21
<PAGE> 22
Primarily as a result of the implementation of upgrades of the order
management system and the migration to PeopleSoft financial systems to take
place in the fourth quarter of 1999, the Company believes that it has
substantially reduced the potential exposure to operational disruptions
resulting from year 2000 issues. Both the order management system and PeopleSoft
are year 2000 compliant. PeopleSoft includes accounting and human resource
applications. The conversion to PeopleSoft is part of the overall plan to
integrate the financial operations of both Merkert and Richmont, not solely in
response to year 2000 issues. Similarly, all of the costs incurred relating to
the improvement of the order management system were incurred in connection with
planned upgrading activities rather than in response to the results of a year
2000 compliance evaluation.
The Company expects the order management system for operations acquired
from Sell, UBC and Buckeye to be fully converted in November 1999. Replacements
for personal computers, which were not year 2000 compliant, have recently been
purchased at a cost of approximately $150,000. Following this upgrade and these
installations, the Company believes all of the IT systems will be compliant.
In addition to the IT systems, the Company is upgrading non-IT systems.
Testing was conducted on the telephone systems in each office. Fourteen systems
were found to be non-compliant. Each of these systems will be replaced with new
systems by the end of the year at an approximate cost of $200,000. The Company
has also engaged in communications with the property management companies of
leased properties to assess their plans to ensure that all facilities will be
year 2000 compliant. These communications will continue until assurances that
these systems within our facilities will be fully operational in year 2000.
Assuming the satisfactory operations of universal providers, such as
utility and telephone companies, our assumed worst case will be the failure of
the Company's manufacturers and retailers to remedy their own year 2000 issues.
Although efforts have been initiated to communicate with these parties regarding
their year 2000 compliance plans, the Company has not received written
assurances that they have addressed and corrected all expected year 2000
problems that may have a material adverse effect on our operations. The Company
has also been testing and evaluating its own IT systems, including the order
management system, which included some of our key manufacturers and retailers.
All test orders have been completed successfully. The Company will continue this
testing in an effort to gain assurances that these third party systems,
particularly those related to electronic order management, will be operational.
The Company has not completed a comprehensive written contingency plan in
the event that it has not achieved year 2000 compliance including the receipt of
sufficient assurances from the manufacturers, retailers and third-party vendors
that they are ready. The Company expects to have a plan completed by December 1,
1999. Our order management system currently includes the ability to fax orders,
which some customers currently use. In preparation for the possibility that all
or some orders may not be capable of being electronically transmitted,
approximately 15 additional fax machines will be installed and trained personnel
put in place to receive, process and transmit orders by fax. Future contingency
plans will also include a plan to have employees personally pick up and deliver
orders if necessary.
Currently, the Company anticipates no delay in any planned projects as a
result of year 2000 issues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to its Credit Facility. The
interest on the Credit Facility is subject to fluctuations in the market. The
Company does not believe the remaining market risk is material to the Company's
condensed consolidated financial statements.
22
<PAGE> 23
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
(i) On August 25, 1999, the panel of arbitrators issued an award
in the arbitration proceedings brought by the sellers of an
acquired food brokerage business against Merkert Enterprises
alleging the breach of covenants contained in the agreement
with them and seeking acceleration of the payment of the
deferred purchase price. Under the award, the sellers did not
recover on their primary claim for acceleration, and the
approximately $7.4 million held in escrow in case of an
adverse outcome in arbitration has been released to the
Company.
(ii) Merkert Enterprises is currently the subject of an audit
concerning its federal income tax returns for its fiscal years
1995, 1996 and 1997. The Company has negotiated an agreement
with the IRS on this matter which will not have a material
adverse effect on its financial condition or results of
operations.
(iii) On October 1, 1999, Monroe & Company, LLC filed suit against
the Company seeking a $2.5 million fee as a result of the
August 18, 1999 merger between the Company and Richmont
Marketing Specialists Inc. The Company plans to vigorously
defend against this action. Monroe & Company, LLC, together
with certain affiliates, own in excess of five percent (5%)
of the Company's stock.
Item 2: Changes in Securities and Use of Proceeds
On August 18, 1999, the Company completed the merger with Richmont
Marketing Specialists Inc. As part of the transaction, the Company issued
6,705,551 shares of the Company's common stock to five (5) former shareholders
of Richmont Marketing Specialists Inc. in a transaction exempt from the
registration pursuant to Rule 506 of Regulation D promulgated under the
Securities Act of 1033, as amended. The Company relied on the exemption provided
in Rule 506 based upon the factual representations received from the recipients
of the shares. Immediately following the merger, the Company also amended its
certificate of incorporation to change the corporate name to "Marketing
Specialists Corporation."
Item 3: Defaults Upon Senior Securities
None.
Item 4: Submission of Matters to a Vote of Security Holders
At a Special Meeting in lieu of an Annual Meeting of Stockholders held August
18, 1999, shares were voted on the following matter (number of shares rounded to
nearest full share):
1. Approval of the Agreement and Plan of Merger dated April 28, 1999 among
the Company, Richmont Marketing Specialists and the stockholders of
Richmont Marketing Specialists.
<TABLE>
<CAPTION>
For Against Abstentions Broker Non-votes
--- ------- ----------- ----------------
<S> <C> <C> <C>
5,046,0943 114,463 15,898 915,986
</TABLE>
2. Approval of Amendment of the Second Amended and Restated Certificate of
Incorporation to change the structure and classification of the Board of
Directors so that, following the merger, the Company would have a nine
member Board of Directors classified into three classes with staggered
three-year terms.
<TABLE>
<CAPTION>
For Against Abstentions Broker Non-votes
--- ------- ----------- ----------------
<S> <C> <C> <C>
3,386,529 1,775,491 15,284 915,986
</TABLE>
23
<PAGE> 24
3. Approval of Amendment of the Second Amended and Restated Certificate of
Incorporation to change the corporate name.
<TABLE>
<CAPTION>
For Against Abstentions Broker Non-votes
--- ------- ----------- ----------------
<S> <C> <C> <C>
5,074,531 84,196 19,681 914,883
</TABLE>
4. Approval of Amendment to the Company's Amended and Restated 1998 Stock
Option and Incentive Plan.
<TABLE>
<CAPTION>
For Against Abstentions Broker Non-votes
--- ------- ----------- ----------------
<S> <C> <C> <C>
4,183,038 387,548 606,719 915,986
</TABLE>
5. Election of Directors
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- --------
<S> <C> <C>
Gerald R. Leonard 6,058,214 35,078
James A. Schlindwein 6,052,067 41,225
</TABLE>
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Certificate of Merger dated August 18, 1999: incorporated by
reference to Exhibit 4.1 of the Company's Current Report on Form 8-K
dated September 2, 1999.
4.2 Certificate of Amendment to the Company's Second Amended and
Restated Certificate of Incorporation dated August 18, 1999,
incorporated by reference to Exhibit 4.2 of the Company's Current
Report on Form 8-K dated September 2, 1999.
4.3 First Supplemental Indenture dated as of August 18, 1999 among the
Company, Merkert American Co., Inc., United Brokerage Company, Buckeye
Sales & Marketing, Inc., Marketing Specialists Sales Company, Bromar,
Inc., Brokerage Services, Inc., Atlas Marketing Company, Inc.,
Meatmaster Brokerage, Inc. and Chase Bank of Texas, National
Association.
10.1 Amended and Restated Credit Agreement among the Company, Certain
Lenders and First Union National Bank, as Agent for the Lenders dated
August 18, 1999, incorporated by reference to Exhibit 10.1 of the
Company's Current Report on Form 8-K dated September 2, 1999.
10.2 Amendment No. 1 to the Amended and Restated Credit Agreement dated
September 24, 1999 among the Company, the Lenders under the Credit
Agreement and First Union National Bank.
10.3 Form of Security Agreement, incorporated by reference to Exhibit
10.30 to the Company's Registration Statement on Form S-1 (No.
333-53419). In connection with the execution of the Amended and
Restated Credit Agreement, the following companies executed a Security
Agreement in substantially this form: Marketing Specialists
Corporation, Merkert American Co., Inc., Buckeye Sales & Marketing
Specialists Corporation, Merkert American Co., Inc., Buckeye Sales &
Marketing, Inc., United Brokerage Company, Marketing Specialists Sales
Company, Atlas Marketing Company, Inc., Bromar, Inc., Brokerage
Services, Inc. and Meatmaster Brokerage, Inc.
24
<PAGE> 25
10.4 Form of Pledge Agreement, incorporated by reference to Exhibit
10.31 to the Company's Registration Statement on Form S-1 (No.
333-53419). In connection with the execution of the Amended and
Restated Credit Agreement, the following companies executed a Pledge
Agreement in substantially this form: Marketing Specialists
Corporation, Merkert American Co., Inc., Buckeye Sales & Marketing,
Inc., United Brokerage Company, Marketing Specialists Sales Company,
Atlas Marketing Company, Inc., Bromar, Inc., Brokerage Services, Inc.
and Meatmaster Brokerage, Inc.
10.5 Form of Guaranty Agreement, incorporated by reference to Exhibit
10.32 to the Company's Registration Statement on Form S-1 (No.
333-53419). In connection with the execution of the Amended and
Restated Credit Agreement, the following companies executed a Guaranty
Agreement in substantially this form: Merkert American Co., Inc.,
Buckeye Sales & Marketing, Inc., United Brokerage Company, Marketing
Specialists Sales Company, Atlas Marketing Company, Inc., Bromar,
Inc., Brokerage Services, Inc. and Meatmaster Brokerage, Inc.
10.6 First Amendment to Amended and Restated Merkert American
Corporation 1998 Stock Option and Incentive Plan, incorporated by
reference to Exhibit 10.5 of the Company's Current Report on Form 8-K
dated September 2, 1999.
10.7 Registration Rights Agreement dated as of August 18, 1999 by and
among the Company and the former stockholders of Richmont Marketing
Specialists Inc.
10.8 Registration Rights Agreement dated as of August 18, 1999 by and
among the Company, Gerald R. Leonard, Monroe & Company, LLC, JLM
Management, LLC, Robert Doehler, Joseph T. Casey, Edward P. Grace, III,
James Philopkosky, Sandra Monroe, Sean P. Spaulding and Jo-Anne
Collins.
10.9 Post-Merger Voting Agreement dated as of August 18, 1999 by and
among MS Acquisition Limited, Ronald D. Pedersen, Bruce A. Butler, Gary
R. Guffey, Jeffery A. Watt, Monroe & Company, LLC and JLM Management
Company, LLC.
10.10 Advisory Agreement dated as of August 18, 1999 by and among the
Company, Monroe & Company, LLC and Richmont Capital Partners I, L.P.
27.1 Financial Data Schedule (filed herewith)
99.1 Press release dated November 11, 1999 relating to the Company's
third quarter earnings.
(b) Reports on Form 8-K
(i) Current Report on Form 8-K, dated August 9, 1999, relating to
the announcement of the Company's second quarter earnings,
filed with the Securities and Exchange Commission on August 9,
1999.
(ii) Current Report on Form 8-K, dated August 16, 1999, relating to
the agreement with First Union National Bank to amend the
Company's Credit Facility, filed with the Securities and
Exchange Commission on August 16, 1999.
(iii) Current Report on Form 8-K, dated August 18, 1999, relating to
the merger of Richmont Marketing Specialists, Inc. with and
into Merkert American Corporation, filed with the Securities
and Exchange Commission on September 2, 1999.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements 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.
Marketing Specialists Corporation
--------------------------------------------
(Registrant)
/s/ Timothy Byrd
--------------------------------------------
Timothy Byrd
Chief Financial Officer
/s/ Jay DiNucci
--------------------------------------------
Jay DiNucci
Corporate Controller
26
<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
4.1 Certificate of Merger dated August 18, 1999, incorporated by
reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K dated September 2, 1999.
4.2 Certificate of Amendment to the Company's Second Amended and
Restated Certificate of Incorporation dated August 18, 1999,
incorporated by reference to Exhibit 4.2 of the Company's
Current Report on Form 8-K dated September 2, 1999.
4.3 First Supplemental Indenture dated as of August 18, 1999 among
the Company, Merkert American Co., Inc., United Brokerage
Company, Buckeye Sales & Marketing, Inc., Marketing
Specialists Sales Company, Bromar, Inc., Brokerage Services,
Inc., Atlas Marketing Company, Inc., Meatmaster Brokerage,
Inc. and Chase Bank of Texas, National Association.
10.1 Amended and Restated Credit Agreement among the Company,
Certain Lenders and First Union National Bank, as Agent for
the Lenders dated August 18, 1999, incorporated by reference
to Exhibit 10.1 of the Company's Current Report on Form 8-K
dated September 2, 1999.
10.2 Amendment No. 1 to Amended and Restated Credit Agreement dated
September 24, 1999 among the Company, the Lenders under the
Credit Agreement and First Union National Bank.
10.3 Form of Security Agreement, incorporated by reference to
Exhibit 10.30 to the Company's Registration Statement on Form
S-1 (No. 333-53419). In connection with the execution of the
Amended and Restated Credit Agreement, the following companies
executed a Security Agreement in substantially this form:
Marketing Specialists Corporation, Merkert American Co., Inc.,
Buckeye Sales & Marketing Specialists Corporation, Merkert
American Co., Inc., Buckeye Sales & Marketing, Inc., United
Brokerage Company, Marketing Specialists Sales Company, Atlas
Marketing Company, Inc., Bromar, Inc., Brokerage Services,
Inc. and Meatmaster Brokerage, Inc.
</TABLE>
<PAGE> 28
<TABLE>
<S> <C>
10.4 Form of Pledge Agreement, incorporated by reference to Exhibit
10.31 to the Company's Registration Statement on Form S-1 (No.
333-53419). In connection with the execution of the Amended
and Restated Credit Agreement, the following companies
executed a Pledge Agreement in substantially this form:
Marketing Specialists Corporation, Merkert American Co., Inc.,
Buckeye Sales & Marketing, Inc., United Brokerage Company,
Marketing Specialists Sales Company, Atlas Marketing Company,
Inc., Bromar, Inc., Brokerage Services, Inc. and Meatmaster
Brokerage, Inc.
10.5 Form of Guaranty Agreement, incorporated by reference to
Exhibit 10.32 to the Company's Registration Statement on Form
S-1 (No. 333-53419). In connection with the execution of the
Amended and Restated Credit Agreement, the following companies
executed a Guaranty Agreement in substantially this form:
Merkert American Co., Inc., Buckeye Sales & Marketing, Inc.,
United Brokerage Company, Marketing Specialists Sales Company,
Atlas Marketing Company, Inc., Bromar, Inc.., Brokerage
Services, Inc. and Meatmaster Brokerage, Inc.
10.6 First Amendment to Amended and Restated Merkert American
Corporation 1998 Stock Option and Incentive Plan, incorporated
by reference to Exhibit 10.5 of the Company's Current Report
on Form 8-K dated September 2, 1999.
10.7 Registration Rights Agreement dated as of August 18, 1999 by
and among the Company and the former stockholders of Richmont
Marketing Specialists Inc.
10.8 Registration Rights Agreement dated as of August 18, 1999 by
and among the Company, Gerald R. Leonard, Monroe & Company,
LLC, JLM Management, LLC, Robert Doehler, Joseph T. Casey,
Edward P. Grace, III, James Philopkosky, Sandra Monroe, Sean
P. Spaulding and Jo-Anne Collins.
10.9 Post-Merger Voting Agreement dated as of August 18, 1999 by
and among MS Acquisition Limited, Ronald D. Pedersen, Bruce A.
Butler, Gary R. Guffey, Jeffery A. Watt, Monroe & Company, LLC
and JLM Management Company, LLC.
10.10 Advisory Agreement dated as of August 18, 1999 by and among
the Company, Monroe & Company, LLC and Richmont Capital
Partners I, L.P.
27.1 Financial Data Schedule (filed herewith)
99.1 Press release dated November 11, 1999 relating to the
Company's third quarter earnings.
</TABLE>
(b) Reports on Form 8-K
(i) Current Report on Form 8-K, dated August 16, 1999, relating to
the agreement with First Union National Bank to amend the
Company's Credit Facility, filed with the Securities and
Exchange Commission on August 16, 1999.
(ii) Current Report on Form 8-K, dated August 18, 1999, relating to
the merger of Richmont Marketing Specialists, Inc. with and
into Merkert American Corporation, filed with the Securities
and Exchange Commission on September 2, 1999.
<PAGE> 1
EXHIBIT 4.3
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE (this "First Supplemental Indenture"),
dated as of August 18, 1999, among Merkert American Corporation, a Delaware
corporation (the "Successor Company"), Merkert American Co., Inc., a
Massachusetts corporation, United Brokerage Company, a Michigan corporation and
Buckeye Sales & Marketing, Inc., an Ohio corporation (collectively with Merkert
American Co., Inc. and United Brokerage Company, the "New Guarantor
Subsidiaries"), the existing Guarantor Subsidiaries (the "Existing Guarantor
Subsidiaries") under the indenture referred to below, and CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION (formerly known as Texas Commerce Bank, National
Association), a national banking association, as trustee under the indenture
referred to below (the "Trustee").
W I T N E S S E T H:
WHEREAS, Richmont Marketing Specialists Inc. (the "Company") and the
Existing Guarantor Subsidiaries have heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of December 19, 1997, providing
for the issuance of an aggregate principal amount of up to $150,000,000 of
10 1/8% Senior Subordinated Notes due 2007 (the "Securities");
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of April
28, 1999, by and among the Successor Company, the Company and the stockholders
of the Company, the Company has merged with and into the Successor Company;
WHEREAS, Section 5.01 of the Indenture provides that a successor entity
to the Company is required to execute and deliver to the Trustee a supplemental
indenture pursuant to which the Successor Company shall expressly assume all the
obligations of the Company under the Securities and the Indenture;
WHEREAS, Section 4.11 of the Indenture provides that under certain
circumstances the Company (or its successor) is required to cause the New
Guarantor Subsidiaries to execute and deliver to the Trustee a supplemental
indenture pursuant to which the New Guarantor Subsidiaries shall unconditionally
guarantee all of the Company's obligations under the Securities and the
Indenture pursuant to a Subsidiary Guarantee on the terms and conditions set
forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee, the
Successor Company and the Existing Guarantor Subsidiaries are authorized to
execute and deliver this Supplemental Indenture;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor Subsidiaries,
<PAGE> 2
the Successor Company, the Existing Guarantor Subsidiaries and the Trustee
mutually covenant and agree for the equal and ratable benefit of the holders of
the Securities as follows:
1. Definitions.
(a) Capitalized terms used herein without definition shall
have the meanings assigned to them in the Indenture.
(b) For all purposes of this Supplemental Indenture, except as
otherwise herein expressly provided or unless the context otherwise requires:
(i) the terms and expressions used herein shall have the same meanings as
corresponding terms and expressions used in the Indenture; and (ii) the words
"herein," "hereof" and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
to any particular section hereof.
2. Assumption of the Company's Obligations. The Successor Company
hereby agrees to assume all the obligations of the Company under the Securities
and the Indenture on the terms and subject to the conditions set forth in the
Indenture, and expressly agrees to be bound by all other applicable provisions
of the Indenture.
3. Agreement to Guarantee. The New Guarantor Subsidiaries hereby agree,
jointly and severally with all other Guarantor Subsidiaries, to guarantee the
Successor Company's obligations under the Securities and the Indenture on the
terms and subject to the conditions set forth in Article XI and Article XII of
the Indenture and to be bound by all other applicable provisions of the
Indenture.
4. Effect of Supplemental Indenture. Except as expressly amended
hereby, the Indenture is in all respects ratified and confirmed and all the
terms, conditions and provisions thereof shall remain in full force and effect.
This Supplemental Indenture shall form a part of the Indenture for all purposes,
and every holder of Securities heretofore or hereafter authenticated and
delivered shall be bound hereby.
5. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
6. Trustee Makes No Representation. The Trustee makes no representation
as to the validity or sufficiency of this Supplemental Indenture.
2
<PAGE> 3
7. Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
8. Effect of Headings. The Section headings herein are for convenience
only and shall not effect the construction thereof.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
THE SUCCESSOR COMPANY:
MERKERT AMERICAN CORPORATION,
By: /s/ Gerald R. Leonard
----------------------------------
Name: Gerald R. Leonard
Title:
THE NEW GUARANTOR SUBSIDIARIES:
MERKERT AMERICAN CO., INC.
By: /s/ Gerald R. Leonard
----------------------------------
Name: Gerald R. Leonard
Title:
UNITED BROKERAGE COMPANY, INC.
By: /s/ Gerald R. Leonard
----------------------------------
Name: Gerald R. Leonard
Title:
BUCKEYE SALES & MARKETING, INC.
By: /s/ Gerald R. Leonard
----------------------------------
Name: Gerald R. Leonard
Title:
4
<PAGE> 5
THE EXISTING GUARANTOR SUBSIDIARIES:
MARKETING SPECIALISTS SALES
COMPANY
By: /s/ Nick G. Bouras
----------------------------------
Name: Nick G. Bouras
Title:
BROMAR, INC.
By: /s/ Nick G. Bouras
----------------------------------
Name: Nick G. Bouras
Title:
BROKERAGE SERVICES, INC.,
By: /s/ Nick G. Bouras
----------------------------------
Name: Nick G. Bouras
Title:
ATLAS MARKETING COMPANY, INC.
By: /s/ Nick G. Bouras
----------------------------------
Name: Nick G. Bouras
Title:
MEATMASTER BROKERAGE, INC.,
By: /s/ Nick G. Bouras
----------------------------------
Name: Nick G. Bouras
Title:
5
<PAGE> 6
THE TRUSTEE
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Trustee
By: /s/ Mauri J. Cowen
---------------------------------------
Name: Mauri J. Cowen
Title: Vice President and Trust Officer
6
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 1 TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment No. 1") is made this 24th day of September, 1999, by and among
MARKETING SPECIALISTS CORPORATION ("Borrower"); the Lenders under the Credit
Agreement described below, and FIRST UNION NATIONAL BANK, as Agent ("Agent")
for the Lenders.
W I T N E S S E T H:
WHEREAS, Borrower is party to that certain Amended and Restated Credit
Agreement dated December 18, 1998, as amended and restated August 18, 1999 (as
amended from time to time, the "Credit Agreement") with the lenders identified
therein ("Lenders") and Agent; and
WHEREAS, Borrower and Lenders desire to amend certain financial
covenants and related provisions of the Credit Agreement, as set forth herein,
subject to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereto hereby
agree as follows:
1. Definitions.
a. General Rule. Unless otherwise defined herein, terms used
herein which are defined in the Credit Agreement shall have the meanings
assigned to them in the Credit Agreement.
b. Additional Definition. The following definition is hereby
added to Section 1 of the Credit Agreement to read in its entirety as follows:
"Amendment No. 1" means Amendment No. 1 to Amended and
Restated Credit Agreement, by and among Borrower, Lenders and Agent.
c. Amended Definition. The following definition set forth in
Section 1 of the Credit Agreement is hereby amended and restated to read in its
entirety as follows:
"Adjusted Rolling Period" means (i) as of March 31, 1999, 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)
<PAGE> 2
fiscal quarters then ended; and (iv) thereafter, the most recent
Rolling Period.
2. Amendment to Paragraph 5.4 (Compliance Certificate). The
following sentence is hereby added to the end of Paragraph 5.4 of the Credit
Agreement:
At the time of delivery of financial statements pursuant to Paragraph
5.2(a), deliver to Lenders a certificate in the form of Exhibit 1 to
Amendment No. 1 executed by the chief financial officer of Borrower or
other Authorized Officer approved by Agent, showing the calculation of
the covenant set forth in Paragraph 5.16(b).
3. Amendment to Paragraph 5.16 (Minimum EBITDA). Paragraph 5.16
of the Credit Agreement is hereby amended and restated to read in its entirety
as follows:
5.16. Minimum EBITDA.
(a) Maintain as of the last day of each fiscal quarter during
the period 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:
<TABLE>
<CAPTION>
Period Amount
(in thousands)
--------------
<S> <C>
9/30/99, for the most recent Rolling Period $45,000
12/31/99, for the most recent Rolling Period 41,100
3/31/00, for the most recent Rolling Period 41,100
6/30/00, for the most recent Rolling Period 41,100
9/30/00, for the most recent Rolling Period 41,100
12/31/00, for the most recent Rolling Period 41,100
3/31/01, for the most recent Rolling Period 41,100
6/30/01, for the most recent Rolling Period 41,100
9/30/01, for the most recent Rolling Period 41,100
12/31/01 and thereafter, for the most
recent Rolling Period 41,100
</TABLE>
(b) Maintain as of the last day of each month 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:
-2-
<PAGE> 3
<TABLE>
<CAPTION>
Period Amount
(in thousands)
--------------
<S> <C>
10/31/99, for the most recent one month $ 2,000
11/30/99, for the most recent two months 4,000
12/31/99, for the most recent three months 10,500
1/31/00, for the most recent one month 2,000
2/29/00, for the most recent two months 5,000
3/31/00 and each month end thereafter, for
the most recent three months 10,500
</TABLE>
(c) In connection with any acquisition which may be approved
by Lenders pursuant to Paragraph 6.8, the minimum amounts of EBITDA
required pursuant to this Paragraph 5.16 shall be increased by amounts
reasonably determined by Required Lenders based on the EBITDA of the
acquired business (including as adjusted for any pro forma adjustments
approved by Required Lenders).
4. Amendment to Paragraph 5.17 (Minimum Debt Service Coverage
Ratio). Paragraph 5.17 of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:
5.17 Minimum Debt Service Coverage Ratio. Maintain as of the
last day of each fiscal quarter set forth in the left-hand column
below a ratio of Adjusted 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:
<TABLE>
<CAPTION>
Period Ended Ratio
------------ -----
<S> <C>
9/30/99 0.80 to 1
12/31/99 0.90 to 1
3/31/00 and each fiscal quarter thereafter 2.00 to 1
</TABLE>
5. Amendment to Paragraph 5.18 (Minimum Fixed Charge Coverage
Ratio). Paragraph 5.18 of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:
5.18 Minimum Fixed Charge Coverage Ratio. Maintain as of the
last day of each fiscal quarter set forth in the left-hand column
below 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 the ratio set forth in the right hand column below:
-3-
<PAGE> 4
<TABLE>
<CAPTION>
Period Ended Ratio
------------ -----
<S> <C>
9/30/99 0.80 to 1
12/31/99 0.80 to 1
3/31/00 and each fiscal quarter thereafter 1.10 to 1
</TABLE>
6. Representations. Borrower hereby represents and warrants to
Agent and the Lenders that:
a. The representations and warranties set forth in the Credit
Agreement and each of the other Loan Documents are true and correct in all
material respects as of the date hereof, and there is no Event of Default or
Default under the Credit Agreement.
b. Borrower has the power and authority under the law of the
jurisdiction of its formation and under its organizational documents to enter
into and perform this Amendment No. 1 and the other documents and agreements
required hereunder (collectively, the "Amendment Documents"); all actions
(corporate or otherwise) necessary or appropriate for the execution and
performance by Borrower of the Amendment Documents have been taken; and the
Amendment Documents, the Credit Agreement as amended, and the Collateral
Security Documents each constitute the valid and binding obligations of
Borrower and each Guarantor, to the extent it is a party thereto, enforceable
in accordance with their respective terms.
c. The making and performance of the Amendment Documents by
Borrower will not violate any provisions of any law or regulation, federal,
state or local, or the organizational documents of Borrower, or result in any
breach or violation of, or constitute a default or require the obtaining of any
consent under, any agreement or instrument by which Borrower, or its or their
property, may be bound.
7. Effectiveness This Amendment No. 1 shall be effective upon
receipt by Agent of the following documents, in form and substance satisfactory
to Agent:
a. This Amendment No. 1, duly executed by Borrower and
Required Lenders and acknowledged and agreed to by the Guarantors.
b. Such other documents as Agent may reasonably require.
-4-
<PAGE> 5
8. Miscellaneous.
a. Borrower agrees to pay or reimburse Agent for all
reasonable and necessary fees and expenses (including without limitation
reasonable fees and expenses of counsel) incurred by Agent in connection with
the preparation, execution and delivery of this Amendment No. 1.
b. This Amendment No. 1 shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
c. All terms and provisions of this Amendment No. 1 shall be
for the benefit of and be binding upon and enforceable by the respective
successors and assigns of the parties hereto.
d. This Amendment No. 1 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 an original.
e. Except as expressly set forth herein, the execution,
delivery and performance of this Amendment No. 1 shall not operate as a waiver
of any right, power or remedy of Agent or Lenders under the Credit Agreement
and the agreements and documents executed in connection therewith or constitute
a waiver of any provision thereof. Without limiting the foregoing, Borrower
expressly confirms that the Credit Agreement, as amended, and the Collateral
Security Documents each remain in full force and effect, and the Collateral
Security Documents continue to secure all obligations under the Credit
Agreement, as amended.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
the day and year first above written.
Attest: MARKETING SPECIALISTS CORPORATION
By: /s/ MICHAEL S. GOLD By: /s/ JOSEPH T. CASEY
------------------------------ ---------------------------------
Name: Name:
Title: Title:
FIRST UNION NATIONAL BANK, as Lender
and as Agent
By: /s/ ROBERT A. BROWN
---------------------------------
Name:
Title:
-5-
<PAGE> 6
The undersigned Guarantors hereby acknowledge and agree to the
foregoing Amendment No. 1 and confirm that the Guaranty and the other Loan
Documents to which they are a party remain in full force and effect and
continue to secure all obligations under the Credit Agreement, as amended.
Attest: MERKERT AMERICAN CO., INC.
By: /s/ MICHAEL S. GOLD By: /s/ JOSEPH T. CASEY
--------------------------- --------------------------------
Name: Name:
Title: Title:
Attest: BUCKEYE SALES & MARKETING, INC.
By: /s/ MICHAEL S. GOLD By: /s/ JOSEPH T. CASEY
--------------------------- --------------------------------
Name: Name:
Title: Title:
Attest: UNITED BROKERAGE COMPANY
By: /s/ MICHAEL S. GOLD By: /s/ JOSEPH T. CASEY
--------------------------- --------------------------------
Name: Name:
Title: Title:
Attest: MARKETING SPECIALISTS SALES COMPANY
By: By: /s/ NICK BOURAS
--------------------------- --------------------------------
Name: Name:
Title: Title:
Attest: ATLAS MARKETING COMPANY, INC.
By: By: /s/ NICK BOURAS
--------------------------- --------------------------------
Name: Name:
Title: Title:
[EXECUTIONS CONTINUED]
-6-
<PAGE> 7
Attest: BROMAR, INC.
By: By: /s/ NICK BOURAS
--------------------------- --------------------------------
Name: Name:
Title: Title:
Attest: BROKERAGE SERVICES, INC.
By: By:
--------------------------- --------------------------------
Name: Name:
Title: Title:
Attest: MEATMASTER BROKERAGE, INC.
By: By:
--------------------------- --------------------------------
Name: Name:
Title: Title:
-7-
<PAGE> 8
EXHIBIT 1
FORM OF MONTHLY COMPLIANCE CERTIFICATE (MINIMUM EBITDA)
In accordance with the Credit Agreement dated December 18, 1998, as
amended and restated August 18, 1999 (as amended and as may be further amended
from time to time, the "Credit Agreement"), by and among MARKETING SPECIALISTS
CORPORATION ("Borrower"), the Lenders described therein, and FIRST UNION
NATIONAL BANK, as Agent for Lenders, the undersigned hereby certifies as
follows:
1. Enclosed herewith are the financial statements for Borrower and its
consolidated Subsidiaries as required pursuant to Paragraph 5.2(a) of the
Credit Agreement for the month ended ____________, ____, which financial
statements were prepared in accordance with GAAP (except that interim
statements do not contain footnotes and are subject to year-end adjustments)
consistently applied and fairly present in all material respects the financial
condition and results of operations of Borrower and its consolidated
Subsidiaries as of the date and for the period covered.
2. There exists no Event of Default or Default under the Credit
Agreement, except as described in Item 3 below.
3. The following event or circumstance, is, or with the passage of
time or giving of notice will be, a Default or an Event of Default under the
Credit Agreement:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4. The following actions are being taken with respect to the matter(s)
identified in Item 3 above:
----------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ----------------------------.
5. Attached hereto as Schedule 1 are the undersigned's calculations of
the covenant set forth in Paragraph 5.16(b) of the Credit Agreement.
Capitalized terms used and not otherwise defined herein shall have the
meanings ascribed thereto in the Credit Agreement.
<PAGE> 9
IN WITNESS WHEREOF, the undersigned has executed this certificate this
__ day of ____________, ____.
MARKETING SPECIALISTS CORPORATION
By:
--------------------------------------
Name:
Title: Chief Financial Officer(1)
- --------
(1) May be signed by an Authorized Officer other than the Chief
Financial Officer with the approval of Agent.
-2-
<PAGE> 10
SCHEDULE 1
EBITDA to be calculated for one, two or three months, as provided in Paragraph
5,16(b).
<TABLE>
<CAPTION>
Month Month Month
Ended Ended Ended TOTAL
______, ___ _______, ___ _______,__ ----------
<S> <C> <C> <C> <C>
Net Income: $ $ $ $
----------- ----------- ----------- ----------
Less extra-
ordinary gains: $ $ $ $
----------- ----------- ----------- ----------
Plus
Interest
Expense: $ $ $ $
----------- ----------- ----------- ----------
Taxes: $ $ $ $
----------- ----------- ----------- ----------
Depreciation
and
Amortization: $ $ $ $
----------- ----------- ----------- ----------
Non-cash charges
to income: $ $ $ $
----------- ----------- ----------- ----------
Equals
EBITDA: $ $ $ $
----------- ----------- ----------- ----------
</TABLE>
Covenant: As of the month-end set forth in the left-hand column below, EBITDA
for the specified period must be greater than or equal to the amount
set forth in the right-hand column below:
<TABLE>
<CAPTION>
Period Amount
------ ------
(in thousands)
--------------
<S> <C>
10/31/99, for the most recent one month $ 2,500
11/30/99, for the most recent two months 6,000
12/31/99, for the most recent three months 10,500
1/31/00, for the most recent one month 2,500
2/29/00, for the most recent two months 6,000
3/31/00 and each month end thereafter, for
the most recent three months 10,500
</TABLE>
Compliance: YES NO
----- -----
-3-
<PAGE> 1
EXHIBIT 10.7
REGISTRATION RIGHTS AGREEMENT
FOR THE RMSI STOCKHOLDERS
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of August 18,
1999, by and among Merkert American Corporation, 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
supersedes and replaces in its entirety that certain Registration Rights
Agreement, dated as of October 7, 1997 by and between Richmont Marketing
Specialists Inc. and MS Acquisition Limited (the "1997 Registration Rights
Agreement").
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.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means the 6,705,551 shares of Common Stock received by
the Holders pursuant to the Merger Agreement, together with any shares of Common
Stock or any other class of capital stock of the Company received in respect of
such shares, by stock split, stock dividend, exchange, recapitalization,
reclassification or otherwise, and any shares owned by a Holder during the term
of this Agreement.
"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 8(a).
<PAGE> 2
"Damages" has the meaning set forth in Section 8(a).
"Demand Registration Statement" has the meaning set forth in Section
2(a).
"Demand Threshold" shall have the meaning set forth in Section 2(a).
"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" has the meaning set forth in the preamble and shall include
any assignee, successor or transferee who agrees to be bound by the terms of
this agreement to the same extent as any such Holder.
"Initiating Holders" shall have the meaning set forth in Section 2(a).
"Merger Agreement" means the Agreement and Plan of Merger, dated April
28, 1999, among the Company, RMSI and the other parties thereto.
"Merkert Agreement" means the Registration Rights Agreement dated as of
December 18, 1998 by and among the Company and the former stockholders of
Merkert Enterprises, Inc., a Massachusetts corporation.
"Monroe Agreement" means the Registration Rights Agreement dated as of
the date of this Agreement by and among the Company, Monroe & Company, LLC,
Gerald R. Leonard and the other stockholders of the Company named therein.
"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.
2
<PAGE> 3
"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 6.
"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.
"Requesting Holder" shall mean any Holder requesting registration of
Registrable Securities pursuant to Section 2 or Section 3 hereof.
"RCP" means Richmont Capital Partners I, L.P.
"Richmont Party" means MS Acquisition Limited, a Texas limited partner
ship, and Richmont Capital Partners I, L.P., a Delaware limited partnership, and
any of their affiliates or partners.
"RMSI" means Richmont Marketing Specialists Inc., a Delaware
corporation.
"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(a).
"Suspension Notice" has the meaning set forth in Section 5.
"Suspension Period" has the meaning set forth in Section 5.
3
<PAGE> 4
SECTION 2. DEMAND REGISTRATIONS.
(a) On any six (6) occasions after the date which is one hundred eighty
(180) days after the date of the execution of this Agreement, subject to the
conditions set forth in this Agreement, one or more Holders holding at least
forty percent (40%) of the Registrable Securities then held by all Holders (the
"Demand Threshold") may request (the "Initiating Holders") that the Company
cause to be filed with the Commission and cause to become effective a
registration statement (a "Demand Registration Statement") under the Securities
Act relating to the sale by such Holders of their Registrable Securities in
accordance with the terms hereof; provided, however, that until the first
anniversary of the date hereof, only a Richmont Party can make any such demand;
and provided further that any Richmont Party may request the Company to file and
cause to become effective a Demand Registration Statement if such request is for
the registration of all of such Richmont Party's Registrable Securities,
notwithstanding the fact that such Richmont Party's Registrable Securities are
less than the Demand Threshold. Upon receipt of any such request, the Company
shall give written notice of such proposed registration to all Holders of
Registrable Securities. Such Holders shall have the right, by giving written
notice to the Company within fifteen (15) business days after such notice
referred to in the preceding sentence has been given by the Company, to elect to
have included in the Demand Registration Statement such of their Registrable
Securities as each Holder may request in such notice of election. Thereupon, the
Company shall as soon as practicable thereafter cause such Demand Registration
Statement to be filed and declared effective by the Commission for all
Registrable Securities which the Company has been requested to register. The
Company shall in no event be obligated to effect under this Section 2 more than
six (6) demand registrations. 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 that, in such underwriter's
good faith judgment, the number of securities to be sold in such offering by the
Company and 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 to a number deemed satisfactory by the managing
under writer, 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;
second, securities held by any Selling Stockholder (not including the Holders)
participating in such offering pursuant to the exercise of contractual piggyback
registration rights (other than pursuant to the Merkert Agreement or the Monroe
Agreement), as determined on a pro rata basis (based upon the aggregate number
of securities held by such Selling Stockholders);
4
<PAGE> 5
third, securities the Company proposes to sell and other securities of the
Company included in such registration and; fourth, securities held by any Holder
participating in such registration pursuant to the exercise of the demand
registration rights set forth in this Section 2, and any Selling Stockholder
participating in such offering pursuant to the exercise of piggyback
registration rights under the Merkert Agreement or the Monroe Agreement, as
determined on a pro rata basis (based upon the aggregate number of securities
held by such Holders or Selling Stockholders, as the case may be).
(b) If a requested registration pursuant to this Section 2 involves an
underwritten offering, the underwriter or underwriters thereof shall be selected
by the Holders of at least a majority (by number of shares) of the Registrable
Securities as to which registration has been requested; provided, however, that
if any Richmont Party is an Initiating Holder, then such underwriter or
underwriters shall be selected by the Richmont Party (or, if more than one
Richmont Party, by the Richmont Party requesting the registration of the largest
number of Registrable Securities).
SECTION 3. 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 (other
than in connection with a registration 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 security holders), 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). If within twenty (20) days after
the receipt of such notice the Company receives a written request from any
Holder for the inclusion in such, registration of some or all of the Registrable
Securities held by such Holder (which request shall specify the number of
Registrable Securities intended to be disposed of by such 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 3 at any time prior to the time it becomes effective, provided that
the Company shall give prompt notice of such withdrawal to the Holders which
requested to be included in such registration.
5
<PAGE> 6
(b) Notwithstanding the foregoing, if counsel to the Company determines
that the form of Registration Statement for any such registration by the Company
does not permit the registration of Registrable Securities, such counsel shall
deliver to the Holders an opinion stating (i) that such form does not permit the
registration of Registrable Securities and (ii) that the use of a form
permitting the registration of Registrable Securities would not be commercially
feasible. Such opinion shall be delivered to the Holders no less than thirty
(30) days prior to the anticipated effective date of the Registration Statement
and the Company shall not be obligated to register Registrable Securities of any
Holder in such Registration Statement pursuant to this Section 3.
(c) In connection with any offering under this Section 3 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 3 has advised the Company in writing that,
in such underwriter's good faith judgment, the number of securities to be sold
in such offering by 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 Stockholder (including the
Holders) participating in such offering pursuant to the exercise of contractual
piggyback registration rights and in the case of the Monroe Agreement, pursuant
to the exercise of demand registration rights, as determined on a pro rata basis
(based upon the aggregate number of securities held by such Selling
Stockholders).
(d) 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.
6
<PAGE> 7
SECTION 4. 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, as expeditiously as possible, 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; provided, however,
that in the case of a Registration Statement filed pursuant to Section 2 hereof,
that the form of such Registration Statement shall be reasonably acceptable to
the Holders of more than 50% of the Registrable Securities to be so registered;
(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 (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. A registration requested pursuant to Section 2 shall not be deemed to
have been effected (and therefore not requested for purposes of Section 2) (i)
unless a Registration Statement with respect thereto has become effective,
provided that a registration which does not become effective after the Company
has filed a Registration Statement with respect thereto solely by reason of the
refusal to proceed of the Initiating Holders (other than a refusal to proceed
based upon the advice of counsel relating to a matter with respect to the
Company) shall be deemed to have been effected by the Company at the request of
such Initiating Holders unless the Initiating Holders shall have elected to pay
all Registration Expenses in connection with such registration, (ii) if, after
it has become effective, such registration becomes subject to any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court for any reason, or (iii) the conditions to closing specified in
the purchase agreement or
7
<PAGE> 8
underwriting agreement entered into in connection with such registration are not
satisfied, other than by reason of some act or omission by such Initiating
Holders;
(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 its best 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
or underwriter 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 4(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 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 its best efforts to prevent the issuance of
any order suspending the effectiveness of any Registration Statement, and, if
one is issued, the Company shall use its best efforts to obtain the withdrawal
of such order as promptly as practicable;
(g) the Company shall use its best efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by
8
<PAGE> 9
such other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such Registrable
Securities;
(h) the Company shall furnish to each seller of Registrable Securities
and each Requesting Holder a signed counterpart, addressed to such seller, such
Requesting Holder and the underwriters, if any, of:
(X) an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such
registration includes an underwritten public offering, an
opinion dated the date of the closing under the underwriting
agreement), reasonably satisfactory in form and substance to
such seller, and
(Y) a "comfort" letter (or, in the case of any such
Person which does not satisfy the conditions for receipt of a
"comfort" letter specified in Statement on Auditing Standards
No. 72, an "agreed upon procedures" letter), dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, a
letter of like kind dated the date of the closing under the
under writing agreement), signed by the independent public
accountants who have certified the Company's financial
statements included in such registration statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of the accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered
to the underwriters in underwritten public offerings of securities
(with, in the case of an "agreed upon procedure" letter, such
modifications or deletions as may be required under Statement on
Auditing Standards No. 35) and, in the case of the accountants' letter,
such other financial matters, and, in the case of the legal opinion,
such other legal matters, as such seller or such Requesting Holder (or
the underwriters, if any) may reasonably request;
(i) the Company shall notify the Holders of Registrable Securities and
the managing underwriter or underwriters, if any, promptly and confirm such
advice in writing promptly thereafter:
9
<PAGE> 10
(V) when the registration statement, the prospectus
or any prospectus supplement related thereto or post-effective
amendment to the registration statement has been filed, and,
with respect to the registration statement or any
post-effective amendment thereto, when the same has become
effective;
(W) of any request by the Commission for amendments
or supplements to the registration statement or the prospectus
or for additional information;
(X) of the issuance by the Commission of any stop
order suspending the effectiveness of the registration
statement or the initiation of any proceedings by any Person
for that purpose;
(Y) if at any time the representations and warranties
of the Company made as contemplated by this Agreement cease to
be true and correct; and
(Z) of the receipt by the Company of any notification
with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue
sky laws of any jurisdiction or the initiation or threat of
any proceeding for such purpose;
(j) the Company shall otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months, but not more than eighteen
(18) months, beginning with the first day of the Company's first full calendar
quarter after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder, and will furnish to each such seller and each
Requesting Holder at least five (5) business days prior to the filing thereof a
copy of any amendment or supplement to such registration statement or prospectus
and shall not file any thereof to which any such seller or any Requesting Holder
shall have reasonably objected on the grounds that such amendment or supplement
does not comply in all material respects with the requirements of the Securities
Act or of the rules or regulations thereunder;
(k) the Company shall provide and cause to be maintained a transfer
agent and registrar for all Registrable Securities covered by such registration
10
<PAGE> 11
statement from and after a date not later than the effective date of such
registration statement;
(l) the Company shall enter into such agreements and take such other
actions as sellers of such Registrable Securities holding more than 50% of the
shares so to be sold shall reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities;
(m) the Company shall use its best efforts to list all Registrable
Securities covered by such registration statement on any securities exchange on
which any of the securities of the same class as the Registrable Securities are
then listed; and
(n) the Company shall use its best efforts to provide a CUSIP number
for the Registrable Securities, not later than the effective date of the
registration statement.
The Company will not file any registration statement or amendment
thereto or any prospectus or any supplement thereto (including such documents
incorporated by reference and proposed to be filed after the initial filing of
the registration statement) to which the Holders of at least a majority of the
Registrable Securities covered by such registration statement or the underwriter
or underwriters, if any, shall reasonably object, provided that the Company may
file such document in a form required by law or upon the advice of its counsel.
SECTION 5. 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 4(e)
or of any event which, in the Company's reasonable business judgment and good
faith 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 4(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
11
<PAGE> 12
Suspension Notice, the Company shall use commercially reasonable efforts and
take such actions as are reasonably necessary to end the Suspension Period as
promptly as practicable.
SECTION 6. REGISTRATION EXPENSES.
Subject to the proviso below, any 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,
reasonable fees and expenses of one legal counsel for the Holders, fees and
expenses incurred in connection 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 (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, or (b) any fees or expenses
of any counsel, accountants or other persons retained or employed by the Holders
(other than the fees and expenses of one legal counsel as provided above).
SECTION 7. UNDERWRITTEN OFFERINGS
(a) Requested Underwritten Offerings. If requested by the underwriters
for any underwritten offering by Holders of Registrable Securities pursuant to a
registration requested under Section 2, the Company will enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in substance and form to the Company, each such
Holder and the underwriters, and to contain such representations and warranties
by the Company and such other terms as are generally prevailing in agreements of
this type, including, without limitation, indemnities. The Holders of the
Registrable Securities will cooperate with the Company in the negotiation of the
underwriting agreement and will give consideration to the reasonable suggestions
of the Company regarding the form thereof, provided that nothing herein
contained shall diminish the foregoing obligations of the Company. The Holders
of Registrable Securities to be distributed by such underwriters shall be
parties to such underwriting agreement and may, at their option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters
12
<PAGE> 13
shall also be made to and for the benefit of such Holders of Registrable
Securities and that any or all of the conditions precedent to the obligations of
such underwriters under such underwriting agreement be conditions precedent to
the obligations of such Holders of Registrable Securities. Any such Holder of
Registrable Securities shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations and warranties contained in writing furnished by such Holder
expressly for use in such registration statement or agreements regarding such
Holder, such Holder's Registrable Securities and such Holder's intended method
of distribution and any other representation required by law or to make any
agreements with the Company or the underwriters with respect to indemnification
of any Person or the contribution obligations of any Person that would impose
any obligation beyond or inconsistent with the provisions of this Agreement.
(b) Incidental Underwritten Offerings. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 3 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any Holder
of Registrable Securities as provided in Section 3, use its best efforts to
arrange for such underwriters to include all the Registrable Securities to be
offered and sold by such Holder among the securities to be distributed by such
underwriters. The Holders of Registrable Securities to be distributed by such
underwriters shall be parties to the under writing agreement between the Company
and such underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such Holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
Holders of Registrable Securities. Any such Holder of Registrable Securities
shall not be required to make any representations or warranties to or agreements
with the Company or the underwriters other than representations, warranties or
agreements regarding such Holder, such Holder's Registrable Securities and such
Holder's intended method of distribution and any other representation required
by law or to make any agreements with the Company or the underwriters with
respect to indemnification of any Person or the contribution obligations of any
Person that would impose any obligation beyond or inconsistent with the terms of
this Agreement.
(c) Holdback Agreements.
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<PAGE> 14
(i) Each Holder of Registrable Securities agrees by
acquisition of such Registrable Securities, if and to the extent so
required by the managing underwriter, not to sell, make any short sale
of, loan, grant any option for the purchase of, effect any public sale
or distribution of or other wise dispose of any securities of the
Company, during the 7 days prior to and the 90 days after any
underwritten registration pursuant to Section 2 or 3 has become
effective, except as part of such underwritten registration, whether or
not such Holder participates in such registration, provided that the
foregoing restrictions shall not apply with regard to any Richmont
Party in a distribution of Registrable Securities to its partners or
to the transfer to any affiliate of such Persons or to any other
transferee in a private transaction not requiring registration under
the Securities Act, or to any bona fide pledge of such Registrable
Securities, provided that such affiliate or other transferee and/or
lender or creditor acknowledges in writing that it is bound by the
provisions of this Section 7(c). Each Holder of Registrable Securities
agrees that the Company may instruct its transfer agent to place stop
transfer notations in its records to enforce this Section 7(c).
(ii) The Company agrees (X) if so required by the
managing underwriter not to sell, make any short sale of, loan, grant
any option for the purchase of, effect any public sale or distribution
of or otherwise dispose of its equity securities or securities
convertible into or exchangeable or exercisable for any of such
securities during the seven days prior to and the 90 days after any
underwritten registration pursuant to Section 2 or 3 has become
effective, except as part of such underwritten registration and except
pursuant to registrations on Form S-4, S-8, or any successor or similar
forms thereto, and (Y) to cause each holder of its securities purchased
from the Company at any time after the date of this Agreement (other
than in a public offering) to agree not to sell, make any short sale
of, loan, grant any option for the purchase of, effect any public sale
or distribution of or otherwise dispose of such securities during such
period.
(d) Participation in Underwritten Offerings. No
Person may participate in any underwritten offering hereunder unless such person
(i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved, subject to the terms and conditions hereof,
by the Company and the Holders of a majority of Registrable Securities to be
included in such underwritten offering and (ii) completes and executes all
questionnaires, indemnities, underwriting agreements and other documents (other
than powers of attorney) required under the terms of such underwriting
arrangements. Notwithstanding the foregoing, no
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<PAGE> 15
underwriting agreement (or other agreement in connection with such offering)
shall require any Holder of Registrable Securities to make any representations
or warranties to or agreements with the Company or the underwriters other than
representations and warranties contained in a writing furnished by such Holder
expressly for use in the related registration statement or agreements regarding
such Holder, such Holder's registrable Securities and such Holder's intended
method of distribution and any other representation required by law or to make
any agreements with the Company or the underwriters with respect to
indemnification of any Person or the contribution obligations of any Person that
would impose any obligation beyond or inconsistent with the provisions of this
Agreement.
SECTION 8. 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, agents, successors and assigns 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,
"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
15
<PAGE> 16
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 8(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 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 includes an unconditional release of such indemnified party
from all liability on all claims that are the subject matter of such proceeding.
(d) Contribution. To the extent that the indemnification provided for
in paragraph (a) or (b) of this Section 8 is held by a court of competent
jurisdiction to be unavailable to an indemnified party in respect of any
Damages, then each indemnified 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
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<PAGE> 17
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 Dam ages, 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 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 8, 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 8(d).
The Company and each Holder agrees that it would not be just or
equitable if contribution pursuant to this Section 8(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 8
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 8(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.
SECTION 9. INFORMATION FURNISHED BY HOLDERS.
Each Holder shall furnish to the Company such 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 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
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<PAGE> 18
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 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 10. "MOST FAVORED NATIONS" ELECTION.
In the event that after the date of this Agreement, but prior to its
termination, the Company enters into an agreement with any Holder of shares of
its Common Stock whereby such Holder is granted registration rights with respect
to such shares (a "Subsequent Agreement"), then the Company shall
(a) provide each Holder of Registrable Securities a copy of such
agreement promptly after its execution, and
(b) offer each such Holder of Registrable Securities an opportunity to
elect to enter into an agreement with the Company whereby such Holder of
Registrable Securities, in lieu of its rights hereunder, shall be entitled to
the registration rights equivalent to those described in the Subsequent
Agreement.
A Holder of Registrable Securities shall have 20 days after the date on
which notice of such event is deemed to have been given by the Company pursuant
to the provisions of Section 11(b) of this Agreement, to notify the Company in
writing of its election to terminate its rights under this Agreement and, in
lieu thereof, to enter into a new agreement containing registration rights
equivalent to those contained in the Subsequent Agreement. Such new agreement
shall be executed promptly after receipt of such notice by the Company.
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<PAGE> 19
SECTION 11. 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 unless the Company has obtained the written consent of the Holders of a
majority in interest of the Registrable Securities then outstanding.
(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
receive 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 State of Delaware without regard to principles
of conflicts of law.
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<PAGE> 20
(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.
(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 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.
(k) Termination of 1997 Registration Rights Agreement. MS Acquisition
Limited and Richmont Marketing Specialists Inc. hereby terminate the 1997
Registration Rights Agreement and agree that none of such parties shall have any
further rights or obligations thereunder.
[End of text]
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IN WITNESS WHEREOF, the parties have caused this Registration Rights
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
Address:
490 Turnpike Street
Canton, Massachusetts 02021
HOLDERS:
MS Acquisition Limited
By: MS Acquisition Corp.
its General Partner
By: /s/ Nick Bouras
---------------------------------
Nick G. Bouras
Address:
17855 North Dallas Parkway, Suite 200
Dallas, Texas 75287
/s/ Bruce A. Butler
-------------------------------------
Bruce A. Butler
<PAGE> 22
Address:
17855 North Dallas Parkway, Suite 200
Dallas, Texas 75287
/s/ Gary R. Guffey
-------------------------------------
Gary R. Guffey
Address:
17 Overhill
Trophy Club, Texas 72262
/s/ Ronald D. Pedersen
-------------------------------------
Ronald D. Pedersen
Address:
17855 North Dallas Parkway, Suite 200
Dallas, Texas 75287
/s/ Jeffrey A. Watt
-------------------------------------
Jeffrey A. Watt
Address:
6006 Kettering Ct.
Dallas, Texas 75248
<PAGE> 1
EXHIBIT 10.8
REGISTRATION RIGHTS AGREEMENT
FOR CERTAIN MERKERT STOCKHOLDERS
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of August 18,
1999, by and among Merkert American Corporation, 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
supersedes and replaces in its entirety the Registration Rights Agreement dated
as of May 18, 1998 by and among the Company, Gerald R. Leonard, Monroe &
Company, LLC, JLM Management, LLC, Robert Doehler, Joseph T. Casey, Edward P.
Grace, III, James Philipkosky, Sandra Monroe, Sean P. Spaulding and Jo-Anne
Collins (the "1998 Registration Rights Agreement").
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.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means the 1,602,263 shares of Common Stock held by the
Holders as of the date of this Agreement, together with any shares of Common
Stock or any other class of capital stock of the Company received in respect of
such shares, by stock split, stock dividend, exchange, recapitalization,
reclassification or otherwise, together with any other shares of Common Stock
held by the holders during the term of this Agreement.
"Common Stock" means the common stock, par value $.01 per share, of the
Company and the restricted 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 8(a).
"Damages" has the meaning set forth in Section 8(a).
"Demand Registration Statement" has the meaning set forth in Section
2(a).
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"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" has the meaning set forth in the preamble and shall include
any assignee, successor or transferee in accordance with the provisions of
Section 11(c) hereof.
"Initiating Holders" shall have the meaning set forth in Section 2(a).
"Merkert Agreement" means the Registration Rights Agreement dated as of
December 18, 1998 by and among the Company and the former stockholders of
Merkert Enterprises, Inc., a Massachusetts corporation.
"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.
"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 6.
"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.
"Requesting Holder" means any Holder requesting registration of
Registrable Securities pursuant to Section 2 or Section 3 hereof.
"Richmont Agreement" means the Registration Rights Agreement dated as
of the date of this Agreement by and among the Company and the former
stockholders of Richmont Marketing Specialists Inc., a Delaware corporation.
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<PAGE> 3
"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(a).
"Suspension Notice" has the meaning set forth in Section 5.
"Suspension Period" has the meaning set forth in Section 5.
SECTION 2. DEMAND REGISTRATIONS.
(a) On any two (2) occasions after the date of this Agreement, subject
to the conditions set forth in this Agreement, including without limitation the
conditions set forth in Section 2(b) below, one or more Holders holding at least
forty percent (40%) of the Registrable Securities then held by all Holders may
request (the "Initiating Holders") that the Company cause to be filed with the
Commission and cause to become effective a registration statement (a "Demand
Registration Statement") under the Securities Act relating to the sale by such
Holders of their Registrable Securities in accordance with the terms hereof.
Upon receipt of any such request, the Company shall give written notice of such
proposed registration to all Holders of Registrable Securities. Such Holders
shall have the right, by giving written notice to the Company within fifteen
(15) business days after such notice referred to in the preceding sentence has
been given by the Company, to elect to have included in the Demand Registration
Statement such of their Registrable Securities as each Holder may request in
such notice of election. Thereupon, the Company shall as soon as practicable
thereafter cause such Demand Registration Statement to be filed and declared
effective by the Commission for all Registrable Securities which the Company has
been requested to register. The Company shall in no event be obligated to effect
under this Section 2 more than two (2) demand registrations. 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
that, in such underwriter's good faith judgment, the number of securities to be
sold in such offering by the Company and 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 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; second, securities held by any Selling Stockholder (not
including the Holders) participating in such offering pursuant to the exercise
of contractual piggyback registration rights (other than pursuant to the Merkert
Agreement or the Richmont Agreement), as determined on a pro rata basis (based
upon the aggregate number of securities held by such Selling Stockholders);
third, securities the Company proposes to sell and other securities of the
Company included in such registration; fourth, securities held by (i) any
Selling Stockholder participating in such offering
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<PAGE> 4
pursuant to the exercise of piggyback registration rights under the Merkert
Agreement or the Richmont Agreement and (ii) any Holder participating in such
registration pursuant to the exercise of the demand registration rights set
forth in this Section 2, as determined on a pro rata basis (based upon the
aggregate number of securities held by such Selling Stockholders and such
Holders).
(b) If a requested registration pursuant to this Section 2 involves an
underwritten offering, the underwriter or underwriters thereof shall be selected
by the Holders of at least a majority (by number of shares) of the Registrable
Securities as to which registration has been requested.
SECTION 3. 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 (other
than in connection with a registration 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), 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). If within twenty (20) days after
the receipt of such notice the Company receives a written request from any
Holder for the inclusion in such registration of some or all of the Registrable
Securities held by such Holder (which request shall specify the number of
Registrable Securities intended to be disposed of by such 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 3 at any time prior to the time it becomes effective, provided that
the Company shall give prompt notice of such withdrawal to the Holders which
requested to be included in such registration.
(b) Notwithstanding the foregoing, if counsel to the Company determines
that the form of Registration Statement for any such registration by the Company
does not permit the registration of Registrable Securities, such counsel shall
deliver to the Holders an opinion stating (i) that such form does not permit the
registration of Registrable Securities and (ii) that the use of a form
permitting the registration of Registrable Securities would not be commercially
feasible. Such opinion shall be delivered to the Holders no less than thirty
(30) days prior to the anticipated effective date of the Registration Statement
and the Company shall not be obligated to register Registrable Securities of any
Holder in such Registration Statement pursuant to this Section 3.
(c) In connection with any offering under this Section 3 involving an
underwriting, the Company shall not be required to include a Holder's
Registrable Securities in the
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<PAGE> 5
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 3 has
advised the Company in writing that, in such underwriter's good faith judgment,
the number of securities to be sold in such offering by 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 Stockholder (including the Holders) participating in such offering
pursuant to the exercise of contractual piggyback registration rights and in the
case of the Richmont Agreement, pursuant to the exercise of demand registration
rights, as determined on a pro rata basis (based upon the aggregate number of
securities held by such Selling Stockholders).
(d) 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.
SECTION 4. 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, as expeditiously as possible, 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; provided, however, that in the case
of a Registration Statement filed pursuant to Section 2 hereof, that
the form of such Registration Statement shall be reasonably acceptable
to the Holders of more than 50% of the Registrable Securities to be so
registered;
(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
5
<PAGE> 6
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 (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. A registration requested
pursuant to Section 2 shall not be deemed to have been effected (and
therefore not requested for purposes of Section 2) (i) unless a
Registration Statement with respect thereto has become effective,
provided that a registration which does not become effective after the
Company has filed a Registration Statement with respect thereto solely
by reason of the refusal to proceed of the Initiating Holders (other
than a refusal to proceed based upon the advice of counsel relating to
a matter with respect to the Company) shall be deemed to have been
effected by the Company at the request of such Initiating Holders
unless the Initiating Holders shall have elected to pay all
Registration Expenses in connection with such registration, (ii) if,
after it has become effective, such registration becomes subject to any
stop order, injunction or other order or requirement of the Commission
or other governmental agency or court for any reason, or (iii) the
conditions to closing specified in the purchase agreement or
underwriting agreement entered into in connection with such
registration are not satisfied, other than by reason of some act or
omission by such Initiating Holders;
(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 its best 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 or underwriter
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 4(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
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<PAGE> 7
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 its best 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
its best reasonable efforts to obtain the withdrawal of such order as
promptly as practicable;
(g) the Company shall use its best efforts to cause all
Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof
to consummate the disposition of such Registrable Securities;
(h) the Company shall furnish to each seller of Registrable
Securities and each Requesting Holder a signed counterpart, addressed
to such seller, such Requesting Holder and the underwriters, if any,
of:
(X) an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such
registration includes an underwritten public offering, an
opinion dated the date of the closing under the underwriting
agreement), reasonably satisfactory in form and substance to
such seller, and
(Y) a "comfort" letter (or, in the case of any such
Person which does not satisfy the conditions for receipt of a
"comfort" letter specified in Statement on Auditing Standards
No. 72, an "agreed upon procedures" letter), dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, a
letter of like kind dated the date of the closing under the
underwriting agreement), signed by the independent public
accountants who have certified the Company's financial
statements included in such registration statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of the accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
the underwriters in underwritten public offerings of securities (with,
in the case of an "agreed upon procedure" letter, such modifications or
deletions as may be required under Statement on Auditing Standards No.
35) and, in the case of the accountants' letter, such other financial
matters, and, in the case of the legal opinion, such other legal
matters, as such seller or such Requesting Holder (or the underwriters,
if any) may reasonably request;
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<PAGE> 8
(i) the Company shall notify the Holders of Registrable
Securities and the managing underwriter or underwriters, if any,
promptly and confirm such advice in writing promptly thereafter:
(V) when the registration statement, the prospectus
or any prospectus supplement related thereto or post-effective
amendment to the registration statement has been filed, and,
with respect to the registration statement or any
post-effective amendment thereto, when the same has become
effective;
(W) of any request by the Commission for amendments
or supplements to the registration statement or the prospectus
or for additional information;
(X) of the issuance by the Commission of any stop
order suspending the effectiveness of the registration
statement or the initiation of any proceedings by any Person
for that purpose;
(Y) if at any time the representations and warranties
of the Company made as contemplated by this Agreement cease to
be true and correct; and
(Z) of the receipt by the Company of any notification
with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue
sky laws of any jurisdiction or the initiation or threat of
any proceeding for such purpose;
(j) the Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable,
an earnings statement covering the period of at least twelve (12)
months, but not more than eighteen (18) months, beginning with the
first day of the Company's first full calendar quarter after the
effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder, and will furnish to each such seller and each
Requesting Holder at least five (5) business days prior to the filing
thereof a copy of any amendment or supplement to such registration
statement or prospectus and shall not file any thereof to which any
such seller or any Requesting Holder shall have reasonably objected on
the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or of the
rules or regulations thereunder;
(k) the Company shall provide and cause to be maintained a
transfer agent and registrar for all Registrable Securities covered by
such registration statement from and after a date not later than the
effective date of such registration statement;
(l) the Company shall enter into such agreements and take such
other actions as sellers of such Registrable Securities holding more
than 50% of the shares so to be sold
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<PAGE> 9
shall reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities;
(m) the Company shall use its best efforts to list all
Registrable Securities covered by such registration statement on any
securities exchange on which any of the securities of the same class as
the Registrable Securities are then listed; and
(n) the Company shall use its best efforts to provide a CUSIP
number for the Registrable Securities, not later than the effective
date of the registration statement.
The Company will not file any registration statement or amendment
thereto or any prospectus or any supplement thereto (including such documents
incorporated by reference and proposed to be filed after the initial filing of
the registration statement) to which the Holders of at least a majority of the
Registrable Securities covered by such registration statement or the underwriter
or underwriters, if any, shall reasonably object, provided that the Company may
file such document in a form required by law or upon the advice of its counsel.
SECTION 5. 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 4(e)
or of any event which, in the Company's reasonable business judgment and good
faith 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 4(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 commercially reasonable efforts and take such actions as are reasonably
necessary to end the Suspension Period as promptly as practicable.
SECTION 6. 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,
reasonable fees and expenses of one legal counsel for the Holders, 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
(all such expenses being herein called "Registration Expenses"), will be borne
by the Company; provided, however,
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<PAGE> 10
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 or (b) any fees or expenses of any counsel, accountants
or other persons retained or employed by the Holders (other than the fees and
expenses of one legal counsel as provided above).
SECTION 7. UNDERWRITTEN OFFERINGS
(a) Requested Underwritten Offerings. If requested by the underwriters
for any underwritten offering by Holders of Registrable Securities pursuant to a
registration requested under Section 2, the Company will enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in substance and form to the Company, each such
Holder and the underwriters, and to contain such representations and warranties
by the Company and such other terms as are generally prevailing in agreements of
this type, including, without limitation, indemnities. The Holders of the
Registrable Securities will cooperate with the Company in the negotiation of the
underwriting agreement and will give consideration to the reasonable suggestions
of the Company regarding the form thereof, provided that nothing herein
contained shall diminish the foregoing obligations of the Company. The Holders
of Registrable Securities to be distributed by such underwriters shall be
parties to such underwriting agreement and may, at their option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such Holders of Registrable Securities and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such Holders of Registrable Securities. Any such Holder of
Registrable Securities shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations and warranties contained in writing furnished by such Holder
expressly for use in such registration statement or agreements regarding such
Holder, such Holder's Registrable Securities and such Holder's intended method
of distribution and any other representation required by law or to make any
agreements with the Company or the underwriters with respect to indemnification
of any Person or the contribution obligations of any Person that would impose
any obligation beyond or inconsistent with the provisions of this Agreement.
(b) Incidental Underwritten Offerings. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 3 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any Holder
of Registrable Securities as provided in Section 3, use its best efforts to
arrange for such underwriters to include all the Registrable Securities to be
offered and sold by such Holder among the securities to be distributed by such
underwriters. The Holders of Registrable Securities to be distributed by such
underwriters shall be parties to the underwriting agreement between the Company
and such underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such Holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
Holders of Registrable Securities. Any such Holder of Registrable
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<PAGE> 11
Securities shall not be required to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such Holder, such Holder's Registrable
Securities and such Holder's intended method of distribution and any other
representation required by law or to make any agreements with the Company or the
underwriters with respect to indemnification of any Person or the contribution
obligations of any Person that would impose any obligation beyond or
inconsistent with the terms of this Agreement.
(c) Holdback Agreements.
(i) Each Holder of Registrable Securities agrees by
acquisition of such Registrable Securities, if and to the extent so
required by the managing underwriter, not to sell, make any short sale
of, loan, grant any option for the purchase of, effect any public sale
or distribution of or otherwise dispose of any securities of the
Company, during the 7 days prior to and the 90 days after any
underwritten registration pursuant to Section 2 or 3 has become
effective, except as part of such underwritten registration, whether or
not such Holder participates in such registration, provided that the
foregoing restrictions shall not apply with regard to any entity
controlled by James L. Monroe in a distribution of Registrable
Securities to its partners or members or to the transfer to any
affiliate of such entity or to any other transferee in a private
transaction not requiring registration under the Securities Act, or to
any bona fide pledge of such Registrable Securities, provided that such
affiliate or other transferee and/or lender or creditor acknowledges in
writing that it is bound by the provisions of this Section 7(c). Each
Holder of Registrable Securities agrees that the Company may instruct
its transfer agent to place stop transfer notations in its records to
enforce this Section 7(c).
(ii) The Company agrees (X) if so required by the managing
underwriter not to sell, make any short sale of, loan, grant any option
for the purchase of, effect any public sale or distribution of or
otherwise dispose of its equity securities or securities convertible
into or exchangeable or exercisable for any of such securities during
the seven days prior to and the 90 days after any underwritten
registration pursuant to Section 2 or 3 has become effective, except as
part of such underwritten registration and except pursuant to
registrations on Form S-4, S-8, or any successor or similar forms
thereto, and (Y) to cause each holder of its securities purchased from
the Company at any time after the date of this Agreement (other than in
a public offering) to agree not to sell, make any short sale of, loan,
grant any option for the purchase of, effect any public sale or
distribution of or otherwise dispose of such securities during such
period.
(d) Participation in Underwritten Offerings. No Person may participate
in any underwritten offering hereunder unless such person (i) agrees to sell
such Person's securities on the basis provided in any underwriting arrangements
approved, subject to the terms and conditions hereof, by the Company and the
Holders of a majority of Registrable Securities to be included in such
underwritten offering and (ii) completes and executes all questionnaires,
indemnities, underwriting agreements and other documents (other than powers of
attorney) required under the terms of such underwriting arrangements.
Notwithstanding the foregoing, no
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<PAGE> 12
underwriting agreement (or other agreement in connection with such offering)
shall require any Holder of Registrable Securities to make any representations
or warranties to or agreements with the Company or the underwriters other than
representations and warranties contained in a writing furnished by such Holder
expressly for use in the related registration statement or agreements regarding
such Holder, such Holder's registrable Securities and such Holder's intended
method of distribution and any other representation required by law or to make
any agreements with the Company or the underwriters with respect to
indemnification of any Person or the contribution obligations of any Person that
would impose any obligation beyond or inconsistent with the provisions of this
Agreement.
SECTION 8. 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, agents, successors and assigns 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,
"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 8(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
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<PAGE> 13
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 includes an unconditional release of
such indemnified party from all liability on all claims that are the subject
matter of such proceeding.
(d) Contribution. To the extent that the indemnification provided for
in paragraph (a) or (b) of this Section 8 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 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 8, 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 8(d).
The Company and each Holder agrees that it would not be just or
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation or by any
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<PAGE> 14
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 8 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 8(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.
SECTION 9. INFORMATION FURNISHED BY HOLDERS.
Each Holder shall furnish to the Company such 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 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 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 10. "MOST FAVORED NATIONS" ELECTION.
In the event that after the date of this Agreement, but prior to its
termination, the Company enters into an agreement with any Holder of shares of
its Common Stock whereby such Holder is granted registration rights with respect
to such shares (a "Subsequent Agreement"), then the Company shall
(a) provide each Holder of Registrable Securities a copy of such
agreement promptly after its execution, and
(b) offer each such Holder of Registrable Securities an opportunity to
elect to enter into an agreement with the Company whereby such Holder of
Registrable Securities, in lieu of its
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<PAGE> 15
rights hereunder, shall be entitled to the registration rights equivalent to
those described in the Subsequent Agreement.
A Holder of Registrable Securities shall have 20 days after the date on
which notice of such event is deemed to have been given by the Company pursuant
to the provisions of Section 11(b) of this Agreement, to notify the Company in
writing of its election to terminate its rights under this Agreement and, in
lieu thereof, to enter into a new agreement containing registration rights
equivalent to those contained in the Subsequent Agreement. Such new agreement
shall be executed promptly after receipt of such notice by the Company.
SECTION 11. 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 unless the Company has obtained the written consent of the Holders of a
majority in interest of the Registrable Securities then outstanding.
(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.
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<PAGE> 16
(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 State of Delaware 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.
(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.
(k) Termination of 1998 Registration Rights Agreement. The Company,
Monroe & Company II, LLC and Gerald R. Leonard hereby terminate the 1998
Registration Rights Agreement and agree that none of such parties shall have any
further rights or obligations thereunder.
[End of text]
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<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Registration Rights
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
Address: 490 Turnpike Street
Canton, MA 02021
/s/ Gerald R. Leonard
Gerald R. Leonard
Title:
Existing Securities:
Class:
Number of Shares:
Address:
/s/ James L. Monroe
Monroe & Company, LLC
Manager
Existing Securities:
Class:
Number of Shares:
Address:
<PAGE> 18
/s/ James L. Monroe
JLM Management, LLC
Title:
Existing Securities:
Class:
Number of Shares:
Address:
/s/ Robert Doehler
Robert Doehler
Title:
Existing Securities:
Class:
Number of Shares:
Address:
4 Deborah Lane
Steep Falls, ME 04085
/s/ Joseph T. Casey
Joseph T. Casey
Title:
Existing Securities:
Class:
Number of Shares:
Address:
<PAGE> 19
/s/ Edward P. Grace, III
Edward P. Grace, III
Title:
Existing Securities:
Class:
Number of Shares:
Address:
/s/ James Philipkosky
James Philipkosky
Title:
Existing Securities:
Class: Common
Number of Shares: 27,409
Class: Restricted Common
Number of Shares: 6,994
Address:
20 Victorian Gateway
Columbus, OH 43215
/s/ Sandra Monroe
Sandra Monroe
Title:
Existing Securities:
Class:
Number of Shares:
Address:
<PAGE> 20
/s/ Sean P. Spaulding
Sean P. Spaulding
Title:
Existing Securities:
Class:
Number of Shares:
Address:
/s/ Jo-Anne Collins
Jo-Anne Collins
Title:
Existing Securities:
Class:
Number of Shares:
Address:
5 Asbury Avenue
Woburn, MA 01801
<PAGE> 1
EXHIBIT 10.9
POST-MERGER VOTING AGREEMENT
VOTING AGREEMENT dated as of August 18, 1999 (the "Agreement") by and
among MS Acquisition Limited, a Texas limited partnership, (the "Nominating
Stockholder") Ronald D. Pedersen, Bruce A. Butler, Gary R. Guffey, Jeffrey A.
Watt (together with the Nominating Stockholder, the "Richmont Stockholders"),
Monroe & Company, LLC, a Delaware limited liability company and JLM Management
Company, LLC, a Delaware limited liability company (together with Monroe &
Company, LLC, "Monroe"). The Richmont Stockholders and Monroe collectively shall
be referred to herein as the "Stockholders."
WHEREAS, it is contemplated that Richmont Marketing Specialists Inc., a
Delaware corporation ("Richmont"), will merge with and into Merkert American
Corporation, a Delaware corporation ("Merkert") pursuant to an Agreement and
Plan of Merger dated as of the date hereof (the "Merger Agreement," and such
merger, the "Merger");
WHEREAS, the Richmont Stockholders own of record all of the issued and
outstanding shares of common stock, par value $.01 per share, of Richmont, which
in connection with the Merger will be converted into an aggregate of up to
6,705,551 shares of common stock, par value $.01 per share, of Merkert ("Merkert
Common Stock");
WHEREAS, Monroe has the right to vote an aggregate of 853,754 shares of
Merkert Common Stock and 223,800 shares of restricted Merkert Common Stock;
WHEREAS, the execution and delivery of this Agreement is a condition to
the consummation of the Merger.
NOW, THEREFORE, the parties hereto agree as follows:
1. Voting Agreement. Following the consummation of the Merger, at any
time that nominees for the election to the Board of Directors of Merkert are
submitted to the stockholders of Merkert, or a proposal to remove any incumbent
member of the Board of Directors of Merkert is submitted to such stockholders,
the parties hereto agree to vote, or cause to be voted, all Voting Securities
(defined below) then held by such party, whether beneficially or of record, or
any Voting Securities over which such party exercises voting control, in favor
of up to five nominees designated in writing by the Nominating Stockholders. For
the purpose of this agreement, "Voting Securities" shall mean any and all shares
of capital stock of Merkert, of any class or series, which shall have the right
at any time to vote in the election of Merkert's directors, including without
limitation shares of Merkert Common Stock.
2. Designation of Nominees. The Nominating Stockholder hereby
designates the following individuals as nominees for election to the Board of
Directors of Merkert: John P.
1
<PAGE> 2
Rochon, Nick G. Bouras, Timothy M. Byrd, Ronald D. Pedersen and Michael J.
Merriman. In the event that any of the foregoing at any time are unable to serve
out their terms, resign from the Board of Directors of Merkert or decline to be
nominated for election or reelection, then the Nominating Stockholders shall
have the right to designate in writing a replacement nominee; provided, however,
that such replacement nominee shall be reasonably satisfactory to Monroe.
3. Representations and Warranties of the Stockholders. As of the date
hereof, each Stockholder represents and warrants to the other Stockholders as
follows:
(a) Ownership of Securities. The Stockholder is the record and
beneficial owner of, or exercises voting control of, the number of shares of
Voting Securities of Merkert set forth on the signature page to this Agreement
(the "Existing Securities"). The Holder has sole voting power and sole power to
issue instructions with respect to the voting of the Existing Securities, sole
power of disposition and the sole power of exercise or conversion, in each case
with respect to all of the Existing Securities. As of the date hereof, the
Stockholder will have sole voting power and sole power to issue instructions
with respect to the voting of all of the Existing Securities, sole power of
disposition and the sole power of exercise or conversion, in each case with
respect to all of the Existing Securities.
(b) Power; Binding Agreement. The Stockholder has full power
and authority to enter into and perform all of the Stockholder's obligations
under this Agreement. If Stockholder is an entity, the execution by Stockholder
of this Agreement and the performance of its obligations hereunder have been
duly authorized by all necessary corporate or partnership action on the part of
Stockholder and no other action on the part of Stockholder is required in
connection therewith. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance with its
terms.
(c) No Conflicts. No filing with, and no permit,
authorization, consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by the Stockholder
and the consummation by the Stockholder of the transactions contemplated hereby,
other than filings which may be required pursuant to the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder, and
neither the execution and delivery of this Agreement by the Stockholder nor the
consummation by the Stockholder of the transactions contemplated hereby nor
compliance by the Stockholder with any of the provisions hereof shall conflict
with or result in any breach of any applicable organizational documents of
Merkert applicable to the Stockholder or, if applicable, any organizational
documents of the Stockholder (including without limitation any charter documents
or partnership agreement), result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default (or give rise to any
third-party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any
2
<PAGE> 3
kind to which the Stockholder is a party or by which the Stockholder's
properties or assets may be bound or violate any order, writ, injunction,
decree, judgment, order, statute, rule or regulation applicable to the
Stockholder or any of the Stockholder's properties or assets.
4. Assignment; Benefits. This Agreement may not be assigned by any
party hereto without the prior written consent of each of the other parties.
This Agreement shall be binding upon, and shall inure to the benefit of, each of
the signatories hereto and their respective successors and permitted assigns.
5. Notices. Any notice required to be given hereunder shall be in
writing and shall be sent by facsimile transmission (confirmed by any of the
methods that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) to the address of such party set forth on the signature pages hereto or
to such other address as any party shall specify by written notice so given, and
such notice shall be deemed to have been delivered as of the date so delivered.
6. Specific Performance. The parties hereto agree that irreparable harm
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with its specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity.
7. Amendment. This Agreement may not be amended or modified, except by
an instrument in writing signed by or on behalf of each of the parties hereto.
This Agreement may not be waived by any party hereto, except by an instrument in
writing signed by or on behalf of the party granting such waiver.
8. Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware, without regard to
its rules regarding conflict of laws.
9. 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 agreement.
10. Termination. This Agreement shall commence on the date hereof and
shall terminate upon the earliest to occur of: (i) the date on which the
Nominating Stockholder and Messrs. Pedersen, Butler and Guffey cease to own in
the aggregate at least 35% of the total outstanding shares of Voting Securities
of Merkert, or (ii) the date on which the Stockholders cease to own, or have the
right to exercise voting control over, shares of Voting Securities of Merkert
representing more than 50% of the total voting power of all outstanding Voting
Securities of Merkert.
3
<PAGE> 4
[VOTING AGREEMENT SIGNATURE PAGE]
IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of
each of the parties hereto, all as of the date first above written above.
MS ACQUISITION LIMITED
By: /s/ Nick G. Bouras
-------------------------------
Nick G. Bouras
Title:
Existing Securities:
Class:
-------------------------
Number of Shares:
--------------
Address:
-------------------------------
-------------------------------
-------------------------------
S-1
<PAGE> 5
[VOTING AGREEMENT SIGNATURE PAGE]
-------------------------------
Ronald D. Pedersen
Existing Securities:
Class: Common
------------------------
Number of Shares: 1,259,017
------------
Address:
3601 Beverly Drive
Dallas, Texas 75205
/s/ Bruce A. Butler
-------------------------------
Bruce A. Butler
Existing Securities:
Class: Common
------------------------
Number of Shares: 301,721
------------
Address:
7329 Paul Calle Drive
Plano, Texas 75025
/s/ Gary R. Guffey
-------------------------------
Gary R. Guffey
Existing Securities:
Class: Common
------------------------
Number of Shares: 301,721
------------
Address:
-------------------------------
-------------------------------
-------------------------------
S-2
<PAGE> 6
[VOTING AGREEMENT SIGNATURE PAGE]
/s/ Jeffrey A. Watt
-------------------------------
Jeffrey A. Watt
Existing Securities:
Class: Common
------------------------
Number of Shares: 819,759
-------------
Address:
6006 Keetering Court
Dallas, TX 75248
S-3
<PAGE> 7
[VOTING AGREEMENT SIGNATURE PAGE]
MONROE & COMPANY, LLC
By: /s/ James L. Monroe
---------------------------
James L. Monroe
Manager
Existing Securities:
Class:
-------------------------
Number of Shares:
--------------
Address:
-------------------------------
-------------------------------
-------------------------------
JLM MANAGEMENT COMPANY, LLC
By: /s/ James L. Monroe
-------------------------------
James L. Monroe
Title:
Existing Securities:
Class:
-------------------------
Number of Shares:
--------------
Address:
-------------------------------
-------------------------------
-------------------------------
S-4
<PAGE> 1
EXHIBIT 10.10
ADVISORY AGREEMENT
MERKERT AMERICAN CORPORATION
490 Turnpike Street
Canton, MA 02021
August 18, 1999
Monroe & Company, LLC
8 Cedar Street, Suite 54A
Woburn, MA 01801
Attn: James L. Monroe
Richmont Capital Partners I, L.P.
17855 North Dallas Parkway, Suite 200
Dallas, TX 75827
Attn: Nick G. Bouras
Gentlemen:
This letter agreement ("Agreement") confirms the terms and conditions
of the exclusive engagement of Monroe & Company, LLC, a Delaware limited
liability company ("Monroe"), and Richmont Capital Partners I, L.P., a Delaware
limited partnership ("Richmont," and together with Monroe, the "Consultants"),
by Merkert American Corporation, a Delaware corporation ("MAC" or the
"Company"), to render certain business consulting, financial advisory and
investment banking services to MAC on an exclusive basis in connection with
possible Transactions and consulting projects. This Agreement supersedes and
replaces all prior consulting and/or advisory agreements by and between Monroe
and MAC and by and between Richmont and Richmont Marketing Specialists Inc., a
Delaware corporation ("RMSI"), and is being executed in connection with the
merger of RMSI with and into MAC (the "Current Transaction"). For the purposes
of this Agreement, "Transaction" means any merger, consolidation,
reorganization, business combination, joint venture or other transaction
pursuant to which the Company (a) is acquired by, or combined with, a third
party or (b) acquires all or a portion of the assets or capital stock of a third
party (a "Prospective Target") or (c) enters into a joint venture agreement with
a third party, in each case in a single transaction or a series of transactions;
provided, however, that "Transaction" does not include the Current Transaction
and that nothing herein shall prevent any payment of monies owed to either
Consultant in connection with the Current Transaction under any agreement
replaced or superseded by this Agreement. In addition, a "Transaction" includes,
but is not limited to, either Consultant acting as an exclusive private
placement agent on behalf of the Company in
<PAGE> 2
Mr. James L. Monroe
Mr. Nick G. Bouras
August 18, 1999
Page 2
connection with the arrangement of a senior credit facility for the Company from
a lending institution.
1. Services. Each of the Consultants agrees to perform the following
services throughout the term of this Agreement:
(a) Review historical and projected financial and operating
information of MAC;
(b) Build a financial model to be used for analytical
purposes, including acquisition reviews and financial projections;
(c) Identify and seek out strategic acquisitions and joint
ventures, both domestic and abroad, consistent with MAC's strategic
objectives as the same may be established from time to time by MAC's
Board of Directors;
(d) Advise and assist MAC as to the financial aspects and
structure of any proposed Transaction and assist in negotiating the
terms thereof;
(e) Advise and assist MAC in the negotiation of any
documentation relating to a Transaction, which would include but not be
limited to letters of intent and definitive agreements;
(f) Prepare a memorandum describing MAC and the proposed
capital structure of MAC in connection with arranging a senior credit
facility;
(g) Assist and advise MAC with respect to the negotiation of
any documentation relating to a senior credit facility;
(h) Prepare communications and engage in discussions on behalf
of MAC in connection with public relations and Wall Street analyst
requirements;
(i) Assist in the development of a database which captures
relevant operations data to be used in connection with evaluating
principal conflicts and business opportunities;
<PAGE> 3
Mr. James L. Monroe
Mr. Nick G. Bouras
August 18, 1999
Page 3
(j) Assist in various business endeavors including, but not
limited to, endeavors with principals, retailers, food service
providers, and private label opportunities; and
(k) Assist MAC on an on-going basis as to the restructuring of
its organization including departments, personnel and functions.
2. Fees. MAC agrees to pay the Consultants for their services in the
Aggregate as follows:
(a) A financial advisory fee ("Advisory Fee") equal to (i) 5%
of the Consideration (as defined below) paid 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 (y) 1% of the
Consideration paid in excess of $4 million.
(b) Private placement fee ("Private Placement Fee") equal to
three quarters of one percent (0.75%) of the principal amount committed
under any senior credit facility. An additional fee shall be payable
upon increases in such amount or upon refinancings with a new lender
during the term of this Agreement. Such additional fee shall be equal
to three quarters of one percent (.75%) of the principal amount upon a
refinancing with a new lender or one half of one percent (.50%) of the
incremental principal amount authorized by the same lender.
(c) Consulting fees ("Consulting Fees") based on projects and
fee schedules to be mutually agreed upon by the Consultants and a
majority of the independent directors, (not including James L. Monroe,
John P. Rochon, Nick G. Bouras and Timothy M. Byrd) of MAC.
All fees in connection with Sections 2(a) and (b) above shall be paid
to the Consultants in cash at the closing of the relevant Transaction. All other
Consulting Fees shall be payable on a monthly basis as services are rendered. An
Advisory Fee shall be payable to the Consultants for Transactions entered into
by the Company during the term of this Agreement and within 6 months after the
expiration of such term. Any fees paid pursuant to this Agreement shall be split
equally between Monroe and Richmont.
<PAGE> 4
Mr. James L. Monroe
Mr. Nick G. Bouras
August 18, 1999
Page 4
In the context of this Agreement, "Consideration" means the value of
all cash, securities, assumption of debt of the Prospective Target and any other
forms of payment to the Prospective Target pursuant to a Transaction, including
the total of all interest-bearing indebtedness including long term debt,
payments for noncompete agreements and earn-out obligations and other
obligations of the Prospective Target that are assumed or refinanced by MAC in
connection with the closing of a Transaction. The term "Consideration" expressly
includes any payments for noncompete agreements and excess employment
compensation to the existing shareholders and employees of a Prospective Target.
If all or any portion of the Consideration payable in connection with any
Transaction includes contingent future payments, then MAC shall pay to the
Consultants a mutually agreed upon amount based upon the discounted value of
such contingent future payments.
If the Company requests the assistance of either Consultant in
arranging any transaction or the undertaking of any consulting project that is
not otherwise covered by the provisions of this Agreement and such Consultant
agrees to pursue such a transaction or consulting project, MAC agrees to pay
such Consultant mutually acceptable compensation taking into account among other
things, the results obtained and the custom and practice among investment
bankers and consultants acting in similar transactions or consulting
assignments. The Consultant will not perform any services which it believes are
not covered by the provisions of this Agreement, unless the Consultant agrees to
the nature and scope of such services and is authorized to do so by the Company
in a written document that specifies the agreed-upon additional compensation for
such services.
3. Expense Reimbursement. The Company agrees to reimburse each
Consultant for all of its reasonable out-of-pocket expenses actually incurred in
connection with the performance of its activities under the terms of this
Agreement. Reasonable out-of-pocket expenses include, but are not limited to,
costs such as printing, telephone, courier services, direct computer expenses,
legal and accounting expenses, accommodations and travel. All such fees,
expenses and costs will be billed monthly and shall be payable upon the
Company's receipt of the applicable invoice. The parties' obligations under this
section shall survive the termination or expiration of this Agreement.
4. Term; Exclusivity. The term of the Consultants engagement hereunder
as the Company's exclusive financial advisors shall commence on the date hereof
and shall expire on the third anniversary of the date hereof. During the term of
this Agreement, the Consultants shall have the exclusive right to represent the
Company in connection with specific services described in Section 1. Moreover,
the Company will be required to use the Consultants in
<PAGE> 5
Mr. James L. Monroe
Mr. Nick G. Bouras
August 18, 1999
Page 5
connection with all Transactions contemplated by it during the term of this
Agreement and shall pay the Consultants for its services pursuant to Section 2
hereof. The Consultants, on the other hand, shall be free to perform such
services for any other party or parties at any time during and after the term of
this Agreement.
5. Indemnity. In addition to the fees and reimbursement of expenses
provided for above, the parties agree to the indemnification provisions set
forth as Annex A hereto, which are incorporated herein by reference and shall be
deemed to be included in this Section 5. The parties' obligations under this
Section 5 shall survive the termination or expiration of this Agreement.
6. Information. The Company shall furnish, or cause to be furnished, to
the Consultants all information reasonably requested by the Consultants for the
purpose of rendering services hereunder (all such information being the
"Information"). In addition, the Company agrees to make available to the
Consultants upon request from time to time the officers, directors, accountants,
counsel and other advisors of the Company. The Company recognizes and confirms
that the Consultants (a) will use and rely on the Information and on information
available from generally recognized public sources in performing the services
contemplated by this Agreement without having independently verified the same;
and (b) does not assume responsibility for the accuracy or completeness of the
Information and such other information.
The Company agrees that all information furnished to the Consultants in
connection with this Agreement shall be accurate in all material respects at the
time provided and that if such information, in whole or in part, becomes
materially inaccurate, misleading or incomplete during the term of the
Consultants engagement hereunder, the Company shall promptly so advise the
Consultants in writing and correct any such inaccuracy or omission.
7. Disclosure. Each party agrees that, except as compelled by law, it
will not disclose services or advice to be provided by the Consultants under
this Agreement or any Information publicly or to any third party, without the
approval of the other party. It is understood that the existence and terms of
this Agreement will be disclosed under the Company's reports and filings under
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Notwithstanding the above, upon the completion of a Transaction, the
Consultants shall be permitted to publicize the services it provided in
connection with such Transaction.
<PAGE> 6
Mr. James L. Monroe
Mr. Nick G. Bouras
August 18, 1999
Page 6
8. Governing Law: Amendments. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to conflict of law principles thereof. This Agreement may
not be amended or modified except in writing signed by all parties hereto.
9. Successors. This Agreement and all rights, liabilities and
obligations hereunder shall be binding upon and inure to the benefit of each
party's successors but may not be assigned without the prior written approval of
the other party which shall not be unreasonably withheld.
10. No Brokers. The Company represents and warrants to the Consultants
that there is no other person or entity that is entitled to a finder's fee or
any type of brokerage commission in connection with the transactions
contemplated by this Agreement as a result of any agreement or understanding
with such person or entity which creates an interest in the compensation payable
to the Consultants hereunder or impairs the Consultants' interest in such
compensation. The Company agrees to indemnify and hold harmless the Consultants
from and against any actions, suits, claims, costs, expenses, losses and
liabilities arising out of any breach of the foregoing sentence.
<PAGE> 7
Mr. James L. Monroe
Mr. Nick G. Bouras
August 18, 1999
Page 7
Very truly yours,
MERKERT AMERICAN CORPORATION
By: /s/ Gerald R. Leonard
-------------------------
Gerald R. Leonard
President
Agreed to and accepted as of
the 18th day of August, 1999
MONROE & COMPANY, LLC
By: /s/ James L. Monroe
------------------------
James L. Monroe, Manager
RICHMONT CAPITAL PARTNERS I, L.P.
By: J.R. Investments Corp.,
Its General Partner
By: /s/ Nick G. Bouras
----------------------
Nick G. Bouras
Title:
<PAGE> 8
ANNEX A
The Company agrees to indemnify each of the Consultants, its members,
managers, employees, directors, officers, agents, affiliates and each person, if
any, who controls it within the meaning of either Section 20 of the Securities
Exchange Act of 1934, as amended, or Section 15 of the Securities Act of 1933,
as amended, (each such person, including each of the Consultants, is referred to
as an "Indemnified Party") from and against any losses, claims, damages and
liabilities, joint or several (including all legal or other expenses reasonably
incurred by any Indemnified Party in connection with the preparation for or
defense of any threatened or pending claim, action or proceeding, whether or not
resulting in any liability) ("Damages"), to which such Indemnified Party, in
connection with its services or arising out of its engagement hereunder, may
become subject under any applicable Federal or state law or otherwise, including
but not limited to liability (i) caused by or arising out of an untrue statement
or an alleged untrue statement of a material fact or the omission or the alleged
omission to state a material fact necessary in order to make a statement not
misleading in light of the circumstances under which it was made, (ii) caused by
or arising out of any act or failure to act or (iii) arising out of the
Consultants' engagement or the rendering by any Indemnified Party of its
services under this Agreement; provided, however, that the Company will not be
liable to the Indemnified Party hereunder to the extent that any Damages are
found in a final non-appealable judgment by a court of competent jurisdiction to
have resulted from the gross negligence, bad faith or willful misconduct of the
Indemnified Party seeking indemnification hereunder.
These indemnification provisions shall be in addition to any liability
which the Company may otherwise have to any Indemnified Party.
If for any reason, other than a final non-appealable judgment finding
an Indemnified Party liable for Damages for its gross negligence, bad faith or
willful misconduct, the foregoing indemnity is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless, then the Company
shall contribute to the amount paid or payable by an Indemnified Party as a
result of such Damages in such proportion as is appropriate to reflect not only
the relative benefits received by the Company and its stockholders on the one
hand and the Consultants on the other, but also the relative fault of the
Company and the Indemnified Party as well as any relevant equitable
considerations, subject to the limitation that in no event shall the total
contribution of all Indemnified Parties to all such Damages exceed the total
amount of fees actually received and retained by the Consultants hereunder.
Promptly after receipt by the Indemnified Party of notice of any claim
or of the commencement of any action in respect of which indemnity may be
sought, the Indemnified Party will notify the Company in writing of the receipt
or commencement thereof and the Company shall have the right to assume the
defense of such claim or action (including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of fees and expenses of
such counsel), provided that the Indemnified Party shall have the right to
control its defense if, in the opinion of its counsel, the Indemnified Party's
defense is unique or separate to it as the case may be as opposed to a defense
pertaining to the Company. In any
<PAGE> 9
event, the Indemnified Party shall have the right to retain counsel reasonably
satisfactory to the Company, at the Company's expense, to represent the
Indemnified Party in any claim or action in respect of which indemnity may be
sought and agrees to cooperate with the Company and the Company's counsel in the
defense of such claim or action, it being understood, however, that the Company
shall not, in connection with any one such claim or action or separate but
substantially similar or related claims or action in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys, for
all the Indemnified Parties unless the defense of one Indemnified party is
unique or separate from that of another Indemnified Party subject to the same
claim or action. In the event that the Company does not promptly assume the
defense of a claim or action, the Indemnified Party shall have the right to
employ counsel reasonably satisfactory to the Company, at the Company's expense,
to defend such claim or action. The omission by an Indemnified Party to promptly
notify the Company of the receipt or commencement of any claim or action in
respect of which indemnity may be sought will relieve the Company from any
liability the Company may have to such Indemnified Party only to the extent that
such a delay in notification materially prejudices the Company's defense of such
claim or action. The Company shall not be liable for any settlement of any such
claim or action effected without its written consent, which shall not be
unreasonably withheld or delayed. Any obligation pursuant to this Annex A shall
survive the termination or expiration of this Agreement.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 13,976
<SECURITIES> 0
<RECEIVABLES> 60,518
<ALLOWANCES> 5,023
<INVENTORY> 1,150
<CURRENT-ASSETS> 76,191
<PP&E> 50,330
<DEPRECIATION> 10,286
<TOTAL-ASSETS> 464,494
<CURRENT-LIABILITIES> 75,929
<BONDS> 245,914
0
0
<COMMON> 142
<OTHER-SE> 121,449
<TOTAL-LIABILITY-AND-EQUITY> 464,494
<SALES> 183,963
<TOTAL-REVENUES> 183,963
<CGS> 29,235
<TOTAL-COSTS> 194,031
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,104
<INCOME-PRETAX> (18,172)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,172)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,172)
<EPS-BASIC> (2.12)
<EPS-DILUTED> (2.12)
</TABLE>
<PAGE> 1
Marketing Specialists
17855 North Dallas Parkway
Dallas, Texas 75287
(Nasdaq/NMS: MKSP)
AT THE COMPANY AT THE FINANCIAL BOARD
Gerald Leonard, President & Analyst Info: Michelle Cicoria
Chief Executive Officer (617) 369-9243
(781) 828-4800 General Info: Paula Schwartz
Timothy M. Byrd, Chief Financial Officer Media Info: Judith Sylk Siegel
(972) 860-7530 (212) 661-8030
FOR IMMEDIATE RELEASE
November 11, 1999
MARKETING SPECIALISTS CORPORATION ANNOUNCES
1999 THIRD-QUARTER AND NINE-MONTH RESULTS
AND REITERATES OUTLOOK FOR YEAR 2000
CANTON, MA...NOVEMBER 11, 1999 - Marketing Specialists Corporation (Nasdaq/NMS:
MKSP), a leading provider of outsourced sales and marketing services to
manufacturers, suppliers and producers of food products and consumer goods
reported today its financial results for the third quarter and nine months ended
September 30, 1999. In addition, management continues to maintain its
earnings-per-share estimate for the year ending December 31, 2000, to be in the
range of $.40 - $.50 per share. This estimate includes the acquisition of Paul
Inman Associates, announced on October 13, 1999, but excludes any pending or
future acquisitions.
MERGER WITH RICHMONT
On August 18, 1999, the Company completed the merger with Dallas, Texas-based
Richmont Marketing Specialists Inc. ("Richmont"). For financial reporting
purposes, the Company is presented as the accounting acquirer. Accordingly, the
results of operations of Richmont have been included in the Company's
consolidated statement of operations since the date of the acquisition. Goodwill
resulting from the acquisition is being amortized over its estimated useful
life. Under the terms of the transaction, the stockholders of Richmont received
6,705,551 shares of the Company's common stock. In addition, the Company granted
to certain stockholders and employees of Richmont options to purchase an
additional 800,000 shares of the Company's stock at a per-share price equal to
$13.50. In connection with the merger, the Company changed its name to Marketing
Specialists Corporation and assumed all of Richmont's outstanding debt, which,
net of cash on hand at August 18, 1999, totaled approximately $164 million.
BUSINESS UPDATE
Timothy M. Byrd, chief financial officer, said, "I'm pleased to report that the
Company's earnings before interest, taxes, depreciation and amortization
("EBITDA") for the third quarter, assuming Merkert American Corporation and
Richmont had been together for the entire quarter, are approximately $5 million
- - consistent with our previously reported estimate. Through November, we are
currently on track to achieve our fourth-quarter EBITDA estimate of $10 million.
Additionally, we continue to maintain our year 2000 estimate of approximately
$400 million of commission income, approximately $55 million of EBITDA, and
earnings per share in the range of $.40 to $.50 per share."
THIRD QUARTER 1999 AND YEAR-TO-DATE RESULTS
The following table sets forth the results of operations of the Company for the
periods indicated. The 1998 amounts represent the combined, historical results
of the Company, Merkert Enterprises and Rogers-American, and do not reflect the
effect of any pro forma adjustments or pro forma shares outstanding (unaudited
and dollars in thousands).
<PAGE> 2
Marketing Specialists
1999 Third-Quarter and Nine-Month Results
Page 2
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Commissions ...................................... $ 66,158 $ 43,630 $ 151,166 $ 131,577
Sales ............................................ 10,710 9,974 32,797 31,511
------------ ------------ ------------ ------------
Revenues ......................................... 76,868 53,604 183,963 163,088
Earnings before interest, taxes, depreciation,
amortization and restructuring charge ........ 2,762 3,596 9,393
7,025
Restructuring charge ............................. 13,290 1,783 13,290 2,303
------------ ------------ ------------ ------------
Loss before income taxes ......................... (17,849) (2,192) (18,172) (6,598)
Net loss ......................................... $ (17,089) $ (2,158) $ (18,172) $ (7,123)
============ ============ ============ ============
Net loss per share
Basic and Diluted ............................ (1.61) (2.12)
Shares used in computing net loss per share
Basic and Diluted ............................ 10,637,257 8,555,514
</TABLE>
The Company reported that commission revenue for the three months ended
September 30, 1999 increased 51.6 percent to $66.2 million, compared to $43.6
million for the three months ended September 30, 1998. Exclusive of
acquisitions, revenues during the three-month period, which ended September 30,
1999, decreased $8.1 million or 18.5 percent, compared to the same period in
1998. The decrease in commissions in the third quarter of 1999 is due primarily
to manufacturer conflicts resulting from the merger with Richmont.
Commission revenue for the nine months ended September 30, 1999 increased 14.9
percent to $151.2 million, compared to $131.6 million for the nine months ended
September 30, 1998. Excluding revenue from acquisitions, commissions decreased
approximately $16.4 million, or 12.4 percent. The decrease in commissions for
1999 is due primarily to manufacturer conflicts resulting from the combination
of Merkert Enterprises and Rogers American on December 18, 1998, as well as
those arising from the merger with Richmont. In addition, the continued
consolidation of manufacturer representation by food brokers has had some
negative effect on both the three-month and nine-month results.
Sales of private-label products for the three months ended September 30, 1999
increased 7.4 percent to $10.7 million, compared to $10.0 million for the three
months ended September 30, 1998. For the nine months ended September 30, 1999,
sales increased to $32.8 million from $31.5 million for the same period in 1998.
Gross profit on sales for the three and nine months ended September 30, 1999,
was $1.3 million and $3.6 million, respectively, compared to $0.8 million and
$2.8 million, respectively, in the corresponding periods of 1998.
Selling, general and administrative expenses for the third quarter of 1999
increased to $64.7 million from $40.9 million for the same period in 1998,
primarily due to the merger with Richmont. As a percentage of revenues, these
expenses increased to 84.2 percent in 1999 from 76.3 percent in 1998. This
increase in the cost ratio was due primarily to the delay required in
implementing cost savings related to salaries and real estate expenses until the
merger with Richmont was completed in late August 1999. Decreases in commission
income due to conflicts, however, were realized immediately following the
announcement of the merger in April 1999. Exclusive of the acquisition, selling,
general and administrative expenses decreased $3.1 million during the third
quarter of 1999 as compared to the third quarter of 1998.
For the nine-month period ended September 30, 1999, selling, general and
administrative expenses increased to $145.3 million or 79.0 percent of revenue
from $127.3 million or 78.1 percent of revenue for the nine-month period ended
September 30, 1998, for the same reasons described above. Exclusive of
acquisitions, these expenses decreased $14.3 million, due primarily to a
reduction in salaries and related expenses resulting from the Merkert-Rogers
American merger in December 1998.
<PAGE> 3
Marketing Specialists
1999 Third-Quarter and Nine-Month Results
Page 3
Earnings before interest, taxes, depreciation, amortization and the
restructuring charge for the three and nine months ended September 30, 1999,
were $2.8 million and $9.4 million, respectively, compared to $3.6 million and
$7.0 million, respectively, in the corresponding periods of 1998.
Subsequent to the merger with Richmont, the Company recorded a restructuring
charge of $13.3 million for the three months, which ended September 30, 1999.
The charge is comprised of approximately $8.6 million relating to non-cancelable
lease obligations, and $4.7 million relating to severance and related expenses
associated with terminated employees following the merger. As the Company
continues its integration, future restructuring charges may be required.
Interest expense for the three and nine months ended September 30, 1999, was
$4.2 million and $8.1 million, respectively, compared to $1.8 million and $5.5
million, respectively, in the corresponding periods of 1998. The increase in
1999 is primarily due to increased borrowing in the third quarter and interest
on the assumed debt of Richmont since the merger date.
The Company has not recorded the full tax benefit associated with the losses for
the nine-month period, which ended September 30, 1999, since its future
realizability is not assured.
The net loss for the quarter ended September 30, 1999, was $17.1 million, or
$1.61 per share on a diluted basis, compared to a net loss for the quarter ended
September 30, 1998, of $2.2 million. Net loss for the nine months ended
September 30, 1999, was $18.2 million or $2.12 per share on a diluted basis,
compared to a net loss for the nine months ended September 30, 1998, of $7.1
million.
The Company's credit facility was amended on August 18, 1999. The amended credit
facility continues to provide for a $50 million term loan ($45.3 million
outstanding as of September 30, 1999) and a $25 million revolving line of credit
($11.0 million outstanding as of November 9, 1999).
Marketing Specialists Corporation provides outsourced sales, marketing and
merchandising services to manufacturers of food and other consumer products.
With some 7,000 associates in 65 offices located throughout the United States,
Marketing Specialists is one of the two largest food brokers in the nation.
* * *
This press release contains forward-looking statements within the meaning of
Section 27a of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Reliance should not be placed on
forward-looking statements because they involve unknown risks, uncertainties and
other factors, which are, in some cases, beyond the control of Marketing
Specialists. Actual events, performance and results could differ materially from
the anticipated events, performance or results expressed or implied by such
forward-looking statements. The factors which may cause such differences
include, among other things, Marketing Specialists' ability to consummate any of
the transactions contemplated by the letters of intent to which Marketing
Specialists is a party; Marketing Specialists' ability to successfully integrate
any future and past acquisitions; the stockholder vote or other conditions
relating to the Richmont merger; principal realignment as a result of the
merger, the competitive environment; and general economic conditions. For
further information, please refer to the Company's filings with the Securities
and Exchange Commission.
FINANCIAL TABLES FOLLOW
# # #
To receive Marketing Specialists' latest news release and other corporate
documents via FAX at no cost, dial 1-800-PRO-INFO. Use the Company's code, MKSP.
Or visit the Company's pages at www.frbinc.com.
<PAGE> 4
Marketing Specialists
1999 Third-Quarter and Nine-Month Results
Page 4
MARKETING SPECIALISTS CORPORATION
(FORMERLY MERKERT AMERICAN CORPORATION)
CONSOLIDATED OPERATING RESULTS
(ALL AMOUNTS EXCEPT SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commissions $ 66,158 $ 43,630 $ 151,166 $131,577
Sales 10,710 9,974 32,797 31,511
----------- -------- ---------- --------
Revenues 76,868 100.0% 53,604 100.0% 183,963 100.0% 163,088 100.0%
Selling expenses 45,805 59.6% 30,555 57.0% 101,478 55.2% 94,883 58.2%
Cost of sales 9,390 12.2% 9,130 17.0% 29,235 15.9% 28,721 17.6%
General and administrative 18,911 24.6% 10,323 19.3% 43,857 23.8% 32,459 19.9%
Restructuring charge 13,290 17.3% 1,783 3.3% 13,290 7.2% 2,303 1.4%
Depreciation and amortization 3,163 4.1% 1,757 3.3% 6,171 3.3% 5,302 3.3%
----------- -------- ---------- --------
Operating expenses 90,559 117.8% 53,548 99.9% 194,031 105.5% 163,668 100.4%
----------- -------- ---------- --------
Operating income (loss) (13,691) (17.8)% 56 0.1% (10,068) (5.4)% (580) (0.4)%
Interest expense, net 4,158 5.4% 1,836 3.4% 8,104 4.4% 5,486 3.4%
Other expenses, net -- 0.0% 412 0.7% -- 0.0% 532 0.3%
----------- -------- ---------- --------
Loss before income taxes (17,849) (23.2)% (2,192) (4.1)% (18,172) (9.8)% (6,598) (4.1)%
Provision (benefit) for income taxes (760) (1.0)% (34) (0.1)% -- 0.0% 525 0.3%
----------- -------- ---------- --------
Net loss $ (17,089) (22.2)% $ (2,158) (4.0)% $ (18,172) (9.8)% $ (7,123) (4.4)%
=========== ======== ========== ========
Net loss per share--basic and diluted $ (1.61) $ (2.12)
=========== ==========
Shares used in computing net loss per share
--basic and diluted 10,637,257 8,555,514
=========== ==========
</TABLE>
<PAGE> 5
Marketing Specialists
1999 Third-Quarter and Nine-Month Results
Page 5
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
(FORMERLY MERKERT AMERICAN CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash ................................................................ $ 4,438 $ 1,185
Restricted cash ..................................................... 9,538 9,981
Accounts receivable, less allowance for doubtful accounts
of $5,023 at September 30, 1999 and $1,374 at December 31, 1998 ... 55,495 22,334
Income taxes receivable ............................................. 126 2,647
Inventories ......................................................... 1,150 1,623
Prepaid expenses and other .......................................... 5,444 1,018
--------- ---------
Total current assets ........................................... 76,191 38,788
--------- ---------
Property, plant and equipment, net ........................................ 40,044 17,417
Noncompete agreements, net ................................................ 12,477 1,986
Goodwill, net ............................................................. 323,604 124,475
Other assets .............................................................. 12,178 5,744
--------- ---------
Total assets ................................................... $ 464,494 $ 188,410
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and notes payable .............. $ 24,878 $ 10,523
Accounts payable .................................................... 9,002 9,293
Accrued expenses .................................................... 42,049 21,080
--------- ---------
Total current liabilities ...................................... 75,929 40,896
--------- ---------
Long-term debt, net of current portion .................................... 245,914 74,673
--------- ---------
Other liabilities ......................................................... 21,060 246
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value - Authorized - 54,000,000 shares
Issued and outstanding - 14,173,844 and 7,218,000, respectively ... 142 72
Additional paid in capital .......................................... 143,034 75,489
Note for sale of common stock ....................................... (1,500) (1,500)
Retained deficit .................................................... (19,638) (1,466)
Treasury stock, at cost ............................................. (447) --
--------- ---------
Total stockholders' equity ..................................... 121,591 72,595
--------- ---------
Total liabilities and stockholders' equity ..................... $ 464,494 $ 188,410
========= =========
</TABLE>
<PAGE> 6
Marketing Specialists
1999 Third-Quarter and Nine-Month Results
Page 6
THE FOLLOWING UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS INFORMATION
GIVES EFFECT TO THE MERGER WITH RICHMONT AS IF IT HAD OCCURRED ON JANUARY 1,
1998, AND EXCLUDES NON-RECURRING RESTRUCTURING CHARGES.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Commission .................................... $ 93,552 $ 284,150
Sales ......................................... 10,710 32,797
------------ ------------
Revenues ...................................... 104,262 316,947
EBITDA ........................................ 5,079 15,674
Net Loss ...................................... (7,744) (27,913)
Net Loss per Common Share:
Basic and Diluted ................... (0.55) (1.97)
Shares Used in Computing Net Loss Per Share
Basic and Diluted ................... 14,173,844 14,173,844
</TABLE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Commission .................................... $ 97,372 $ 291,460
Sales ......................................... 9,974 31,511
------------ ------------
Revenues ...................................... 107,346 322,971
EBITDA ........................................ 6,721 18,506
Net Loss ...................................... (8,858) (29,560)
Net Loss per Common Share:
Basic and Diluted ................... (0.62) (2.09)
Shares Used in Computing Net Loss Per Share
Basic and Diluted ................... 14,173,844 14,173,844
</TABLE>
# # #
