<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: September 2, 1999
Date of earliest event reported: August 18, 1999
_______________________
MARKETING SPECIALISTS CORPORATION
(F/K/A MERKERT AMERICAN CORPORATION)
(Exact name of Registrant as specified in its charter)
DELAWARE 0-24667 04-3411833
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
490 Turnpike Street, Canton, MA 02021
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(781) 828-4800
<PAGE>
Item 2. Acquisition or Disposition of Assets.
------------------------------------
Merger of Richmont Marketing Specialists Inc. with and into Merkert American
----------------------------------------------------------------------------
Corporation
- -----------
On August 18, 1999, pursuant to an Agreement and Plan of Merger dated as of
April 28, 1999 (the "Merger Agreement") between Richmont Marketing Specialists
Inc., a Delaware corporation ("Richmont"), and Merkert American Corporation, a
Delaware corporation ("Merkert") as amended on July 8, 1999, Richmont was merged
with and into Merkert (the "Merger") with Merkert as the surviving corporation
in the Merger. The Merger Agreement was approved by the stockholders of Merkert
at its Special Meeting in Lieu of Annual Meeting of Stockholders held on August
18, 1999.
At the effective time of the Merger (the "Effective Time"), the separate
corporate existence of Richmont ceased and each issued and outstanding share of
common stock, par value $.01 per share (the "Richmont Common Stock"), of
Richmont was converted into the right to receive approximately 48.7198 shares of
common stock, par value $.01 per share ("Merkert Common Stock"), of Merkert. In
lieu of fractional shares, holders of Richmont Common Stock ("Richmont
Stockholders") were paid an amount in cash (without interest), rounded to the
nearest cent, determined by multiplying $11.00 by the fraction of a share of
Merkert Common Stock, if any, to which such holder would otherwise be entitled.
The former Richmont stockholders received approximately 6,705,551 shares of
Merkert Common Stock as a result of the Merger. These shares represent 47.18%
of the equity and 48.20% of the voting power of Merkert. There was no material
relationship between Richmont or its stockholders and Merkert or any of its
affiliates, directors or officers, or any associate of a director or officer of
Merkert. In addition, options to purchase a total of approximately 800,000
shares of Merkert Common Stock were granted by Merkert to certain Richmont
employees, directors, executives and other key individuals.
In connection with the Merger and following the approval of the stockholders
of Merkert, Merkert's corporate name was changed to "Marketing Specialists
Corporation." At the stockholders meeting, the stockholders of Merkert also
approved and adopted an amendment to Merkert's Amended and Restated 1998 Stock
Option and Incentive Plan (the "Plan") which increased the number of shares of
Merkert Common Stock reserved under the Plan to 1,847,762.
In connection with the consummation of the Merger, Merkert amended and
restated its senior credit facility agreement with First Union National Bank.
The amended credit facility continues to provide for a $50 million term loan and
a $25 million revolving line of credit and will otherwise be substantially
similar to Merkert's existing credit facility with certain amended terms. 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 earliest of (i)
syndication or refinancing of the facility, (ii) a default under the
facility or (iii) March 31, 2000. The amendment 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 syndicated.
Other amendments include revising the debt to EBITDA maintenance ratios for
September 30, 1999, and December 31, 1999 and basing the interest rate on the
Prime Rate option instead of the LIBOR option. The borrowing base will be
expanded to include an agreed-upon portion of Richmont's accounts receivables.
The amended credit facility also contemplates that Merkert will eliminate the
minimum annual fees of $1 million payable to Monroe & Company, LLC and Richmont
Capital Partners I, L.P. under the new advisory agreement and defer payment of
the Richmont closing fees otherwise payable to the same advisors until the
amended credit facility has been syndicated.
Also in connection with the consummation of the Merger, the five former
stockholders of Richmont entered into a voting agreement with Monroe & Company,
LLC and JLM Management Company LLC under which the parties agreed to vote all of
the Merkert Common Stock held by them in favor of five
2
<PAGE>
nominees to the Merkert Board of Directors that are designated by one of the
former Richmont stockholders, provided that the nominees are acceptable to
Monroe & Company, LLC and JLM Management Company LLC.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
The following financial statements and pro forma financial information
accompany this report.
(a) Financial Statements of Business Acquired
Historical Consolidated Financial Statements of Richmont Marketing
Specialists Inc.:
Condensed Consolidated Balance Sheets at December 31, 1998 and
June 30, 1999
Condensed Consolidated Statements of Operations for three months
ended June 30, 1999 and 1998; six months ended June 30, 1999
and 1998
Condensed Consolidated Statements of Cash Flows for six months
ended June 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements -
June 30, 1999
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity (Deficit) for the Years
Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
Notes to the Consolidated Financial Statements
Historical Consolidated Financial Statements of Atlas Marketing Company,
Inc. and Subsidiaries:
Report of Independent Auditors
Consolidated Statements of Operations for the Years Ended December 31,
1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997 and 1996
Notes to the Consolidated Financial Statements
Historical Consolidated Financial Statements of Bromar, Inc. and
Subsidiaries:
Report to Independent Auditors
Consolidated Statement of Income for the Ten Months Ended October 31,
1996
Consolidated Statement of Cash Flows for the Ten Months Ended October
31, 1996
Notes to the Consolidated Financial Statements
(b) Pro Forma Financial Information
Merkert American Corporation and Richmont Marketing Specialists Unaudited
Pro Forma Combined Financial Statements:
Notes to Unaudited Pro Forma Combined Financial Statements
Merkert American Corporation Pro Forma Balance Sheet (unaudited) as of
June 30, 1999
Notes to Unaudited Pro Forma Combined Balance Sheet Adjustments as of
June 30, 1999
Pro Forma Combined Statement of Operations for the year ended December
31, 1998
Pro Forma Combined Statement of Operations for the six months ended
June 30, 1999
3
<PAGE>
(c) Exhibits
Number Description
------ -----------
2.1 Agreement and Plan of Merger, dated as of April 28, 1999,
between Merkert American Corporation and Richmont Marketing
Specialists Inc. (the "Merger Agreement"), attached as
Exhibit 2.1 to Merkert American's Report on Form 8-K dated
April 30, 1999 and incorporated herein by reference. A list
briefly identifying the contents of all omitted Exhibits is
incorporated by reference to page (iv) of the Merger
Agreement. Merkert American agrees to furnish supplementally
to the Commission, upon request, a copy of any Exhibit.
Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules
and the Disclosure Letters to the Merger Agreement are
omitted. Merkert American hereby undertakes to furnish
supplementally a copy of any omitted Schedule to the
Commission upon request.
2.2 Amendment No. 1, dated July 8, 1999, to the Agreement and
Plan of Merger, dated as of April 28, 1999, between Merkert
American Corporation and Richmont Marketing Specialists Inc.
attached as Annex A to Merkert American's Proxy Statement
dated July 12, 1999.
*4.1 Certificate of Merger dated August 18, 1999.
*4.2 Certificate of Amendment to Merkert American's Certificate
of Incorporation dated August 18, 1999.
*10.1 Amended and Restated Credit Agreement among Merkert
American, Certain Lenders and First Union National Bank, as
Agent for the Lenders dated August 18, 1999 (the "Credit
Agreement").
10.2 Form of Security Agreement, attached as Exhibit 10.30 to
Merkert American's Registration Statement on Form S-1 (No.
333-53419) incorporated herein by reference. 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, Inc., United Brokerage Company, Marketing
Specialists Sales Company, Atlas Marketing Company, Inc.,
Bromar, Inc., Brokerage Services, Inc. and Meatmaster
Brokerage, Inc.
10.3 Form of Pledge Agreement, attached as Exhibit 10.31 to
Merkert American's Registration Statement on Form S-1 (No.
333-53419) incorporated herein by reference. 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.
4
<PAGE>
10.4 Form of Guaranty Agreement, attached as Exhibit 10.32 to
Merkert American's Registration Statement on Form S-1 (No.
333-53419) incorporated herein by reference. 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., Brokerage Services, Inc. and
Meatmaster Brokerage, Inc.
*10.5 First Amendment to Amended and Restated Merkert American
Corporation 1998 Stock Option and Incentive Plan
*23.1 Consent of Ernst & Young LLP
*99.1 Press Release announcing the consummation of the merger of
Richmont Marketing Specialists Inc. with and into Merkert
American.
____________________
* Filed herewith.
5
<PAGE>
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 hereunto duly authorized.
MARKETING SPECIALISTS CORPORATION
By: /s/ Gerald R. Leonard
---------------------
Date: August 31, 1999 Gerald R. Leonard
President and Chief Executive Officer
6
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Historical Consolidated Financial Statements of Richmont Marketing Specialists
Inc.:
Condensed Consolidated Balance Sheets at December 31, 1998 and June 30, 1999
Condensed Consolidated Statements of Operations for three months ended June 30,
1999 and 1998; six months ended June 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows for six months ended June 30,
1999 and 1998
Notes to Condensed Consolidated Financial Statements - June 30, 1999
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996
Notes to the Consolidated Financial Statements
Historical Consolidated Financial Statements of Atlas Marketing Company, Inc.
and Subsidiaries:
Report of Independent Auditors
Consolidated Statements of Operations for the Years Ended December 31, 1997 and
1996
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997 and
1996
Notes to the Consolidated Financial Statements
Historical Consolidated Financial Statements of Bromar, Inc. and Subsidiaries:
Report to Independent Auditors
Consolidated Statement of Income for the Ten Months Ended October 31, 1996
Consolidated Statement of Cash Flows for the Ten Months Ended October 31, 1996
Notes to the Consolidated Financial Statements
Merkert American Corporation and Richmont Marketing Specialists Unaudited Pro
Forma Combined Financial Statements:
Notes to Unaudited Pro Forma Combined Financial Statements
Merkert American Corporation Pro Forma Balance Sheet (unaudited) as of June 30,
1999
Notes to Unaudited Pro Forma Combined Balance Sheet Adjustments as of June 30,
1999
Pro Forma Combined Statement of Operations for the year ended December 31, 1998
Pro Forma Combined Statement of Operations for the six months ended June 30,
1999
F-1
<PAGE>
Richmont Marketing Specialists Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
-------------- -----------------
Assets (Unaudited) (Note 1)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 9,020,893 $ 26,633,832
Accounts receivable, net of allowance for doubtful
accounts of $4,025,801 and $5,225,079 as of June 30,
1999 and December 31, 1998, respectively 30,222,826 28,295,152
Current portion of notes receivable -- 110,438
Deferred taxes 1,932,286 1,932,286
Prepaid expenses and other current assets 1,711,088 967,164
------------ ------------
Total current assets 42,887,093 57,938,872
Other assets 6,963,565 7,047,070
Property and equipment, net 21,886,692 23,019,089
Intangible assets 79,243,048 86,756,991
------------ ------------
Total assets $150,980,398 $174,762,022
============ ============
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 3,183,372 $ 5,085,651
Accrued expenses 8,812,224 8,980,959
Promotional advances 2,034,358 1,566,308
Current portion of long-term obligations 9,386,245 9,434,064
------------ ------------
Total current liabilities 23,416,199 25,066,982
Deferred taxes 9,362,561 10,025,601
Long-term obligations less current portion:
Notes payable 118,652,418 119,500,145
Lease obligations 959,165 1,421,609
Covenants not to compete 9,188,024 10,550,070
Deferred compensation liabilities 30,828,791 30,324,378
------------ ------------
159,628,398 161,796,202
Other liabilities 687,447 901,075
Commitments and contingencies -- --
Redeemable common stock -- --
Shareholders' equity (deficit):
Common stock, $.01 stated value:
Authorized shares - 10,000,000
Issued shares - 197,474 as of June 30, 1999 and
December 31, 1998. 1,975 1,975
Additional paid-in capital 31,305,469 31,305,469
Retained deficit (71,916,284) (52,829,915)
Treasury stock at cost - 59,839 shares as of June 30, 1999
and December 31, 1998. (1,505,367) (1,505,367)
------------ ------------
Total shareholders' equity (deficit) (42,114,207) (23,027,838)
------------ ------------
Total liabilities and shareholders' equity $150,980,398 $174,762,022
============ ============
</TABLE>
See notes to condensed consolidated financial statements
F-2
<PAGE>
Richmont Marketing Specialists Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------------- -------------------------------
1999 1998 1999 1998
----------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue $53,087,976 $53,051,716 $ 105,591,359 $106,141,297
Expenses:
Salaries 28,442,708 29,001,021 57,350,466 58,416,888
Fringe benefits 5,013,022 4,475,329 10,194,780 9,449,676
Automobiles and related expenses 4,731,199 4,472,492 9,492,342 9,127,740
Sales and marketing 3,630,154 3,473,566 7,420,318 6,702,843
Lease termination charge -- 1,700,000 -- 1,700,000
General and administrative 7,995,828 7,113,945 17,168,715 14,088,510
Depreciation and amortization 7,433,750 7,689,539 14,713,408 17,329,705
----------- ----------- ------------- ------------
Total expenses 57,246,661 57,925,892 116,340,029 116,815,362
----------- ----------- ------------- ------------
Operating loss (4,158,685) (4,874,176) (10,748,670) (10,674,065)
Other income (expense):
Interest expense (4,104,813) (4,266,133) (8,402,343) (8,581,756)
Other income (expense) (12,195) 569,925 300,755 1,323,575
----------- ----------- ------------- ------------
Loss before income taxes (8,275,693) (8,570,384) (18,850,258) (17,932,246)
Income tax expense (benefit) (439,581) 10,401 (801,965) 24,631
----------- ----------- ------------- ------------
Loss before extraordinary item (7,836,112) (8,580,785) (18,048,293) (17,956,877)
Extraordinary loss, net of tax (1,038,076) -- (1,038,076) --
----------- ----------- ------------- ------------
Net loss $(8,874,188) $(8,580,785) $ (19,086,369) $(17,956,877)
=========== =========== ============= ============
Loss per share before extraordinary item $ (56.94) $ (62.34) $ (131.13) $ (130.47)
Extraordinary loss per share (7.54) -- (7.54) --
----------- ----------- ------------- ------------
Net loss per share $ (64.48) $ (62.34) $ (138.67) $ (130.47)
=========== =========== ============= ============
</TABLE>
See notes to condensed consolidated financial statements
F-3
<PAGE>
Richmont Marketing Specialists Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1999 1998
------------------- ------------------
<S> <C> <C>
Operating activities:
Net loss $(19,086,369) $(17,956,877)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for losses on accounts receivable 6,832,175 5,965,582
Compensation expense for stock appreciation rights 111,807 --
Compensation expense related to deferred compensation plans (296,611) 22,669
Restructure expense related to lease obligations -- 1,700,000
Amortization of intangible assets 11,841,109 14,637,013
Depreciation 2,872,299 2,692,692
Imputed interest expense on deferred compensation and
deferred payment agreements and covenants not to compete 550,711 1,418,757
Amortization of debt issue costs 266,760 264,511
Loss (gain) on disposal of assets 221,325 (128,191)
Deferred income taxes (840,171) (276,703)
Extraordinary loss related to debt restructure 1,038,076 --
Changes in operating assets and liabilities:
Accounts and notes receivable (8,350,123) (7,247,172)
Prepaid expenses and other current assets (777,070) (281,095)
Other assets (386,729) (549,425)
Accounts payable and accrued expenses (2,136,279) (2,590,111)
Income taxes payable -- (871,508)
Promotional advances 222,376 833,687
------------ ------------
Net cash used in operating activities (7,916,714) (2,366,171)
Investing activities:
Purchase of property and equipment (2,507,164) (3,942,471)
Proceeds from sale of assets 599,689 524,655
Cash used in purchase of businesses, net of cash acquired (1,728,391) --
------------ ------------
Net cash used in investing activities (3,635,866) (3,417,816)
Financing activities:
Payment of professional fees related to issuance and registration of
senior subordinated notes (188,764) (310,567)
Principal payments on covenants not to compete and deferred payment
agreements (2,615,384) (2,970,660)
Principal payments on debt and lease obligations (3,256,211) (2,955,322)
------------ ------------
Net cash used in financing activities (6,060,359) (6,236,549)
------------ ------------
Net decrease in cash and cash equivalents (17,612,939) (12,020,536)
Cash and cash equivalents at beginning of period 26,633,832 41,393,614
------------ ------------
Cash and cash equivalents at end of period $ 9,020,893 $ 29,373,078
============ ============
</TABLE>
See notes to condensed consolidated financial statements
F-4
<PAGE>
Richmont Marketing Specialists Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1999
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by Richmont Marketing Specialists Inc. (the "Company") in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10Q 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
adjustments 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.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
These financial statements should be read in conjunction with the Company's
audited historical consolidated financial statements and notes thereto for the
year ended December 31, 1998 included in the Company's Registration Statement on
Form S-4 as filed by the Company with the Securities and Exchange Commission on
June 21, 1999, as amended (Registration No. 333-74261).
The financial statements present consolidated financial information for the
Company and its subsidiaries. Separate financial statements for each of the
subsidiaries of the Company have not been presented because management of the
Company has determined that such information is not material.
Certain prior year balances have been reclassified to conform to current
year presentation.
2. Earnings per Share
Per share amounts are computed based on 137,625 common shares outstanding
for all periods presented.
3. Intangible Assets
Intangible assets include goodwill, covenants not to compete, principal
relationships, and trained workforce. Goodwill represents the excess of the
purchase price over the fair value of net assets of various businesses acquired.
Effective January 1, 1998, the Company revised the estimated life of its
goodwill related to prior acquisitions from ten to five years. As a result of
this change, unamortized goodwill relating to acquisitions prior to January 1,
1993 was written off in the first quarter of 1998. The net loss for the six
months ended June 30, 1998 would have decreased by $1.6 million (or $11.62 per
common share) without this change.
4. Lines of Credit
On October 14, 1997, the Company entered into a bank credit facility. On
December 18, 1997, this facility was amended and restated and further amended on
August 12, 1998 effective June 30, 1998 and on March 3, 1999 effective October
1, 1998 (collectively, the "Credit Agreement"). The Credit Agreement provides
for borrowings not to exceed the lesser of $25,000,000 or a maximum borrowing
base calculated on certain percentages of eligible accounts receivable. Any
amounts borrowed under this facility are secured by a pledge of substantially
all of the Company's assets.
F-5
<PAGE>
The Credit Agreement requires the Company to maintain certain financial
ratios and meet certain indebtedness tests. As of June 30, 1999, the Company was
in default of certain covenant requirements of the Credit Agreement. The Company
plans to terminate the credit facility concurrently with its impending merger
with Merkert American (please see Note 7 below).
As of June 30, 1999, there were no borrowings under the facility; however,
a $1.3 million letter of credit was outstanding.
5. Senior Subordinated Notes
On December 19, 1997, the Company issued $100 million of 10 1/8% Senior
Subordinated Notes due 2007 (the "Issued Notes").
In accordance with the Issued Notes' Exchange and Registration Rights
Agreement, the Company filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission on June 21, 1999 to register $100 million of
new notes (the "Registered Notes"). Subsequently, the Company completed an
exchange of the Issued Notes for the Registered Notes. The Registered Notes are
identical in all material respects to the Issued Notes, except for transfer
restrictions and registration rights.
6. 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 deductible in the future.
7. Merger
On August 18, 1999, the Company was merged with and into Merkert American
Corporation, a Canton, Massachusetts-based food broker. In the merger, the
stockholders of the Company received 6,705,551 shares of Merkert American
common stock in exchange for their shares of common stock of the Company. In
addition, options to purchase an additional 800,000 shares were issued to
certain individuals employed by or associated with the Company. Merkert
American, which was the surviving corporation and changed its corporate name to
Marketing Specialists Corporation, will be treated as the acquiring entity for
accounting purposes.
The combined company may recognize certain restructuring costs in
connection with the merger, including costs associated with the elimination of
duplicative facilities and employees.
8. Acquisitions
On April 21, 1999, the Company purchased all of the issued and outstanding
stock of Timmons-Sheehan, Inc., a Minnesota-based food broker, in exchange for
$1.7 million cash and notes payable to certain key employees of $2.7 million.
The Company recorded goodwill of approximately $4 million in connection with
this acquisition. The purchase price allocation related to this acquisition is
based on preliminary estimates of fair market values. The acquisition was
accounted for using the purchase method. The operating results of the acquired
company have been included in the consolidated results of the Company's
operations since the date of acquisition.
F-6
<PAGE>
The Company signed a Stock Purchase Agreement with Paul Inman Associates,
Inc. ("Inman") to acquire all of the outstanding capital stock of Inman for a
purchase price of approximately $12 million. The transaction is subject to
customary conditions and approvals. Per the agreement, the purchase is scheduled
to close simultaneous with the closing of the merger with Merkert American or
November 11, 1999, whichever occurs first. The Company is currently negotiating
an amendment to the Stock Purchase Agreement which would permit the closing to
occur at a later date regardless of the timing of the consummation of the
Merkert American transaction. In the event that the purchase does not occur, the
Company may be required to pay a transaction break-up fee of $500,000 to the
holders of the capital stock of Inman.
9. Extraordinary Loss
During the second quarter of 1999, the Company completed modifications of
certain outstanding notes payable, covenants not to compete and deferred
compensation liabilities and payment agreements. These transactions were
accounted for as an extinguishment of debt and as a result an extraordinary loss
of approximately $1 million was recorded. No tax benefit was recorded.
F-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Richmont Marketing Specialists Inc.
We have audited the accompanying consolidated balance sheets of Richmont
Marketing Specialists Inc. (the "Company") as of December 31, 1998 and 1997,
and the related consolidated statements of operations, shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Richmont
Marketing Specialists Inc. at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
February 26, 1999
F-8
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 26,633,832 $ 41,393,614
Accounts receivable, net of allowance for
doubtful accounts of $5,225,079 and $3,161,148
as of December 31, 1998 and 1997,
respectively.................................... 28,295,152 26,193,450
Current portion of notes receivable.............. 110,438 119,689
Deferred taxes................................... 1,932,286 1,702,362
Prepaid expenses and other current assets........ 967,164 949,200
------------ ------------
Total current assets........................... 57,938,872 70,358,315
Other assets....................................... 7,047,070 8,964,954
Property and equipment, net........................ 23,019,089 22,168,367
Intangible assets.................................. 86,756,991 110,037,865
------------ ------------
Total assets................................... $174,762,022 $211,529,501
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:...............................
Accounts payable................................. $ 5,085,651 $ 4,377,949
Accrued expenses................................. 8,980,959 7,309,829
Income taxes payable............................. -- 750,629
Promotional advances............................. 1,566,308 1,695,319
Current portion of long-term obligations......... 9,434,064 10,736,870
------------ ------------
Total current liabilities...................... 25,066,982 24,870,596
Deferred taxes..................................... 10,025,601 10,170,702
Long-term obligations less current portion:........
Notes payable.................................... 119,500,145 124,042,842
Covenants not to compete......................... 10,550,070 10,744,398
Deferred compensation liabilities and payment
agreements...................................... 30,324,378 30,382,121
Capital lease obligations........................ 1,421,609 2,010,013
------------ ------------
Total long-term obligations.................... 161,796,202 167,179,374
Other liabilities.................................. 901,075 --
Commitments and contingencies (Note 7)............. -- --
Redeemable common stock (Note 11).................. -- --
Shareholders' equity (deficit):
Common stock, $.01 stated value:
Authorized shares--10,000,000
Issued and outstanding shares--197,474 as of
December 31, 1998 and 1997...................... 1,975 1,975
Additional paid-in capital....................... 31,305,469 31,305,469
Retained deficit................................. (52,829,915) (20,493,248)
Treasury stock at cost--59,839 shares as of
December 31, 1998 and 1997...................... (1,505,367) (1,505,367)
------------ ------------
Total shareholders' equity (deficit)........... (23,027,838) 9,308,829
------------ ------------
Total liabilities and shareholders' equity..... $174,762,022 $211,529,501
============ ============
</TABLE>
See accompanying notes.
F-9
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Revenue................................ $218,294,383 $155,932,228 $73,447,480
Expenses:
Salaries............................. 117,358,921 90,075,054 42,305,511
Fringe benefits...................... 18,575,818 7,960,622 4,180,124
Automobiles and related expenses..... 18,989,156 14,476,865 6,944,402
Sales and marketing.................. 13,866,026 11,122,139 5,181,416
Lease termination charge............. 1,700,000 -- --
General and administrative........... 31,827,238 22,005,526 10,804,094
Depreciation and amortization........ 32,734,666 14,355,384 5,553,999
------------ ------------ -----------
Total expenses..................... 235,051,825 159,995,590 74,969,546
------------ ------------ -----------
Operating loss......................... (16,757,442) (4,063,362) (1,522,066)
Other income (expense):
Interest expense..................... (17,488,710) (5,408,717) (2,670,656)
Other income......................... 1,835,829 876,201 508,518
------------ ------------ -----------
Loss before income taxes............... (32,410,323) (8,595,878) (3,684,204)
Income tax benefit..................... (73,656) (1,168,861) (551,638)
------------ ------------ -----------
Net loss............................... $(32,336,667) $ (7,427,017) $(3,132,566)
============ ============ ===========
Net loss per share..................... $ (234.95) $ (53.96) $ (34.80)
============ ============ ===========
</TABLE>
See accompanying notes.
F-10
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
--------------- Paid-in Retained Treasury
Shares Amount Capital Deficit Stock Total
------- ------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................. 141,645 $1,416 $ 599,636 $ (7,933,719) $(1,505,367) $ (8,838,034)
Proceeds from sale of
shares................ 61,311 613 25,705,833 -- -- 25,706,446
Shares repurchased and
canceled.............. (5,482) (54) -- (1,999,946) -- (2,000,000)
Net loss............... -- -- -- (3,132,566) -- (3,132,566)
------- ------ ----------- ------------ ----------- ------------
Balance at December 31,
1996.................. 197,474 1,975 26,305,469 (13,066,231) (1,505,367) 11,735,846
Contribution to capi-
tal................... -- -- 5,000,000 -- -- 5,000,000
Net loss............... -- -- -- (7,427,017) -- (7,427,017)
------- ------ ----------- ------------ ----------- ------------
Balance at December 31,
1997.................. 197,474 1,975 31,305,469 (20,493,248) (1,505,367) 9,308,829
Net loss............... -- -- -- (32,336,667) (32,336,667)
------- ------ ----------- ------------ ----------- ------------
Balance at December 31,
1998.................. 197,474 $1,975 $31,305,469 $(52,829,915) $(1,505,367) $(23,027,838)
======= ====== =========== ============ =========== ============
</TABLE>
See accompanying notes.
F-11
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Operating Activities
Net loss............................... $(32,336,667) $(7,427,017) $(3,132,566)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Provision for losses on accounts
receivable............................ 11,404,800 6,271,190 2,569,294
Compensation expense for stock
appreciation rights................... 223,614 -- --
Compensation expense related to
deferred compensation plans........... 270,768 117,722 117,722
Restructure expense related to lease
obligations........................... 1,700,000 -- --
Amortization of intangible assets...... 27,349,844 10,483,724 3,163,227
Depreciation........................... 5,384,822 3,871,660 2,390,772
Imputed interest expense on deferred
compensation and deferred payment
agreements and covenants not to
compete............................... 1,949,205 2,086,578 1,327,639
Amortization of debt issue costs....... 531,271 -- --
(Gain) loss on disposal of property and
equipment............................. 112,907 (216,980) 105,816
Deferred income taxes.................. (171,394) (1,389,252) (827,249)
Changes in operating assets and
liabilities:
Accounts and notes receivable........ (13,079,969) (9,320,470) (1,327,134)
Prepaid expenses and other current
assets.............................. (36,219) 420,861 (429,510)
Other assets......................... (79,451) (712,627) (921,735)
Accounts payable and accrued
expenses............................ (570,798) (3,533,561) 1,884,878
Income taxes payable................. (871,508) (354,855) (158,288)
Promotional advances................. (129,011) (78,037) (99,843)
------------ ----------- -----------
Net cash provided by operating
activities........................ 1,652,214 218,936 4,663,023
Investing Activities
Purchases of property and equipment.... (6,843,238) (2,784,156) (1,489,485)
Proceeds from sale of equipment........ 2,265,006 840,976 --
Cash paid in purchases of businesses,
net of cash acquired.................. -- (33,919,031) (26,059,659)
------------ ----------- -----------
Net cash used in investing
activities........................ (4,578,232) (35,862,211) (27,549,144)
Financing Activities
Net change in line of credit........... -- (5,195,894) 280,000
Proceeds from debt issuance to
stockholders.......................... -- -- 1,050,000
Principal payments on debt and capital
lease obligations..................... (5,631,368) (8,997,574) (2,265,882)
Proceeds from debt offering, net of
underwriting commission............... -- 97,000,000 --
Payments on covenants not to compete,
and deferred payment agreements....... (5,891,829) (6,131,030) (1,906,938)
Payment of professional fees related to
issuance of senior subordinated
notes................................. (310,567) (2,038,613) --
Issuance of common stock............... -- -- 25,706,446
Cash contribution to capital........... -- 2,400,000 --
------------ ----------- -----------
Net cash provided by (used in)
financing activities.............. (11,833,764) 77,036,889 22,863,626
------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents...................... (14,759,782) 41,393,614 (22,495)
Cash and cash equivalents at beginning
of period............................. 41,393,614 -- 22,495
------------ ----------- -----------
Cash and cash equivalents at end of
period................................ $ 26,633,832 $41,393,614 $ --
============ =========== ===========
Supplemental Disclosures of Non-Cash
Activities
Conversion of notes payable to
shareholders to equity.............. -- 2,600,000 --
Capital leases entered into during
the period.......................... -- -- 375,583
Issuance of notes payable for
repurchase of common stock.......... -- -- 2,000,000
</TABLE>
See accompanying notes.
F-12
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Summary of Significant Accounting Policies
Description of Business
In October 1997, the shareholders of Marketing Specialists Sales Company
("MSSC") exchanged all of their common stock for an equal number of shares of
common stock of Richmont Marketing Specialists Inc. ("Richmont Marketing").
Accordingly, Richmont Marketing became the holding company of MSSC. References
in these Notes to Consolidated Financial Statements to the "Company" refer to
Richmont Marketing and, for any period before October 1997, to MSSC.
Richmont Marketing is one of the largest food brokers in the United States,
with extensive operations covering the west, southwest, and southeast regions
of the country and expanding operations in the midwest. Richmont Marketing
provides a comprehensive array of sales, marketing, merchandising, and order
management services to over 1700 manufacturers, known as principals, of
consumer-packaged goods and markets the products of these principals to leading
retailers and wholesalers, known as customers, operating in a variety of trade
channels, including grocery stores, mass merchandisers, membership warehouses,
drug stores, and convenience stores.
Principles of Consolidation
The consolidated financial statements include the accounts of Richmont
Marketing and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Revenue Recognition
Revenue is earned from commissions on sales of food products on behalf of
manufacturers and producers ("principals"). Commission revenue is recorded as
income when product shipment has occurred and notification of such shipment is
received from the principals.
Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts receivable, trade
payables and short-term debt approximate carrying value at December 31, 1998
due to the short period of time to maturity. Management estimates the fair
value of long-term debt to approximate the carrying value at December 31, 1998
based upon current market interest rates in relation to the imputed interest
rate of each instrument and the relative liquidity of each instrument.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Net Loss Per Share
The net loss per share is computed based upon the weighted average number of
shares outstanding of 137,635, 137,635 and 90,006 for the years ended December
31, 1998, 1997 and 1996, respectively. The weighted average number of shares
outstanding for the year ended December 31, 1996 includes the effect of the
61,311 shares issued November 7, 1996.
F-13
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Statement of Cash Flows
Richmont Marketing considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
Concentration of Credit Risk
Financial instruments which potentially subject Richmont Marketing to a
concentration of credit risk principally consist of accounts and notes
receivable. As of December 31, 1998 and 1997, no individual principal
represents a significant concentration of accounts receivable. Richmont
Marketing generally does not require collateral on accounts and notes
receivable as Richmont Marketing's customers are generally large, well-
established companies. Richmont Marketing periodically performs credit
evaluations of its principals and maintains reserves for potential losses. The
established reserves and the credit losses have historically been within
Company estimates. Richmont Marketing wrote off accounts receivable of
approximately $10,698,000, $6,632,000, and $1,072,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using accelerated methods over the estimated useful lives.
Intangible Assets
Intangible assets include goodwill, covenants not to compete, principal
relationships, and trained workforce. Goodwill represents the excess of the
purchase price over the fair value of net assets of various businesses
acquired. Effective January 1, 1998, Richmont Marketing revised the estimated
useful life of its goodwill related to prior acquisitions from ten to five
years. Acquisitions prior to January 1, 1993 with unamortized goodwill at
January 1, 1998 were written off in the first quarter. The net loss for the
year of 1998 would have decreased by $9.4 million without this change. In
addition, the net loss per share for the year ended December 31, 1998 would
have decreased $68.30 without this change.
Covenants not to compete are recorded at fair value based on independent
appraisal and are being amortized over the term of the related agreement,
generally three to ten years. Principal relationships and trained workforce are
recorded at fair value based on independent appraisals and are amortized over
periods ranging from one to seven years.
Periodically, the carrying value of intangible assets is reviewed if the
facts and circumstances suggest that they may be impaired. If the review
indicates that the intangible assets will not be recoverable, as determined by
the undiscounted cash flow method, the asset will be reduced to its estimated
recoverable value. At December 31, 1998, Richmont Marketing does not believe
that an impairment of assets has occurred.
Promotional Advances
Promotional advances represent amounts received from principals for the
future promotion of their products. Such amounts are recorded as liabilities
until they are spent on behalf of and under the direction of the principals.
Prior Year Reclassification
Certain prior year balances have been reclassified to conform to current
year presentation.
F-14
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------ Useful Lives
1998 1997 (Years)
----------- ----------- ------------
<S> <C> <C> <C>
Land................................... $ 4,152,316 $ 3,789,058 --
Buildings and leasehold improvements... 9,495,972 8,427,954 40
Furniture, fixtures and equipment...... 16,515,027 15,713,850 5-7
Purchased software..................... 2,904,115 -- 3
Assets under capital leases............ 5,481,986 5,481,986 Lease term
----------- -----------
38,549,416 33,412,848
----------- -----------
Less accumulated depreciation and
amortization.......................... (15,530,327) (11,244,481)
----------- -----------
$23,019,089 $22,168,367
=========== ===========
</TABLE>
3. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
----------- ------------
<S> <C> <C>
Goodwill............................................. $66,003,306 $ 63,016,815
Covenants not to compete............................. 30,881,946 30,216,051
Principal relationships.............................. 29,106,749 29,106,749
Trained workforce.................................... 5,251,000 5,251,000
Other................................................ 433,679 433,679
----------- ------------
131,676,680 128,024,294
Less accumulated amortization........................ (44,919,689) (17,986,429)
----------- ------------
$86,756,991 $110,037,865
=========== ============
</TABLE>
Amortization expense related to intangible assets for the years ended
December 31, 1998, 1997 and 1996 was, $27,349,844, $10,483,724 and $3,163,227
respectively.
4. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Salaries, bonus, taxes and benefits...................... $3,343,593 $4,753,174
Insurance................................................ 1,065,400 969,788
Software maintenance..................................... 1,091,700 --
Tax reserve.............................................. 1,000,000 --
Lease restructure, current portion....................... 723,000 --
Interest................................................. 505,159 375,314
Other.................................................... 1,252,107 1,211,553
---------- ----------
$8,980,959 $7,309,829
========== ==========
</TABLE>
F-15
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Lines of Credit
On October 14, 1997, Richmont Marketing entered into a bank credit facility.
On December 18, 1997, this facility was amended and restated and further
amended on August 12, 1998 effective June 30, 1998 and on March 5, 1999
effective October 1, 1998 (collectively, the "Credit Agreement"). The Credit
Agreement provides for borrowings not to exceed the lesser of $25,000,000 or a
maximum borrowing base calculated on certain percentages of eligible accounts
receivable. The available borrowings will be reduced for any outstanding
letters of credit. Borrowings under the facility will be used to provide
working capital for Richmont Marketing, to finance certain permitted
acquisitions, and to facilitate other general corporate purposes. Borrowings
under the Credit Agreement bear interest at the prime rate plus a margin of
between 0.00% and 0.75% or the LIBOR rate plus a margin of between 1.00% and
2.50%, based upon defined calculations, at the option of Richmont Marketing.
Richmont Marketing is required to pay commitment fees under the facility at a
rate range from .25% to .5625%, based upon defined calculations. The facility
will mature on October 14, 2002. The facility also places restrictions and
limitations on dividends, redemptions, and repurchases of capital stock,
additional indebtedness, capital expenditures, mergers and asset sales of
Richmont Marketing.
The Credit Agreement requires Richmont Marketing to maintain certain
financial ratios and meet certain indebtedness tests. Amounts outstanding under
this facility are collateralized by substantially all of Richmont Marketing's
assets.
On December 31, 1998, there were no borrowings under the facility; however,
a $1.4 million letter of credit was outstanding. The amount available under the
facility as amended was approximately $12.1 million.
6. Long-Term Obligations
Debt
Debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Senior Subordinated Notes, unsecured, bearing
interest at 10 1/8% payable semi-annually and
principal due December 15, 2007................... $100,000,000 $100,000,000
Unsecured notes payable to other entities, bearing
interest at rates ranging from 5.6% to 12%,
principal and interest payable under various
arrangements over terms ranging from one to
fourteen years.................................... 6,953,790 8,364,915
Unsecured notes payable to related parties, bearing
interest at rates ranging from 7.5% to 8.5%,
principal and interest payable on demand.......... -- 661,310
Unsecured notes payable to former owners of Atlas,
bearing interest at 10%, principal and interest
payable monthly in the amount of $262,500 over
terms ranging from one to five years.............. 11,655,660 12,109,121
Unsecured notes payable to related parties, bearing
interest at rates ranging from 6.5% to 8.5%,
principal and interest payable under various
arrangements over terms ranging from one to ten
years............................................. 5,514,955 8,312,358
------------ ------------
124,124,405 129,447,704
Less current portion............................... (4,624,260) (5,404,862)
------------ ------------
$119,500,145 $124,042,842
============ ============
</TABLE>
F-16
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The combined aggregate maturities of debt at December 31, 1998, are as
follows:
<TABLE>
<S> <C>
1999............................................................ $ 4,624,260
2000............................................................ 4,708,231
2001............................................................ 4,454,929
2002............................................................ 3,994,225
2003............................................................ 1,003,016
Thereafter...................................................... 105,339,744
------------
$124,124,405
============
</TABLE>
On December 19, 1997, Richmont Marketing issued $100,000,000 of 10 1/8%
Senior Subordinated Notes due 2007 (the "Notes"). The proceeds, net of a
$3,000,000 underwriting commission, were $97,000,000. In connection with the
issuance of the Notes, Richmont Marketing incurred approximately $5,300,000 in
deferred financing fees, which amount includes the underwriting commission.
These fees are capitalized and are being amortized over the term of the Notes.
Interest on the Notes is payable semiannually on June 15 and December 15 of
each year, commencing June 15, 1998. The principal on the Notes is payable on
December 15, 2007, the maturity date. Except as described below, Richmont
Marketing may not redeem the Notes prior to December 15, 2002. On or after such
date, Richmont Marketing may redeem the Notes, in whole or in part, at the
following redemption prices: 2002--105.063%; 2003--103.375%; 2004--101.688%;
2005 or thereafter--100.000%, together with accrued and unpaid interest, if
any, to the date of redemption. In addition, at any time and from time to time
on or prior to December 15, 2000, Richmont Marketing may, subject to certain
requirements, redeem up to 35% of the original aggregate principal amount of
the Notes with the net cash proceeds of one or more public equity offerings by
Richmont Marketing, at redemption price equal to 110.125% of the principal
amount of the Notes to be redeemed, together with accrued and unpaid interest,
if any, to the date of redemption, provided that at least 65% of the original
aggregate principal amount of the Notes remains outstanding immediately after
each such redemption. The Notes are not subject to any sinking fund
requirement. Upon a change of control, each holder of the Notes will have the
right to require Richmont Marketing to make an offer to repurchase such
holder's Notes at a price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the date of repurchase.
The Notes are unsecured and will be subordinated in right of payment to all
existing and future senior indebtedness of Richmont Marketing. The Notes are
fully and unconditionally guaranteed on an unsecured, senior subordinated basis
by each of Richmont Marketing's principal operating subsidiaries, all of which
are wholly owned. Audited financial statements of the guarantor subsidiaries
have been omitted from these financial statements because the indebtedness is
guaranteed by all direct subsidiaries of the parent which has no operations or
assets separate from its investments in its subsidiaries.
Additionally, the terms on the Notes subject Richmont Marketing to certain
limitations and restrictions primarily related to obtaining additional
indebtedness, payments of dividends, and sales of assets and subsidiary stock.
The Notes are also subject to an Exchange and Registration Rights Agreement
whereby Richmont Marketing must file a registration statement with the
Securities and Exchange Commission within 16 months of the original date of
issuance of the Notes. The registered notes must be identical in all material
respects to the Notes, except for transfer restrictions relating to the Notes.
F-17
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Covenants Not to Compete
Richmont Marketing is obligated to make payments under agreements with
former owners of acquired companies and various other individuals for future
consulting services and covenants not to compete. The costs associated with
such agreements are recognized on a straight-line basis over the period in
which the services are to be rendered, which typically ranges from seven to ten
years.
Future payments under these agreements at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................ $ 4,581,568
2000............................................................ 2,509,730
2001............................................................ 2,336,242
2002............................................................ 1,932,052
2003............................................................ 1,721,184
Thereafter...................................................... 2,513,052
-----------
Total payments................................................ 15,593,828
Amount representing interest.................................... (2,486,774)
-----------
13,107,054
Less current portion............................................ (2,556,984)
-----------
$10,550,070
===========
</TABLE>
Deferred Payment and Compensation Plans
In conjunction with acquisitions of other brokerage companies, deferred
payment agreements are generally executed or assumed with the former owners and
certain key employees of the acquired companies. Under these agreements,
Richmont Marketing agrees to pay them certain amounts upon either termination
or retirement of such executive or, in the event of their death, to their
designated beneficiary. Terms vary; however, most payments are monthly and
continue for a period of up to ten years. The amounts to be paid under most of
these agreements are not based upon length of service but are a fixed amount.
The present value of these payments, discounted at rates varying from 8% to
10%, was capitalized as an intangible asset at the date of the acquisition as a
component of the purchase price.
Beginning in 1991, Richmont Marketing also initiated deferred compensation
agreements for certain key employees whereby Richmont Marketing has agreed to
pay them a certain sum monthly for ten years upon the earlier of their
retirement, termination, or death. Compensation and interest expense is accrued
ratably over the employees' expected service period such that the accrual, at
the anticipated vesting date, equals the then present value of the future
benefits. These deferred compensation liabilities have been recorded at their
net present value using inputed interest rates ranging from 8% to 10%. Deferred
compensation expense was $270,768, $117,722 and $117,722 for the years ended
December 31, 1998, 1997 and 1996, respectively.
F-18
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The future aggregate minimum payments for the deferred payment and
compensation agreements at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................... $ 3,194,520
2000........................................................... 5,054,968
2001........................................................... 5,269,560
2002........................................................... 5,259,182
2003........................................................... 5,255,270
Thereafter..................................................... 28,477,971
------------
Total payments............................................... 52,511,471
Amount representing interest................................... (20,500,520)
------------
32,010,951
Less current portion........................................... (1,686,573)
------------
$ 30,324,378
============
</TABLE>
Leases
Richmont Marketing leases its office facilities and certain office equipment
under long-term capital and operating lease agreements, which expire in various
years through 2007. Some of Richmont Marketing's leases provide for escalating
minimum rent. Rent expense is recognized on a straight-line basis over the life
of such leases. During the second quarter of 1998, Richmont Marketing completed
an assessment of its office facilities requirements in an effort to streamline
its operations and improve its cost structure. In connection with this
assessment, management approved a plan to consolidate redundant offices that
had resulted from prior business acquisitions and to vacate the offices.
Richmont Marketing vacated these offices prior to June 30, 1998. The lease
terminations occurred in Dallas, Houston and San Antonio, Texas, as well as in
Charlotte, North Carolina. The employees and related assets were consolidated
into other offices in the same geographic area. Richmont Marketing recorded a
charge of $1.7 million for the rental payments under the respective lease
agreements because the abandoned office space had no substantive future benefit
to Richmont Marketing. At December 31, 1998, this reserve for future payments
totals $1.4 million.
The annual future minimum lease payments under all noncancelable capital
leases, including leases for facilities which are no longer in use, at December
31, 1998 are as follows:
<TABLE>
<CAPTION>
Capital
Leases
----------
<S> <C>
1999............................................................. $ 704,208
2000............................................................. 650,878
2001............................................................. 465,497
2002............................................................. 255,995
2003............................................................. 105,396
Thereafter....................................................... 142,169
----------
Total minimum lease payments................................... 2,324,143
Amounts representing interest.................................... (336,287)
----------
Present value of minimum lease payments.......................... 1,987,856
Less current portion............................................. (566,247)
----------
$1,421,609
==========
</TABLE>
F-19
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The annual future minimum lease payments under all noncancelable operating
leases, including leases for facilities no longer in use, at December 31, 1998
are as follows:
<TABLE>
<CAPTION>
Related
Parties Others Total
---------- ----------- -----------
<S> <C> <C> <C>
1999...................................... $1,082,940 $ 5,832,248 $ 6,915,188
2000...................................... 1,082,940 4,431,145 5,514,085
2001...................................... 883,388 3,621,560 4,504,948
2002...................................... 771,054 2,588,457 3,359,511
2003...................................... 269,993 1,587,918 1,857,911
Thereafter................................ 192,000 1,504,996 1,696,996
---------- ----------- -----------
Total................................... $4,282,315 $19,566,324 $23,848,639
========== =========== ===========
</TABLE>
Included under property and equipment are amounts that have been capitalized
of $5,481,986 with accumulated amortization of $3,918,702 and $3,316,692 in
1998 and 1997, respectively. Amortization of leased assets is included in
depreciation expense.
Rent expense for the years ended December 31, 1998, 1997 and 1996 was
$8,732,996, $6,223,182 and $2,636,246, respectively, of which $686,284,
$763,020 and $743,340, respectively, was paid to related parties. Payments
under capital lease obligations to related parties was $353,400, $346,895 and
$346,895 for the years ended December 31, 1998, 1997 and 1996, respectively.
Richmont Marketing paid interest of approximately $14,243,142, $1,510,646,
$811,506, in 1998, 1997 and 1996, respectively.
7. Income Taxes
Richmont Marketing utilizes the liability method of accounting for income
taxes whereby deferred taxes are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates.
Significant components of the (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1998 1997 1996
--------- ----------- ---------
<S> <C> <C> <C>
Current:
Federal................................ $ -- $ 177,828 $ 372,665
State.................................. 97,738 42,563 (97,054)
--------- ----------- ---------
97,738 220,391 275,611
Deferred:
Federal................................ (32,700) (1,170,631) (651,590)
State.................................. (138,694) (218,621) (175,659)
--------- ----------- ---------
(171,394) (1,389,252) (827,249)
--------- ----------- ---------
Total tax expense (benefit).......... $ (73,656) $(1,168,861) $(551,638)
========= =========== =========
</TABLE>
F-20
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Richmont Marketing's provision (benefit) for income taxes reconciles to the
amount computed by applying the federal statutory income tax rate to income
before income taxes as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Benefit at U.S. statutory rates.... $(11,019,509) $(2,922,599) $(1,252,629)
State income tax, net of federal
tax benefit....................... (75,213) (116,198) (179,991)
Nondeductible amortization of in-
tangibles......................... 2,982,376 777,293 246,111
Nondeductible amortization of ex-
penses............................ 451,338 358,873 221,627
Cancellation of indebtedness in-
come.............................. -- 680,000 --
Change in valuation allowance on
deferred tax assets............... 7,587,352 492,957
Other.............................. -- 53,770 (79,713)
------------ ----------- -----------
Income tax expense (benefit)....... $ (73,656) $(1,168,861) $ (551,638)
============ =========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. Significant
components of Richmont Marketing's deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Deferred tax liabilities:
Identified intangibles........... $8,278,681 $ 9,949,858 $ 6,544,033
Book over tax depreciation....... -- -- 631,100
Revenue and expense recognition.. -- 515,367 --
Other............................ 1,746,920 1,733,367 --
------------ ----------- -----------
Total deferred tax
liabilities................... 10,025,601 12,198,592 7,175,133
Deferred tax assets:
Net operating loss............... 549,359 -- --
Deferred compensation
agreements...................... 1,714,657 2,148,016 1,047,049
Allowance for doubtful accounts.. 2,619,927 788,269 756,516
Book over tax depreciation....... 411,956 290,227 --
Intangible assets................ 6,346,473 2,779,991 2,790,184
Self insurance reserve........... 1,319,189 392,672 191,101
Deferred state taxes............. -- 114,461 84,981
Other............................ 100,259 758,798 222,878
------------ ----------- -----------
13,061,820 7,272,434 5,092,709
Valuation allowance for deferred
tax assets........................ (11,129,534) (3,542,182) (3,542,182)
------------ ----------- -----------
Total deferred tax assets, net
of valuation allowance........ 1,932,286 3,730,252 1,550,527
------------ ----------- -----------
Net deferred tax (liability)....... $ (8,093,315) $(8,468,340) $(5,624,606)
============ =========== ===========
</TABLE>
The valuation allowance for deferred tax assets was not changed during 1997
and was increased by $7,587,352, and $492,957 during 1998 and 1996,
respectively. Richmont Marketing paid income taxes of $752,286, $586,782 and
$658,668 during 1998, 1997 and 1996, respectively.
At December 31, 1998, Richmont Marketing had $1,615,761 of net operating
loss carryforwards available to offset future taxable income for years 1999
through 2018.
F-21
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Commitments and Contingencies
The Internal Revenue Service ("IRS") has asserted deficiencies in federal
corporate income taxes for Atlas for tax years 1993 through 1995. The proposed
adjustments relate to the deductibility of certain compensation and benefit
expenses, and may result in additional federal and state tax liabilities as of
December 31, 1998. Under the purchase agreement with Atlas, Richmont
Marketing's exposure for contingent obligations, including the matter discussed
herein, is limited to $1,000,000. As a result, as of December 31, 1998,
Richmont Marketing has recorded a reserve of $1,000,000 to cover potential IRS
claims associated with this matter with a corresponding increase to goodwill
related to the Atlas acquisition.
Richmont Marketing has guaranteed approximately $1,000,000 of long-term
obligations related to a building it currently occupies that is leased from a
previous owner of an acquired company.
Richmont Marketing is subject to certain claims arising in the normal course
of business. In management's opinion, any such contingencies would not
materially affect Richmont Marketing's consolidated financial position or
consolidated operating results.
9. Benefit Plans
401(k) Savings Plan
Richmont Marketing sponsors a 401(k) savings plan for all employees who have
been employed by Richmont Marketing at least one year. Richmont Marketing
matches employee contributions up to 3% of the employee's salary. Richmont
Marketing made contributions totaling $2,015,903, $1,248,398 and $571,265 in
1998, 1997 and 1996, respectively.
Incentive Plan
In 1998, Richmont Marketing adopted an incentive plan ("Incentive Plan"),
which allows the granting of senior management appreciation rights ("SMARTs")
to employees of Richmont Marketing. Total SMARTs authorized for awards are
20,566 and 9,520 were granted and outstanding as of December 31, 1998.
The SMARTs are exercisable in 20% annual increments for five consecutive
years commencing on the fifth anniversary of the Grant Date, as defined under
the Incentive Plan. If the recipient's employment with Richmont Marketing
terminates for any reason prior to 100% vesting, all potential value of the
SMARTs are forfeited. Any SMARTs that remain unexercised in the fifth year
following full vesting will be paid to the holder in five equal annual
installments. Richmont Marketing has the right to defer the exercisability of
the SMARTs if payment on exercised amounts would cause a conflict with or a
violation of any agreement or instrument to which Richmont Marketing is a
party. The value of each SMARTs unit will fluctuate in accordance with the
value of Richmont Marketing's equity, which will be determined annually. Future
increases and decreases in the appraised value of Richmont Marketing will
result in recognition of an increase or decrease in compensation expense.
Upon termination of employment of any holder of SMARTs, the SMARTs that have
been vested will be exchanged for the right to receive deferred compensation
pursuant to a SMART Deferred Compensation Agreement. The amount of deferred
compensation payable pursuant to such agreements will depend on the date of
such termination, the reasons therefore, as well as Richmont Marketing's
financial performance.
The SMARTs and Deferred Compensation Agreements represent unfunded and
unsecured obligations of Richmont Marketing. Outstanding amounts under the
SMARTs and Deferred Compensation Agreements are due in full upon certain
provisions of the respective agreements, including a change in control.
F-22
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Non-cash compensation expense of $223,614 was recognized by Richmont
Marketing for the year ended December 31, 1998 relating to the granting of
SMARTs and is included in long term obligations.
10. Acquisitions
On October 31, 1996, Richmont Marketing purchased all of the issued and
outstanding stock of Bromar, Inc., a California based food broker corporation,
in exchange for $26,005,000 cash paid at closing. Richmont Marketing received
the following assets and liabilities from Bromar, Inc in the acquisition: $9.5
million of accounts receivable, $6.2 million of intangible assets, $11.6
million of fixed assets, $2.9 million of other assets, $4.1 million of accounts
payable, and $16.5 million of assumed debt. The purchase price was allocated
based on estimated fair values at the date of acquisition.
On January 1, 1997, Richmont Marketing acquired substantially all of the
assets and liabilities of Westexico Sales Co., Inc., a Texas-based food broker
corporation, in exchange for a 6.31% note payable totaling $2,000,000 with a
present value of $1,606,198.
On March 1, 1997, Richmont Marketing purchased all of the issued and
outstanding stock of Gene Sanford & Associates, Inc., an Arizona-based food
broker corporation, in exchange for $80,000 cash, two 6.2% notes payable
totaling $143,987, and covenants not to compete with certain key employees
totaling $2,604,000.
On May 31, 1997, Richmont Marketing purchased all of the issued and
outstanding stock of Tower Marketing, Inc., a Texas-based food broker
corporation, in exchange for 9.5% notes payable to Tower shareholders with a
present value of $3,258,285 and covenants not to compete with certain key
employees with a present value of approximately $11,110,000. In addition,
liabilities of $10,605,000 were assumed in the acquisition. Of the total
purchase price, for financial reporting purposes, approximately $8,170,000 has
been allocated to principal relationships, $4,880,000 to covenants not to
compete, $1,020,000 to trained workforce, $5,093,000 to assets, $3,615,000 to
current liabilities, and $6,990,000 to long-term obligations, with the
remaining amount allocated to goodwill. The purchase price was allocated based
on estimated fair values at the date of acquisition. Obligations related to the
covenants not to compete were initially recorded based on preliminary estimates
of amounts due to key employees and officers. During the first quarter of 1998,
the estimated liabilities were increased by approximately $2.0 million to
reflect the final estimate of the liabilities associated with the covenants not
to compete based on more complete information.
On July 1, 1997, Richmont Marketing acquired substantially all of the
principal contracts, agreements, and commitments of Pioneer Food Sales, Inc., a
Washington-based food broker corporation, in exchange for a note payable
totaling $340,000 with a present value of $250,749 (9.5% interest rate imputed)
and covenants not to compete with certain key employees with a present value of
$376,123.
On July 1, 1997, Richmont Marketing acquired substantially all of the assets
and liabilities of L'Amoreaux & Associates, a California-based food broker
corporation, in exchange for various notes payable totaling $1,865,000 with a
present value of $1,250,494 (9.5% interest rate imputed) and covenants not to
compete with certain key employees with a present value of $402,304.
On December 31, 1997, Richmont Marketing purchased all of the issued and
outstanding stock of Atlas, a North Carolina-based food broker corporation, for
total consideration of approximately $45,700,000, which includes approximately
$19,800,000 in cash, $12,100,000 in promissory notes to be issued to certain
Atlas stockholders, and $13,800,000 to repay substantially all of the
indebtedness of Atlas. In addition, liabilities of $6,373,000 were assumed in
the acquisition. Of the total purchase price, for financial reporting purposes,
approximately $10,750,000 has been allocated to principal relationships,
$6,490,000 to covenants not to compete, $2,460,000 to trained workforce,
$19,899,000 to assets, $6,228,000 to current liabilities, and
F-23
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$1,700,000 to long-term obligations, with the remaining amount allocated to
goodwill. The purchase price was allocated based on estimated fair values.
All of the acquisitions were accounted for under the purchase method. The
operating results of the acquired companies have been included in the
consolidated results of operations since the date of acquisition.
The following represents the unaudited pro forma results of operations of
Richmont Marketing as if the acquisitions of Bromar, Tower and Atlas had
occurred on January 1, 1996 after giving effect to certain adjustments,
including interest expense directly associated with the acquisitions and the
proceeds of the Senior Subordinated Notes and amortization of intangibles:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
(In thousands except per
share data)
<S> <C> <C>
Revenue.......................................... $ 216,068 $ 211,022
Net loss......................................... $ (27,878) $ (26,463)
Loss per share................................... $ (202.55) $ (294.01)
</TABLE>
The above pro forma information assumes goodwill would be amortized over 10
years. As discussed previously in Note 1, effective January 1, 1998, Richmont
Marketing revised the estimated useful life of its goodwill from 10 to 5 years.
The net loss for 1997 and 1996 would be $(30,781,000) and $(31,067,000),
respectively if goodwill was amortized over 5 years or a loss per share of
$(223.64) and $(345.17), respectively.
Pro forma results presented are not necessarily indicative of what actually
would have occurred if the acquisitions had been consummated on January 1,
1996.
11. Shareholders' Equity
During 1996, a series of transactions occurred through which an investor
acquired 82,581 shares of Richmont Marketing's common stock (21,270 shares from
existing shareholders (Minority Shareholders) in April and 61,311 newly issued
shares in November) and Richmont Marketing became a majority-owned subsidiary
of this privately held company. Net proceeds to Richmont Marketing were
$25,706,446. In connection with the November transaction, the Minority
Shareholders sold back to Richmont Marketing 5,482 shares of its common stock
for $2,000,000 in notes payable. These shares were then canceled by Richmont
Marketing. As a result of these transactions, the new investor has 60%
ownership and the Minority Shareholders have 40% ownership of Richmont
Marketing.
On October 7, 1997, the majority shareholder, the Minority Shareholders and
Richmont Marketing entered into an agreement (Shareholders Agreement) which
provides for the buyback of the Minority Shareholders' shares under various
circumstances. If, prior to the termination of the Shareholders Agreement, any
Minority Shareholder desires to sell any of his shares to an independent third
party, such selling Minority Shareholder must offer those shares on the same
terms and conditions: first, to the majority shareholder; second, to Richmont
Marketing; and finally, to the other Minority Shareholders before completing
the sale to the third party.
During the first 15 days of each fiscal quarter of Richmont Marketing
occurring after December 31, 2000, but prior to December 31, 2003, each of the
Minority Shareholders who is not an employee at such time shall have the option
to sell to Richmont Marketing, and Richmont Marketing shall have the obligation
to purchase, his shares for cash, promissory notes, or a combination of both,
at a per share price based on a negotiated
F-24
<PAGE>
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
multiple (reflecting prevailing market and industry conditions) of earnings
before interest, taxes, depreciation, amortization and extraordinary, non-
recurring and discretionary expenses (EBITDA), less funded debt. Based on
Richmont Marketing's interpretation of the Shareholder's Agreement, the amount
of this obligation, if any, is not significant. As of December 31, 1998,
Minority Shareholders owning an aggregate of 16.7% of Richmont Marketing's
common stock were no longer employed by Richmont Marketing.
Further, in the event of death or disability of a Minority Shareholder, a
representative of the deceased or disabled Minority Shareholder can, at any
time during the first 15 days of the second full fiscal quarter occurring after
the death or disability, require Richmont Marketing to purchase the shares at
the formula price described in the preceding paragraph.
In addition, Richmont Marketing shall have the option to repurchase the
shares of a Minority Shareholder in the event of the termination for cause,
divorce, bankruptcy, disability or death of such Minority Shareholder, at a
5.25 multiple of EBITDA less funded debt. In the event any Minority Shareholder
voluntarily ceases employment with Richmont Marketing, the Minority Shareholder
shall retain certain rights as set forth in the Shareholders Agreement,
including the right to sell his shares under the terms of the Shareholders
Agreement.
Notwithstanding the provisions described above, the Shareholders Agreement
will automatically terminate on the earliest to occur of: (1) the effective
date of an initial public offering of Richmont Marketing's capital stock, (2) a
merger or consolidation in which a change of control occurs, (3) a sale of
substantially all of Richmont Marketing's assets or capital stock, (4) the
mutual consent of the parties or (5) April 2, 2021.
F-25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Atlas Marketing Company, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of operations and
cash flows of Atlas Marketing Company, Inc. and Subsidiaries for the years
ended December 31, 1997 and 1996. These financial statements are the
responsibility of Richmont Marketing's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Atlas Marketing Company, Inc. and Subsidiaries for the years ended December
31, 1997 and 1996 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Charlotte, North Carolina
March 25, 1998
F-26
<PAGE>
ATLAS MARKETING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
Revenue............................................. $ 46,971,606 $49,647,608
Expenses:
Salaries.......................................... 31,746,998 28,964,531
Fringe benefits................................... 1,095,806 1,091,517
Automobile and related expenses................... 2,517,489 1,618,823
Sales and marketing............................... 3,159,831 2,506,793
General and administrative........................ 6,453,640 5,451,216
Depreciation...................................... 1,760,625 2,227,335
Amortization...................................... 999,450 1,108,171
Bonus compensation................................ 1,568,308 4,372,714
------------ -----------
Total expenses.................................. 49,302,147 47,341,100
------------ -----------
Operating income (loss)............................. (2,330,541) 2,306,508
Other income (expense):
Interest expense.................................. (1,008,364) (1,122,325)
Other income...................................... (465,572) 157,228
------------ -----------
Income (loss) before taxes.......................... (3,804,477) 1,341,411
Income tax expense (benefit)........................ (1,005,000) 1,460,100
------------ -----------
Net (loss).......................................... $ (2,799,477) $ (118,689)
============ ===========
</TABLE>
See accompanying notes.
F-27
<PAGE>
ATLAS MARKETING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
Operating activities
Net income (loss)................................... $ (2,799,477) $ (118,689)
Adjustments to reconcile net income (loss) to net
cash
provided by operating activities:
Equity in income of affiliate..................... (3,947) (16,075)
Depreciation...................................... 1,760,625 2,227,335
Amortization...................................... 999,450 1,108,171
Deferred taxes.................................... (1,116,000) (98,800)
Stock bonuses..................................... 378,125 1,191,663
Allowance for doubtful accounts................... 600,000 --
Gain on sale of property and equipment............ (89,478) (106,542)
Changes in assets and liabilities:
Accounts receivable.............................. 300,410 (293,872)
Other current assets............................. 371,291 (19,734)
Due to employees................................. 267,223 --
Accounts payable................................. 463,497 258,920
Accrued expenses................................. 363,572 1,268,520
Income taxes payable............................. (733,310) 526,459
Market development funds payable................. 41,704 11,958
------------ -----------
Cash provided by operating activities............... 803,685 5,939,314
Investing activities
Proceeds from sale of property and equipment...... 616,495 462,658
Purchase of property and equipment................ (620,830) (2,117,630)
Cash paid in business acquisitions................ -- (31,027)
Cash paid for non-compete agreement............... (20,000) --
Cash paid for investment in affiliate............. (375,000) (90,000)
------------ -----------
Cash used by investing activities................... (399,335) (1,775,999)
Financing activities
Payments on notes payable.......................... (618,022) (760,853)
Principal payments on long-term borrowings......... (14,832,228) (3,123,737)
Proceeds from borrowings from MSSC................. 16,043,658 --
Purchase and retirement of common stock............ -- (271,684)
------------ -----------
Cash provided by (used in) financing activities..... 593,408 (4,156,274)
------------ -----------
Net increase (decrease) in cash..................... 997,758 7,041
Cash at beginning of period......................... 53,333 46,292
------------ -----------
Cash at end of period............................... $ 1,051,091 $ 53,333
============ ===========
</TABLE>
See accompanying notes.
F-28
<PAGE>
ATLAS MARKETING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Merger Agreement
Atlas Marketing was acquired by Marketing Specialists Sales Company ("MSSC")
on December 19, 1997 for approximately $45.7 million. The accompanying
consolidated financial statements reflect operations through December 31, 1997
and do not reflect the effects of purchase accounting pursuant to Accounting
Principles Board Opinion No. 16, "Accounting for Business Combinations"
("APB16") as a result of the acquisition by MSSC.
1. Summary of Significant Accounting Policies
Description of the Business
Atlas Marketing Company, Inc. (the "Company") provides food brokerage
services to various principals in the food supply industry through its
operating offices in North Carolina, South Carolina, Georgia, Virginia and West
Virginia, with representatives in North Carolina, South Carolina, Virginia,
West Virginia, Maryland, Delaware, Tennessee, Florida, Louisiana, Alabama,
Texas, Oklahoma, Kentucky, Ohio and Pennsylvania.
Basis of Consolidation
The consolidated financial statements include the accounts of Atlas
Marketing and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Atlas Marketing had a 50% ownership investment in Meatmaster Brokerage,
Inc., which was accounted for under the equity method up through December 19,
1997 at which point Atlas Marketing acquired the remaining interest.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is earned from commissions or sales of products on behalf of
manufactures and producers (principals). Commission revenue is recognized as
income when product shipment has occurred and/or notification of such shipment
is received from the principal.
Concentration of Credit Risk
Financial instruments which potentially subject Atlas Marketing to a
concentration of credit risk principally consist of accounts and notes
receivable. As of December 31, 1997 and 1996 and no individual principal
represents a significant concentration of accounts receivable. Atlas Marketing
generally does not require collateral on accounts and notes receivable as Atlas
Marketing's customers are generally large, well established companies within
the food supply industry. Atlas Marketing periodically performs credit
evaluations of its principals and maintains reserves for potential losses.
F-29
<PAGE>
ATLAS MARKETING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Depreciation on property and equipment is provided using accelerated methods
over the following estimated useful lives:
<TABLE>
<S> <C>
Building.......................................................... 19 years
Leasehold improvements............................................ 5 years
Equipment......................................................... 5-7 years
Data processing equipment......................................... 5 years
Furniture and fixtures............................................ 5-7 years
Vehicles.......................................................... 5 years
</TABLE>
Intangible Assets
Intangible assets include goodwill, principal lists and covenants not to
compete. Goodwill and principal lists represent the excess of the purchase
price over the value of net tangible assets of various businesses acquired.
These amounts are being amortized over a period of ten years based on the
straight-line method. Covenants not to compete are recorded at the net present
value of the payments to be made under the agreements and are being amortized
over the term of the related agreement, generally three to five years. The
carrying values of intangibles are reviewed if the facts and circumstances
indicate impairment of their carrying value. Any impairment in the carrying
value of such intangibles is recorded when identified.
Marketing Development Funds Payable
Marketing development funds payable represent amounts received from
principals for the future promotion/marketing of their products. Such amounts
are recorded as liabilities until they are spent on behalf and/or under the
direction of the principals.
Income Taxes
Atlas Marketing utilizes the liability method of accounting for income taxes
whereby deferred taxes are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates.
Stock Based Compensation
Atlas Marketing accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under APB 25, no compensation expense is recognized for stock or
stock options issued at fair value. For stock options granted at exercise
prices below the estimated fair value, Atlas Marketing records compensation
expense over the vesting period for the difference between the exercise price
of the share and the estimated fair value. Compensation expense is recognized
upon grant if the options vest immediately.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" (SFAS 123). SFAS 123 provides for a fair value based method
of accounting for employee stock options and similar equity instruments.
However, for companies that elect to continue to account for stock based
compensation arrangements under APB 25, SFAS 123 requires disclosure of the pro
forma effect on net income as if the fair value based method proscribed by SFAS
123 had been applied. Atlas Marketing continued to account for stock based
compensation arrangements under APB No. 25. The SFAS 123 pro forma net income
would not be materially different from the reported net loss.
F-30
<PAGE>
ATLAS MARKETING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The options outstanding at December 31, 1997 were issued in July 1993.
Therefore the disclosure requirements of SFAS 123 are not applicable.
2. Intangible Assets
Amortization expense charged against income was $999,450 and $1,108,171 for
1997 and 1996, respectively.
3. Employee Stock Ownership Plan
Atlas Marketing maintains the Atlas Marketing Company, Inc. Employee Stock
Ownership Plan covering all full-time employees with one year of service.
Contributions are determined at the discretion of the Board of Directors. No
contributions were made or accrued for in 1996 or 1997. The plan was terminated
effective January 1, 1998 in connection with the purchase of Atlas Marketing by
MSSC.
4. Employee Benefit Plans
During 1995, Atlas Marketing established the Atlas Marketing Company, Inc.
Employees 401(k) Plan and Trust covering all full-time employees with one year
of service. Employer matching contributions are determined annually, in
advance, at the discretion of the Board of Directors. For 1997 and 1996, the
Board of Directors determined that employee contributions would be matched on a
dollar for dollar basis up to a maximum of 6% of eligible compensation. Atlas
Marketing recorded $1,088,566 and $1,066,484 of benefit plan expense in 1997
and 1996, respectively.
Atlas Marketing also maintains the Atlas Marketing Company, Inc. Employee
Benefit Plan and Trust, a self-insured medical benefits plan covering all full-
time employees, with optional coverages available for part-time personnel.
Atlas Marketing contributes an amount necessary to meet plan expenses, net of
employee contributions for optional benefits. Atlas Marketing medical benefit
plan contributions, included in general and administrative expenses, was
$2,323,647 and $1,848,216 for 1997 and 1996, respectively.
5. Income Taxes
Significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
Current:
Federal......................................... $ 96,000 $ 1,274,700
State........................................... 15,000 284,200
------------ -----------
111,000 1,558,900
Deferred:
Federal......................................... (973,000) (86,100)
State........................................... (143,000) (12,700)
------------ -----------
(1,116,000) (98,800)
------------ -----------
Total tax expense (benefit)................... $ (1,005,000) $ 1,460,100
============ ===========
</TABLE>
F-31
<PAGE>
ATLAS MARKETING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Federal and state income tax expense as a percentage of income before income
taxes was different than the statutory income tax rates for both years. The
reasons for the differences between the actual tax expense and the "expected"
tax expense for those years (computed by applying the federal corporate rate of
34%) are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
Computed "expected" tax expense................... $ (1,293,500) $ 456,100
State income taxes, net of federal benefit........ (133,000) 175,700
Amortization of intangibles....................... 229,500 223,200
Non-deductible expenses........................... 192,000 605,100
------------ -----------
$ (1,005,000) $ 1,460,100
============ ===========
</TABLE>
Atlas Marketing has received notices from the Internal Revenue Service (IRS)
asserting deficiencies in federal corporate income taxes for Atlas Marketing's
taxable years 1993 through 1995. The proposed adjustments, relating to the
deductibility of certain compensation and benefit expenses, may result in
additional federal and state tax liabilities as of December 31, 1997 of
approximately $5.8 million plus interest. Atlas Marketing has analyzed these
matters with tax counsel and believes that it has meritorious defenses and has
filed a response protesting the proposed adjustments. No amount has been
recorded in the financial statements relating to adjustments proposed by the
IRS.
6. Related-Party Transactions
In 1996, Atlas Marketing issued 240,740 shares to officers and directors for
payment of compensation which had a value of $2.5 million. Atlas Marketing
repurchased and retired 18,106 shares from officers and directors in 1996 at a
cost of $187,000.
Following is a summary of related-party balances at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Receivables from officers and directors.............. $ 1,792 $ 5,739
=========== ==========
Due to MSSC.......................................... $16,330,583 --
Accrued compensation payable to officers............. -- 1,784,070
Notes due to officers................................ -- 400,000
----------- ----------
$16,330,583 $2,184,070
=========== ==========
</TABLE>
Additionally, Atlas Marketing has entered into several lease agreements for
office facilities in which individuals who were officers and directors in 1997
and 1996 (prior to the purchase of Atlas Marketing by MSSC) have an ownership
interest. Lease payments made to these individuals in 1997 and 1996 totaled
$123,812 and $158,027, respectively.
F-32
<PAGE>
ATLAS MARKETING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Leases
Atlas Marketing has entered into various operating lease agreements
primarily for the lease of vehicles, office and warehouse space. Annual future
minimum lease payments required by noncancelable lease agreements at December
31, 1997 are as follows:
<TABLE>
<CAPTION>
Related
Parties Others Total
---------- ---------- ----------
<S> <C> <C> <C>
1998........................................ $ 367,648 $ 828,455 $1,196,103
1999........................................ 431,004 395,679 826,683
2000........................................ 431,004 95,946 526,950
2001........................................ 431,004 -- 431,004
2002........................................ 365,754 -- 365,754
Thereafter.................................. 114,668 -- 114,668
---------- ---------- ----------
$2,141,082 $1,320,080 $3,461,162
========== ========== ==========
</TABLE>
Rent expense under noncancellable lease agreements was $680,728 and $586,624
for 1997 and 1996, respectively.
Atlas Marketing has subleased certain office and warehouse facilities. The
total minimum rentals to be received under the sublease is $29,360 in 1998.
8. Contingencies
Atlas Marketing is subject to legal actions from time to time which have
arisen in the ordinary course of business. Atlas Marketing intends to
vigorously contest all such claims and, in the opinion of management, the
resolution of such claims will not materially affect the financial position of
Atlas Marketing.
9. Supplemental Cash Flow Disclosures
Supplemental disclosures of cash flow information is provided below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash paid during the year for:
Interest......................................... $1,118,328 $ 1,115,281
Income taxes..................................... 838,356 1,065,299
Noncash investing and financing activities:
Business acquisition through issuance of notes
payable......................................... -- 503,951
Purchase of stock through issuance of notes
payable......................................... 881,358 239,147
Business acquisition through increase in due to
MSSC............................................ 286,925 --
Issuance of stock through receipt of notes....... 325,000 --
Covenant not to compete through issuance of note
payable......................................... 188,940 --
</TABLE>
F-33
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Bromar, Inc. and Subsidiaries
We have audited the accompanying consolidated statement of income and cash
flows of Bromar Inc. and Subsidiaries for the ten months ended October 31,
1996. These financial statements are the responsibility of Bromar's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Bromar Inc. and Subsidiaries for the ten months ended October 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Irvine, California
March 7, 1997
F-34
<PAGE>
BROMAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Ten Months
Ended
October 31, 1996
----------------
<S> <C>
Total revenue.................................................. $56,048,862
Expenses:
Operating expenses:............................................
Salaries..................................................... 30,364,770
Fringe benefits.............................................. 5,138,957
Automobiles and related expenses............................. 4,846,270
General and administrative................................... 6,163,433
Occupancy and related expenses............................... 3,002,364
Sales and marketing.......................................... 2,481,575
Depreciation and amortization................................ 2,371,262
Interest expense............................................. 700,030
Bonus to employees........................................... 346,000
-----------
Total operating expenses................................... 55,414,661
-----------
Income before income taxes................................... 634,201
Income taxes................................................. 407,000
-----------
Net income................................................... $ 227,201
===========
</TABLE>
See accompanying notes.
F-35
<PAGE>
BROMAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Ten Months
Ended
October 31, 1996
----------------
<S> <C>
Operating activities
Net income.................................................. $ 227,201
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 2,371,262
Gain on disposal of property and equipment................ (431,107)
Provision for doubtful accounts........................... 40,000
Deferred income taxes..................................... (90,438)
Changes in operating assets and liabilities:
Accounts and notes receivable............................. (141,497)
Prepaid expenses and other current assets................. (312,093)
Accounts payable and accrued liabilities.................. (652,725)
Other assets.............................................. 92,525
-----------
Net cash provided by operating activities..................... 1,103,128
Investing activities
Purchases of property and equipment......................... (1,174,436)
Proceeds from sale of equipment............................. 1,019,844
Payments on purchase agreements............................. (1,265,657)
-----------
Net cash used in investing activities......................... (1,420,249)
Financing activities
Net change in line of credit................................ 1,762,410
Proceeds from long-term debt................................ 422,243
Principal payments on long-term debt and capital lease
obligations................................................ (1,312,045)
Principal payments on retirement agreements................. (55,028)
Repurchase of common stock.................................. (630,001)
Repayments on notes for common stock........................ 132,754
-----------
Net cash provided by financing activities..................... 320,333
-----------
Increase in cash and cash equivalents......................... 3,212
Cash and cash equivalents at beginning of period.............. 26,480
-----------
Cash and cash equivalents at end of period.................... $ 29,692
===========
</TABLE>
See accompanying notes.
F-36
<PAGE>
BROMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996
Merger Agreement
Shareholders of record at October 15, 1996 of Bromar entered into a merger
agreement effective October 31, 1996 with MSSC California, Inc. (MSSC), a
wholly owned subsidiary of Marketing Specialists Sales Company. Upon
consummation of the respective parties' obligations in accordance with terms of
the agreement, 529,879 shares of common stock outstanding at October 31, 1996
will be converted into the right to receive an aggregate amount of $26,005,000
in cash whereupon Bromar will become a wholly owned subsidiary of Marketing
Specialists. As a result of this merger, Bromar's operations will be
consolidated with those of Marketing Specialists in future periods.
1. Summary of Significant Accounting Policies
Business Description
Bromar Inc. (the "Company") is a broker and wholesaler of food and related
products to grocery retailers and food service outlets primarily in the western
United States. Bromar's wholly owned subsidiaries include Brokerage Services,
Inc., a food brokerage, and Service Assets Corporation, which leases vehicles
to Bromar.
Basis of Presentation
The consolidated financial statements include the accounts of Bromar and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The preparation of Bromar's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
revenues and expenses. Actual results could differ from those estimates.
Revenue Recognition
Substantially all of Bromar's revenue is in the form of commissions earned
from the food manufacturers and processors that it represents. Commissions are
recognized as revenue when an order is placed with the manufacturers and
processors as the earning process is substantially complete and the order is
filled shortly thereafter by the manufacturer with no additional effort
required on the part of Bromar.
Property and Equipment
Depreciation and amortization are computed using the straight-line method
over the assets' useful lives, which range from three to forty years, or over
the term of the lease, whichever is shorter.
Goodwill
Goodwill represents the excess of the purchase price over the value of net
tangible assets of various businesses acquired. Goodwill is amortized on the
straight-line method over a period of five to ten years. Amortization expense
for goodwill was approximately $176,000 for the ten months ended October 31,
1996.
Statements of Cash Flows
Bromar considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
F-37
<PAGE>
BROMAR, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the ten months ended October 31, 1996 Bromar purchased four brokerage
companies for an aggregate purchase price of $2,722,500. These purchases were
financed by Bromar and, accordingly, represent noncash transactions.
2. Property and Equipment
Depreciation and amortization expense related to property and equipment was
$1,128,672 for the ten months ended October 31, 1996. Amortization of assets
purchased under capitalized lease agreements was included in depreciation and
amortization expense.
3. Financing Arrangements
Long-Term Debt
Bromar paid interest of approximately $700,000 for the ten months ended
October 31, 1996.
4. Income Taxes
Bromar utilizes the liability method of accounting for income taxes. Under
the liability method, deferred taxes are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates.
Significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
Ten Months
Ended
October 31, 1996
----------------
<S> <C>
Current:
Federal................................................... $411,000
State..................................................... 87,000
--------
498,000
Deferred:
Federal................................................... (86,000)
State..................................................... (5,000)
--------
(91,000)
--------
$407,000
========
</TABLE>
Bromar's income tax provision varies from the statutory rate primarily
because of the nondeductibility of certain portions of meal and entertainment
expenses and state income taxes imposed by the various states on Bromar's
operations.
Bromar paid income taxes of $802,000 for the ten months ended October 31,
1996.
Bromar is currently under examination by the Internal Revenue Service for
the 1993 tax year.
5. Deferred Compensation and Retirement Plans
Profit Sharing and Stock Plans
Bromar has a profit sharing plan and a stock plan covering substantially all
employees with one year or more of service. Total annual contributions to these
plans is at management's discretion subject to certain
F-38
<PAGE>
BROMAR, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
limitations. No contributions were made to either the profit sharing plan or
the stock plan for the ten months ended October 31, 1996.
Retirement Agreements
Bromar is committed, through unfunded retirement agreements with three
former officers of Bromar, to provide retirement benefits in an amount equal to
five times the average annual salary of the ten years preceding the retirement
of each officer. Payments under such agreements are to be made in 240 equal
semimonthly installments and are to begin the month following retirement. In
the event of their death, any unpaid benefits are paid to the officer's
beneficiary.
Under the agreement, payments are allocated between retirement benefits and
consulting services. Charges to expense under the retirement portion of the
agreements were recorded during the period of active employment and were
calculated to result in an accrued amount at the officers' retirement date
equal to the then present value of one-half of the estimated payments. Future
obligations under the retirement portion of the agreement are as follows at
October 31, 1996:
<TABLE>
<S> <C>
1997................................................................ $ 66,492
1998................................................................ 79,096
1999................................................................ 69,198
2000................................................................ 75,272
2001................................................................ 81,880
Thereafter.......................................................... 164,132
--------
$536,070
========
</TABLE>
Under the agreements, the officers and their surviving spouses are obligated
to render consulting and other services at Bromar's request and, therefore, the
remaining one-half of the payments are considered to be applicable to such
services to be performed by the officer and his surviving spouse after
retirement and will be charged to expense in the year of payment. If an officer
and his surviving spouse die before all payments are received by them, Bromar
will accrue the amount equal to the then present value of the remaining
payments to be made to such officer's designated beneficiary or estate.
Compensation expense incurred relating to the consulting portion of the
agreement was approximately $175,000 for the ten months ended October 31, 1996.
6. Employee Stock Plans
Bromar has adopted a stock option plan under which certain key employees may
be offered the opportunity to purchase varying amounts of Bromar's capital
stock. There were 150,000 shares reserved for grant under this plan. All
options granted under this plan have been granted at the fair market value of
Bromar's common stock at the date of grant. Bromar had no shares of common
stock available for future grant under the stock option plan during the ten
month period ended October 31, 1996.
F-39
<PAGE>
BROMAR, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Commitments and Contingencies
Leases
Bromar occupies certain buildings and uses certain office equipment under
long-term operating lease agreements, which expire in various years through
2001. The annual future minimum lease payments for such leases (with initial or
remaining terms in excess of one year) are as follows:
<TABLE>
<S> <C>
1997.............................................................. $3,130,939
1998.............................................................. 1,689,546
1999.............................................................. 1,067,830
2000.............................................................. 297,308
----------
$6,185,623
==========
</TABLE>
Rent expense was $2,475,019 for the ten months ended October 31, 1996.
Covenants Not to Compete
Bromar is contingently obligated to make payments under agreements with
various individuals for future consulting services when such services are
performed and upon compliance with covenants not to compete. The costs
associated with such agreements are recognized on the straight-line basis over
the period in which the services are to be rendered, which typically ranges
from seven to ten years. The timing of payments due under these agreements are
specifically defined in each agreement and as such, the payment stream does not
necessarily correspond with the amortization period. Estimated future payments
under these agreements and the estimated related cost to be charged to
operations are as follows at October 31, 1996, actual payments and costs may
differ based on future events:
<TABLE>
<CAPTION>
Payments Due
on Agreements
-------------
<S> <C>
1997........................................................... $1,017,933
1998........................................................... 819,386
1999........................................................... 801,948
2000........................................................... 771,689
2001........................................................... 628,698
Thereafter..................................................... 2,243,181
----------
$6,282,835
==========
</TABLE>
Contingencies
Bromar is subject to certain claims arising in the normal course of
business. In management's opinion, any such contingencies would not materially
affect Bromar's consolidated financial position, consolidated operating results
or cash flows.
F-40
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the merger of Merkert American and Richmont Marketing. This merger will be
accounted for using the purchase method of accounting. Merkert American has been
designated as the accounting acquiror as the current stockholders of Merkert
American will own the largest portion of common stock of the combined company.
The unaudited pro forma combined balance sheet gives effect to the
transaction as if it had occurred on June 30, 1999. The unaudited pro forma
combined statement of operations for the year ended December 31, 1998 give
effect to:
(i) the combination of Merkert American, Merkert Enterprises,
Inc. and Rogers-American Company, Inc. as if that
combination occurred on January 1, 1998; and
(ii) the merger of Merkert American and Richmont Marketing as if
that merger occurred on January 1, 1998.
The unaudited pro forma combined statement of operations for the six months
ended June 30, 1999 gives effect to the merger of Merkert American and Richmont
Marketing as if that merger occurred on January 1, 1998.
The pro forma adjustments discussed herein are based on estimates, and
certain assumptions. It is management's opinion that the final allocation of
the purchase price will not differ materially from the preliminary estimated
amounts. Management anticipates that the final price allocation will be
completed soon after the consummation of the transaction. The pro forma
financial data do not purport to represent what Merkert American's financial
position or results of operation would actually have been if such transactions
had in fact occurred on those dates and are not necessarily representative of
Merkert American's financial position or results of operation of Merkert
American for any future period.
F-41
<PAGE>
MERKERT AMERICAN CORPORATION AND RICHMONT MARKET SPECIALISTS
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. General
Merkert American was organized in March 1998 to create a leading food
brokerage firm providing outsourced sales, merchandising and marketing services
to manufacturers, suppliers and producers of food products and consumer goods
("Manufacturers"). Merkert American 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"). Merkert American's principal source of
revenue is commissions it receives from Manufacturers. Merkert American's other
activities include managing private label programs on behalf of selected
Retailers.
Prior to December 18, 1998 Merkert American conducted operations only in
connection with the combination of Merkert Enterprises and Rogers-American (the
"Combination") and Merkert American's initial public offering (the "Offering").
On December 18, 1998, Merkert American purchased all of the issued and
outstanding capital stock of Merkert Enterprises and Rogers-American in the
Combination.
On December 18, 1998 Merkert American sold 4.4 million shares of its common
stock at a price of $15.00 per share.
The operating results of Merkert American reflect only activity subsequent
to the Combination and the Offering, from December 18, 1998 to December 31, 1998
with respect to Merkert Enterprises and Rogers-American. Prior to December 18,
1998 Merkert American's Statement of Operations only reflects the non-recurring,
non-cash compensation charge of approximately $1.3 million in the second quarter
1998 pertaining to the April 1998 purchases of 275,222 shares of common stock
from Merkert American.
Prior to the Combination, Merkert Enterprises and Rogers-American operated
throughout the periods presented as independently owned entities. For financial
reporting purposes, Merkert American is presented as acquiring Merkert
Enterprises and Rogers-American. Merkert Enterprises, headquartered in Canton,
Massachusetts, was founded in 1950 and operated 10 offices throughout New
England, New York, and the mid-Atlantic, from Maine west to Ohio and south to
Virginia. Rogers-American, headquartered in Charlotte, North Carolina, was
founded in 1934 and operated 20 offices throughout the southeastern and mid-
Atlantic United States.
2. Merger with Richmont Marketing Specialists Inc.
On August 18, 1999, Merkert American completed the merger with Richmont
Marketing Specialists Inc. Under the terms of the transaction, the stockholders
of Richmont Marketing received 6,705,551 shares of Merkert American's common
stock. In addition, Merkert American granted to certain stockholders and
employees of Richmont Marketing options to purchase an additional 800,000 shares
of Merkert American's stock at a per share price equal to $13.50. For purposes
of computing the estimated purchase price for accounting purposes, the fair
value of the shares is determined by applying 10% discount to the expected
market value of the shares issued due to restrictions on the sale and
transferability of the shares issued. The shares issued to the stockholders of
Richmont are unregistered shares. Accordingly, unless registered, these shares
cannot be sold except under Rule 144 or another applicable exemption from
registration under the Securities Act of 1933, as amended. Merkert American
assumed all of Richmont Marketing's outstanding debt, which net of cash on hand
at June 30, 1999 totaled approximately $150 million. The excess of the purchase
price over the fair value of the net liabilities assumed will be assigned to
goodwill, subject to an appraisal of the assets. In connection with the merger,
Merkert American changed its name to Marketing Specialists Corporation.
As part of the integration of the two companies, several offices in
geographic locations in which both Merkert American and Richmont Marketing
currently operate will be consolidated. The new company expects to achieve
significant savings associated with these consolidations including payroll and
other operating costs associated with reduced headcount and office expenses. In
addition, the new company expects to eliminate several
F-42
<PAGE>
executive, selling and general administrative personnel that management believes
will no longer be required upon the integration. The Company expects to incur
significant restructuring charges as a result of the integration of the two
companies.
The estimated results of the new company's integration plans are not
reflected in the accompanying Pro Forma Combined Financial Statements.
F-43
<PAGE>
MERKERT AMERICAN CORPORATION
PRO FORMA BALANCE SHEET
(Unaudited)
As of June 30, 1999
<TABLE>
<CAPTION>
Merkert Richmont Pro forma Pro forma
American Marketing Adjustments Combined
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents.......................... $ 607 $ 9,021 $ (4,052)(a) $ 5,576
Restricted cash.................................... 8,260 8,260
Accounts receivables, net.......................... 22,942 30,223 53,165
Inventories........................................ 1,032 1,032
Income taxes receivable............................ 2,476 2,476
Prepaid expenses and other......................... 1,500 3,643 5,143
-------- --------- -------- ---------
Total current assets.......................... 36,817 42,887 (4,052) 75,652
Plant and equipment, net........................... 17,560 21,887 39,447
Goodwill and other intangibles, net................ 136,835 79,243 110,375 (a) 326,453
Other assets....................................... 6,541 6,963 (778) 12,726
Total assets.................................. -------- --------- -------- ---------
$197,753 $ 150,980 $105,545 $ 454,278
======== ========= ======== =========
Liabilities and Stockholders' Equity
Accounts payable and accrued
expenses...................................... $ 24,045 $ 14,030 $ 38,075
Current maturities of long term debt............... 14,807 9,386 24,193
-------- --------- ---------
Total current liabilities..................... 38,852 23,416 62,268
Long term debt, net of current portion............. 81,367 159,628 240,995
Other liabilities..................................
1,976 10,049 12,025
Total liabilities............................. -------- --------- ---------
122,195 193,093 315,288
Stockholders' equity
Common Stock.................................. 75 2 65 (b) 142
Additional paid in capital.................... 78,032 31,306 32,059 (c) 141,397
Retained earnings (Accumulated
deficit)................................. (2,549) (71,916) 71,916 (b) (2,549)
Treasury stock................................ (1,505) 1,505 (b) --
-------- --------- -------- ---------
Total stockholders' equity (deficit)..... 75,558 (42,113) 105,545 138,990
-------- --------- -------- ---------
Total liabilities and stockholders' equity......... $197,753 $ 150,980 $105,545 $ 454,278
======== ========= ======== =========
</TABLE>
See the accompanying notes to the unaudited Pro Forma Combined Financial
Statements.
F-44
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
BALANCE SHEET ADJUSTMENTS
AS OF JUNE 30, 1999
(a) Records the goodwill resulting from the purchase of Richmont Marketing by
Merkert American. The goodwill is calculated as follows:
Fair value of shares of common stock and options issued.. $ 63,432
Transaction costs........................................ 4,830(1)
--------
68,262
Plus: fair value of net tangible liabilities assumed..... 42,113
--------
Net increase in goodwill................................. 110,375
========
-----------
(1) Transaction costs may increase by approximately 3 million dollars if
the amended credit facility with First Union National Bank is
successfully syndicated due to payments owed to Monroe & Company, LLC
and Richmont Capital Partners I, L.P.
(b) Records the par value of common stock issued and the elimination of the
historical equity accounts of Richmont Marketing.
(c) Records the paid in capital result from the acquisition of Richmont
Marketing.
Fair value of shares and options issued.................. $ 63,432
Less: allocated to common stock.......................... (67)
--------
63,365
Less: Paid in capital recorded on the books of Richmont
Marketing................................................ (31,306)
--------
Net increase to paid in capital.......................... $ 32,059
========
F-45
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Period from
Period Ended Period Ended Inception to
December 18, December 18, December 31,
1998 1998 1998
Merkert Rogers Merkert Richmont Pro forma Pro forma
Enterprises American American Marketing (h) adjustments Combined (d)
------------ ------------- --------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Commission income..................... $ 90,254 $ 79,558 $ 5,975 $218,294 $394,081
Sales................................. 42,185 -- 2,420 -- 44,605
-------- -------- ------- -------- --------
Revenues............................ 132,439 79,558 8,395 218,294 438,686
Cost of sales......................... 38,709 -- 2,368 -- 41,077
Selling, general and administrative
expenses............................ 89,584 92,120 7,035 202,316 (722)(a)(e) 390,333
Restructuring expense................. 5,987 948 -- -- 6,935
Depreciation and amortization......... 4,437 2,439 179 32,735 (23,732)(b) 16,058
-------- -------- ------- -------- ------- --------
Operating income (loss)............. (6,278) (15,949) (1,187) (16,757) 24,454 (15,717)
Interest expense...................... 4,180 2,617 273 15,759 (825)(c) 22,004
Other (income) expense, net........... 530 -- 6 (106) -- 430
-------- -------- ------- -------- ------- --------
Loss before income taxes............ (10,988) (18,566) (1,466) (32,410) 25,279 (38,151)
Provision (benefit) for income taxes.. -- (677) -- (73) 750 (f) --
-------- -------- ------- -------- ------- --------
Net loss.............................. $(10,988) $(17,889) $(1,466) $(32,337) $24,529 $(38,151)
======== ======== ======= ======== ======= ========
Basic loss per share.................. $ (2.68)
========
Shares used in computing basic net
loss per share...................... 14,214,000 (g)
==========
Diluted net loss per share............ $ (2.68)
========
Shares and potential dilutive shares used
in computing loss per share 14,214,000 (g)
==========
</TABLE>
(a) Represents the salaries, fringe benefits and other directly attributable
expenses of certain former stockholders of Merkert Enterprises and Rogers-
American.
(b) Represents the net decrease of amortization of goodwill and other
intangibles as a result of the purchase of Merkert Enterprises and Rogers-
American and the merger of Richmont Marketing with and into Merkert
American. Merkert American has assigned a 40-year life for goodwill and
lives ranging from 5 to 7 years for other intangibles.
(c) Represents the reduction of interest expense as a result of Merkert
American's repayment of certain obligations of Merkert Enterprises and
Rogers-American.
(d) The pro forma combined statement of operations includes in the aggregate
approximately $15 million of aggregate, non-recurring compensation charges
recorded in the fourth quarter of 1998 by Merkert American, Merkert
Enterprises and Rogers-American. These compensation charges relate to: (1)
employment contract settlements of $1,500 paid to certain executives of
Merkert Enterprises who are departing Merkert American; (2) cash and life
insurance policies to be distributed to certain stockholders of Rogers-
American; and (3) the transfer of shares of common stock of Rogers-American
by the principal stockholders to certain minority stockholders.
(e) Includes $178 of compensation expense related to stock options granted to
certain employees. Merkert American granted 245,000 options to purchase
shares of common stock in October 1998 for $11.25 per share. Merkert
American will recognize compensation expense for the difference between the
exercise price and the Offering price of $15.00 per share over the five-year
vesting period.
(f) Represents the adjustment to record the income tax provision after
considering non-deductible goodwill amortization and any deferred tax
valuation allowance requirements.
(g) Includes all shares of Merkert American common stock outstanding as of June
30, 1999 and 6,705,551 shares of common stock to be issued to the
shareholders of Richmont Marketing. Shares used in computing diluted
earnings per share exclude the impact of all outstanding options as their
effect would be antidilutive.
(h) Certain historical amounts have been reclassified for consistent
presentation.
F-46
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Merkert Richmont Pro forma Pro forma
American Marketing(d) adjustment Combined
--------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Commission income............................. $ 85,008 $ 105,591 $ 190,599
Sales......................................... 22,087 -- 22,087
-------- ----------- -----------
Revenues..................................... 107,095 105,591 212,686
Cost of sales................................. 19,845 -- 19,845
Selling, general and administrative expense... 80,619 101,626 182,245
Depreciation and Amortization................. 3,008 14,714 (9,491)(a) 8,231
-------- ----------- -------- -----------
Operating income (loss)...................... 3,623 (10,749) 9,491 2,365
Interest expense, net......................... 3,946 8,101 12,047
Other (income) expense, net................... -- -- --
-------- ----------- -------- -----------
Loss before income taxes..................... (323) (18,850) 9,491 (9,682)
Provision (benefit) for income taxes.......... 760 (801) 41 (b) --
-------- ----------- ---------- -----------
Loss before extraordinary item................ $ (1,083) $ (18,049) 9,450 $ (9,682)
Extraordinary loss, net of tax................ -- (1,038) (1,038)
-------- ----------- -------- -----------
Net loss...................................... $ (1,083) $ (19,087) $ 9,450 $ (10,720)
======== =========== ======== ===========
Basic net loss per share...................... $ (0.75)
===========
Shares used in computing basic net loss
per share(c)................................. 14,214,000
===========
Diluted net loss per share.................... $ (0.75)
===========
Shares and potential dilutive shares used in
computing diluted loss per share(c).......... 14,214,000
===========
</TABLE>
(a) Represents the net decrease of amortization of goodwill as a result of the
merger of Richmont Marketing with and into Merkert American. Merkert
American has assigned a 40-year life for goodwill.
(b) Represents the adjustment to record the income tax provision after
considering non-deductible goodwill amortization and any deferred tax
valuation allowance requirements.
(c) Includes all shares of Merkert American common stock outstanding as of June
30, 1999 and 6,705,551 shares of common stock to be issued to the
shareholders of Richmont Marketing. Shares used in computing diluted
earnings per share exclude all outstanding options as their effect would be
antidilutive.
(d) Certain historical amounts have been reclassified for consistent
presentation.
F-47
<PAGE>
EXHIBIT 4.1
CERTIFICATE OF MERGER OF
RICHMONT MARKETING SPECIALISTS INC.
INTO MERKERT AMERICAN CORPORATION
The undersigned corporation organized and existing under and by virtue of
the General Corporation Law of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
---- ----------------------
Richmont Marketing Specialists Inc. Delaware
Merkert American Corporation Delaware
SECOND: That an Agreement and Plan of Merger between the parties to the
merger has been approved, adopted, certified, executed and acknowledged by each
of the constituent corporations in accordance with the requirements of Section
251 of the General Corporation Law of Delaware.
THIRD: That Merkert American Corporation shall be the surviving
corporation.
FOURTH: That the Second Amended and Restated Certificate of
Incorporation of Merkert American Corporation shall constitute the Certificate
of Incorporation of the surviving corporation.
FIFTH: That the executed Agreement and Plan of Merger is on file at
the principal place of business of the surviving corporation, the address of
which is 490 Turnpike Street, Canton, MA 02021.
SIXTH: That a copy of the Agreement and Plan of Merger will be furnished
by the surviving corporation, on request and without cost, to any stockholder of
any constituent corporation.
Dated: August 18, 1999
MERKERT AMERICAN CORPORATION,
a Delaware Corporation
/s/ Gerald R. Leonard
------------------------------------------
By: Gerald R. Leonard
<PAGE>
Exhibit A to Certificate of Amendment of
Second Amended and Restated Certificate of Incorporation of
Merkert American Corporation
EXHIBIT 4.2
CERTIFICATE OF AMENDMENT
OF
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MERKERT AMERICAN CORPORATION
Merkert American Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors and stockholders of Merkert American
------
Corporation have duly adopted resolutions amending its Second Amended and
Restated Certificate of Incorporation as set forth on Exhibit A hereto.
---------
SECOND: That said amendment was duly adopted in accordance with the
-------
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by its President, thereunto duly authorized, this 18th day of August,
1999.
MERKERT AMERICAN CORPORATION
By: /s/ Gerald R. Leonard
-------------------------------------------
Gerald R. Leonard
President & CEO
<PAGE>
Exhibit A to Certificate of Amendment of
Second Amended and Restated Certificate of Incorporation of
Merkert American Corporation
1. Article I of the Second Amended and Restated Certificate of Incorporation
(the "Certificate") is hereby deleted in its entirety and replaced with the
following:
NAME
----
The name of the Corporation is Marketing Specialists Corporation.
2
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
MERKERT AMERICAN CORPORATION
(TO BE RENAMED MARKETING SPECIALISTS CORPORATION)
("Borrower"),
THE LENDERS SET FORTH ON SCHEDULE 1 HERETO
("Lenders")
AND
FIRST UNION NATIONAL BANK,
AS AGENT FOR THE LENDERS
("Agent")
Credit Agreement dated December 18, 1998,
as amended and restated August 18, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1
DEFINITIONS.......................................................... 1
1.1. Definitions................................................... 1
1.2. Rules of Construction......................................... 18
1.3. Proforma Calculations......................................... 18
SECTION 2
CREDIT FACILITY...................................................... 19
2.1. The Facilities................................................ 19
2.2. Promissory Notes.............................................. 19
2.3. Lenders' Participation........................................ 19
2.4. Use of Proceeds............................................... 19
2.5. Repayment..................................................... 20
2.6. Interest...................................................... 21
2.7. Advances...................................................... 24
2.8. Reduction and Termination of Commitment....................... 26
2.9. Prepayment.................................................... 27
2.10. Funding Costs and Loss of Earnings............................ 29
2.11. Payments...................................................... 29
2.12. Commitment Fee................................................ 30
2.13. Agent's Fees.................................................. 30
2.14. Amendment and Restatement Fees................................ 30
2.15. Regulatory Changes in Capital Requirements.................... 30
SECTION 2A
LETTERS OF CREDIT.................................................... 31
2A.1. Availability of Credits....................................... 31
2A.2. Commitment Availability....................................... 32
2A.3. Approval and Issuance......................................... 32
2A.4. Obligations of the Borrower................................... 32
2A.5. Payment by Lenders on Letters of Credit....................... 33
2A.6. Collateral Security........................................... 34
2A.7. General Terms of Credits...................................... 35
SECTION 3
REPRESENTATIONS AND WARRANTIES....................................... 36
3.1. Organization and Good Standing................................ 36
3.2. Power and Authority; Validity of Agreement.................... 36
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.3. No Violation of Laws or Agreements............................ 36
3.4. Material Contracts............................................ 36
3.5. Compliance.................................................... 37
3.6. Litigation.................................................... 37
3.7. Title to Assets............................................... 37
3.8. Accuracy of Information; Full Disclosure...................... 38
3.9. Taxes and Assessments......................................... 38
3.10. Indebtedness.................................................. 39
3.11. Management Agreements......................................... 39
3.12. Investments................................................... 39
3.13. ERISA......................................................... 39
3.14. Fees and Commissions.......................................... 40
3.15. No Extension of Credit for Securities......................... 40
3.16. Perfection of Security Interest............................... 40
3.17. Hazardous Wastes, Substances and Petroleum Products........... 40
3.18. Solvency...................................................... 41
3.19. Employee Controversies........................................ 42
3.20. Repayments from Asset Dispositions............................ 42
SECTION 4
CONDITIONS........................................................... 42
4.1. Effectiveness of Amended and Restated Credit Agreement......... 42
4.2. Advances....................................................... 45
SECTION 5
AFFIRMATIVE COVENANTS................................................ 45
5.1. Existence and Good Standing................................... 45
5.2. Interim Financial Statements.................................. 45
5.3. Annual Financial Statements................................... 46
5.4. Compliance Certificate........................................ 46
5.5. Additional Reports............................................ 46
5.6. Public Information............................................ 47
5.7. Books and Records............................................. 47
5.8. Insurance..................................................... 47
5.9. Litigation; Event of Default.................................. 47
5.10. Taxes......................................................... 47
5.11. Costs and Expenses............................................ 48
5.12. Compliance; Notification...................................... 48
5.13. ERISA......................................................... 48
5.14. Total Debt to EBITDA Ratio.................................... 49
5.15. Senior Debt to EBITDA......................................... 49
5.16. Minimum EBITDA................................................ 50
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
5.17. Minimum Debt Service Coverage Ratio........................... 50
5.18. Minimum Fixed Charge Coverage Ratio........................... 50
5.19. Borrowing Base................................................ 51
5.20. Management Changes............................................ 51
5.21. Transactions Among Affiliates................................. 51
5.22. Joinders, etc................................................. 51
5.23. Additional Collateral Security Documents...................... 51
5.24. Collateral Audit.............................................. 52
5.25. Notice upon Change in Control................................. 52
5.26. Other Information............................................. 52
5.27. Revision of Covenants......................................... 52
SECTION 6
NEGATIVE COVENANTS................................................... 53
6.1. Indebtedness.................................................. 53
6.2. Guaranties.................................................... 53
6.3. Loans......................................................... 53
6.4. Liens and Encumbrances........................................ 54
6.5. Additional Negative Pledge.................................... 54
6.6. Restricted Payments........................................... 54
6.7. Transfer of Assets; Liquidation............................... 55
6.8. Acquisitions and Investments.................................. 55
6.9. Payments to Affiliates........................................ 58
6.10. Certain Changes............................................... 58
6.11. Restrictive Agreements........................................ 59
6.12. Use of Proceeds............................................... 59
SECTION 7
DEFAULT.............................................................. 59
7.1. Events of Default............................................. 59
7.2. Remedies...................................................... 62
7.3. Right of Set-off.............................................. 62
7.4. Turnover of Property Held by Lender's Affiliates.............. 62
7.5. Remedies Cumulative; No Waiver................................ 63
SECTION 8
AGENCY PROVISIONS.................................................... 63
8.1. Application of Payments....................................... 63
8.2. Set-Off....................................................... 63
8.3. Modifications and Waivers..................................... 64
8.4. Obligations Several........................................... 64
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
8.5. Lenders' Representations...................................... 64
8.6. Investigation................................................. 64
8.7. Powers of Agent............................................... 64
8.8. General Duties of Agent, Immunity and Indemnity............... 64
8.9. No Responsibility for Representations or Validity, etc........ 65
8.10. Action on Instruction of Lenders; Right to Indemnity.......... 65
8.11. Employment of Agents.......................................... 65
8.12. Reliance on Documents......................................... 65
8.13. Agent's Rights as a Lender.................................... 65
8.14. Expenses...................................................... 66
8.15. Resignation of Agent.......................................... 66
8.16. Successor Agent............................................... 66
8.17. Collateral Security........................................... 66
8.18. Enforcement by Agent.......................................... 66
SECTION 9
MISCELLANEOUS........................................................ 67
9.1. Indemnification and Release Provisions........................ 67
9.2. Participations and Assignments................................ 67
9.3. Binding and Governing Law..................................... 68
9.4. Survival...................................................... 68
9.5. No Waiver; Delay.............................................. 68
9.6. Modification.................................................. 68
9.7. Headings...................................................... 68
9.8. Notices....................................................... 68
9.9. Payment on Non-Business Days.................................. 69
9.10. Time of Day................................................... 69
9.11. Severability.................................................. 69
9.12. Counterparts.................................................. 69
9.13. Confidentiality............................................... 69
9.14. Consent to Jurisdiction and Service of Process................ 70
9.15. WAIVER OF JURY TRIAL.......................................... 70
9.16. ACKNOWLEDGMENTS............................................... 71
</TABLE>
iv
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A-1: Advance Request Form
Exhibit A-2: Letter of Credit Request Form
Exhibit B-1: Form of Revolving Credit Note
Exhibit B-2: Form of Term Note
Exhibit C: Disclosure Pursuant to Representations and Warranties
Exhibit D: Funding Costs and Loss of Earnings Calculation
Exhibit E: Form of Compliance Certificate
Exhibit F: Form of Borrowing Base Certificate
Exhibit G: Notice of Acquisition
Exhibit H: Form of Assignment
Exhibit I: Incumbency Certificate
v
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is made
this 18th day of August, 1999, by and among MERKERT AMERICAN CORPORATION, a
Delaware corporation ("Borrower"); FIRST UNION NATIONAL BANK, a national banking
association ("First Union") and the other financial institutions identified on
Schedule 1 attached hereto (each individually a "Lender" and individually and
collectively, "Lenders"); and FIRST UNION as agent for the Lenders ("Agent").
WHEREAS, the Borrower, Lenders and Agent are parties to that certain
Credit Agreement dated December 18, 1998 (the "Existing Credit Agreement"); and
WHEREAS, the parties desire to amend the Existing Credit Agreement as
set forth herein; and
WHEREAS, this Agreement amends and restates in its entirety the
Existing Credit Agreement; provided, however, that this Agreement shall not
constitute a novation and nothing herein shall be deemed to have terminated or
discharged any indebtedness or obligation under the Existing Credit Agreement
and the Loan Documents (as defined herein and therein), all of which shall
remain outstanding under and be governed by this Agreement and such Loan
Documents.
In consideration of the agreements hereinafter set forth, and
intending to be legally bound, the parties hereto hereby agree as follows:
SECTION 1
DEFINITIONS
-----------
1.1 Definitions. When used in this Agreement, the following terms
-----------
shall have the respective meanings set forth below.
"ABD/Bergida Dispute" means the dispute between one or more
-------------------
subsidiaries of Borrower and ABD Sales, Inc. Ronald A. Bergida, Arthur L.
Bergida, Alfred Bergida, Edward S. Parks and Stephen Costentino, which is
currently pending before the American Arbitration Association.
"Acquisition Price" shall mean, with respect to any acquisition, the
-----------------
total consideration to be paid, incurred or assumed by the Company or its
Subsidiaries in connection with such acquisition, including, without limitation,
the principal amount of any Indebtedness assumed or acquired, and the full
amount of any deferred purchase price or contingent obligations.
1
<PAGE>
"Adjusted EBITDA" means, for any period, EBITDA for such period less
---------------
capital expenditures made during such period as determined in accordance with
GAAP.
"Adjusted Libor Rate" means, for any Interest Period, as applied to a
-------------------
Libor Portion, the rate per annum (rounded upwards, if necessary to the next
1/32 of 1%) determined pursuant to the following formula:
Adjusted Libor Rate = Libor Rate
------------------------
[1 - Reserve Percentage]
For purposes hereof, "Libor Rate" shall mean, as applied to a Libor Portion, the
rate which appears on the Telerate Page 3750 at approximately 9:00 a.m.
Philadelphia time two London Business Days prior to the commencement of such
Interest Period for the offering to leading banks in the London Interbank Market
of deposits in United States dollars ("Eurodollars") or, if such rate does not
appear on the Telerate page 3750, the rate which appears (or, if two or more
such rates appear, the average rounded up to the nearest 1/32 of 1% of the rates
which appear) on the Reuters Screen LIBO Page as of 9:00 a.m. Philadelphia time
two London Business Days prior to the commencement of the Interest Period, in
either case for an amount substantially equal to such Portion as to which
Borrower may elect the Adjusted Libor Rate to be applicable with a maturity of
comparable duration to the Interest Period selected by Borrower for such Libor
Portion, as may be adjusted from time to time in accordance with Paragraph
2.6(e) hereof.
"Adjusted Rolling Period" means (i) as of March 31, 1998, the one (1)
-----------------------
fiscal quarter then ended; (ii) as of June 30, 1999, the two (2) fiscal quarters
then ended; (iii) as of September 30, 1999, the three (3) fiscal quarters then
ended; and (iv) thereafter, the most recent Rolling Period.
"Advance" means a borrowing under the Revolving Credit Commitment
-------
pursuant to Paragraph 2.7 hereof.
"Advance Request Form" means the certificate in the form attached
--------------------
hereto as Exhibit A-1 to be delivered by Borrower to Agent as a condition of
each Advance.
"Affiliate" means as to any party: (i) any Person who or entity which
---------
directly or indirectly owns, controls or holds five percent (5%) or more of the
outstanding beneficial interests in such party; (ii) any entity of which five
percent (5%) or more of the outstanding beneficial interest is directly or
indirectly owned, controlled, or held by such party; (iii) any entity which
directly or indirectly is under common control with such party; (iv) any
director or general partner of such party or any Affiliate; or (v) any immediate
family member of any Person who is an Affiliate. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of an entity,
whether through the ownership of voting securities, by contract, or otherwise.
2
<PAGE>
"Agent" means First Union National Bank, in its capacity as agent for
-----
the Lenders hereunder and any successor in such capacity appointed pursuant to
Paragraphs 8.15 and 8.16 hereof.
"Agreement" means this Amended and Restated Credit Agreement and all
---------
exhibits hereto, as each may be amended, modified, extended, consolidated or
restated from time to time.
"Amendment Effective Date" means the date on which the conditions set
------------------------
forth in Paragraph 4.1 hereof have been satisfied, which is the date set forth
above as the date of this Agreement.
"Applicable Margin" means the percentage per annum set forth in the
-----------------
appropriate column below that corresponds to the ratio of Total Debt to EBITDA
for Borrower and its consolidated Subsidiaries (the Applicable Margin being the
lowest applicable percentage per annum as to which the ratio requirement has
been attained):
<TABLE>
<CAPTION>
Revolving Credit Loan
Applicable Margin Term Loan
----------------------- ---------------------
Ratio of Total Base Rate Libor Base Rate Libor
Level Debt to EBITDA Portions Portions Portions Portions
- ------- ------------------------------ ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
I Less than 1.50 to 1 0.75% 2.25% 1.00% 2.50%
II Less than 2.50 to 1 but 1.25% 2.75% 1.50% 3.00%
greater than or equal to 1.50
to 1
III Less than 3.00 to 1 but 1.50% 3.00% 1.75% 3.25%
greater than or equal to 2.50
to 1
IV Greater than or equal to 1.75% 3.25% 2.00% 3.50%
3.00 to 1
</TABLE>
The Applicable Margin as of the Amendment Effective Date shall be based on the
ratio of Total Debt as of the Amendment Effective Date to EBITDA for the Rolling
Period ended June 30, 1999, giving pro forma effect to the Richmont Merger as
approved by Agent. Thereafter, the Applicable Margin shall adjust
automatically, as appropriate, on the day following delivery of a quarterly
Compliance Certificate in accordance with Paragraph 5.4 hereof, provided, that
in the event that a quarterly compliance certificate has not been delivered on
the date required by Paragraph 5.4 then the Applicable Margin shall adjust to
the highest margin provided above as of the date of required delivery; provided
further, however, that the Applicable Margin shall
3
<PAGE>
readjust on the day after delivery of such delinquent Compliance Certificate
based on the ratio set forth in such Compliance Certificate.
"Authorized Officer" means any of the officers of the Borrower
------------------
designated as such pursuant to an Incumbency Certificate in the form of Exhibit
I attached hereto delivered to Lenders from time to time. Any designated
Authorized Officer shall remain as such until Lenders and Agent shall have
actually received a superseding Incumbency Certificate.
"Base Rate" means the higher of (a) the Federal Funds Rate plus one
---------
half of one percent ( 1/2%) per annum or (b) the Prime Rate.
"Base Rate Portion" means a Portion as to which the applicable rate of
-----------------
interest is based on the Base Rate.
"Borrower" means Merkert American Corporation, a Delaware corporation,
--------
to be renamed Marketing Specialists Corporation on the Amendment Effective Date.
"Borrowing Base" means eighty percent (80%) of Eligible Merkert
--------------
Accounts plus fifty percent (50%) of Eligible Richmont Accounts; provided,
--------
however, that advance rates and the definition of Eligible Accounts may be
- -------
reasonably adjusted by Agent based on the results of any collateral audit
required by Paragraph 5.24 hereof.
"Borrowing Base Certificate" means a certificate in the form of
--------------------------
Exhibit F attached hereto delivered by Borrower to Lenders pursuant to Paragraph
5.5 or Paragraph 4.1 hereof.
"Business Day" means any day not a Saturday, Sunday or a day on which
------------
Lenders are required or permitted to be closed under the laws of the
Commonwealth of Pennsylvania.
"Capital Leases" means capital leases and subleases, as defined in
--------------
Statement 13 of the Financial Accounting Standards Board dated November 1976, as
amended and updated from time to time.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
------
and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, as amended from time to time, and all rules and
regulations promulgated pursuant thereto.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time, and regulations with respect thereto in effect from time to time.
"Collateral" means the collateral security for the Loan, including
----------
under the Collateral Security Documents, this Agreement or any other Loan
Document.
4
<PAGE>
"Collateral Security Documents" means the Security Agreement, the
-----------------------------
Guaranty, the Pledge Agreements, and any other document or instrument executed
and/or delivered from time to time hereunder or in connection herewith granting
or evidencing Collateral for the Senior Obligations.
"Combination" shall mean the transactions pursuant to which, on the
-----------
Effective Date, Merkert Enterprises, Inc. and Rogers-American Company, Inc.
became wholly-owned subsidiaries of the Borrower, as described in the
Registration Statement.
"Company" means individually, and "Companies" means individually and
------- ---------
collectively, Borrower and each Guarantor.
"Compliance Certificate" means a certificate in the form of Exhibit E
----------------------
attached hereto delivered by Borrower to Lenders pursuant to Paragraph 5.4
hereof.
"Consolidated Coverage Ratio" has the meaning set forth in the
---------------------------
Indenture.
"Debt Service" means, for any period, the sum of interest expense and
------------
scheduled debt payments for such period.
"Default" means an event, condition or circumstance the occurrence of
-------
which would, with the giving of notice or the passage of time or both,
constitute an Event of Default.
"EBITDA" means, for any period, net income for such period as defined
------
in accordance with GAAP, excluding any extraordinary gains, plus interest
expense, taxes, depreciation and amortization, and all other non-cash charges to
income for such period, in each case as defined in accordance with GAAP and to
the extent each has been deducted in determining net income.
"Effective Date" means December 18, 1998.
--------------
"Eligible Accounts" means, as of any date of determination thereof,
-----------------
the aggregate of all trade account receivables of Borrower and its consolidated
Subsidiaries, at book value in accordance with GAAP, excluding, without
duplication:
(a) any receivable not payable in United States Dollars;
(b) any receivable as to which the account debtor is not located
within the United States, unless such receivable is backed by a letter of credit
in form and substance satisfactory to Agent and issued by a financial
institution acceptable to Agent;
(c) any receivable which by its terms is due later than the end of the
month following the month of shipment;
5
<PAGE>
(d) any receivable due from any Company or any Subsidiary or Affiliate
of any Company;
(e) any receivable with respect to all or part of which a check,
promissory note, draft, trade acceptance or other instrument for the payment of
money has been presented for payment and returned uncollected for any reason;
(f) any receivable as to which Borrower or the applicable owner knows
that any one or more of the following events has occurred with respect to the
account debtor: death or judicial declaration of incompetency; the filing by or
against such account debtor of a request or petition for liquidation,
reorganization, arrangement, adjustment of debts, adjudication as a bankrupt, or
other relief under the bankruptcy, insolvency, or similar laws of the United
States, any state or territory thereof, or any foreign jurisdiction, now or
hereafter in effect; the making of any general assignment by such account debtor
for the benefit of creditors; the appointment of a receiver or trustee for such
account debtor or for any of the assets of such account debtor, including,
without limitation, the appointment of or taking possession by a "custodian," as
defined in the Bankruptcy Code; the institution by or against such account
debtor of any other type of insolvency proceeding (under the bankruptcy laws of
the United States or elsewhere) or of any formal or informal proceeding for the
dissolution or liquidation of, settlement of claims against, or winding up of
affairs of, such account debtor; the sale, assignment, or transfer of all or
substantially all of the assets of such account debtor; the inability to pay or
the nonpayment by such account debtor of its debts generally as they become due;
the cessation of the business of such account debtor as a going concern; or, in
Agent's sole reasonable judgment, unsatisfactory general financial performance
or credit standing or likelihood of unsatisfactory general financial performance
or credit standing in the near future;
(g) any receivable which is more than sixty (60) days past the due
date;
(h) any receivable from an account debtor as to which more than fifty
percent (50%) of the amount of all outstanding receivables from such account
debtor are more than ninety (90) days past the date of invoice;
(i) any receivable as to which there is any good faith dispute,
defense, offset or counterclaim with or by the account debtor, to the extent
thereof;
(j) any receivable that has not been created in the ordinary course of
business; and
(k) any receivable representing an obligation for goods placed on
consignment and not yet sold by the consignee, or for goods on approval;
(l) any receivable payable to a Subsidiary that is not a Guarantor;
6
<PAGE>
"Eligible Merkert Accounts" means Eligible Accounts of Borrower,
-------------------------
Merkert American Co., Inc., United Brokerage Company, and Buckeye Sales &
Marketing Company which are not Eligible Richmont Accounts and do not relate to
business acquired in the Richmont Merger.
"Eligible Richmont Accounts" means (i) Eligible Accounts of the
--------------------------
Richmont Subsidiaries, and (ii) all other Eligible Accounts of Borrower which
relate to business acquired in the Richmont Merger.
"Environmental Laws" means any federal, state, county, regional or
------------------
local laws governing the control, handling, storage, removal, spill, release or
discharge of Hazardous Substances, including without limitation CERCLA, the
Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery
Act of 1976 and the Hazardous and Solid Waste Amendments of 1984, the Federal
Water Pollution Control Act, as amended by the Clean Water Act of 1976, the
Hazardous Materials Transportation Act, the Emergency Planning and Community
Right to Know Act of 1986, the National Environmental Policy Act of 1975, the
Oil Pollution Act of 1990, any similar or implementing state law, and in each
case including all amendments thereto, and all rules and regulations promulgated
thereunder and permits issued pursuant thereto.
"EPA" means the United States Environmental Protection Agency, or any
---
successor thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, all
-----
amendments thereto and all rules and regulations in effect at any time
thereunder.
"ERISA Affiliate" means, when used with respect to any Plan, ERISA,
---------------
the PBGC or a provision of the Code pertaining to employee benefit plans, any
Person or entity that is a member of any group or organization within the
meaning of Code Sections 414(b), (c), (m) or (o) of which Borrower or any
Guarantor is a member.
"Event of Default" means an event described in Paragraph 7.1 hereof.
----------------
"Excess Cash Flow" means, for any fiscal year, EBITDA for such fiscal
----------------
year, less (i) all payments of principal, interest, fees and expenses with
respect to Total Debt made during such year, (ii) taxes paid in cash during such
fiscal year, (iii) capital expenditures made during such fiscal year, and (iv)
the change in Working Capital since the end of the prior fiscal year (such
change in Working Capital to constitute a reduction in Excess Cash Flow to the
extent that it is negative, and an increase to Excess Cash Flow to the extent
that it is positive).
"Executive Officer" means, with respect to the Borrower, its
-----------------
President, Chief Financial Officer, Chief Operating Officer, and any other
officer who is an "executive officer" as defined in Rule 3b.7 under the
Securities Exchange Act of 1934, as amended.
7
<PAGE>
"Existing Credit Agreement" means the Credit Agreement dated December
-------------------------
18, 1998.
"Existing Merkert Subordinated Obligations" means
-----------------------------------------
(i) the payment obligations to JF & JF Limited Partnership
under the Stock Purchase Agreement dated July 7, 1999 by and among Borrower,
Buckeye Sales & Marketing, Inc., JF & JF Limited Partnership and certain Primary
Parties;
(ii) the obligations to the selling stockholders of Sell, Inc.
under those certain Subordinated Promissory Notes issued pursuant to the Stock
Purchase Agreement dated January 20, 1999 among Borrower, Sell, Inc. and the
stockholders of Sell, Inc.; and
(iii) the payment obligations to the stockholders of United
Brokerage Company under that certain Stock Purchase Agreement dated April 23,
1999 among Borrower, United Brokerage Company and the stockholders of United
Brokerage Company.
"Existing Richmont Subordinated Obligations" means
------------------------------------------
(i) obligations to the stockholders of Timmons-Sheehan, Inc.
under those certain Promissory Notes issued pursuant to the Stock Purchase
Agreement dated April 21, 1999 among Marketing Specialists Sales Company,
Timmons-Sheehan, Inc. and the stockholders of Timmons-Sheehan, Inc.;
(ii) obligations to stockholders of Atlas Marketing Company,
Inc. under those certain Subordinated Promissory Notes issued pursuant to (A)
the Stock Purchase Agreement dated November 6, 1997 among Richmont, MSSC
Carolina, Inc., the Atlas Marketing Company, Inc. Employee Stock Ownership Plan,
and certain management stockholders of Atlas Marketing Company, Inc., (B) the
Stock Purchase Agreement dated November 6, 1997 among Atlas Marketing Company,
Inc., Quincy Cummings, Gynn Eller, MSCC Carolina, Inc. and Richmont.
(iii) obligations to the stockholders of Tower Marketing, Inc.
under the Common Notes and Preferred Notes issued pursuant to the Agreement and
Plan of Merger dated April 21, 1997 among Tower Marketing, Inc., MSSC Texas,
Inc. and Marketing Specialists Sales Company;
Until documentation has been delivered to the Agent making clear that
such obligations are fully subordinated to all of the Senior Obligations,
without notice to such subordinated creditors, the Existing Richmont
Subordinated Obligations shall not constitute Subordinated Debt for purposes of
calculation of the covenant set forth in Paragraph 5.15 or for purposes of
Paragraph 6.1 hereof.
8
<PAGE>
"Federal Funds Rate" means, for any day, the effective rate of
------------------
interest for such day, as announced from time to time by the Board of Governors
of the Federal Reserve System as shown in publication H.15 as the "Federal Funds
Rate."
"Fixed Charges" means, for any period, the sum of Debt Service for
-------------
such period plus Capital Lease payments for such period and cash income taxes
paid during such period.
"GAAP" means generally accepted accounting principles set forth in the
----
Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and in statements of the Financial Accounting
Standards Board and in such other statements by such other entity as Agent may
reasonably approve, which are applicable in the circumstances as of the date in
question, subject to Paragraph 1.2(a) hereof; and such principles observed in a
current period shall be comparable in all material respects to those applied in
a preceding period.
"Guarantor" means individually, and "Guarantors" means individually
--------- ----------
and collectively, the subsidiaries of Borrower on the Amendment Effective Date
(including the Richmont Subsidiaries), and any Subsidiaries of Borrower which
may join in the Guaranty pursuant to Paragraph 5.22 hereof.
"Guaranty" means the Amended and Restated Guaranty Agreement executed
--------
by Guarantors in favor of Lenders as delivered pursuant to Paragraph 4.1 hereof
and including any joinders thereto pursuant to Paragraph 5.22 hereof, as may be
amended, modified or restated from time to time.
"Hazardous Substance" means petroleum products and items defined in
-------------------
the Environmental Laws as "hazardous substances", "hazardous wastes",
"pollutants" or "contaminants" and any other toxic, reactive, corrosive,
carcinogenic, flammable or hazardous substance or other pollutant.
"Indebtedness" of any Person as of any date of determination means and
------------
includes all obligations of such Person which, in accordance with GAAP, shall be
classified on a balance sheet of such Person as liabilities of such Person and
in any event shall include, without duplication, all (i) obligations of such
Person for borrowed money or which have been incurred in connection with
acquisition of property or assets, (ii) obligations secured by any lien upon
property or assets owned by such Person, notwithstanding that such Person has
not assumed or become liable for the payment of such obligations, (iii)
obligations created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person,
notwithstanding the fact that the rights and remedies of the seller, lender or
lessor under such agreement in the event of default are limited to repossession
or sale of property, (iv) Capital Leases, (v) guarantees, (vi) letters of credit
and letter of credit reimbursement obligations, and (vii) any obligation with
respect to an interest rate or currency swap or similar obligation obligating
such Person to make payments, whether periodically or
9
<PAGE>
upon the happening of a contingency, except that if any agreement relating to
such obligation provides for the netting of amounts payable by and to such
Person thereunder or if any such agreement provides for the simultaneous payment
of amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount thereof.
"Indenture" means the Indenture dated as of December 19, 1997
---------
governing the Senior Subordinated Notes as amended by the Supplemental Indenture
dated as of the Amendment Effective Date, and as may be further amended from
time to time.
"Indemnification Escrow Agreement" means the Indemnification Escrow
--------------------------------
Agreement dated the Effective Date, entered into pursuant to the Merkert
Acquisition Agreement.
"Initial Offering" means the initial public offering of shares of
----------------
common stock of Borrower pursuant to the Registration Statement.
"Interest Period" means, with respect to a Libor Portion, a period of
---------------
one (1), two (2), three (3) or six (6) months' duration, as Borrower may elect,
during which the Adjusted Libor Rate is applicable; provided, however, that (a)
if any Interest Period would otherwise end on a day which shall not be a London
Business Day, such Interest Period shall be extended to the next succeeding
London Business Day, unless such London Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding London
Business Day, subject to clause (c) below; (b) interest shall accrue from and
including the first day of each Interest Period to, but excluding, the day on
which any Interest Period expires; (c) with respect to an Interest Period which
begins on the last London Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month at the end
of such Interest Period), the Interest Period shall end on the last London
Business Day of a calendar month; and (d) Borrower may not elect an Interest
Period that would extend past the Termination Date.
"Lender" means individually, and "Lenders" means individually and
------ -------
collectively, the institutions identified on Schedule 1 attached hereto and
their respective successors and assigns so long as any such institution retains
any portion of the Revolving Credit Commitment or Loans hereunder.
"Letter of Credit" means individually, and "Letters of Credit" shall
---------------- -----------------
mean individually and collectively, the letter(s) of credit issued for the
account of Borrower, in the form agreed upon at the time of issuance thereof by
Agent and Borrower, participated in by all the Lenders pursuant to the terms and
conditions of Section 2A hereof.
"Letter of Credit Request Form" means the certificate in the form
-----------------------------
attached as Exhibit A-2 hereto, to be delivered to Agent as a condition of each
issuance of a Letter of Credit pursuant to Paragraph 2A.3 hereof.
10
<PAGE>
"Letter of Credit Sublimit" means the portion of the Revolving Credit
-------------------------
Commitment up to which Lenders have agreed to participate in the issuance by
Agent of Letters of Credit pursuant to Section 2A hereof, being Five Million
Dollars ($5,000,000).
"Libor Portion" means a Portion as to which the applicable rate of
-------------
interest is based on the Adjusted Libor Rate.
"Loan" means individually, and "Loans" means individually and
---- -----
collectively, the Revolving Credit Loan and the Term Loan.
"Loan Documents" means the Agreement, the Notes, Collateral Security
--------------
Documents, and the other documents and agreements executed and delivered in
connection with this Agreement. The Loan Documents shall not include any
agreements or documents relating to swaps, hedges or similar arrangements with
any Lender.
"Local Authorities" means individually and collectively the state and
-----------------
local governmental authorities and administrative agencies which govern the
business, commercial activities or facilities owned or operated by any Company.
"London Business Day" means any Business Day on which banks in London,
-------------------
England are open for business.
"Material Adverse Effect" means a material adverse effect on the
-----------------------
business, financial condition or prospects of the Borrower and its consolidated
Subsidiaries taken as a whole, or on the Companies' ability to perform their
obligations under this Agreement and the other Loan Documents.
"Material Subsidiary" means any direct or indirect Subsidiary of
-------------------
Borrower which either: (i) comprises 5% or more of the assets of Borrower and
its consolidated Subsidiaries as of the last day of the most recently ended
fiscal quarter, or (ii) is responsible for 5% or more of the EBITDA of the
Borrower and its consolidated Subsidiaries for the most recent Rolling Period.
"Maximum Principal Amount" means the maximum principal amount of the
------------------------
Revolving Credit Commitment, up to which the applicable Lender has agreed to
lend funds and/or participate in the issuance of Letters of Credit as set forth
in Schedule 1 attached hereto, as such amounts may be reduced or terminated from
time to time pursuant to Paragraph 2.8 hereof.
"Merkert Stock Purchase Agreement" means the Stock Purchase Agreement
--------------------------------
dated May 20, 1998 among the Borrower (formerly Monroe, Inc.), Merkert
Enterprises, Inc. and the stockholders of Merkert Enterprises, Inc. as amended
by Amendment No. 1 to Stock Purchase Agreement dated November 18, 1998 and by
Amendment No. 2 to Stock Purchase Agreement dated December 15, 1998.
11
<PAGE>
"Net Cash Proceeds" means, with respect to any Sale of Material
-----------------
Assets, the cash proceeds (including insurance proceeds) received by the
Borrower or its Subsidiaries in such a transaction less (i) the reasonable costs
of the transaction, (ii) applicable taxes arising out of the transaction, and
(iii) payment of any Indebtedness secured by such assets pursuant to liens
permitted under Paragraph 6.4(i) or (v).
"Note" means individually and "Notes" means individually and
---- -----
collectively the Revolving Credit Notes and the Term Notes.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
----
successor thereto.
"Permitted Investments" means (i) investments in commercial paper
---------------------
maturing in 180 days or less from the date of issuance which is rated A1 or
better by Standard & Poor's Corporation or P1 or better by Moody's Investors
Services, Inc.; (ii) investments in direct obligations of the United States of
America or obligations of any agency thereof which are guaranteed by the United
States of America, provided that such obligations mature within twelve (12)
months of the date of acquisition thereof; (iii) investments in certificates of
deposit maturing within one (1) year from the date of acquisition thereof issued
by a bank or trust company organized under the laws of the United States or any
state thereof, having capital, surplus and undivided profits aggregating at
least $500,000,000 and the long-term deposits of which are rated A1 or better by
Moody's Investors Services, Inc. or equivalent by Standard & Poor's Corporation;
and (iv) money market funds registered under the Investment Company Act of 1940,
as amended, whose shares are registered under the Securities Act of 1933, as
amended, and having a rating by Standard & Poor's Corporation of AAAm-G, AAAm or
AAm.
"Permitted Liens" shall mean liens permitted pursuant to Paragraph 6.4
---------------
hereof.
"Person" shall mean any individual, corporation, partnership, company,
------
association, limited liability corporation or other legal entity.
"Plan" means any employee pension benefit or employee welfare benefit
----
plan as defined in Sections 3(1) or (2) of ERISA maintained or sponsored by,
contributed to, or covering employees of, either Borrower or any ERISA
Affiliate.
"Pledge Agreements" shall mean the Amended and Restated Pledge
-----------------
Agreement executed by the Companies in favor of Agent pursuant to Paragraph 4.1
hereof and any additional Pledge Agreement executed and delivered from time to
time pursuant to Paragraph 5.22 hereof, as may be amended, modified or restated
from time to time.
"Portion" means a portion of the Loan as to which a specific interest
-------
rate and, in the case of a Libor Portion, an Interest Period, has been elected
by Borrower.
12
<PAGE>
"Prime Rate" means the rate of interest announced by Agent from time
----------
to time as its prime rate. Such rate is an index or base rate and is not
necessarily the lowest or best rate charged by Agent to its customers or other
banks.
"Pro Rata Share" means, as to a Lender, the ratio which the
--------------
outstanding principal balance of its portion of the Loans hereunder bears to the
aggregate outstanding principal balance of the Loans at any time; or if no
indebtedness is outstanding hereunder or the context otherwise requires, its
percentage share of the Revolving Credit Commitment as set forth in Schedule 1
attached hereto.
"Proxy Statement" means the Borrower's Proxy Statement dated July 12,
---------------
1999 with respect to the special meeting in lieu of annual meeting of
stockholders held on August 18, 1999.
"Registration Statement" means the registration statement filed by the
----------------------
Borrower on Form S-1, No. 333-53419, as amended and in the form as declared
effective by the Securities and Exchange Commission on December 15, 1998,
together with the prospectus contained therein, as supplemented pursuant to Rule
424(b) under the Securities Act of 1933, as amended.
"Regulation D" means Regulation D of the Board of Governors of the
------------
Federal Reserve System, comprising Part 204 of Title 12 Code of Federal
Regulations, as amended, and any successor thereto.
"Release" means any spill, leak, emission, discharge or the pumping,
-------
pouring, emptying, disposing, injecting, escaping, leaching or dumping of a
Hazardous Substance into the environment.
"Required Lenders" means those Lenders (which may include Agent in its
----------------
capacity as a Lender) holding Pro Rata Shares aggregating sixty-six and two-
thirds percent (66-2/3%) or more.
"Reserve" means, for any day, that reserve (expressed as a decimal)
-------
which is in effect (whether or not actually incurred) with respect to a Lender
(or any bank Affiliate of such Lender) on such day, as prescribed by the Board
of Governors of the Federal Reserve System (or any successor or any other
banking authority to which a Lender (or any bank Affiliate of such Lender) is
subject including any board or governmental or administrative agency of the
United States or any other jurisdiction to which a Lender (or any bank Affiliate
of such Lender) is subject for determining the maximum reserve requirement
(including without limitation any basic, supplemental, marginal or emergency
reserves) for Eurocurrency liabilities as defined in Regulation D.
"Reserve Percentage" means, for a Lender (or any bank Affiliate of
------------------
such Lender) on any day, that percentage (expressed as a decimal) prescribed by
the Board of
13
<PAGE>
Governors of the Federal Reserve System (or any successor or any other banking
authority to which a Lender (or any bank Affiliate of such Lender) is subject,
including any board or governmental or administrative agency of the United
States or any other jurisdiction to which a Lender is subject), for determining
the reserve requirement (including without limitation any basic, supplemental,
marginal or emergency reserves) for (i) deposits of United States Dollars or
(ii) Eurocurrency liabilities as defined in Regulation D, in each case used to
fund a Portion subject to an Adjusted Libor Rate or any Loan made with the
proceeds of such deposit. The Adjusted Libor Rate shall be adjusted on and as of
the effective day of any change in the Reserve Percentage.
"Restricted Payments" means redemptions, repurchases, and
-------------------
distributions of any kind (including redemptions in exchange for real or
tangible personal property) in respect of the capital stock of Borrower (other
than dividends or distributions consisting solely of shares of capital stock of
Borrower), and payments of principal and interest or other amounts on
Subordinated Debt.
"Revolving Credit Commitment" means at any time the maximum aggregate
---------------------------
principal amount which Lenders have agreed to make available at such time under
Paragraph 2.1(a) hereof, being Twenty-Five Million Dollars ($25,000,000) in the
aggregate on the date hereof.
"Revolving Credit Loan" means the aggregate outstanding principal
---------------------
balance of Indebtedness advanced under the Revolving Credit Commitment together
with interest accrued thereon and fees and expenses incurred in connection with
any of the foregoing.
"Revolving Credit Note" means individually, and "Revolving Credit
--------------------- ----------------
Notes" means individually and collectively, the Amended and Restated Revolving
- -----
Credit Notes in the form of Exhibit B-1 attached hereto delivered by Borrower to
each Lender, as may be amended, modified, extended, consolidated or restated
from time to time.
"Richmont" means Richmont Marketing Specialists, Inc., a Delaware
--------
corporation.
"Richmont Letter of Credit" means letter of credit number P-362097
-------------------------
issued by Chase Manhattan Bank in the amount of $1,265,991 in favor of BSDAL I
Limited Partnership.
"Richmont Merger" means the merger of Richmont with and into Borrower,
---------------
on and subject to the terms and conditions set forth in the Richmont Merger
Agreement.
"Richmont Merger Agreement" means the Agreement and Plan of Merger
-------------------------
dated April 28, 1999, as amended by Amendment No. 1 dated July 8, 1999, by and
among Borrower, Richmont and the stockholders of Richmont.
"Richmont Subsidiaries" means Marketing Specialists Sales Company, a
---------------------
Texas corporation, Bromar, Inc., a California corporation, Brokerage Services,
Inc., a California
14
<PAGE>
corporation, Atlas Marketing Company, Inc., a North Carolina corporation, and
Meatmaster Brokerage, Inc., a Virginia corporation.
"Rogers Stock Purchase Agreement" means the Stock Purchase Agreement
-------------------------------
dated as of May 22, 1998 among Borrower (formerly Monroe, Inc.), Rogers-American
Company, Inc., Curtis L. Rogers, Jr., as stockholders' representative, and the
stockholders of Rogers-American Company, Inc., as amended by Amendment no. 1 to
the Stock Purchase Agreement dated November 16, 1998.
"Rolling Period" means a period of four consecutive fiscal quarters.
--------------
"Sale of Material Assets" means the sale or other disposition
-----------------------
(including damage, destruction or condemnation of assets) by Borrower or any of
its Subsidiaries, in a single transaction or in the aggregate as to all
transactions within any twelve (12) consecutive months, of assets (including
stock or other investments or interests in a Person) which, valued at the
greater of book value or fair market value, have a value of One Hundred Thousand
Dollars ($100,000) or more; excluding (i) the sale of inventory in the ordinary
course of business, and (ii) the sale of Permitted Investments for cash or the
conversion into cash of Permitted Investments.
"Security Agreement" means the Amended and Restated Security Agreement
------------------
executed by Borrower and Guarantors delivered pursuant to Paragraph 4.1 hereof
(including as joined in by any additional Guarantors pursuant to Paragraph 5.22
hereof from time to time), as may be amended, modified, or restated from time to
time.
"Seller Obligations" means (i) obligations of any of the Companies or
------------------
their Subsidiaries to sellers of previously acquired businesses, including all
deferred or contingent purchase price obligations and all non-competition,
employment and consulting arrangements, and (ii) obligations to previous
shareholders of any of the Companies relating to repurchase of their shares.
"Senior Debt" means Total Debt less Subordinated Debt.
-----------
"Senior Obligations" means the obligations of the Borrower and its
------------------
Subsidiaries to Lenders or Agent with respect to (i) the Loans, (ii) any
currency or interest rate swap or similar obligation with any Lender, and (iii)
any other obligation under any Loan Document.
"Senior Subordinated Notes" means the 101/8% Senior Subordinated Notes
-------------------------
due 2007 issued pursuant to the Indenture.
"Subordinated Debt" means indebtedness of Borrower or a Subsidiary
-----------------
subordinated to the Senior Obligations pursuant to a subordination agreement in
form and substance satisfactory to Required Lender, as approved in writing prior
to the incurrence of such indebtedness.
15
<PAGE>
"Subsidiary" means, with respect to any Person, any other Person of
----------
which such Person, directly or indirectly, owns or controls more than fifty
percent (50%) of any class or classes of securities, membership interests,
partnership interests or other equity interests, and any partnership in which
such Person is a general partner. Unless otherwise specified, references to
"Subsidiaries" herein shall mean direct and indirect Subsidiaries of Borrower.
"Successful Syndication" means (i) completion of an orderly
----------------------
syndication of the credit facilities of the Borrower resulting in an aggregate
hold level for First Union of not more than Twenty Five Million Dollars
($25,000,000), or (ii) this Agreement being terminated and all amounts due and
owing hereunder having been fully paid in cash.
"Tax Escrow Agreement" means the Tax Escrow Agreement dated the
--------------------
Effective Date, entered into pursuant to the Merkert Acquisition Agreement.
"Term Loan" means the outstanding principal balance of indebtedness
---------
advanced pursuant to Paragraph 2.1(b) hereof, together with interest accrued
thereon and fees and expenses payable hereunder in connection therewith.
"Term Note" means individually, and "Term Notes" means individually
--------- ----------
and collectively, the Term Notes in the form of Exhibit B-2 attached hereto
delivered by Borrower to each Lender, as may be amended, modified or restated
from time to time.
"Termination Date" means the earlier of (i) December 31, 2001, or (ii)
----------------
the date on which the Revolving Credit Commitment is terminated pursuant to
Paragraph 2.8 hereof.
"Total Debt" means, as of the date of determination, the aggregate
----------
outstanding principal amount of all Indebtedness for: (A) borrowed money,
including without limitation the Loans hereunder and any outstanding
Subordinated Debt; (B) the purchase price for installment purchases of real or
personal property; (C) the principal portion of Capital Leases; (D) guaranties
of Indebtedness of others; (E) reimbursement obligations under letters of
credit; in each case without duplication; and (F) Seller Obligations (except to
the extent funds thereunder have been placed in escrow with Agent on terms
satisfactory to Agent).
"Voting Agreement" means the Voting Agreement being entered into on
----------------
the Amendment Effective Date among MS Acquisition Limited, Ronald D. Pedersen,
Bruce A. Butler, Gary R. Guffey, Jeffrey A. Watt, Monroe & Company LLC, JLM
Management LLC and Borrower.
"Waiver Agreement" means the Waiver, Consent and Amendment Agreement
----------------
dated August 13, 1999 among Borrower, Lenders and Agent.
"Working Capital" means current assets (net of cash) less current
---------------
liabilities (net of short term debt and current maturities of long term debt).
16
<PAGE>
"Year 2000 Compliant" and "Year 200 Compliance"means, as to any
------------------- -------------------
material computer system or application or micro-processor dependent good or
equipment, that it will operate as designed and intended prior to, during and
after the calendar year 2000 without error relating to date data or date
information, specifically including any error relating to, or the product of,
date data or date information that represents or references different centuries
or more than one century.
1.2 Rules of Construction.
---------------------
(a) GAAP. Except as otherwise provided herein, financial and
----
accounting terms used in the foregoing definitions or elsewhere in this
Agreement, shall be defined in accordance with GAAP. If Borrower or Required
Lenders determine that a change in GAAP from that in effect on the date hereof
has altered the treatment of certain financial data to its detriment under this
Agreement, such party may, by written notice to the other within ten (10) days
after the effective date of such change in GAAP, request renegotiation of the
financial covenants affected by such change. If Borrower and Required Lenders
have not agreed on revised covenants within thirty (30) days after the delivery
of such notice, then, for purposes of this Agreement, GAAP will mean generally
accepted accounting principles on the date just prior to the date on which the
change occurred that gave rise to the notice.
(b) Use of term "consolidated". Any term defined in Paragraph
--------------------------
1.1 hereof, when modified by the word "consolidated," shall have the meaning
given to such term herein as to Borrower and all entities whose accounts,
financial results or position, for financial accounting purposes, are
consolidated with those of Borrower in accordance with GAAP.
1.3 Proforma Calculations. In calculating EBITDA, Adjusted EBITDA,
---------------------
Debt Service, Fixed Charges, or Interest Expense, or in making any similar
calculation hereunder, for any period, in the event that the Combination or any
acquisition or Sale of Substantial Assets has been consummated during such
period, then such calculations shall be made based on proforma financial
statements setting forth the results of operations of Borrower and its
consolidated Subsidiaries as though such Combination, acquisition or Sale of
Material Assets had been consummated as of the first day of such period,
including, in the case of the Combination, integration adjustments as described
on page 34 of the Registration Statement and such additional integration
adjustments as may be agreed to by Agent and, in the case of the Richmont
Merger, the integration adjustments that are the subject of the letter from
Arthur Andersen LLP referenced in Paragraph 4.1(g) hereof; provided, however,
-------- -------
that the chief financial officer of Borrower shall certify to Agent when such
employment terminations are effected, and, in the event that the employment
terminations are not effected by December 31, 1999 then Borrower may not take
into account such integration adjustments for purposes hereof.
17
<PAGE>
SECTION 2
CREDIT FACILITY
---------------
2.1 The Facilities.
--------------
(a) Revolving Credit Commitment. From time to time prior to the
---------------------------
Termination Date, subject to the provisions below, each Lender severally agrees
to make Advances to Borrower up to its respective Maximum Principal Amount,
which Borrower may repay and reborrow prior to the Termination Date, for
purposes specified in Paragraph 2.4 hereof; provided, however, that the
aggregate outstanding principal amount of such Advances, together with the
undrawn amount of all outstanding Letters of Credit and all unreimbursed draws
on Letters of Credit, shall not exceed at any time the lesser of the Revolving
Credit Commitment or the Borrowing Base.
(b) Term Loan. On the Effective Date, the Term Loan was
---------
advanced to Borrower in the aggregate amount of Fifty Million Dollars
($50,000,000).
2.2 Promissory Notes. The Indebtedness of the Borrower to each
----------------
Lender under the Revolving Credit Loan will be evidenced by a Revolving Credit
Note executed by Borrower in favor of such Lender, and the Indebtedness of the
Borrower to each Lender under the Term Loan will be evidenced by a Term Note
executed by Borrower in favor of such Lender. The original principal amount of
each Lender's Revolving Credit Note and Term Note will be in the amount
identified in Schedule 1 attached hereto as its Maximum Principal Amount with
respect to the Revolving Credit Loan and the Term Loan, respectively; provided,
however, that notwithstanding the face amount of each such Note, Borrower's
liability thereunder shall be limited at all times to the actual indebtedness,
principal, interest, fees and expenses then outstanding to such Lender under the
Revolving Credit Loan and the Term Loan, respectively.
The Revolving Credit Notes and Term Notes amend and restate the
Revolving Credit Notes and Term Notes, respectively, executed and delivered by
Borrower pursuant to the Existing Credit Agreement (the "Prior Notes");
provided, however, that Notes shall not constitute a novation, and shall not be
deemed to have extinguished or discharged the indebtedness under the Prior Notes
or the collateral security therefore, all of which shall continue under and be
governed by the Notes and the other Loan Documents.
2.3 Lenders' Participation. Lenders shall be lenders in the Loans in
----------------------
the Maximum Principal Amounts and Pro Rata Shares set forth in Schedule 1
attached hereto.
2.4 Use of Proceeds. Funds advanced under the Loans shall be used
---------------
solely for the working capital needs and general corporate purposes of the
Companies, including acquisitions permitted hereunder, provided that in no event
shall funds advanced hereunder be advanced to or used by Subsidiaries that are
not Guarantors.
18
<PAGE>
2.5 Repayment.
---------
(a) Revolving Credit Loan. Subject to certain mandatory
---------------------
prepayments as set forth in Paragraph 2.9 hereof, the aggregate outstanding
principal balance under the Revolving Credit Loan on the Termination Date,
together with all interest, fees and costs due hereunder, shall be due and
payable in full on such Termination Date. Notwithstanding the immediately
preceding sentence, the aggregate outstanding balance of the Revolving Credit
Loan shall be due and payable immediately upon acceleration of the Revolving
Credit Loan in accordance with Paragraph 7.2 hereof.
(b) Term Loan. Subject to certain mandatory prepayments as set
---------
forth in Paragraph 2.9 hereof, the Term Loan shall be payable in quarterly
installments as follows:
<TABLE>
<CAPTION>
Scheduled Payment Date Amount of Payment
---------------------- -----------------
<S> <C>
March 31, 1999 $1,562,500
June 30, 1999 $1,562,500
September 30, 1999 $1,562,500
December 31, 1999 $1,562,500
March 31, 2000 $2,187,500
June 30, 2000 $2,187,500
September 30, 2000 $2,187,500
December 31, 2000 $2,187,500
March 31, 2001 $2,500,000
June 30, 2001 $2,500,000
September 30, 2001 $2,500,000
December 31, 2001 $2,500,000
March 31, 2002 $3,125,000
June 30, 2002 $3,125,000
September 30, 2002 $3,125,000
December 31, 2002 $3,125,000
March 31, 2003 $3,125,000
June 30, 2003 $3,125,000
September 30, 2003 $3,125,000
December 31, 2003 $3,125,000
</TABLE>
Notwithstanding the foregoing, the entire outstanding balance of the Term Loan
shall be due and payable immediately upon the acceleration of the Term Loan in
accordance with Paragraph 7.2 hereof.
19
<PAGE>
2.6 Interest. Portions of the Loans shall bear interest on the
--------
outstanding principal amount thereof in accordance with the following
provisions:
(a) Interest on Loan.
----------------
(i) At the Borrower's election in accordance with the
provisions of Paragraph 2.6(b) below, in the absence of the existence and
continuance of an Event of Default hereunder and prior to maturity or judgment,
and subject to clause (ii) below, any Portion of the Loans shall bear interest
at either of the following rates:
(A) Base Rate. The Base Rate plus the Applicable
---------
Margin.
(B) Adjusted Libor Rate. The Adjusted Libor Rate plus
--------------------
the Applicable Margin.
provided, however, that from and after the Amendment Effective Date until the
achievement of a Successful Syndication, Borrower shall not be entitled to elect
the interest rate based on the Adjusted Libor Rate. All Libor Portions
outstanding on the Amendment Effective Date shall at the expiration of the
Interest Period with respect thereto convert to Base Rate Portions. So long as
a Successful Syndication has not been achieved, all new advances, and all other
outstanding advances (except for Libor Portions that have not yet expired as
provided in the preceding sentence) shall bear interest based on the Base Rate.
(ii) Notwithstanding the foregoing, upon the occurrence and
during the continuance of an Event of Default hereunder, including after
maturity and upon judgment, Borrower hereby agrees to pay to Lenders interest
(A) on any outstanding Libor Portion, at the rate which is two percent (2%) per
annum in excess of the Adjusted Libor Rate plus the Applicable Margin for each
such Libor Portion through the end of the applicable Interest Period, and
thereafter, at the rate of two percent (2%) per annum in excess of the Base Rate
plus the Applicable Margin, and (B) on any Base Rate Portion, at the rate of two
percent (2%) per annum in excess of the Base Rate plus the Applicable Margin.
(b) Procedure for Determining Interest Periods and Rates of
-------------------------------------------------------
Interest.
- --------
(i) If Borrower elects the rate based on the Base Rate to
be applicable to a Portion, Borrower must notify Agent of such election in
writing prior to eleven o'clock (11:00) a.m. Philadelphia time one (1) Business
Day prior to the proposed application of such rate. If Borrower elects the rate
based on the Adjusted Libor Rate to be applicable to a Portion, Borrower must
notify Agent of such election and the Interest Period selected prior to eleven
o'clock (11:00) a.m. Philadelphia time at least three (3) London Business Days
prior to the commencement of the proposed Interest Period. If Borrower does not
provide notice for the rate based on the Adjusted Libor Rate, then Borrower
shall be deemed to have requested that the rate based on the Base Rate shall
apply to any Portion as to which the Interest Period is expiring and to any new
Advance of the Revolving Credit Loan until Borrower shall have
20
<PAGE>
given proper notice of a change in or determination of the rate of interest in
accordance with this Paragraph 2.6(b).
(ii) Borrower shall not elect more than six (6) different
Libor Portions to be applicable to the Loans at one time. Any Base Rate Portion
shall be in an amount equal to Five Hundred Thousand Dollars ($500,000) or an
even multiple of One Hundred Thousand Dollars ($100,000) in excess thereof, and
any Libor Portion shall be in an amount equal to Two Million Five Hundred
Thousand Dollars ($2,500,000) or an even multiple of One Hundred Thousand
Dollars ($100,000) in excess thereof.
(c) Payment and Calculation of Interest. With respect to
-----------------------------------
Portions which bear interest at the rate based on the Adjusted Libor Rate,
interest shall be due and payable on the last day of each Interest Period for
each such Portion, and, in the case of a Portion with an Interest Period of six
(6) months, on the ninetieth (90) day after the commencement of such Interest
Period and on the last day of the Interest Period. With respect to Portions
which bear interest at the rate based on the Base Rate, interest shall be due
and payable on the last Business Day of each March, June, September and
December. Interest shall be calculated in accordance with the provisions of
Paragraph 2.6(b) hereof; all interest shall be calculated on the basis of the
actual number of days elapsed over a year of 360 days in the case of interest
based on the Adjusted Libor Rate, or over a year of 365 or 366 days, as
applicable, in the case of interest based on the Base Rate.
(d) Reserves. If at any time when a Portion is subject to the
--------
rate based on the Adjusted Libor Rate, a Lender (or a bank Affiliate of such
Lender) is subject to and incurs a Reserve, other than a Reserve Percentage
included in the calculation of the applicable Adjusted Libor Rate, Borrower
hereby agrees to pay within five (5) Business Days of written demand thereof
from time to time, as billed by Agent on behalf of itself or any other Lender,
such amount as is necessary to reimburse such Lender (or such Lender's bank
Affiliate) for its costs in maintaining such Reserve, as described in reasonable
detail in such demand. Such amount shall be computed by taking into account the
cost incurred by such Lender (or such Lender's bank Affiliate) in maintaining
such Reserve in an amount equal to such Lender's ratable share of the Portion on
which such Reserve is incurred, which computation shall be set forth in any such
demand by Agent on behalf of itself or any other Lender. The good faith
determination by Agent or any Lender of such costs incurred and the allocation
of such costs among Borrower and other customers which have similar arrangements
with such Lender (or such Lender's bank Affiliate) shall be prima facie evidence
of the correctness of the fact and the amount of such additional costs. Upon
notification to Borrower of any payment required pursuant to this Paragraph
2.6(d), Borrower (A) shall make such payment in accordance with the provisions
hereof, and (B) may repay the Portion of the Loans with respect to which such
payment is required, subject to the requirements of Paragraph 2.9 and 2.10
hereof.
(e) Special Provisions Applicable to Adjusted Libor Rate. The
----------------------------------------------------
following special provisions shall apply to the Adjusted Libor Rate:
21
<PAGE>
(i) Change of Adjusted Libor Rate. The Adjusted Libor
-----------------------------
Rate may be automatically adjusted by Agent on a prospective basis to take into
account the additional or increased cost of maintaining any necessary reserves
for Eurodollar deposits or increased costs due to changes in applicable law or
regulation or the interpretation thereof occurring subsequent to the
commencement of the then applicable Interest Period, including but not limited
to changes in tax laws (except changes of general applicability in corporate
income tax laws) and changes in the reserve requirements imposed by the Board of
Governors of the Federal Reserve System (or any successor), excluding the
Reserve Percentage and any Reserve which has resulted in a payment pursuant to
subparagraph (d) above, that increase the cost to Lenders of funding the Loans
or a portion thereof bearing interest based on the Adjusted Libor Rate. Agent
shall give Borrower notice of such a good faith determination and adjustment,
described in reasonable detail, which determination shall be prima facie
evidence of the correctness of the fact and the amount of such adjustment.
Borrower may, by notice to Agent, (A) request Agent to furnish to Borrower a
statement setting forth the basis for adjusting such Adjusted Libor Rate and the
method for determining the amount of such adjustment; and/or (B) repay the
Portion of the Loans with respect to which such adjustment is made, subject to
the requirements of Paragraph 2.9 and 2.10 hereof.
(ii) Unavailability of Eurodollar Funds. In the event that
----------------------------------
Borrower shall have requested the rate based on the Adjusted Libor Rate in
accordance with Paragraph 2.6(b) and any Lender (or such Lender's bank
Affiliate) shall have reasonably determined that Eurodollar deposits equal to
the amount of the principal of the Portion and for the Interest Period specified
are unavailable, or that the rate based on the Adjusted Libor Rate will not
adequately and fairly reflect the cost of making or maintaining the principal
amount of the Portion specified by Borrower during the Interest Period
specified, or that by reason of circumstances affecting Eurodollar markets,
adequate and reasonable means do not exist for ascertaining the rate based on
the Adjusted Libor Rate applicable to the specified Interest Period, such Lender
shall give notice to Agent and Agent shall promptly give notice of such
determination to Borrower that the rate based on the Adjusted Libor Rate is not
available. A good faith determination by such Lender (or such Lender's bank
Affiliate) hereunder shall be prima facie evidence of the correctness of the
fact and amount of such additional costs or unavailability. Upon such a
determination, (i) the obligation to advance or maintain Portions at the rate
based on the Adjusted Libor Rate shall be suspended until Agent shall have
notified Borrower and Lenders that such conditions shall have ceased to exist,
and (ii) the rate based on the Base Rate shall be applicable to all such
Portions (provided, that Borrower shall not be required to compensate the
affected Lender for funding costs or loss of earnings as a result of such change
in interest rate).
(iii) Illegality. In the event that it becomes unlawful for
----------
a Lender (or such Lender's bank Affiliate) to maintain Eurodollar liabilities
sufficient to fund any Portion of the Loans subject to the rate based on the
Adjusted Libor Rate, then such Lender shall immediately notify Borrower thereof
(with a copy to Agent) and such Lender's obligations hereunder to advance or
maintain advances at the rate based on the Adjusted Libor Rate shall be
suspended until such time as such Lender (or such Lender's bank Affiliate) may
22
<PAGE>
again cause the rate based on the Adjusted Libor Rate to be applicable to any
Portion of the outstanding principal balance of the Loans and any such Lender's
share of any Portion shall then be subject to the rate based on the Base Rate
(provided, that Borrower shall not be required to compensate the affected Lender
for funding costs or loss of earnings as a result of such change in interest
rate).
2.7 Advances.
--------
(a) Advance Request. Borrower shall give Agent written notice,
---------------
not later than eleven o'clock (11:00) a.m. Philadelphia time one (1) Business
day prior to the proposed Advance in the case of an advance to bear interest
based on the Base Rate, and three (3) Business Days prior to an advance to bear
interest based on the Adjusted Libor Rate, of each requested Advance under the
Revolving Credit Commitment specifying the date, amount and purpose thereof.
Such notice shall be in the form of the Advance Request Form attached hereto as
Exhibit A-1, shall be certified by an Authorized Officer of Borrower, and shall
contain the following information and representations, which shall be deemed
affirmed and true and correct as of and upon receipt of the date of and upon
receipt of the requested Advance:
(i) the aggregate amount of the requested Advance, which
shall be no less than $2,500,000 in the case of an Advance to bear interest
based on the Adjusted Libor Rate and no less than $500,000 in the case of an
Advance to bear interest based on the Base Rate, and in either case shall be in
an even multiple of $100,000;
(ii) confirmation of the interest rate(s) elected by the
Borrower to apply to each Advance, and, if applicable, the Interest Period
elected by the Borrower to apply to each Libor Portion to be advanced;
(iii) confirmation of Borrower's compliance with Paragraphs
5.14 through 5.19 as of the most recently ended fiscal quarter for which a
Compliance Certificate has been (or is required to have been) delivered, and
taking into account any Advances, including the requested Advance, and payments
since such date;
(iv) certification that the incurrence of Indebtedness
pursuant to the proposed Advance does not violate the Indenture or trigger any
redemption or other rights of the holders of the Richmont Subordinated Notes;
(v) confirmation of Borrower's compliance with the
Borrowing Base, as of the end of the most recent month for which a Borrowing
Base Certificate has been (or is required to have been) delivered, and taking
into account any Advances, including the requested Advance, and payments since
such date;
(vi) statements that the representations and warranties
set forth herein and in the other Loan Documents are true and correct in all
material respects as of the
23
<PAGE>
date thereof; no Event of Default or Default hereunder has occurred and is then
continuing or will be caused by the requested Advance; and there has been no
Material Adverse Effect since the date of this Agreement.
(b) Procedures.
----------
(i) Upon receiving a request for an Advance in accordance
with subparagraph (a) above, Agent shall request by prompt notice to Lenders
that each Lender advance funds to Agent so that each Lender participates in the
requested Advance in the same percentage as it participates in the Revolving
Credit Commitment. Each Lender shall advance its applicable percentage of the
requested Advance to Agent by delivering federal funds immediately available at
Agent's offices prior to twelve o'clock (12:00) noon Philadelphia time on the
date of the Advance. Subject to the satisfaction of the terms and conditions
hereof, Agent shall make the requested Advance available to Borrower by
crediting such amount to Borrower's deposit account with Agent not later than
two o'clock (2:00) p.m. on the day of the requested Advance; provided, however,
that in the event Agent does not receive a Lender's share of the requested
Advance by such time as provided above, Agent shall not be obligated to advance
such Lender's share.
(ii) Unless Agent shall have been notified by a Lender
prior to the date such Lender's share of any such Advance is to be made by such
Lender that such Lender does not intend to make its share of such requested
Advance available to Agent, Agent may assume that such Lender has made such
proceeds available to Agent on such date, and Agent may, in reliance upon such
assumption (but shall not be obligated to), make available to Borrower a
corresponding amount. If such corresponding amount is not in fact made available
to Agent by such Lender on the date the Advance is made, Agent shall be entitled
to recover such amount on demand from such Lender (or, if such Lender fails to
pay such amount forthwith upon such demand, from Borrower) together with
interest thereon in respect of each day during the period commencing on the date
such amount was made available to Borrower and ending on (but excluding) the
date Agent recovers such amount, from such Lender, at a rate per annum equal to
the effective rate for overnight federal funds in New York as reported by the
Federal Reserve Lender of New York for such day (or, if such day is not a
Business Day, for the next preceding Business Day) and from Borrower, at a rate
per annum based on the Base Rate as provided in Paragraph 2.6(a) hereof.
(c) Requests Irrevocable. Each request for an Advance pursuant
--------------------
to this Paragraph 2.7 shall be irrevocable and binding on Borrower. In the case
of any Advance bearing interest at the rate based upon the Adjusted Libor Rate,
Borrower shall indemnify Lenders against any loss, cost or expense incurred by
Lender as a result of not borrowing such funds on the requested Advance date,
including as a result of any failure to fulfill on or before the date specified
in such request for an Advance the applicable conditions set forth in Section
Four hereof, including, without limitation, any loss, cost or expense incurred
by reason of the liquidation or redeployment of deposits or other funds acquired
by Lenders to fund the
24
<PAGE>
Advance to be made by Lenders when such Advance, as a result of such failure, is
not made on such date, as calculated by Agent in accordance with Exhibit D
attached hereto.
2.8 Reduction and Termination of Commitment.
---------------------------------------
(a) Borrower. Borrower shall have the right at any time and
--------
from time to time, upon three (3) Business Days' prior written notice to Agent,
to reduce the Revolving Credit Commitment in increments of Five Million Dollars
($5,000,000) or multiples thereof without penalty or premium, provided that on
the effective date of such reduction Borrower shall make a prepayment of the
Revolving Credit Loan in an amount, if any, by which the aggregate outstanding
principal balance of the Revolving Credit Loan exceeds the amount of the
Revolving Credit Commitment as then so reduced, together with accrued interest
on the amount so prepaid and any amounts due pursuant to Paragraph 2.10 hereof.
(b) Lenders. Required Lenders shall have the right to terminate
-------
the Revolving Credit Commitment at any time, in their discretion and upon notice
to Borrower, upon the occurrence and during the continuance of any Event of
Default hereunder (except if an Event of Default described in Paragraph 7.1(j)
shall occur, in which case termination of the Revolving Credit Commitment shall
occur automatically without notice).
(c) Restoration Only With Consent. Any termination or reduction
-----------------------------
of the Revolving Credit Commitment pursuant to subparagraphs 2.8(a) and (b)
shall result in a pro rata reduction in each Lender's Maximum Principal Amount
with respect thereto. Any termination or reduction of the Revolving Credit
Commitment shall be permanent, and the Revolving Credit Commitment and
respective Maximum Principal Amounts cannot thereafter be restored or increased
without the written consent of all affected Lenders.
2.9 Prepayment.
----------
(a) Voluntary Prepayments. Upon one (1) Business Day's prior
---------------------
written notice by Borrower to Agent, Borrower may repay all or any portion of
the outstanding principal balance under the Revolving Credit Loan or the Term
Loan without premium or penalty, provided that any such payment shall include
all accrued interest on the amount prepaid plus any amounts which may be due
pursuant to Paragraph 2.10 hereof. Any such payments made with respect to the
Revolving Credit Loan prior to the Termination Date shall not reduce the
Revolving Credit Commitment and may be reborrowed in accordance with this
Agreement. Any such payment with respect to the Term Loan shall be applied to
the scheduled installments thereof in the inverse order of maturity.
(b) Mandatory Payments.
------------------
(i) In addition to any other required payments hereunder,
Borrowers shall make principal payments on the Loans in the circumstances and in
the amounts set forth below:
25
<PAGE>
(A) Asset Dispositions. In connection with each Sale
------------------
of Material Assets (it being understood and agreed that any such Sale of
Material Assets shall require the approval of Required Lenders, except to the
extent expressly authorized pursuant to Paragraph 6.7 hereof), the Net Cash
Proceeds to the seller of such transaction shall be paid directly to Agent for
the account of Lenders and applied to the Loans as set forth in subparagraph (D)
below; provided, however, that (i) insurance proceeds with respect to damage or
destruction of property shall not be required to be applied to the Loans
pursuant hereto if such proceeds are used to repair or replace such property
within ninety (90) days after receipt by Borrower or its Subsidiaries, and (ii)
the proceeds of the sale of the Rogers Building in Charlotte, North Carolina
pursuant to Paragraph 6.7(a) hereof shall be applied first to payment of the
mortgage thereon, and then to payment to certain shareholders of Rogers-American
Company, Inc. prior to the Combination and the proceeds of the sale of the land
and buildings thereon located in Canton, Massachusetts commonly known as 490 and
500 Turnpike Avenue shall be applied first to the payment of the mortgage
thereon.
(B) New Debt. In the event a Borrower incurs
--------
Indebtedness consented to by Required Lenders which is not otherwise permitted
pursuant to Paragraph 6.1 hereof, the net cash proceeds of such Indebtedness
shall be paid directly to Agent for the account of the Lenders and applied to
the Loan as set forth in subparagraph (D) below.
(C) Equity Issuance. In connection with any issuance
---------------
of equity by the Borrower after the date of this Agreement (other than (x)
pursuant to the exercise of the underwriter's overallotment with respect to the
Initial Offering, (y) pursuant to the exercise of stock options issued to
officers, employees and directors of the Borrowers or its Subsidiaries, and (z)
the issuance of stock as consideration for acquisitions), the net cash proceeds
to the Borrower of such issuance shall be paid directly to Agent for the account
of the Lenders and applied to the Loan as set forth in subparagraph (D) below.
(D) Application of Payments. Payments made pursuant
-----------------------
to subparagraph 2.9(b)(i)(A) through (C) above shall be applied first to the
outstanding principal balance of the Term Loan in the inverse order of maturity
of the installments thereof, and then to the outstanding principal balance of
the Revolving Credit Loan.
(ii) Underwriter's Overallotment. If the actual price per
---------------------------
share in the Initial Offering is less than the anticipated price range as
indicated in the Registration Statement for the Initial Offering, then the net
cash proceeds to the Borrower from exercise of the underwriter's overallotment
with respect to the Initial Offering shall be applied to repayment of the Term
Loan in the inverse order of maturity of the installments thereof. If the
actual price per share in the Initial Offering is within or above the
anticipated price range as indicated in the Registration Statement for the
Initial Offering, then Required Lenders may require the net cash proceeds to the
Borrower from exercise of the underwriter's overallotment to be applied to
repayment of the Revolving Credit Loan.
26
<PAGE>
(iii) Excess Cash Flow. Until the Term Loan has been
----------------
repaid in full, at the time of delivery of a Compliance Certificate with respect
to each fiscal year, commencing with the fiscal year ending December 31, 1999,
Borrower shall make a prepayment in an amount equal to seventy-five percent
(75%) of Excess Cash Flow for such fiscal year, such payment to be applied to
the Term Loan in the inverse order of maturity of the installments thereof.
(iv) Additional Requirements. Any payments pursuant to
-----------------------
this Paragraph 2.9(b) shall be accompanied by all accrued and unpaid interest
and fees in connection with the amount prepaid (including any amount payable
under Paragraph 2.10 hereof); provided, however, that in the absence of an Event
of Default or Default hereunder: (x) the Borrower shall be entitled to determine
the order in which Portions of the applicable Loan shall be repaid pursuant to
such payments; and (y) if any amount would otherwise be payable by Borrower
pursuant to Paragraph 2.10 hereof as a result of a prepayment pursuant thereto,
the required amount shall, at the request of Borrower, be held by Agent in a
cash collateral account and applied to the payment of the applicable Libor
Portion(s) at the expiration of the Interest Period with respect thereto. If a
cash collateral account is established pursuant to the foregoing clause (y),
Borrowers shall be entitled to any interest on such funds while held in such
account, and the applicable Libor Portion(s) shall remain outstanding hereunder
and shall continue to accrue interest in accordance herewith until such funds
are actually applied to repay such Libor Portion(s). Any payments with respect
to the Revolving Credit Loan prior to the Termination Date shall not reduce the
Revolving Credit Commitment and may be reborrowed in accordance with this
Agreement.
(c) Borrowing Base. If at any time the aggregate outstanding
--------------
principal balance of the Revolving Credit Loan, together with the undrawn amount
of outstanding Letters of Credit and any unreimbursed draws under Letters of
Credit, is in excess of the Borrowing Base, Borrower shall immediately make a
prepayment of the Revolving Credit Loan in accordance with subparagraph (a)
above in an amount sufficient to reduce the balance of the Revolving Credit
Loan, together with the undrawn amount of outstanding Letters of Credit and any
unreimbursed draws under Letters of Credit, to an amount less than or equal to
the Borrowing Base, together with interest on the amount prepaid through the
date or prepayment and any amounts owed pursuant to Paragraph 2.10 hereof.
(d) Effect on Other Agreements. Any prepayment hereunder shall
--------------------------
not affect the obligation of Borrower or any Subsidiary under any swap, hedge or
similar arrangement with any Lender.
2.10 Funding Costs and Loss of Earnings. In the event that Borrower
----------------------------------
shall have requested the Adjusted Libor Rate to be applicable to a Portion to be
Advanced and Borrower shall revoke the request for such Advance or shall fail to
meet the conditions to such Advance as set forth in Section Four hereof, and in
connection with any prepayment or repayment of a Portion bearing interest at the
rate based on the Adjusted Libor Rate made on other than the last day of the
applicable Interest Period, whether such prepayment or
27
<PAGE>
repayment is voluntary, mandatory, by demand, acceleration or otherwise,
Borrower shall pay to Lenders all reasonable funding costs and loss of earnings
which may arise in connection with such revocation of request for or failure to
meet the conditions to such Advance or such prepayment or repayment, as
calculated by Agent in accordance with Exhibit D hereto.
2.11 Payments. All payments of principal, interest, fees and other
--------
amounts due hereunder, including any prepayments thereof, shall be made by
Borrower to Agent for the account of Lenders in immediately available funds
before two o'clock (2:00) p.m., Philadelphia time, on any Business Day at the
office of Agent set forth on Schedule 1 hereto. Borrower hereby authorizes
Agent to charge Borrower's account with Agent for all payments of principal,
interest and fees when due hereunder.
2.12 Commitment Fee. Borrower shall pay to Agent, for the benefit of
--------------
Lenders in accordance with their Pro Rata Shares, a non-refundable commitment
fee at the rate of half of one percent ( 1/2%) per annum on the unborrowed
portion of the Revolving Credit Commitment from the Effective Date through the
Termination Date (as calculated by Agent), which fees shall be payable at the
offices of Agent quarterly in arrears on the last day of each March, June,
September, and December and on the Termination Date. The commitment fee shall
be calculated on the basis of the actual number of days elapsed over a year of
three hundred sixty (360) days.
2.13 Agent's Fees. Borrower shall pay to Agent fees as agreed
------------
between Borrower and Agent.
2.14 Amendment and Restatement Fees. Borrower shall pay to Lenders
------------------------------
the fees set forth in, and comply with the other covenants and agreements
contained in, the Waiver Agreement.
2.15 Regulatory Changes in Capital Requirements. If any Lender shall
------------------------------------------
have determined that the adoption or the effectiveness after the date hereof of
any law, rule, regulation or guideline regarding capital adequacy, or any change
in any of the foregoing or in the interpretation or administration of any of the
foregoing by any governmental authority, central Lender or comparable agency
charged with the interpretation or administration thereof, or compliance by such
Lender (or any lending office of such Lender) or such Lender's holding company
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency, has
or would have the effect of reducing the rate of return on such Lender's capital
or on the capital of such Lender's holding company, as a consequence of this
Agreement, the Revolving Credit Commitment, Advances or the Loans to a level
below that which such Lender or its holding company could have achieved but for
such adoption, change or compliance (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy) by an amount deemed by such Lender to be material, then from
time to time Borrower shall pay to such Lender such additional amount or amounts
as will compensate such Lender or its holding company for any such reduction
suffered together with interest on each
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such amount from the date demanded until payment in full thereof at the rate
provided in Paragraph 2.6(a)(ii) hereof with respect to amounts not paid when
due. Such Lender will notify Borrower of any event occurring after the date of
this Agreement that will entitle such Lender to compensation pursuant to this
Paragraph 2.15, including a description in reasonable detail of the nature of
such event and the amount of such compensation, as promptly as practicable after
it obtains knowledge thereof and determines to request such compensation, and
such compensation shall not be charged for any period more than three (3) months
prior to the date of such notice.
A certificate of such Lender setting forth such amount or amounts as
shall be necessary to compensate such Lender or its holding company as specified
above shall be delivered to Borrower and shall be conclusive absent manifest
error, if calculated and charged in a manner consistent with similar charges
made by such Lender to its other customers having similar arrangements with such
Lender. Borrower shall pay such Lender the amount shown as due on any such
certificate delivered by such Lender within ten (10) days after its receipt of
the same.
Failure on the part of any Lender to demand compensation for increased
costs or reduction in amounts received or receivable or reductions in return on
capital with respect to any period shall not constitute a waiver of such
Lender's right to demand compensation with respect to any other period except as
otherwise limited by the terms of this Paragraph 2.15.
SECTION 2A
LETTERS OF CREDIT
-----------------
2A.1. Availability of Credits. Subject to the terms and conditions
-----------------------
set forth herein, Lenders shall from time to time prior to the Termination Date
participate in the issuance by Agent of Letters of Credit for the account of
Borrower on the following terms and conditions:
(a) at the time of issuance of the Letter of Credit, the
lesser of (x) the unborrowed portion of the Revolving Credit Commitment or (y)
the available Borrowing Base, in each case after deducting all outstanding
Advances, shall equal or exceed the sum of the amount available to be drawn
under such Letter of Credit and the amount available to be drawn under and any
unreimbursed draws under all other Letters of Credit;
(b) at the time of issuance of the Letter of Credit, the
amount available to be drawn under such Letter of Credit and all other Letters
of Credit then outstanding hereunder plus any unreimbursed draws under all other
Letters of Credit shall not exceed, in the aggregate, the Letter of Credit
Sublimit;
29
<PAGE>
(c) except as provided in clause (d) below, the final
expiration date of each Letter of Credit shall be on or before the earlier of
(i) one year from the date of issuance thereof or (ii) the Termination Date;
(d) "evergreen" letters of credit with automatic renewal
provisions may be issued on terms and conditions reasonably satisfactory to
Agent;
(e) there shall not exist at the time of issuance of the
Letter of Credit, or as a result thereof, any Default or Event of Default; and
(f) each Letter of Credit issued under this Section 2A shall
be for the business purposes of a Borrower or a Guarantor.
Upon issuance of each Letter of Credit by Agent, each Lender shall
have a participating interest therein based on its percentage share of the
Revolving Credit Commitment as set forth in Paragraph 2.3 hereof.
2A.2. Commitment Availability. The amount available under the
-----------------------
Revolving Credit Commitment as from time to time in effect shall be reduced by
the amount available to be drawn under all outstanding Letters of Credit and
unreimbursed amounts of any draws under Letters of Credit. The amount by which
the Revolving Credit Commitment is so reduced shall not be available for
advances under Paragraph 2.7 hereof, except advances thereunder which are made
to reimburse Agent for draws under the Letters of Credit as permitted pursuant
to Paragraph 2A.4(b) hereof.
2A.3. Approval and Issuance.
---------------------
(a) Borrower shall provide Agent not less than three (3)
Business Days' prior written notice of each request for the issuance of a Letter
of Credit by delivery of a Letter of Credit Request Form, which shall be
certified by an Authorized Officer of Borrower, and shall, in addition to the
matters described in Paragraph 2.7(a) hereof, list all Letters of Credit
outstanding for the account of Borrower at that time and, for each Letter of
Credit so listed, its face amount, outstanding undrawn balance and expiration
date. It shall be a condition to the issuance of any Letter of Credit that Agent
shall have received a Letter of Credit Request Form as described above and such
letter of credit application and agreement as Agent shall reasonably require in
connection therewith, and that the conditions set forth in Paragraph 4.2 shall
be satisfied.
(b) Agent will promptly provide to Lenders written (including
fax) or telephonic notification of Agent's receipt of the Letter of Credit
Request Form which shall state (i) the amount of the Letter of Credit requested
and (ii) the expiration date of the requested Letter of Credit.
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<PAGE>
2A.4. Obligations of the Borrower.
---------------------------
(a) Borrower agrees to pay to Agent in connection with each
Letter of Credit issued hereunder: (i) immediately upon the demand of Agent on
behalf of all Lenders, the amount paid by each Lender with respect to such
Letter of Credit; (ii) immediately upon demand of Agent, the amount of any draft
presented purporting to be drawn under such Letter of Credit provided that the
draft and accompanying documents conform to the terms of the Letter of Credit
but subject to the terms of Paragraph 2A.7 (whether or not Agent has at such
time honored such draft) and any other amounts paid thereunder (it being
understood that Agent is not required to make demand upon or proceed against any
Lender or other party or to resort to any Collateral before obtaining payment
from Borrower); (iii) on the date of issuance of each Letter of Credit and on
the effective date of any renewal or extension of any Letter of Credit a fee of
one-eighth of one percent (1/8%) of the outstanding face amount of such Letter
of Credit, payable to Agent for its own account; (iv) quarterly in arrears a non
refundable fee for the benefit of Lenders in accordance with each Lender's
percentage share of the Revolving Credit Commitment as set forth on Schedule 1
attached hereto at a rate per annum equal to the Applicable Margin with respect
to Libor Portions under the Revolving Credit Loan on the outstanding face amount
of such Letter of Credit; and (v) interest on any indebtedness outstanding with
respect to such Letter of Credit, whether for funds paid on drafts on such
Letter of Credit, or otherwise (but such indebtedness shall not include undrawn
balances of such Letter of Credit issued hereunder) at the rate applicable to
Base Rate Portions under the Revolving Credit Loan under Paragraph 2.6(a)(i)(A)
hereof from the date of payment by Agent or Lenders (if not reimbursed by
Borrower on the same day) to the date one (1) Business Day after notice to
Borrower of such payment, and thereafter at the rate applicable to such Base
Rate Portions under Paragraph 2.6(a)(ii) hereof. Interest under the preceding
clause (v) shall be paid at the times and in the manner set forth in Paragraph
2.6 hereof, and shall accrue on amounts paid on a Letter of Credit (if not
reimbursed by Borrower on the same day) from the date of payment by Agent or
Lenders, whether or not demand is made, until such amounts are reimbursed by
Borrower whether before, at or after demand.
(b) On or before the Termination Date, in the absence of a
Default or Event of Default, and subject to the provisions of Paragraph 2.7
hereof, Lenders hereby agree to advance funds to Borrower under the Revolving
Credit Loan to make the payments required under Paragraphs 2A.4(a)(i) and (ii)
hereof. If any payment by the Agent of a draft drawn under a Letter of Credit is
for any reason (including without limitation the occurrence or continuation of a
Default or Event of Default hereunder) not reimbursed prior to or on the date of
such payment, the amount of such payment shall thereupon be deemed for purposes
hereof an advance under Paragraph 2.7 hereof. Such reimbursement obligation
shall be repayable, prepayable, and otherwise subject to all the terms and
conditions thereof as if advanced by Lenders pursuant to Paragraph 2.7 hereof
(but without duplication).
2A.5. Payment by Lenders on Letters of Credit.
---------------------------------------
31
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(a) With respect to each Letter of Credit issued hereunder, each
Lender agrees that it is irrevocably obligated to pay to Agent, for each such
Letter of Credit, such Lender's Pro Rata Share of each and every payment made or
to be made by Agent under such Letter of Credit (each such payment to be made, a
"LOC Contribution"). Each Lender's LOC Contribution shall be due from such
Lender immediately upon, and in any event no later than the same day as, receipt
of written notice (which may be sent by telex or telecopier) from Agent (except
that if such notice is received after 3:00 p.m. on any Business Day, payment may
be made on the following Business Day, together with interest equal to the
effective rate for overnight funds in New York as reported by the Federal
Reserve Bank of New York for such day (or, if such day is not a Business Day,
for the next preceding Business Day)) that (i) it has made a payment or (ii) a
draft has been presented purporting to be drawn on a Letter of Credit issued
hereunder. Such payment shall be made at Agent's offices in immediately
available federal funds.
(b) The obligation of each Lender to make its LOC Contribution
hereunder is absolute, continuing and unconditional, and Agent shall not be
required first to make demand upon or proceed against Borrower or any guarantor
or surety, or any others liable with respect to the applicable Letter of Credit
and shall not be required first to resort to any Collateral. LOC Contributions
shall be made without regard to termination of this Agreement or the Revolving
Credit Commitment, the existence of an Event of Default or Default hereunder,
the acceleration of indebtedness hereunder or any other event or circumstance.
2A.6. Collateral Security.
-------------------
(a) The indebtedness, liabilities and obligations of Borrower
under this Section 2A, however created or incurred, whether now existing or
hereafter arising, due or to become due, absolute or contingent, direct or
indirect, secured or unsecured, are among the obligations secured by the
security interests, liens and encumbrances created by the Collateral Security
Documents delivered to Agent by Borrower, and Agent and the Lenders are entitled
to the benefit of the collateral security granted thereunder with respect to
such indebtedness.
(b) Notwithstanding the payment in full of the Loans, the
termination of the Revolving Credit Commitment or the occurrence of the
Termination Date, unless and until Borrower shall have provided the collateral
in the form of cash or U.S. Treasury bills as required by subparagraph (c)
below, the Collateral shall continue to secure the indebtedness, liabilities and
obligations of Borrower under this Section 2A until all Letters of Credit shall
have expired and all indebtedness, liabilities and obligations under this
Section 2A shall have been paid in full.
(c) On the termination of the Revolving Credit Commitment or
the occurrence of an Event of Default, Required Lenders may require (and in the
case of an Event of Default occurring under Paragraph 7.1(j) it shall be
required automatically) that Borrower
32
<PAGE>
deliver to Agent, cash or U.S. Treasury Bills with maturities of not more than
90 days from the date of delivery (discounted in accordance with customary
banking practice to present value to determine amount) in an amount equal at all
times to one hundred ten percent (110%) of the outstanding undrawn amount of all
Letters of Credit, such cash or U.S. Treasury Bills and all interest earned
thereon to constitute cash collateral for all such Letters of Credit. At such
time as such collateral is required to be and has not been deposited, Agent on
behalf of Lenders shall be entitled to liquidate such of the other collateral
for the Loans (if any) as is necessary or appropriate in its sole judgment so as
to create such cash collateral.
(d) Any cash collateral deposited under subparagraph (c) above,
and all interest earned thereon, shall be held by Agent and invested and
reinvested at the expense and the written direction of Borrower, in U.S.
Treasury Bills with maturities of no more than ninety (90) days from the date of
investment.
2A.7. General Terms of Credits. In addition to the terms of the
------------------------
applicable letter of credit application and agreement, the following terms and
conditions apply with respect to each Letter of Credit (a "Credit")
notwithstanding anything to the contrary contained herein:
(a) Borrower assumes all risks of the acts or omissions of the
beneficiary of each Credit with respect to the use of the Credit or with respect
to the beneficiary's obligations to Borrower. None of the Lenders (other than
First Union in its capacity as Agent) nor any of their officers or directors
shall be liable or responsible for, and the Lenders hereby agree to indemnify
and hold Agent harmless (except for Agent's gross negligence or willful
misconduct) with respect to: (i) the use which may be made of the Credit or for
any acts or omissions of the beneficiary in connection therewith; (ii) the
accuracy, truth, validity, sufficiency or genuineness of documents, or of any
endorsement thereon, even if such documents should in fact prove to be in any or
all respects false, misleading, inaccurate, invalid, insufficient, fraudulent,
or forged; (iii) the payment by Agent against presentation of documents which do
not comply with the terms of the Credit, including failure of any documents to
bear any reference or adequate reference to a Credit; (iv) any other
circumstances whatsoever in making or failing to make payment under a Credit; or
(v) any inaccuracy, interruption, error or delay in transmission or delivery of
correspondence or documents by post, telegraph or otherwise. In furtherance and
not in limitation of the foregoing, Agent may after good faith inspection accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.
(b) Notwithstanding the foregoing, with respect to any Credit,
Borrower shall have a claim against Agent, and Agent shall be liable to
Borrower, to the extent, but only to the extent, of any direct, as opposed to
indirect or consequential, damages suffered by Borrower caused by the Agent's
willful misconduct or gross negligence.
33
<PAGE>
(c) To the extent not inconsistent with this Agreement, the
Uniform Customs and Practices for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500, are hereby made a part of
this Agreement with respect to obligations in connection with each Credit.
SECTION 3
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants to Lenders as follows:
3.1. Organization and Good Standing. Each Company is a corporation
------------------------------
duly incorporated and validly existing under the laws of its jurisdiction of
formation as set forth on Exhibit C, and each has the power and authority to
carry on its business as now conducted and is qualified to do business in the
states indicated on Exhibit C which constitute, except as to failures to qualify
which would not, either singly or in the aggregate, have a Material Adverse
Effect, all states in which the nature of its business or the ownership of its
properties requires such qualification.
3.2. Power and Authority; Validity of Agreement. Each Company has the
------------------------------------------
power and authority under applicable law and under its organizational documents
to enter into and perform the Loan Documents to the extent that it is a party
thereto; and all actions necessary or appropriate for the execution and
performance by each Company of the Loan Documents to which it is a party have
been taken, and, upon their execution, the same will constitute the valid and
binding obligations of each Company to the extent it is a party thereto,
enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy or equitable principles applicable
to the enforcement of creditors' rights generally.
3.3. No Violation of Laws or Agreements. The execution, delivery and
----------------------------------
performance of the Loan Documents by the Companies will not violate any
provisions of any law or regulation, federal, state or local, or its
organizational documents, or result in any breach or violation of, or constitute
a default under, any material agreement or instruments by which any Company or
its property may be bound, except for such breaches, defaults and violations of
agreements or instruments as would not, either singly or in the aggregate, have
a Material Adverse Effect.
3.4. Material Contracts. Except as set forth on Exhibit C attached
------------------
hereto, there exists no material default under any contracts material to the
businesses of the Companies or their Subsidiaries.
34
<PAGE>
3.5. Compliance.
----------
(a) Each of the Companies and their Subsidiaries is in
compliance with all applicable laws and regulations, federal, state and local
(including without limitation those administered by the Local Authorities),
except for such failures to comply as would not either singly or in the
aggregate, have a Material Adverse Effect;
(b) The Companies and their Subsidiaries possess all the
franchises, permits, licenses, certificates of compliance and approval and
grants of authority, necessary or required in the conduct of their respective
businesses as of the date hereof; and except as identified on Exhibit C attached
hereto, as of the date hereof all such franchises, permits, licenses,
certificates and grants are valid, binding, enforceable and subsisting without
any defaults thereunder or enforceable adverse limitations thereon and are not
subject to any proceedings or claims opposing the issuance, development or use
thereof or contesting the validity thereof, except to the extent that the
failure to possess or maintain any of the foregoing would not, and except for
such defaults, limitations, proceedings or claims as would not, either singly or
in the aggregate, have a Material Adverse Effect; and
(c) No authorization, consent, approval, waiver, license or
formal exemptions from, nor any filing, declaration or registration with, any
court, governmental agency or regulatory authority (federal, state or local) or
non-governmental entity, under the terms of contracts or otherwise, is required
by the Companies by reason of or in connection with the Companies' execution and
performance of the Loan Documents, except those which have been obtained or have
been delivered to Agent for filing in connection with perfecting liens.
3.6. Litigation. Except as set forth on Exhibit C, there are no
----------
actions, suits, proceedings or claims which are pending or, to the best of the
Companies' knowledge, threatened against any Company or any Subsidiary which, if
adversely resolved, would, either singly or in the aggregate, be reasonably be
expected to have a Material Adverse Effect.
3.7. Title to Assets. Each of the Companies and their Subsidiaries
---------------
has good and marketable title to or valid leasehold interests in all of its
properties and assets material to the conduct of its business, free and clear of
any liens and encumbrances except the security interests granted under the
Collateral Security Documents, liens and encumbrances permitted pursuant to
Paragraph 6.4 hereof and the liens and security interests identified on Exhibit
C attached hereto. All such assets are fully covered by the insurance required
under Paragraph 5.8 hereof.
3.8. Accuracy of Information; Full Disclosure.
----------------------------------------
(a) All information furnished to Lenders concerning the
financial condition and results of operations of the Companies, including the
pro forma financial
35
<PAGE>
statements for the Companies on a consolidated basis for the fiscal year ended
December 31, 1998 and the interim pro forma financial statements for the
Companies on a consolidated basis for the nine months ended June 30, 1999, (but
not including projections) has been prepared in accordance with GAAP (except in
the case of the pro forma financial statements delivered to Lenders giving
effect to certain integration adjustments as referenced in Paragraph 1.3 hereof)
and fairly presents in all material respects the financial condition and results
of operations of the Companies as of the dates and for the periods covered and
discloses all liabilities of the Companies required to be disclosed in
accordance with GAAP, except that interim statements do not have footnotes and
are subject to year-end adjustments, and there has been no material adverse
change in the financial condition or business of the Companies from the date of
such statements to the date hereof; and
(b) This Agreement, the Proxy Statement and all financial
statements (excluding financial projections) and other documents furnished by
the Companies to Lenders pursuant to this Agreement and the other Loan
Documents, taken together, do not and will not contain any untrue statement of
material fact or omit to state a material fact necessary in order to make the
statements contained herein and therein not misleading. The Companies have
disclosed to the Lenders in writing (including, without limitation, in the Proxy
Statement) any and all facts which would, either singly or in the aggregate,
have a Material Adverse Effect.
3.9. Taxes and Assessments. Except as described on Exhibit C hereto:
---------------------
(a) Each Company and each Subsidiary has filed all required tax
returns or has filed for extensions of time for the filing thereof, and has paid
all applicable federal, state and local taxes, other than taxes not yet due or
which may be paid hereafter without penalty; provided that no such taxes shall
be required to be paid if they are being contested in good faith by appropriate
proceedings and are covered by appropriate reserves maintained in accordance
with GAAP; and there is no material tax deficiency or additional assessment in
connection therewith not provided for in the financial statements required
hereunder; and
(b) Each Company and each Subsidiary has properly withheld all
amounts required by law to be withheld for income taxes and unemployment taxes
including without limitation, all amounts required with respect to social
security and unemployment compensation, relating to its employees, and has
remitted such withheld amounts in a timely manner to the appropriate taxing
authority, agency or body.
3.10. Indebtedness. The Companies and their Subsidiaries have no
------------
presently outstanding Indebtedness or obligations, including contingent
obligations and obligations of any of the Companies under leases of property
from others, except the Indebtedness and obligations described in Exhibit C
hereto, and indebtedness permitted pursuant to Paragraph 6.1 hereof. Without
limiting the foregoing, set forth on Exhibit C is a complete and accurate
listing of all Seller Obligations outstanding as of the Amendment Effective
Date, indicating the Person to whom the obligation is owed and the aggregate
principal amount thereof as of
36
<PAGE>
June 30, 1999; and all such Seller Obligations, to the extent they remain unpaid
as of the Amendment Effective Date, have been capitalized and appear as a
liability on the balance sheet of the Company and its Consolidated Subsidiaries
in accordance with GAAP.
3.11. Management Agreements. No Company is a party to any management
---------------------
or consulting agreements for the provision of senior executive services to such
Company except as described on Exhibit C hereto.
3.12. Investments. Each direct and indirect Subsidiary of Borrower is
-----------
identified on Exhibit C attached hereto, which indicates the number of shares
and classes of the capital stock, membership interests, partnership interests or
other equity interests, as applicable, of each such Subsidiary, and the
ownership thereof. No Company has any other Subsidiaries or any investments in
or loans to any other individuals or business entities except for loans and
investments permitted pursuant to Paragraphs 6.3 or 6.8 hereof.
3.13. ERISA. Each of the Companies, their Subsidiaries and each ERISA
-----
Affiliate is in compliance in all material respects with all applicable
provisions of ERISA and the regulations promulgated thereunder; and,
(a) No Company nor any Subsidiary or ERISA Affiliate maintains
or contributes to or has maintained or contributed to any multiemployer plan (as
defined in section 4001 of ERISA) under which any Company, any Subsidiary or any
ERISA Affiliate could have any withdrawal liability which would, either singly
or in the aggregate, have a Material Adverse Effect;
(b) No Company nor any Subsidiary or ERISA Affiliate, sponsors
or maintains any Plan under which there is an accumulated funding deficiency
within the meaning of (S)412 of the Code, whether or not waived which would,
either singly or in the aggregate, have a Material Adverse Effect;
(c) The aggregate liability for accrued benefits and other
ancillary benefits under each defined benefit pension Plan that is sponsored or
maintained by any Company, any Subsidiary or any ERISA Affiliate (determined on
the basis of the actuarial assumptions prescribed for valuing benefits under
terminating single-employer defined benefit plans under Title IV of ERISA) does
not exceed the aggregate fair market value of the assets under each such defined
benefit pension Plan by an amount which would, either singly or in the
aggregate, have a Material Adverse Effect;
(d) The aggregate liability of each Company, and each Subsidiary
or ERISA Affiliate arising out of or relating to a failure of any Plan to comply
with the provisions of ERISA or the Code, is not an amount which would, either
singly or in the aggregate, have a Material Adverse Effect; and
37
<PAGE>
(e) There does not exist any unfunded liability (determined on
the basis of actuarial assumptions utilized by the actuary for the Plan in
preparing the most recent Annual Report) of any Company or any Subsidiary or
ERISA Affiliate under any Plan providing post-retirement life or health benefits
which would, either singly or in the aggregate, have a Material Adverse Effect.
3.14. Fees and Commissions. Except as set forth on Exhibit C, the
--------------------
Companies owe no brokers' or finders' fees or commissions of any kind, and know
of no claim for any brokers' or finders' fees or commissions, in connection with
the Companies' obtaining the Revolving Credit Commitment or the Loans from
Lenders, except those provided herein.
3.15. No Extension of Credit for Securities. The Companies are not
-------------------------------------
now, nor at any time have they been engaged principally, or as one of their
respective important activities, in the business of extending or arranging for
the extension of credit, for the purpose of purchasing or carrying any margin
stock or margin securities; nor will the proceeds of the Loans be used by any
Company directly or indirectly, for such purposes.
3.16. Perfection of Security Interest. Upon the filing of UCC
-------------------------------
financing statements with respect to the collateral covered by the Security
Agreement in the jurisdictions identified on Exhibit C attached hereto, and
taking of possession by the Agent of the certificates evidencing the shares
pledged pursuant to the Pledge Agreement, Agent, for the benefit of Lenders, has
a perfected, first-priority security interest and lien on the Collateral covered
by the Security Agreement and the Pledge Agreement, subject to the Permitted
Liens.
3.17. Hazardous Wastes, Substances and Petroleum Products. Except as
---------------------------------------------------
otherwise set forth on Exhibit C attached hereto:
(a) Each Company and each Subsidiary (i) has received all
permits and has filed all notifications required by applicable Environmental
Laws to carry on its respective business(es); and (ii) is in compliance with all
Environmental Laws, except in each case for such matters as would not, either
singly or in the aggregate, have a Material Adverse Effect.
(b) No Company or Subsidiary has given any written or oral
notice, or failed to give any required notice, to the EPA or any state or local
agency with regard to any Release or threat of Release of Hazardous Substances
on properties owned, leased or operated by such Company or used in connection
with the conduct of its business and operations which would, either singly or in
the aggregate, have a Material Adverse Effect.
(c) No Company or Subsidiary has received written notice that it
is potentially responsible for clean-up, remediation, costs of clean-up or
remediation, fines or penalties with respect to any Release or threat of Release
of Hazardous Substances pursuant to any Environmental Law which would, either
singly or in the aggregate, have a Material Adverse Effect.
38
<PAGE>
3.18. Solvency.
--------
(a) To the best of each Company's knowledge, each Company, after
giving effect to the Waiver Agreement and taking into consideration the mutual
rights and obligations among the Companies set forth in subparagraph (b) below,
is solvent such that (i) the fair value of its assets (including without
limitation the fair salable value of the goodwill and other intangible property
of such Company) is greater than the total amount of its liabilities, including
without limitation, contingent liabilities, (ii) the present fair salable value
of its assets (including without limitation the fair salable value of the
goodwill and other intangible property of such Company) is not less than the
amount that will be required to pay the probable liability on their debts as
they become absolute and matured, and (iii) it is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business. No Company intends
to, nor believes that it will, incur debts or liabilities beyond its ability to
pay as such debts and liabilities mature, and no Company is engaged in a
business or transaction, or about to engage in a business or transaction, for
which its property would constitute unreasonably small capital after giving due
consideration to the prevailing practice and industry in which it is engaged.
For purposes of this Paragraph 3.18, in computing the amount of contingent
liabilities at any time, it is intended that such liabilities will be computed
at the amount which, in light of all the facts and circumstances existing at
such time, represents the amount that reasonably can be expected to become an
actual matured liability of the applicable Company.
(b) Each Company hereby agrees that to the extent a Company
shall have paid more than its proportionate share of any payment made hereunder
or under the Guaranty, such Company shall be entitled to seek and receive
contribution from and against any other Company who has not paid its
proportionate share of such payment; provided however such Company shall not
seek any such contribution from any other Company until the Loans have been paid
in full and all commitments of the Lenders hereunder have been terminated. The
provisions of this paragraph shall in no respect limit the obligations and
liabilities of any Company to the Agent and the Lenders and each Company shall
remain liable to the Agent and the Lenders for the full amount of its
obligations hereunder and under the Guaranty.
3.19. Employee Controversies. Except as described in Exhibit C, there
----------------------
are no material controversies pending or, to the knowledge of the Companies,
threatened or anticipated between any Company and any of its respective
employees, and there are no labor disputes, grievances, arbitration proceedings
or any strikes, work stoppages or slowdowns pending, or to the Companies'
knowledge, threatened between any Company and its respective employees and
representatives, which, in any such case, would, either singly or in the
aggregate, have a Material Adverse Effect.
3.20. Repayments from Asset Dispositions. Richmont has not made any
----------------------------------
repayments of principal on any indebtedness since the issuance of the
Subordinated Notes with
39
<PAGE>
Net Available Cash (as defined in the Indenture) from Asset Dispositions (as
defined in the Indenture) pursuant to Section 4.06(a)(iii)(A) of the Indenture.
SECTION 4
CONDITIONS
----------
4.1 Effectiveness of Amended and Restated Credit Agreement. The
------------------------------------------------------
effectiveness of this Agreement is subject to Agent's receipt of the following
documents and satisfaction of the following conditions, each in form and
substance satisfactory to Agent:
(a) Promissory Notes. The Notes duly executed by Borrower.
----------------
(b) Guaranty. An Amended and Restated Guaranty Agreement
--------
executed by each wholly-owned Subsidiary of Borrower (including the Richmont
Subsidiaries), jointly and severally, in favor of Lenders.
(c) Authorization Documents. A certificate of the secretary of
-----------------------
each Company attaching and certifying as to (i) the certificate or articles of
incorporation and bylaws of such Company; (ii) resolutions or other evidence of
authorization by the board of directors of such Company, authorizing its
execution and full performance of Loan Documents and all other documents and
actions required hereunder; and (iii) incumbency certificates setting forth the
name, title and specimen signature of each officer of such Company who is
authorized to execute the Loan Documents on behalf of such entity.
(d) Good Standing. Certificates of good standing or the
-------------
equivalent for each Company in its state of formation and each of the states in
which it is qualified to do business.
(e) Corporate Opinion. A legal opinion addressing corporate,
-----------------
validity, perfection and enforceability matters with respect to each Company
other than the Richmont Subsidiaries, reasonably satisfactory to Agent.
(f) Borrowing Base Certificates. A Borrowing Base certificate
---------------------------
in the form of Exhibit F attached hereto calculated as of July 31, 1999, for the
Borrower and its consolidated Subsidiaries on a pro forma basis based on
consummation of the Richmont Merger.
(g) Arthur Andersen Letter. A letter from Arthur Andersen
----------------------
regarding realized cost savings, in form and substance satisfactory to Agent.
40
<PAGE>
(h) Searches. Uniform Commercial Code, tax and judgment
--------
searches against the Companies, with results satisfactory to Agent, in those
offices and jurisdictions as Agent shall reasonably request.
(i) Security Agreement. An Amended and Restated Security
------------------
Agreement executed by each of the Companies in favor of Agent, for the benefit
of Lenders, granting Agent, for the benefit of Lenders, a lien on all assets of
the Companies as Collateral for the Senior Obligations, together with UCC
financing statements in such jurisdictions and such other documents and
instruments as Agent shall reasonably require, all in form and substance
satisfactory to Agent.
(j) Pledge Agreement. Duly executed and delivered Pledge
----------------
Agreements pledging all of the issued and outstanding shares of capital stock of
each direct and indirect Subsidiary of Borrower, together with the stock
certificates evidencing the pledged shares and stock powers duly endorsed in
blank.
(k) Financial Information. (i) A copy of the Borrower's 10-Q as
---------------------
of and for the period ended June 30, 1999, (ii) a copy of Richmont's 10-Q as of
and for the period ended June 30, 1999, and (iii) projections for Borrower and
its consolidated Subsidiaries for the period January 1, 2000 through December
31, 2003, certified by the chief financial officer of Borrower as constituting a
good faith projection based upon assumptions believed to be reasonable.
(l) Richmont Merger:
----------------
(i) A certificate of an Authorized Officer of Borrower
that all conditions to the Richmont Merger have been satisfied without waiver
(except as set forth in such certificate and approved by Agent), no law or
agreement (including the Indenture and the Richmont Subordinated Notes) is
violated by consummation of the Richmont Merger and this Agreement, and the
conditions in item (iv) are satisfied.
(ii) An opinion of counsel that merger has been completed.
(iii) A reliance letter in favor of Agent and Lenders,
authorizing them to rely on the opinion letters delivered to the Trustee under
the Indenture.
(iv) No Event of Default or Default shall have occurred
and be continuing, or be caused by consummation of the Richmont Merger and the
other transaction contemplated by the Richmont Merger Agreement and this
Agreement, and all of the representations and warranties set forth herein and in
the other Loan Documents shall be true and correct upon giving effect to the
Richmont Merger,
(v) Copies of (i) the Supplemental Indenture required
pursuant to Section 5.01 of the Indenture, executed by the Trustee under the
Indenture, and (ii)
41
<PAGE>
the certificates and opinions delivered to the Trustee as required by Section
5.01 of the Indenture in connection with the Merger.
(vi) Detailed calculations of the Consolidated Coverage
Ratio as of the Amendment Effective Date demonstrating that compliance with the
Indenture upon consummation of the Richmont Merger and the other transactions
contemplated by the Richmont Merger Agreement and this Agreement on the
Amendment Effective Date.
(vii) Repayment of all outstanding Indebtedness to, and
termination of the credit facilities with, Chase Manhattan Bank, and release of
all liens in connection therewith, other than the Richmont Letter of Credit; and
termination and release of all other Indebtedness and liens not permitted under
this Agreement.
(m) Consents. Receipt of all required consents and approvals
--------
under applicable law or contract.
(n) Certain Agreements. Copies of the agreement(s) with Monroe
------------------
& Company, LLC and Richmont Capital Partners I, L.P., which shall be in form and
substance satisfactory to Agent, it being expressly understood and agreed that
such agreements shall not include any provision for the payment of a minimum
fee.
(o) Notice to Subordinated Debt Holders. Written notice shall
-----------------------------------
have been delivered to each holder of the Existing Merkert Subordinated
Obligations of the outstanding amount of the Term Loan and Revolving Credit
Commitment.
(p) Other Documents. Such additional documents as Agent
---------------
reasonably may request.
4.2 Advances. The obligation of Lenders to make Advances under the
--------
Revolving Credit Commitment shall be subject to Borrower's compliance with
Paragraph 2.7 hereof and it shall be a condition to Lenders' obligation
hereunder to make any such Advance that (a) the representations and warranties
set forth herein and in the other Loan Documents shall be true and correct in
all material respects as if made on the date of such Advance, (b) no Event of
Default or Default shall have occurred and not have been waived on the date of
such Advance or be caused by such Advance, (c) all fees required pursuant to
Paragraphs 2.11, 2.12 and 2.13 hereof have been paid as and when due, and (d)
there shall have been no Material Adverse Effect since the date of this
Agreement.
42
<PAGE>
SECTION 5
AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that so long as the Revolving Credit
Commitment of Lenders to Borrower or any Indebtedness of Borrower to Lenders is
outstanding, each of the Companies will and will cause each of its Subsidiaries
(and with respect to Paragraph 5.13, will cause each ERISA Affiliate) to:
5.1. Existence and Good Standing. Except for any merger permitted
---------------------------
pursuant to Paragraph 6.8(iii), preserve and maintain (a) its existence as a
corporation and its good standing in all states in which it conducts business
and (b) the effectiveness and validity of all its franchises, licenses, permits,
certificates of compliance or grants of authority required in the conduct of its
business, except for such instances of ineffectiveness or invalidity as would
not, either singly or in the aggregate, have a Material Adverse Effect.
5.2. Interim Financial Statements.
----------------------------
(a) Furnish to each Lender within twenty-five (25) days after
the end of each month through December 31, 1999, and within twenty (20) days
after the end of each month thereafter, unaudited consolidated and consolidating
financial statements, in form and substance as reasonably required by Agent,
including (i) a balance sheet as of such month end, (ii) a statement of income
for such month and for the year to date, and (iii) a statement of cash flows for
such month and for the year to date, prepared in accordance with GAAP
consistently applied (except that such interim statements need not contain
footnotes and may be subject to year-end adjustments.
(b) Furnish to each Lender within forty-five (45) days after
the end of each of the first three quarterly periods in each fiscal year of
Borrower, unaudited quarterly consolidated and consolidating financial
statements, in form and substance as reasonably required by Agent, including (i)
a consolidated balance sheet, (ii) a consolidated statement of income, and (iii)
a statement of cash flows, prepared in accordance with GAAP consistently applied
(except that such interim statements need not contain footnotes and may be
subject to year-end adjustments).
5.3. Annual Financial Statements. Furnish to each Lender within one
---------------------------
hundred twenty (120) days after the close of each fiscal year audited
consolidated and consolidating annual financial statements, including the
information required under Paragraph 5.2 hereof, which financial statements
shall be prepared in accordance with GAAP and shall be certified without
qualification (except with respect to changes in GAAP as to which Borrower's
independent certified public accountants have concurred) by an independent
certified public accounting firm reasonably satisfactory to Agent; and cause
Agent to be furnished, at the time of the completion of the annual audit, with
copies of any management letters prepared by such
43
<PAGE>
accountants and with a certificate signed by such accountants to the effect that
to the best of their knowledge there exists no Event of Default or Default
hereunder.
5.4. Compliance Certificate. At the time of delivery of financial
----------------------
statements pursuant to Paragraph 5.2(b) and 5.3 hereof, deliver to Lenders a
certificate in the form of Exhibit E attached hereto executed by the chief
financial officer of Borrower or other Authorized Officer approved by Agent,
showing the calculation of the covenants set forth in Paragraphs 5.14, 5.15,
5.17 and 5.18.
5.5. Additional Reports.
------------------
(a) Furnish to Lenders (i) within twenty (20) days after the
end of each month, a Borrowing Base Certificate in the form of Exhibit F
attached hereto, and a schedule and aging report with respect to accounts
receivable and payable of Borrower and its consolidated Subsidiaries, in form
and substance reasonably satisfactory to Agent, and (ii) within five (5)
Business Days after the end of each week, a report of adjustments to such
Borrowing Base Certificate based on accounts receivable collections and
additions in form and substance reasonably satisfactory to Agent.
(b) On or before December 15 of each year, deliver to Lenders,
in form reasonably satisfactory to Agent, a business plan for the following year
approved by the Board of Directors of Borrower.
(c) At the time of delivery of monthly financial statements
pursuant to Paragraph 5.2(a), furnish to Lenders a summary of revenue wins and
losses listing annualized revenues by principal, the effective date of the win
or loss, and the revenues/losses projected to result for the following four
fiscal quarters, in form and substance as reasonably required by Agent;
5.6. Public Information. Deliver to Lenders promptly following
------------------
transmission thereof, copies of all financial statements, proxy statements,
notices and reports, and copies of any registration statement or annual or
quarterly reports, if any, filed with the Securities and Exchange Commission (or
successor entity) or sent to shareholders of Borrower.
5.7. Books and Records. Keep and maintain satisfactory and adequate
-----------------
books and records of account in accordance with GAAP and make or cause the same
to be made available to Agent or its agents or nominees at any reasonable time
upon reasonable notice for inspection and to make extracts thereof and permit
Agent or its agents or nominees to discuss contents of same with senior officers
of Borrower and also with outside auditors and accountants of Borrower.
5.8. Insurance. Keep and maintain all of its property and assets in
---------
good order and repair and covered by insurance with reputable and financially
sound insurance companies against such hazards and in such amounts as is
customary in the industry, under policies
44
<PAGE>
requiring the insurer to furnish reasonable notice to Agent and opportunity to
cure any non-payment of premiums prior to termination of coverage and naming
Agent, for the benefit of Lenders, as loss payee and additional insured.
5.9. Litigation; Event of Default. Notify Lenders in writing
----------------------------
immediately of the institution of any litigation, the commencement of any
administrative proceedings, the happening of any event or the assertion or
threat in writing of any claim, to the extent that any of the foregoing, either
singly or in the aggregate, would, either singly or in the aggregate, have a
Material Adverse Effect, or the occurrence of any Event of Default or Default
hereunder. Without limitation of the foregoing, Borrower shall notify Lenders of
the institution of litigation pursuant to the matter referenced in Section
3.4(a)(ii) of Exhibit C and keep Lenders reasonably advised as to the status of
such litigation.
5.10. Taxes. Subject to the matters disclosed on Exhibit C pursuant
-----
to Paragraph 3.9 hereof, pay and discharge all taxes, assessments or other
governmental charges or levies imposed on it or any of its property or assets
prior to the date on which any penalty for non-payment or late payment is
incurred, unless the same are currently being contested in good faith by
appropriate proceedings, diligently prosecuted and covered by appropriate
reserves maintained in accordance with GAAP.
5.11. Costs and Expenses. Pay or reimburse Agent for all reasonable
------------------
out-of-pocket costs and reasonable expenses (including but not limited to
reasonable attorneys' fees and disbursements) Agent may reasonably pay or incur
in connection with the preparation and review of this Agreement and all waivers,
consents and amendments in connection therewith and all other documentation
related thereto, and the making of the Loan hereunder, and pay or reimburse
Lenders for all costs, liabilities and expenses (including but not limited to
reasonable attorneys' fees and disbursements) associated with the collection or
enforcement of the same, including without limitation any fees and disbursements
incurred in defense of or to retain amounts of principal, interest or fees paid
or in connection with any audit or examination of the Companies. All obligations
provided for in this Paragraph 5.11 shall survive any termination of this
Agreement or the Revolving Credit Commitment and the repayment of the Loan.
5.12. Compliance; Notification.
------------------------
(a) Comply in all material respects with all local, state and
federal laws and regulations applicable to its business, including without
limitation all laws and regulations of the Local Authorities, and with the
provisions and requirements of all franchises, permits, certificates of
compliance, approval and need issued by regulatory authorities and with other
like grants of authority held by any Company; and notify Lenders immediately in
detail of any actual or alleged failure to comply with or perform, breach,
violation or default under any such laws or regulations or under the terms of
any of such franchises, licenses or grants of authority, or of the occurrence or
existence of any facts or circumstances which with the passage of time, the
giving of notice or otherwise could create
45
<PAGE>
such a breach, violation or default or could, either singly or in the aggregate,
occasion the termination of any of such franchises, licenses or grants of
authority, to the extent that any of the foregoing would, either singly or in
the aggregate, have a Material Adverse Effect.
(b) With respect to applicable Environmental Laws, promptly
notify Agent when, in connection with the conduct of the Companies' business(es)
or operations, any Person (including, without limitation, EPA or any state or
local agency) provides oral or written notification to any Company, or any
Company otherwise becomes aware, of a condition with regard to a Release or
threat of Release of Hazardous Substances which would, either singly or in the
aggregate, have a Material Adverse Effect; and notify Agent in detail promptly
upon the receipt by a Company of a written assertion of liability under any
Environmental Laws, of any actual or alleged failure to comply with, failure to
perform, breach, violation or default under any such Environmental Laws (or any
combination thereof) which would, either singly or in the aggregate, have a
Material Adverse Effect.
5.13. ERISA. (a) Comply in all material respects with the provisions
-----
of ERISA to the extent applicable to any Plan maintained for the employees of
any Company or any ERISA Affiliate; (b) do or cause to be done all such acts and
things that are required to maintain the qualified status of each Plan which is
intended to meet the requirements of 401(a) of the Code and tax exempt status of
each trust forming part of such Plan; (c) not incur any material accumulated
funding deficiency (within the meaning of ERISA and the regulations promulgated
thereunder), or any material liability to the PBGC (as established by ERISA);
(d) not permit any event to occur with respect to any Plan sponsored by any
Company or any ERISA Affiliate (i) as described in Section 4042 of ERISA or (ii)
which may result in the imposition of a lien on its properties or assets; and
(e) notify Agent in writing promptly after it has come to the attention of
senior management of any Company of the written assertion or threat of any event
described in Section 4042 of ERISA (relating to the soundness of a Plan)
(including any "reportable event" described in Section 4042(a)(3) of ERISA) or
the PBGC's ability to assert a material liability against it or impose a lien on
any Company's, or any ERISA Affiliate's properties or assets; and (f) refrain
from engaging in any prohibited transactions or actions causing possible
liability under Section 502 of ERISA.
5.14. Total Debt to EBITDA Ratio. Maintain at all times during the
--------------------------
periods set forth in the left-hand column below, a ratio of (a) Total Debt of
Borrower and its consolidated Subsidiaries to (b) EBITDA of Borrower and its
Consolidated Subsidiaries for the most recent Rolling Period, of not greater
than the ratio set forth in the right-hand column below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Effective Date through 12/30/99 5.50 to 1
12/31/99 through 3/30/00 6.25 to 1
</TABLE>
46
<PAGE>
<TABLE>
<S> <C>
3/31/00 through 3/30/01 3.50 to 1
3/31/01 and thereafter 3.00 to 1
</TABLE>
5.15 Senior Debt to EBITDA. Maintain at all times during the periods
---------------------
set forth in the left-hand column below a ratio of Senior Debt of Borrower and
its consolidated Subsidiaries to EBITDA of Borrower and its consolidated
Subsidiaries for the most recent Rolling Period, of not greater than the ratio
set forth in the right-hand column below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Effective Date through 12/30/99 3.25 to 1
12/31/99 through 3/30/00 3.75 to 1
3/31/00 through 3/30/01 2.75 to 1
3/31/01 and thereafter 2.25 to 1
</TABLE>
5.16 Minimum EBITDA. 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 Ratio
------ -----
<S> <C>
9/30/99, for the most recent Rolling Period 23,750
12/31/99, for the most recent Rolling Period 24,600
3/31/00, for the most recent Rolling Period 24,600
6/30/00, for the most recent Rolling Period 25,250
9/30/00, for the most recent Rolling Period 25,900
12/31/00, for the most recent Rolling Period 26,600
3/31/01, for the most recent Rolling Period 27,100
6/30/01, for the most recent Rolling Period 27,600
9/30/01, for the most recent Rolling Period 28,600
12/31/01 and thereafter, for the most recent Rolling Period 29,600
</TABLE>
5.17 Minimum Debt Service Coverage Ratio. Maintain as of the last
-----------------------------------
day of each fiscal quarter during the periods set forth in the left-hand column
below (commencing with March 31, 1999) a ratio of EBITDA to Debt Service for
Borrower and its consolidated Subsidiaries for the most recent Adjusted Rolling
Period of not less than the ratio set forth in the right hand column below:
47
<PAGE>
<TABLE>
<CAPTION>
Period Ratio
- ------ -----
<S> <C>
7/1/99 to 9/30/99 1.75 to 1
10/1/99 to 12/31/99 2.00 to 1
1/1/00 and thereafter 2.00 to 1
</TABLE>
5.18 Minimum Fixed Charge Coverage Ratio. Maintain as of the last
-----------------------------------
day of each fiscal quarter a ratio of Adjusted EBITDA to Fixed Charges for
Borrower and its consolidated Subsidiaries for the most recent Adjusted Rolling
Period of not less than 1.10 to 1.
5.19 Borrowing Base. Maintain at all times the outstanding principal
--------------
balance of the Revolving Credit Loan, together with the undrawn amount of all
outstanding Letters of Credit and all unreimbursed draws under Letters of
Credit, in an amount less than or equal to the Borrowing Base.
5.20 Management Changes. Notify Agent in writing within ten (10)
------------------
Business Days after any change of its Executive Officers.
5.21 Transactions Among Affiliates. Except pursuant to existing
-----------------------------
agreements as described on Exhibit C hereto, cause all transactions between and
among it and its Affiliates, other than transactions among the Companies, to be
on an arms-length basis and on such terms and conditions as are customary in the
applicable industry between and among unrelated entities.
5.22 Joinders, etc. If any new Subsidiary is formed or acquired and
-------------
such Subsidiary is wholly-owned, execute or cause such Subsidiary to execute, as
applicable, a joinder to the Guaranty and the Security Agreement by such
Subsidiary, a supplement to the Pledge agreements or an additional Pledge
Agreement pledging all of the shares of stock of such Subsidiary, and such other
documents as Agent may reasonably require in connection therewith, including
without limitation UCC-1 financing statements, secretary's certificates and
opinions of counsel.
5.23 Additional Collateral Security Documents.
----------------------------------------
(a) Use reasonable best efforts to promptly obtain and deliver
to Agent landlord consents and waivers and bailee consents and waivers in form
and substance satisfactory to Agent with respect to all premises at which any
Collateral may be located.
(b) Within twenty (20) days after notice from Agent, arrange for
the release of all collateral security related to the Richmont Letter of Credit,
through the issuance of a Letter of Credit hereunder in favor of Chase Manhattan
Bank or otherwise.
48
<PAGE>
(c) Within ten (10) days following the Amendment Effective
Date, obtain and deliver to Agent blocked account letters from Chase, Wells
Fargo and Bank of America and within twenty (20) days after notice from Agent,
obtain and deliver to Agent blocked account letters with each depository
institution with which any Company maintains a deposit account and as to which
Agent has indicated that such blocked account letter is required.
(d) Within sixty (60) days after the Amendment Effective Date,
deliver to Agent updated Phase I environmental reports on each owned property
acquired in the Richmont Merger; and at any time thereafter, within sixty (60)
days following notice from Agent, deliver to Agent a mortgage on any such
properties as specified by Agent in favor of Agent for the benefit of Lenders,
together with an effective policy of title insurance thereon in an amount
satisfactory to Agent, opinions of local and company counsel in form and
substance satisfactory to Agent, and such other documents as Agent shall
reasonably require in connection therewith.
(e) Within thirty (30) days after the Amendment Effective Date,
deliver to Agent and Lenders an opinion of counsel confirming corporate,
validity, perfection and enforceability matters as reasonably required by Agent
with respect to the Richmont Subsidiaries.
(f) Execute, deliver, file and record such additional documents,
instruments or agreements as Agent shall reasonably require from time to time in
order to perfect, maintain, protect or realize upon a security interest and lien
on all of the assets of the Companies, including without limitation additional
mortgages, pledges or assignments of specific assets, UCC financing statements,
landlord waivers and consents and other documentation.
5.24 Collateral Audit. Within forty-five (45) days following the
----------------
Amendment Effective Date, a comprehensive collateral audit of the Companies by a
firm acceptable to Agent shall be completed and delivered to Agent at Borrower's
expense. Additional collateral audits shall be performed at the request of
Agent; provided, however, that, in the absence of an Event of Default hereunder,
-------- -------
Borrower shall not be required to pay for the costs of more than three (3) such
audits in any twelve-month period.
5.25 Notice upon Change in Control. The Borrower will notify Agent
-----------------------------
promptly following the Borrower becoming aware that a "Change in Control" as
defined in the Indenture has occurred or if Borrower has entered into an
agreement which, if consummated, would result in a "Change in Control" as
defined in the Indenture, but in no event shall such notice be provided more
than ten (10) days following such event.
5.26 Other Information. Provide any Lender with any other documents
-----------------
and information, financial or otherwise, reasonably requested by such Lender
from time to time.
5.27 Revision of Covenants. Borrower and Lender agree to cooperate
---------------------
in good faith to revise Paragraphs 5.16, 5.17 and 5.18 with respect to the
period from the Amendment Effective
49
<PAGE>
Date through December 31, 1999 within fifteen (15) Business Days of the
Amendment Effective Date.
SECTION 6
NEGATIVE COVENANTS
------------------
So long as any Revolving Credit Commitment or any Indebtedness of
Borrower to Lenders remains outstanding hereunder, Borrower covenants and agrees
that without Required Lenders' prior written consent, each Company and its
Subsidiaries will not:
6.1 Indebtedness. Borrow any monies or create or permit to exist any
------------
Indebtedness except: (i) the Senior Obligations; (ii) trade Indebtedness in the
normal and ordinary course of business for value received; (iii) Indebtedness
and obligations incurred to purchase or lease fixed or capital assets, provided,
that the aggregate outstanding principal amount of such indebtedness and
obligations shall not exceed in the aggregate Three Million Dollars ($3,000,000)
outstanding at any time; (iv) Subordinated Debt on terms (including amount,
term, payment provisions and subordination terms) satisfactory to Required
Lenders; (v) existing Seller Obligations which are not Subordinated Debt, as
described on Exhibit C; (vi) the existing mortgage indebtedness on the buildings
in Canton, Massachusetts, and Charlotte, North Carolina described on Exhibit C
in the outstanding principal amount at September 30, 1998 of $9,413,062 and
$3,720,000 respectively, as reduced from time to time by payments thereon,
provided that the mortgage indebtedness on the Rogers Building in Charlotte,
North Carolina, so described, shall be paid off in full upon sale of such
building; (vii) tax obligations for which funds have been escrowed as provided
in Paragraph 4.1(p) of the Existing Credit Agreement, (viii) obligations which
are the subject of the ABD/Bergida Dispute for which funds have been escrowed as
provided in Paragraph 4.1(q) of the Existing Credit Agreement, (ix) Indebtedness
of one Company to another Company, and (x) reimbursement obligations with
respect to the Richmont Letter of Credit.
6.2 Guaranties. Guarantee or assume or be or agree to become liable
----------
in any way, either directly or indirectly, for any Indebtedness or liability of
others except: (i) to endorse checks or drafts in the ordinary course of
business; (ii) pursuant to the Guaranty; (iii) the guaranty by Merkert American
Co., Inc. of indebtedness of Merchandising Corporation of America, Inc, as
described on Exhibit C, provided that the principal amount thereof shall not
exceed at any time Five Hundred Thousand Dollars ($500,000); (iv) the guaranty
by Borrower of the mortgage indebtedness permitted pursuant to Paragraph 6.1(vi)
hereof with respect to the Canton, Massachusetts building; (v) guarantees by the
Subsidiaries of the Richmont Subordinated Notes; and (vi) the existing
guarantees as of the date hereof as disclosed on Exhibit C.
50
<PAGE>
6.3 Loans. Make or permit to exist any loans or advances to others,
-----
other than (i) loans or advances by any Company to any other Company, (ii) loans
to any Subsidiary that is not a Guarantor, subject to the limitations set forth
in paragraph 6.8(i) hereof and (iii) loans to employees outstanding on the date
hereof as described on Exhibit C, and other loans or advances to employees for
travel and entertainment expenses, or in connection with relocation of
employees, in an aggregate principal amount outstanding (for all loans under
this clause (iii)) not to exceed One Million Five Hundred Thousand Dollars
($1,500,000) until February 18, 2000, and at any time thereafter One Million
Dollars ($1,000,000).
6.4 Liens and Encumbrances. Create, permit or suffer the creation or
----------------------
existence of any liens, security interests, or any other encumbrances on
(including any conditional sales arrangement with respect to) any of its
property, real or personal, except the security interests in favor of the Agent
on behalf of Lenders as security for the Loans, and except (i) liens arising in
favor of sellers or lessors for indebtedness and obligations incurred to
purchase or lease fixed or capital assets permitted under Paragraph 6.1(iii)
hereof, provided, however, that such liens secure only the indebtedness and
obligations created thereunder and (except with respect to the two certificates
of deposit each in the amount of $108,572 pledged to Norwest Equipment Finance
Inc.) are limited to the assets purchased or leased pursuant thereto and the
proceeds thereof; (ii) mechanic's and workman's liens, liens for taxes,
assessments or other governmental charges, federal, state or local, which are
then being currently contested in good faith by appropriate proceedings and are
covered by appropriate reserves maintained in accordance with GAAP; (iii)
pledges or deposits to secure obligations under workmen's compensation,
unemployment insurance or social security laws or similar legislation; (iv)
deposits to secure surety, appeal or custom bonds required in the ordinary
course of business and the $250,000 deposit to secure any remaining obligations
to Wachovia Bank, N.A.; (v) the existing mortgage liens pursuant to the mortgage
indebtedness permitted pursuant to Paragraph 6.1(vi) hereof; and (vi) rights of
Chase Manhattan Bank with respect to the deposit account at Chase Manhattan Bank
as collateral security for the Richmont Letter of Credit, subject to Paragraph
5.23(b) hereof.
6.5 Additional Negative Pledge. Except for existing agreements
--------------------------
relating to the mortgage debt permitted pursuant to Paragraph 6.1(vi) hereof,
agree or covenant with or promise any Person or entity other than the Lenders
that it will not pledge its assets or properties or otherwise grant any liens,
security interests or encumbrances on its property.
6.6 Restricted Payments.
-------------------
(a) Make any Restricted Payments; provided, that (i) in the
absence of an Event of Default or Default hereunder, and provided no Event of
Default or Default would be caused by such payment, the Companies may make
regularly scheduled payments of principal and interest on the Existing Merkert
Subordinated Debt and the Existing Richmont Subordinated Debt, and (ii) provided
there is no Event of Default under Paragraph 7.1(a) hereof, the Loans have not
been accelerated as provided herein, and no "Payment Blockage Period" is in
effect under the Indenture, Borrower may make payments required under the
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Richmont Subordinated Notes, provided, that at any time that an Event of Default
or Default exists under this Agreement Borrower shall give Lenders not less than
ten (10) Business Days prior written notice of any proposed payment on the
Richmont Subordinated Notes.
(b) Make any voluntary payment or prepayment of any
Indebtedness, including, without limitation, any obligations to sellers in
connection with previous acquisitions, other than the Senior Obligations, and
provided that, in the absence of an Event of Default hereunder, Borrower and its
Subsidiaries may (i) make all regularly scheduled payments of principal and
interest on account of any such Indebtedness and obligations and (ii) make
prepayments of Seller Obligations which are not Subordinated Debt in final
settlement of all obligations to a seller in an aggregate amount not to exceed
Ten Million Dollars ($10,000,000).
(c) Make any payments of management fees or consulting fees;
provided, however, that in the absence of an Event of Default hereunder, (i)
Borrower may pay consulting fees to Monroe & Company LLC and Richmont Capital
Partners I, L.P. (A) as described in clause (i) of the disclosure under
Paragraph 6.9 on Exhibit C, and (B) as described in clause (ii) of the
disclosure under Paragraph 6.9 of Exhibit C, in an aggregate amount not to
exceed in any twelve month period $500,000, provided, that no such fees shall be
paid to Monroe & Company LLC or Richmont Capital Partners I, L.P. prior to
completion of a Successful Syndication, and (ii) the Companies may make payments
of Seller Obligations which are not Subordinated Debt; provided, however, that
-------- -------
if a judgment is rendered by a court of competent jurisdiction providing that
any fee or obligation is owed to Monroe & Company, LLC then Borrower may make
such payment provided that Borrower has defended in good faith such suit and
kept Agent reasonably advised as to the status of the suit.
6.7 Transfer of Assets; Liquidation.
-------------------------------
(a) Sell, lease, transfer or otherwise dispose of all or any
portion of its assets, real or personal, including any sale/leaseback or similar
transaction, other than such transactions in the normal and ordinary course of
business for value received provided, however, that in the absence of an Event
of Default or Default hereunder, Borrower and its Subsidiaries may consummate
the sale of the Rogers Building, in Charlotte, North Carolina and the land and
buildings thereon located in Canton, Massachusetts commonly known as 490 and 500
Turnpike Avenue, and the subsequent lease thereof by the Borrower; or
(b) discontinue, liquidate, or change in any material respect
any substantial part of its operations or business(es), except as a result of an
intercompany merger permitted pursuant to Paragraph 6.8(iii) hereof.
6.8 Acquisitions and Investments. Purchase or otherwise acquire
----------------------------
(including without limitation by way of share exchange) any part or amount of
the capital stock, partnership interests, or assets of, or make any investments
in, any other Person; or enter into
52
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any new business activities or ventures not directly related to its present
business; or merge or consolidate with or into any other Person; or create any
Subsidiary; provided, however that:
(i) the Companies may own the Subsidiaries owned by them
on the date hereof as set forth on Exhibit C attached hereto, may create or form
additional wholly-owned Subsidiaries, subject to compliance with Paragraph 5.22
hereof, if applicable and may make additional investments in any such
Subsidiaries, provided, that the aggregate amount of all investments in or loans
to Subsidiaries that are not Guarantors hereunder, together with any investments
authorized pursuant to clause (v) in Persons that are not Subsidiaries (in each
case, whether now existing or hereafter arising) shall not exceed at any time
Three Million Dollars ($3,000,000).
(ii) the Companies may make Permitted Investments, subject
to the conditions and limitations set forth in the definition thereof;
(iii) any Company or wholly-owned Subsidiary may merge with
or into any Company, provided that the surviving entity shall be the Borrower or
a Guarantor hereunder;
(iv) the Companies (or a newly-formed Subsidiary which
shall become a Company pursuant to Paragraph 5.22 hereof) may make acquisitions
if:
(A) all Lenders shall have consented thereto;
(B) at least ten (10) Business Days prior to the
consummation of such acquisition, the Company delivers to Agent a notice of
acquisition in the form of Exhibit G, including:
(I) a description of the material terms of the
transaction,
(II) three (3) years of historical financial
information for the entity to be acquired to the extent available and pro forma
financial statements for the preceding year and the current year,
(III) a certificate of the chief financial
officer of the Borrower setting forth the calculation of the covenants set forth
in Paragraphs 5.14 through 5.19 and the following clause (C) on a pro forma
basis for the combined group as of the consummation of the acquisition and as of
the fiscal year end following the acquisition and certifying as to the matters
in clauses (D) and (E) following,
(IV) all information reasonably necessary to
demonstrate, and the certification of the chief financial officer of the
Borrower, that no term or provision of the Indenture will be violated by, and no
redemption or other rights of the holders of the Richmont Subordinated Notes
will be triggered by, consummation of the proposed acquisition
53
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and all related transactions, including the incurrence of any additional
indebtedness hereunder or otherwise to consummate such acquisition, and
(V) all disclosures that would be required pursuant
to the representations and warranties set forth herein, in the Security
Agreement or in any other Loan Document, giving effect to the proposed
transaction,
(C) the ratio of Senior Debt to EBITDA, calculated on a pro
forma basis to give effect to the acquisition, will be at the level required
pursuant to Paragraph 5.15 hereof, less .25,
(D) there is no Event of Default or Default hereunder in
existence at the time of such acquisition or investment or which would be caused
by such acquisition or investment,
(E) giving effect to such acquisition, the representations
and warranties set forth in Section 3 hereof will be true and correct in all
material respects as applied to Borrowers and their Subsidiaries including the
acquired company or business (including without limitation the absence or
indebtedness or liens except as permitted pursuant to Paragraphs 6.1 and 6.4
hereof);
(F) in the case of the acquisition of stock, the Companies
(or newly-formed Subsidiary which shall become a Company pursuant to Paragraph
5.22 hereof) obtains ownership of not less than one hundred percent (100%) of
all classes of voting securities;
(G) such acquisition or investment has been approved by the
board of directors (or equivalent governing authority) of the entity to be
acquired in office immediately prior to the proposed acquisition;
(H) the Companies shall deliver at or prior to consummation
of the acquisition all such documents and agreements as Agent may reasonably
request, including without limitation all documents and agreements called for by
Paragraphs 5.22 and 5.23 hereof.
(v) the Companies may make and maintain investments in one or
more Persons that are not wholly-owned Subsidiaries provided that (A) such
Person is engaged in a business substantially related to the business of the
Companies, (B) the aggregate amount of all investments in such Persons (whether
now existing or hereinafter arising) at any time shall be subject to the
limitation set forth in Paragraph 6.8(i) hereof, and (C) if such Person will be
a Subsidiary as defined herein, then notice of such investment shall be required
as set forth in clause (iv) above with respect to acquisition, and such
investment shall be subject to the other conditions set forth in such clause
(iv), other than subclause (F) thereof.
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6.9 Payments to Affiliates. Pay any salaries, compensation,
----------------------
management fees, consulting fees, service fees, licensing fees, or other similar
payments to Affiliates of any Company other than on an arms-length basis for
value, and on terms and conditions as are customary in the industry between and
among unrelated entities, except pursuant to existing agreements as described on
Exhibit C hereto.
6.1 Certain Changes.
---------------
(a) Make any change in the fiscal year end of Borrower.
(b) Enter into any amendments to the financial covenants, rate
or interest, amount or time of payments with respect to other outstanding
Indebtedness which are more burdensome to the Companies, or which increase or
accelerate any payment thereunder.
(c) Agree to any amendment for the Tax Escrow Agreement or the
Indemnification Escrow Agreement or agree to any release of the escrowed funds
pursuant to Section 3.1 of the Indemnification Escrow Agreement or Section 4(a)
of the Tax Escrow Agreement without the consent of Agent.
(d) Amend, modify or waive (or permit any amendment,
modification or waiver of) any term or provision of (i) its certificate of
incorporation or other governing documents, (ii) the Voting Agreement.
(e) Issue any voting securities or options or other rights to
acquire voting securities unless (i) at least ten (10) Business Days' prior
written notice thereof has been given to Lenders, except for issuances of common
stock or rights to acquire common stock under the Amended and Restated 1998
Stock Option and Incentive Plan of Borrower, up to the maximum number of shares
authorized for issuance thereunder as of the date hereof(including as increased
with the approval of the shareholders at the special meeting of the shareholders
of Borrower on August 18, 1999) and otherwise as provided for under the terms of
the plan, and (ii) such issuance will not constitute or result in a "Change in
Control" as defined in the Indenture, or result in a termination of the Voting
Agreement.
(f) Enter into any agreement or undertaking the consummation of
which would violate or require consent under the Indenture, or trigger any
redemption or other rights of the holders of the Richmont Subordinated Notes,
unless such agreement or undertaking is expressly conditioned on obtaining the
consent of, or waiver of any such rights of redemption or otherwise by, the
holders of the Richmont Subordinated Notes, and such transactions are not
consummated without obtaining such waiver or consent in form and substance
satisfactory to Agent.
(g) Enter into any agreement or undertaking the consummation of
which would violate or require consent under this Agreement, unless such
agreement or
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undertaking expressly conditions the Companies' obligations thereunder on
obtaining consent thereto from Lenders or Required Lenders, as applicable.
6.1 Restrictive Agreements. Except for existing agreements relating
----------------------
to the mortgage debt permitted pursuant to Paragraph 6.1(vi) hereof, the
Companies will not, and will not permit any of their Subsidiaries to, directly
or indirectly, enter into, incur or permit to exist any agreement or other
arrangement that prohibits, restricts or imposes any condition upon (a) the
ability of any Company or any Subsidiary to create, incur or permit to exist any
lien upon any of its material property or assets, or (b) the ability of any
Subsidiary to pay dividends or other distributions with respect to any shares of
its capital stock or to make or repay loans or advances to any Company or any
other Subsidiary or to guarantee indebtedness of any Company or any other
Subsidiary; provided that the foregoing shall not apply to restrictions and
conditions imposed by law or by this Agreement.
6.1 Use of Proceeds. Use any of the proceeds of the Loan, directly
---------------
or indirectly, to purchase or carry margin securities within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System; or engage
as its principal business in the extension of credit for purchasing or carrying
such securities.
SECTION 7
DEFAULT
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7.1 Events of Default. Each of the following events shall be an
-----------------
Event of Default hereunder:
(a) If Borrower shall fail to pay when due any installment of
principal, or fail to pay within three (3) Business Days of when due any
interest, fees, costs, expenses or any other sum, payable to Lenders or Agent
under the Senior Obligations; or
(b) If any representation or warranty made herein or in
connection herewith or in any statement, certificate or other document furnished
hereunder is false or misleading in any material respect when made; or
(c) If any Company shall default (after expiration of any
applicable cure or grace periods) in the payment or performance of any
obligation or Indebtedness to another either singly or in the aggregate in
excess of One Million Dollars ($1,000,000), whether now or hereafter incurred
(other than obligations to Monroe & Company, LLC under that certain advisory
agreement dated as of May 11, 1998); or
(d) If there shall be a default in or failure to observe at any
test date the covenants set forth in Paragraphs 5.14 through 5.19 hereof or in
Section 6 hereof; or
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(e) If any Company shall default in the performance of any other
agreement or covenant contained herein (other than as provided in subparagraphs
(a), (b) or (d) above) or in any document executed or delivered in connection
herewith or otherwise in connection with the Senior Obligations, including
without limitation with respect to any Collateral, and such default shall
continue uncured for thirty (30) days after notice thereof to Borrower given by
Agent; or
(f) If Borrower shall cease to own, directly or indirectly, one
hundred percent (100%) of the outstanding capital stock of each Guarantor
(except as a result of the merger of such Guarantor into a Company as permitted
pursuant to Paragraph 6.8(iii) hereof); or
(g) If (i) any person or group within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "1934 Act") and
the rules and regulations promulgated thereunder (other than (x) James L. Monroe
and Persons controlled by him, (y) MS Acquisition Limited and its Affiliates,
and (z) the parties to the Voting Agreement as a group) shall have beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act), directly or
indirectly, of securities of the Company (or other securities convertible into
or options exercisable for such securities) representing a percentage of the
combined voting power of all securities of the Borrower entitled to vote in the
election of directors in excess of the greater of (x) thirty percent (30%) or
(y) the aggregate percentage ownership held by Executive Officers and directors
of the Companies (hereinafter called a "Controlling Person"); or (ii) a majority
of the board of directors of the Borrower shall cease for any reason to consist
of (A) individuals who on the date hereof (after giving effect to the Richmont
Merger) were serving as directors of Borrower and (B) individuals who
subsequently become members of the Board if such individuals' nominations for
election or elections to the Board are recommended or approved by a majority of
the Board of Directors of the Borrower. For purposes of clause (i) above, a
person or group shall not be a Controlling Person if such person or group (x)
holds voting power in good faith, and not for the purpose of circumventing this
Paragraph 7.1(g) as an agent, bank, broker, nominee, trustee, or holder of
revocable proxies given in response to a solicitation pursuant to the 1934 Act,
for one or more beneficial owners who do not individually, or, if they are a
group acting in concert, as a group, have the voting power specified in clause
(i) above, or (y) is an investment company registered under the Investment
Company Act of 1940, as amended, and has not indicated an intent to exercise a
controlling influence over the Companies;
(h) If the Borrower fails to make payment as required by the
Indenture on any Subordinated Notes tendered for repurchase pursuant to Section
4.08 of the Indenture within ninety (90) days following delivery to the holders
of the Subordinated Notes of notice of the occurrence of a "Change in Control"
as defined in the Indenture;
(i) If custody or control of any substantial part of the
property of any Company shall be assumed by any governmental agency or any court
of competent jurisdiction at the instance of any governmental agency; if any
license or franchise of a Company shall be
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suspended, revoked, not renewed or otherwise terminated the loss of which would,
either singly or in the aggregate, have a Material Adverse Effect; or if any
material contract (as determined in accordance with Regulation S-K under the
Securities Act of 1933, as amended) is terminated; or if any governmental
regulatory authority or judicial body shall make any other final non-appealable
determination the effect of which would, either singly or in the aggregate, have
a Material Adverse Effect; or
(j) If any Company or any Subsidiary becomes insolvent, bankrupt
or generally fails to pay its debts as such debts become due; is adjudicated
insolvent or bankrupt; admits in writing its inability to pay its debts; or
shall suffer a custodian, receiver or trustee for it or substantially all of its
property to be appointed and if appointed without its consent, not be discharged
within sixty (60) days; makes a general assignment for the benefit of creditors;
or suffers proceedings under any law related to bankruptcy, insolvency,
liquidation or the reorganization, readjustment or the release of debtors to be
instituted against it and if contested by it not dismissed or stayed within
sixty (60) days; if proceedings under any law related to bankruptcy, insolvency,
liquidation, or the reorganization, readjustment or the release of debtors is
instituted or commenced by any Company or any Subsidiary; if any order for
relief is entered relating to any of the foregoing proceedings; if any Company
or any Subsidiary shall call a meeting of its creditors with a view to arranging
a composition or adjustment of its debts; or if any Company or any Subsidiary
shall by any act or failure to act indicate its consent to, approval of or
acquiescence in any of the foregoing; or
(k) any event or condition shall occur or exist with respect to
any Hazardous Substance as a result of which event or condition, the Companies
have incurred or in the opinion of Borrower are reasonably likely to incur
liabilities in the aggregate in excess of One Million Dollars ($1,000,000); or
(l) if any judgment, writ, warrant or attachment or execution or
similar process which calls for payment or presents liability in excess of One
Million Dollars ($1,000,000) shall be rendered, issued or levied against any
Company or its respective property and such process shall not be paid, waived,
stayed, vacated, discharged, settled, satisfied or fully bonded within sixty
(60) days after its issuance or levy unless such judgment is covered by
insurance and the insurer has acknowledged coverage in writing with respect
thereto; or
7.2 Remedies. Upon the happening of any Event of Default and at any
--------
time during the continuance thereof, at the election of Required Lenders, and by
notice by Agent to Borrower (except if an Event of Default described in
Paragraph 7.1(j) shall occur in which case acceleration shall occur
automatically without notice), Required Lenders may declare the entire unpaid
balance, principal, interest and fees, of all Indebtedness of Borrower to
Lenders, hereunder or under any other Loan Document, to be immediately due and
payable. Upon such declaration, the Revolving Credit Commitment shall
immediately and automatically terminate and Lenders shall have no further
obligation to make any advances and they shall have the immediate right to
enforce or realize on any collateral in a commercially reasonable manner in
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any manner or order they deem expedient without regard to any equitable
principles of marshaling or otherwise. Whether such a declaration has been made
by Required Lenders that the Indebtedness is due and payable following an Event
of Default, Required Lenders may terminate the Revolving Credit Commitments at
any time during the continuance of an Event of Default by notice thereof by
Agent to Borrower. In addition to any rights granted hereunder or in any
documents delivered in connection herewith, Lenders shall have all the rights
and remedies granted by any applicable law, all of which shall be cumulative in
nature.
7.3 Right of Set-off. If any obligations hereunder or under any
----------------
other Loan Document, including under any interest rate swap or rate protection
agreement with a Lender (collectively, the "Liabilities") shall be due and
payable (subject to notice and cure periods) or any one or more Events of
Default shall have occurred and be continuing, whether or not the Agent shall
have made demand under any Loan Document and regardless of the adequacy of any
collateral for the Liabilities or other means of obtaining repayment of the
Liabilities, each Lender shall have the right, without notice to the Borrower
and is specifically authorized hereby to set-off against and apply to the then
unpaid balance of the Liabilities any items or funds of the Borrower held by
each Lender or any affiliate of such Lender, any and all deposits (whether
general or special, time or demand, matured or unmatured) or any other property
of the Borrower including, without limitation, securities and/or certificates of
deposit, now or hereafter maintained by any Borrower for its or their own
account with any Lender or any affiliate of such Lender, and any other
indebtedness at any time held or owing by any Lender or any affiliate of such
Lender, to or for the credit or the account of Borrower, even if effecting such
set-off results in a loss or reduction of interest or the imposition of a
penalty applicable to the early withdrawal of time deposits. For such purpose,
the Lenders shall have, and Borrower hereby grant to each Lender, a first lien
on and security interest in such deposits, property, funds and accounts and the
proceeds thereof.
7.4 Turnover of Property Held by Lender's Affiliates. Borrower
------------------------------------------------
further authorizes any affiliate of each Lender, upon the occurrence and during
the continuance of an Event of Default, at the request of any such Lender, and
without notice to Borrower, to turn over to the Agent any property of Borrower,
including, without limitation, funds and securities, held by any Lender's
affiliate for any such Borrower's account and to debit any deposit account
maintained by Borrower with such Lender's affiliate (even if such deposit
account is not then due or there results a loss or reduction of interest or the
imposition of a penalty in accordance with law applicable to the early
withdrawal of time deposits), in the amount requested by the Lenders up to the
amount of the Liabilities, and to pay or transfer such amount or property to the
Agent for application to the Liabilities.
7.5 Remedies Cumulative; No Waiver. The rights, powers and remedies
------------------------------
of the Lenders provided in this Agreement and any in the other Loan Documents
are cumulative and not exclusive of any right, power or remedy provided by law
or equity. No failure or delay on the part of the Agent or any Lender in the
exercise of any right, power or remedy shall operate as a waiver thereof, nor
shall any single or partial exercise preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy.
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SECTION 8
AGENCY PROVISIONS
-----------------
This Section sets forth the relative rights and duties of Agent and
Lenders respecting the Loan and, with the exception of Paragraphs 8.3 and 8.15
hereof, does not confer any enforceable rights on Borrower against Lenders or
create on the part of Lenders any duties or obligations to Borrower.
8.1 Application of Payments. Agent shall apply all payments of
-----------------------
principal, interest, commitment fee or other amounts hereunder made to Agent by
or on behalf of Borrower with respect to the Loan to Lenders on the basis of
their Pro Rata Shares of the outstanding principal balance of the Loans, except
the fees payable under Paragraph 2.13 hereof, which shall be paid solely to
Agent. Such distribution of payments shall be made promptly in federal funds
immediately available at the office of each Lender set forth above.
8.2 Set-Off. In the event a Lender, by exercise of its right of set-
-------
off, or otherwise, receives any payment of principal or interest, in an amount
greater than its Pro Rata Share of such payment based upon the Lenders'
respective shares of principal Indebtedness outstanding hereunder immediately
before such payment, such Lender shall purchase a portion of the Indebtedness
hereunder owing to each other Lender so that after such purchase each Lender
shall hold its Pro Rata Share of all the Indebtedness then outstanding
hereunder, provided that if all or any portion of such excess payment is
thereafter recovered from such Lender, such purchase shall be rescinded and the
purchase price restored to the extent of any such recovery, but without
interest.
8.3 Modifications and Waivers. No modification or amendment hereof,
-------------------------
consent hereunder or waiver of any Event of Default shall be effective except by
written consent of the Required Lenders; provided, however, that the written
consent of all Lenders shall be required to (i) modify, amend, waive, discharge,
terminate or suspend compliance with (A) any rate of interest applicable to the
Loans to the extent it is proposed to be decreased, (B) the amount of the
Revolving Credit Commitment to the extent it is proposed to be increased, or the
Lenders' respective shares thereof; (C) the date or amounts of payment of the
Loans or interest thereon, to postpone payment thereof, (D) the commitment fee
set forth in Paragraph 2.12 hereof or other amounts payable by Borrower
hereunder except if payable solely to the Agent, to the extent any such amount
is proposed to be decreased, (E) the definition of Required Lenders, (F) this
Paragraph 8.3, or (G) the definition of Pro Rata Share; (ii) release all or
substantially all of the Collateral; or (iii) release any Guarantor that is a
Material Subsidiary except pursuant to mergers permitted pursuant to Paragraph
6.8(iii) hereof.
8.4 Obligations Several. The obligations of the Lenders hereunder
-------------------
are several, and each Lender hereunder shall not be responsible for the
obligations of the other Lenders
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hereunder, nor will the failure of one Lender to perform any of its obligations
hereunder relieve the other Lenders from the performance of their respective
obligations hereunder.
8.5 Lenders' Representations. Each Lender represents and warrants to
------------------------
the other Lenders that (i) it has been furnished all information it has
requested for the purpose of evaluating its proposed participation under this
Agreement; and (ii) it has decided to enter into this Agreement on the basis of
its independent review and credit analysis of Borrower, this Agreement and the
documentation in connection therewith and has not relied for such analysis on
any information or analysis provided by any other Lender.
8.6 Investigation. No Lender shall have any obligation to the others
-------------
to investigate the condition of Borrower or any of the Collateral or any other
matter concerning the Loan.
8.7 Powers of Agent. Agent shall have and may exercise those powers
---------------
specifically delegated to Agent herein, together with such powers as are
reasonably incidental thereto.
8.8 General Duties of Agent, Immunity and Indemnity. Upon receipt of
-----------------------------------------------
notices and reports delivered by Borrower to the Agent under this Agreement, the
Agent shall promptly deliver the same in the form received to the Lenders.
Required Lenders shall also have the right to request Agent to inspect
Borrower's books and records and take the other steps provided in Paragraph 5.7
hereof. In performing its duties as Agent hereunder, Agent will take the same
care as it takes in connection with loans in which it alone is interested,
subject to the limitations on liabilities contained herein; provided that Agent
shall not be obligated to ascertain or inquire as to the performance of any of
the terms, covenants or conditions hereof by Borrower. Neither Agent nor any of
its directors, officers, agents or employees, shall be liable for any action or
omission by any of them hereunder or in connection herewith except for gross
negligence or willful misconduct. Subject to such exception, each of the
Lenders hereby indemnifies Agent (in its capacity as Agent) on the basis of such
Lender's Pro Rata Share, against any liability, claim, loss or expense arising
from or relating to any action taken or omitted to be taken with respect to this
Agreement, any other Loan Document or the transactions contemplated thereby or
Borrower, to the extent that the Agent has not been reimbursed therefor by
Borrower, without affecting any obligation of Borrower to reimburse.
8.9 No Responsibility for Representations or Validity, etc. Each
------------------------------------------------------
Lender agrees that Agent shall not be responsible to any Lender for any
representations, statements, or warranties of Borrower herein or in the other
Loan Documents. Neither Agent nor any of its directors, officers, employees or
agents, shall be responsible for the validity, effectiveness, sufficiency,
perfection or enforceability of this Agreement or the other Loan Documents, or
any Collateral, or any documents relating thereto or for the priority of any of
Lenders' security interests in any such Collateral.
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8.10. Action on Instruction of Lenders; Right to Indemnity. Agent
----------------------------------------------------
shall act upon written instruction of Lenders or Required Lenders, as
appropriate, and in all cases Agent shall be fully protected in acting or
refraining from acting hereunder in accordance with such written instructions to
it signed by Required Lenders unless the consent of all the Lenders is expressly
required hereunder in which case Agent shall be so protected when acting in
accordance with such instructions from all the Lenders. Such instructions and
any action taken or failure to act pursuant thereto shall be binding on all the
Lenders, provided that except as otherwise provided herein, Agent may act
hereunder in its own discretion without requesting such instructions.
8.11. Employment of Agents. In connection with its activities
--------------------
hereunder, Agent may employ agents and attorneys-in-fact and shall not be
answerable, except as to money or securities received by it or its authorized
agents, for the default or misconduct of agents or attorneys-in-fact selected
with reasonable care.
8.12. Reliance on Documents. Agent shall be entitled to rely upon
---------------------
(a) any paper or document believed by it to be genuine and correct and to have
been signed or sent by the proper Person or Persons and (b) upon the opinion of
its counsel with respect to legal matters.
8.13. Agent's Rights as a Lender. With respect to their share of the
--------------------------
indebtedness hereunder, Agent shall have the same rights and powers hereunder as
any other Lender and may exercise the same as though it were not Agent. Each of
the Lenders may accept deposits from and generally engage in other banking or
trust business with Borrower as if it were not Agent or a Lender hereunder.
8.14. Expenses. Each of the Lenders shall reimburse Agent from time
--------
to time at the request of Agent for its Pro Rata Share of any expenses incurred
by Agent in connection with the performance of its functions hereunder without
affecting any obligation of Borrower to reimburse, provided however that in the
event Lenders shall reimburse Agent for expenses for which Borrower subsequently
reimburses Agent, then Agent shall remit to each Lender the respective amount
received from such Lender against such expenses.
8.15. Resignation of Agent. Agent may at any time resign its
--------------------
position as Agent, without affecting its position as a Lender, by giving written
notice to Lenders and Borrower. Such resignation shall take effect upon the
appointment of a successor agent in accordance with this Paragraph 8.15. In the
event Agent shall resign, Required Lenders with the consent of Borrower, which
consent will not be unreasonably withheld, shall appoint a Lender as successor
Agent. If within thirty (30) days of the Agent's notice of resignation no
successor agent shall have been appointed by Lenders and accepted such
appointment, then Agent, in its discretion may appoint any other Lender with
banking powers as a successor agent.
62
<PAGE>
8.16. Successor Agent. The successor Agent appointed pursuant to
---------------
Paragraph 8.15 shall execute and deliver to its predecessor and Lenders an
instrument in writing accepting such appointment, and thereupon such successor,
without any further act, deed or conveyance, shall become fully vested with all
the properties, rights, duties and obligations of its predecessor Agent. The
predecessor Agent shall deliver to its successor Agent forthwith all Collateral,
documents and moneys held by it as Agent, if any, whereupon such predecessor
Agent shall be discharged from its duties and obligations as Agent under this
Agreement.
8.17. Collateral Security. Agent will hold, administer and manage
-------------------
any Collateral pledged from time to time hereunder either in its own name or as
Agent on behalf of the Lenders, but each Lender shall hold a direct, undivided
pro-rata beneficial interest therein, on the basis of its Pro Rata Share, by
reason of and as evidenced by this Agreement.
8.18. Enforcement by Agent. All rights of action under this
--------------------
Agreement and under the Notes and all rights to the Collateral hereunder may be
enforced by Agent and any suit or proceeding instituted by Agent in furtherance
of such enforcement shall be brought in its name as Agent, without the necessity
of joining as plaintiffs or defendants any other Lenders, and the recovery of
any judgment shall be for the benefit of Lenders subject to the expenses of
Agent.
SECTION 9
MISCELLANEOUS
-------------
9.1 Indemnification and Release Provisions. Borrower hereby agrees
--------------------------------------
to defend Agent and each Lender and their directors, officers, agents, employees
and counsel from, and hold each of them harmless against, any and all losses,
liabilities (including without limitation settlement costs and amounts, transfer
taxes, documentary taxes, or assessments or charges made by any governmental
authority), claims, damages, interest judgments, costs, or expenses, including
without limitation reasonable fees and disbursements of counsel, incurred by any
of them arising out of or in connection with or by reason of this Agreement, the
Revolving Credit Commitment, the making of the Loans or any Collateral therefor,
other than those resulting from any such party's own wilful misconduct or gross
negligence, including without limitation, any and all losses, liabilities,
claims, damages, interests, judgments, costs or expenses relating to or arising
under any Environmental Law. Borrower hereby releases Agent and each Lender and
their directors, officers, agents, employees and counsel from any and all claims
for loss, damages, costs or expenses caused or alleged to be caused by any act
or omission on the part of any of them other than those resulting from any such
party's own wilful misconduct or gross negligence. All obligations provided for
in this Paragraph 9.1 shall survive any termination of this Agreement or the
Revolving Credit Commitment and the repayment of the Loans.
63
<PAGE>
9.2 Participations and Assignments. Borrower hereby acknowledges and
------------------------------
agrees that a Lender may at any time: (a) grant participations in its share of
the Loans or any Note or of its right, title and interest therein or in or to
this Agreement (collectively, "Participations") to any other lending office or
to any other bank, lending institution or other Person which has the requisite
sophistication to evaluate the merits and risks of investments in Participations
("Participants"); provided, however, that: (i) all amounts payable by Borrower
hereunder shall be determined as if such Lender had not granted such
Participation; and (ii) any agreement pursuant to which any Lender may grant a
Participation: (A) shall provide that such Lender shall retain the sole right
and responsibility to enforce the obligations of Borrower hereunder including,
without limitation, the right to approve any amendment, modification or waiver
of any provisions of this Agreement; (B) may provide that such Lender will not
agree to any modification, amendment or waiver of this Agreement requiring
approval of all Lenders pursuant to Paragraph 8.3 hereof without the consent of
the Participant and (C) shall not relieve such Lender from its obligations,
which shall remain absolute, to make Advances as provided hereunder; and (b)
assign (i) all or any percent of its share of the Loans or any Note or right,
title and interest therein or in and to this Agreement, to (x) a Lender; (y) any
Affiliate of a Lender; or (z) any Federal Reserve Bank; or (ii) all or any part
of its share of the Loans or any Note or right, title and interest therein or in
and to this Agreement to a third party; provided, however, that in the absence
of an Event of Default or Default hereunder no assignment pursuant to (b)(ii)
above shall be made without the prior written consent of the Agent and
Borrowers, which consent shall not be unreasonably withheld. Any participations
and any assignments pursuant to subparagraph (b) shall be in an amount not less
than Five Million dollars ($5,000,000) and, shall not result in the aggregate
Maximum Principal Amount of the assigning Lender being less than Five Million
Dollars ($5,000,000) unless it is reduced to zero (0). Any assignment pursuant
to subparagraph (b) shall require payment by the applicable Lender to Agent of a
$3,500 transfer fee. Any assignment pursuant to subparagraph (b) shall be in
the form attached hereto as Exhibit H.
9.3 Binding and Governing Law. This Agreement and all documents
-------------------------
executed hereunder shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns and, except as may be
required by mandatory provisions of applicable law, shall be governed as to
their validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania.
9.4 Survival. All agreements, representations, warranties and
--------
covenants of Borrower contained herein or in any documentation required
hereunder shall survive the execution of this Agreement and the making of the
Loan hereunder, and except for Paragraphs 5.11 and 9.1 which provide otherwise
will continue in full force and effect as long as any indebtedness or other
obligation of Borrower to Lenders remains outstanding.
9.5 No Waiver; Delay. If Lenders shall waive any power, right or
----------------
remedy arising hereunder or under any applicable law, such waiver shall not be
deemed to be a waiver upon the later occurrence or recurrence of any of said
events with respect to Lenders. No
64
<PAGE>
delay by Lenders in the exercise of any power, right or remedy shall, under any
circumstances, constitute or be deemed to be a waiver, express or implied, of
the same and no course of dealing between the parties hereto shall constitute a
waiver of Lenders' powers, rights or remedies. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
9.6 Modification; Waiver. Except as otherwise provided in this
--------------------
Agreement, no modification or amendment hereof, or waiver or consent hereunder,
shall be effective unless made in a writing signed by appropriate officers of
the parties hereto.
9.7 Headings. The various headings in this Agreement are inserted
--------
for convenience only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
9.8 Notices. Any notice, request or consent required hereunder or in
-------
connection herewith shall be deemed satisfactorily given if in writing and
delivered by hand, mailed (registered or certified mail) or sent by facsimile
transmission to Agent or Borrower at their respective addresses or telecopier
number set forth below, or to Lenders at their respective addresses or
telecopier numbers set forth on Schedule 1 attached hereto, or to any party at
such other addresses or telecopier numbers as may be given by any party to the
others in writing:
if to Borrower:
Merkert American Corporation
490 Turnpike Street
Canton, MA 02021
Attention: Joseph Casey
Telecopier: (781) 828-7891
if to Agent:
First Union National Bank
1345 Chestnut Street
PA 4843
Philadelphia, PA 19107
Attention: Robert A. Brown
Telephone: (215) 973-1259
Telecopier: (215) 786-2877
9.9 Payment on Non-Business Days. Whenever any payment to be made
----------------------------
hereunder shall be stated to be due on a day other than a Business Day, such
payment may be made on the next succeeding Business Day, provided however that
such extension of time shall
65
<PAGE>
be included in the computation of interest due in conjunction with such payment
or other fees due hereunder, as the case may be.
9.10. Time of Day. All time of day restrictions imposed herein shall
-----------
be calculated using Agent's local time.
9.11. Severability. If any provision of this Agreement or the
------------
application thereof to any Person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other Persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
9.12. Counterparts. This Agreement may be executed in any number of
------------
counterparts with the same effect as if all the signatures on such counterparts
appeared on one document, and each such counterpart shall be deemed to be an
original.
9.13. Confidentiality.
---------------
(a) All Confidential Information (as defined below) received
by a Lender hereunder shall be kept confidential by such Lender and shall be
used solely in connection with such Lender's role as a Lender hereunder (or, in
the case of Agent, as Agent hereunder). "Confidential Information" shall mean
all information delivered to a Lender by Companies hereunder, other than
information which (i) is generally available to the public other than as a
result of disclosure by such Lender, or (ii) is or becomes available to such
Lender from a Person or entity other than Companies or another Lender, unless
such Lender knows, or should have known, that such Person or entity is bound by
a confidentiality agreement or covenant with Companies prohibiting such Person
or entity from publicly disclosing such information.
(b) Notwithstanding the foregoing, nothing herein shall
prevent Lenders from making disclosure (i) to any of their Affiliates, outside
auditors, counsel and other professional advisors in connection with this
Agreement or as reasonably required by any potential transferee, participant or
assignee, so long as said recipient agrees to keep such Confidential Information
or disclosures confidential pursuant to the terms of this Agreement, (ii) as
requested by any examiner, governmental agency or representative thereof or
pursuant to legal process, (iii) as reasonably necessary in connection with the
exercise of any rights or remedies or otherwise in defense of its interests
under or in connection with any Loan Document or otherwise with respect to the
Senior Obligations, or (iv) as reasonably necessary in any suit, action or
proceeding for the purpose of defending itself or reducing its liability.
9.14. Consent to Jurisdiction and Service of Process. Each
----------------------------------------------
Company irrevocably appoints each officer of Borrower as its attorney upon whom
may be served any notice, process or pleading in any action or proceeding
against it arising out of or in connection with this Agreement, the Notes, the
Loan Documents or any of the Collateral; each
66
<PAGE>
Company hereby consents that any action or proceeding against it be commenced
and maintained in any court within the Commonwealth of Pennsylvania or in the
United States District Court for the Eastern District of Pennsylvania by service
of process on any officer of Borrower; and each Company agrees that the courts
of the Commonwealth of Pennsylvania and the United States District Court for the
Eastern District of Pennsylvania shall have jurisdiction with respect to the
subject matter hereof and the person of each Company and the Collateral.
Notwithstanding the foregoing, Agent, in its absolute discretion may also
initiate proceedings in the courts of any other jurisdiction in which any
Company may be found or in which any of its properties or Collateral may be
located.
9.15. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
--------------------
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR THE NOTES OR OTHER LOAN DOCUMENTS OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF AGENT OR LENDERS. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
LENDERS' ENTERING INTO THIS AGREEMENT.
9.16. ACKNOWLEDGMENTS. BORROWER ACKNOWLEDGES THAT IT HAS HAD
---------------
THE ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS AGREEMENT AND,
SPECIFICALLY, PARAGRAPH 9.15 HEREOF, AND FURTHER ACKNOWLEDGES THAT THE MEANING
AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL HAVE BEEN FULLY EXPLAINED TO
BORROWER BY SUCH COUNSEL.
IN WITNESS WHEREOF, the undersigned, by their duly authorized
officers, as applicable, have executed this Agreement the day and year first
above written.
Attest: MARKETING SPECIALISTS CORPORATION
(formerly Merkert American Corporation)
By: /s/ Sidney D. Rogers, Jr. By: /s/ Joseph T. Casey
----------------------------- ---------------------------
Name: Sidney D. Rogers, Jr. Name: Joseph T. Casey
Title: Title:
FIRST UNION NATIONAL BANK, for itself and
as Agent
67
<PAGE>
By: /s/ Robert A. Brown
---------------------------
Name: Robert A. Brown
Title:
68
<PAGE>
Schedule 1
----------
Lenders, Pro Rata Shares and
Maximum Principal Amounts
<TABLE>
<CAPTION>
Maximum Principal Amount Pro Rata
------------------------
Lender Revolving Credit Loan Term Loan Share
------ --------------------- ----------- --------
<S> <C> <C> <C>
First Union National Bank $25,000,000 $50,000,000 100.000%
1345 Chestnut Street
PA 4830
Philadelphia, PA 19107
Attn: Agency Services
Tel: (215) 973-6621 or 5733
Fax: (215) 973-1887
----------- ----------- -------
TOTAL: $25,000,000 $50,000,000 100.000%
</TABLE>
69
<PAGE>
EXHIBIT 10.5
FIRST AMENDMENT TO
AMENDED AND RESTATED
MERKERT AMERICAN CORPORATION
1998 STOCK OPTION AND INCENTIVE PLAN
This First Amendment (the "Amendment") to the Amended and Restated Merkert
American Corporation ("Merkert" or the "Company") 1998 Stock Option and
Incentive Plan, dated July 1, 1998 (the "Plan"), was adopted by the Board of
Directors (the "Board") of the Company on April 27, 1999.
WHEREAS, the Board believes that the availability of an adequate number of
shares of common stock, $.01 par value per share (the "Stock"), under the Plan
has been, and in the future will be, an important factor in attracting and
retaining the highest caliber directors, executives, employees and consultants
of the Company;
WHEREAS, the Board has determined that, in light of the proposed merger of
Richmont Marketing Specialists Inc. with and into the Company and the proposed
issuance of options to purchase 800,000 shares of Stock to employees and other
persons associated with Richmont subject to adjustment, the number of shares of
Stock available for issuance under the Plan is currently insufficient; and
WHEREAS, the Board has determined that approximately 13% of the Company's
outstanding Stock should be reserved for issuance under the Plan.
NOW WHEREFORE, the Plan is hereby amended in the following manner:
Section 3 (a) is amended in its entirety as follows:
"(a) Stock Issuable. The maximum number of shares of Stock reserved
--------------
and available for issuance under the Plan (the "Maximum Share Number")
shall be such aggregate number of shares of Stock as does not exceed the
sum of (i) 1,847,762 shares (subject to adjustment in accordance with
Section 3(b) hereof); plus (ii) as of January 1, 2000 and each January 1
thereafter, 13.0 percent of any net increase since the date of this
Amendment in the total number of shares of Stock actually outstanding.
Notwithstanding the foregoing, the maximum number of shares of Stock for
which Incentive Stock Options may be granted under the Plan shall not
exceed 1,847,762 shares reduced by the aggregate number of shares subject
to outstanding Awards granted under the Plan. For purposes of this
limitation, if any portion of an Award is forfeited, canceled, reacquired
by the Company, satisfied without the issuance of Stock or otherwise
terminated, the shares of Stock underlying such portion of the Award shall
<PAGE>
be added back to the shares of Stock available for issuance under the Plan.
Subject to such overall limitation, shares of Stock may be issued up to
such maximum number pursuant to any type or types of Award; provided,
--------
however, Stock Options or Stock Appreciation Rights with respect to no more
-------
than 250,000 shares of Stock may be granted to any one individual
participant during any one calendar year period. The shares available for
issuance under the Plan may be authorized but unissued shares of Stock or
shares of Stock reacquired by the Company."
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-85523) pertaining to the Second Amended and Restated Merkert
American Corporation 1998 Stock Option and Incentive Plan of Marketing
Specialists Corporation of our reports (a) dated February 26, 1999 with respect
to the consolidated financial statements of Richmont Marketing Specialists,
Inc., (b) dated March 25, 1998 with respect to the financial statements of Atlas
Marketing Company, Inc. and (c) dated March 7, 1997 with respect to the
financial statements of Bromar Inc. and Subsidiaries included in its Current
Report on Form 8-K dated September 1, 1999, filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Dallas, Texas
September 1, 1999
<PAGE>
EXHIBIT 99.1
Merkert American Completes Merger With Richmont
CANTON, Mass., Aug. 19 /PRNewswire/ -- Merkert American Corporation (Nasdaq:
MERK-news), today announced that it has completed its merger with Dallas,
Texas-based Richmont Marketing Specialists Inc. ("Richmont") following a special
meeting of shareholders. As previously announced, Merkert American has changed
its name to Marketing Specialists Corporation ("Marketing Specialists")
concurrently with the merger in order to capitalize on extensive brand name
identity and to more accurately describe the combined company's business. The
combined entity had 1998 proforma revenues of $439 million. The Company has
commenced the process of changing its Nasdaq symbol to "MKSP".
Under the terms of the transaction, the stockholders of Richmont received 6.7
million shares of Merkert American common stock. In addition, Merkert American
granted options to purchase 800,000 shares of common stock at an exercise price
of $13.50 per share, to employees and directors joining the new entity from
Richmont.
Ronald Pedersen, Chairman of Richmont, becomes Chairman of the combined company.
Mr. Pedersen stated, "We are very pleased to receive the support of our
shareholders for the transaction. We are more convinced than ever that bringing
our two companies together is the proper strategic move for the Company. The
continuing rapid consolidation among retailers, the trend towards centralized
purchasing, the increasing importance of alternate channels in retailing -- all
point to the need to be able to offer both our manufacturers and customers
seamless coast-to-coast coverage."
Gerald Leonard continues the responsibilities of President and Chief Executive
Officer of the combined company. Bruce Butler assumes the position of Chief
Operating Officer of the combined company.
Mr. Leonard declared, "We are extremely excited about the strength and depth
that our combined organization will bring to the marketplace. In Richmont, we
identified a partner who complements our already extensive geographic coverage
and adds value to our sales and marketing organization."
Mr. Leonard added, "We are working extremely hard to blend the best talents of
the two companies into a single organizational structure. Together, we are now
pursuing national business from manufacturers and intend to grow Marketing
Specialists with new national and retailer-specific contracts."
The Company expects to incur substantial restructuring charges in the third
quarter of 1999 in connection with the merger and integration.
In addition to adopting the Agreement and Plan of Merger, the shareholders
approved the change of the Company's name to "Marketing Specialists Corporation"
and approved an Amendment to Merkert American's Amended and Restated 1998 Stock
Option and Incentive
<PAGE>
Plan. A proposal to change the structure and classification of the Board of
Directors from two to three classes with staggered three year terms was not
adopted. In connection with the merger, the Company also amended its credit
agreement with First Union National Bank.
Marketing Specialists Corporation (f/k/a Merkert American Corporation) provides
outsourced sales, marketing and merchandising services to manufacturers of food
and other consumer products. Marketing Specialists is one of the two largest
food brokers in the United States.
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 Corporation (f/k/a Merkert American). 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 Corporation's ability to consummate any of the transactions
contemplated by the letters of intent to which Marketing Specialists Corporation
is a party; Marketing Specialists Corporation's ability to successfully
integrate any future and past acquisitions; principal realignment as a result of
the merger or consolidation of the food brokerage industry; the competitive
environment; and general economic conditions. For further information, please
refer to the Company's filings with the Securities and Exchange Commission.
