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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-24667
MARKETING SPECIALISTS CORPORATION
(F/K/A MERKERT AMERICAN CORPORATION)
(Exact name of registrant as specified in its charter)
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DELAWARE 04-3411833
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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17855 N. DALLAS PARKWAY, SUITE 200
DALLAS, TEXAS 75287
(972) 349-6200
(Address, including zip code and telephone number, including
area code of Registrant's principal executive office)
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FORMER NAME AND ADDRESS
MERKERT AMERICAN CORPORATION
490 TURNPIKE STREET
CANTON, MASSACHUSETTS 02021
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Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant on March 30, 2000, based on the closing price
of the Common Stock as registered by the Nasdaq National Market on such date,
was approximately $8,099,000.
The number of shares of the Registrant's Common Stock and Restricted Common
Stock outstanding as of March 30, 2000 was 19,455,135 and 335,700, respectively.
DOCUMENTS INCORPORATED BY REFERENCE: None
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MARKETING SPECIALISTS CORPORATION
ANNUAL REPORT ON FORM 10-K
INDEX
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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 12
Item 3. Legal and Administrative Proceedings........................ 13
Item 4. Submission of Matters to a Vote of Security Holders......... 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 14
Item 6. Selected Consolidated Financial Data........................ 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 25
Item 8. Financial Statements and Supplementary Data................. 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 25
PART III
Item 10. Directors and Executive Officers of the Company............. 25
Item 11. Executive Compensation...................................... 28
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 32
Item 13. Certain Relationships and Related Transactions.............. 34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 36
Signatures............................................................. 37
Item 14A. Index to Consolidated Financial Statements and Consolidated
Financial Statement Schedule.............................. F-1
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements appear in a number of places
including Item 1. "Business -- Industry Overview" and "-- Risk Factors", Item 2.
"Properties", Item 3. "Legal Proceedings and Administrative Matters", Item 5.
"Market for Registrant's Common Equity and Related Stockholder Matters", and
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations". Such statements can be identified by the use of forward-looking
terminology such as "believes", "expects", "may", "estimates", "will", "should",
"plans" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. These forward-looking
statements are not guarantees of future performance and are subject to
significant risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements as a result of
various factors, including risk factors set forth below under "Risk Factors".
This report also identifies other factors that could cause such differences. No
assurance can be given that these are all of the factors that could cause actual
results to vary materially from the forward-looking statements.
PART I
ITEM 1. BUSINESS
GENERAL
Marketing Specialists Corporation (formerly Merkert American Corporation,
the "Company", "we", "us" or "our") was incorporated on March 4, 1998, in order
to create a leading food brokerage firm providing outsourced sales,
merchandising and marketing services to manufacturers, suppliers and producers
of food products and consumer goods ("Manufacturers"). The Company acts as an
independent sales and marketing representative, selling grocery and consumer
products on behalf of Manufacturers and coordinating the execution of
Manufacturers' marketing programs with retailers, wholesalers, mass
merchandisers, supercenters, membership warehouses, drug stores and specialty
food outlets ("Retailers"). The Company's principal source of revenue is
commissions that it receives from Manufacturers. The Company's other activities
include managing private label programs on behalf of selected Retailers. The
Company represents more than 2,300 Manufacturers and more than 190,000 food and
non-food stock-keeping units ("SKUs"), and has business relationships with key
Retailers throughout the United States.
On December 18, 1998, the Company consummated its Initial Public Offering
of 4,400,000 shares of Common Stock (herein so called) at an offering price of
$15.00 per share (the "Offering"). Simultaneously with the Offering, the Company
purchased in separate transactions (collectively, the "Combination") all of the
issued and outstanding capital stock of Merkert Enterprises, Inc., a
Massachusetts corporation ("Merkert") and Rogers-American Company, Inc., a North
Carolina corporation ("Rogers"). As a result, each of Merkert and Rogers became
a wholly-owned subsidiary of the Company. Prior to December 18, 1998, the
Company conducted operations only in connection with the Combination and the
Offering. Effective March 31, 1999, the Company merged its several operating
subsidiaries into one wholly owned subsidiary. References to the Company after
the Combination also include its wholly-owned subsidiaries.
BUSINESS COMBINATIONS
During 1999, the Company completed five acquisitions, adding coverage in
new geographical markets and expanding representation of Manufacturers' product
offerings within existing markets. The Company's strategic acquisition plan
included the selection, acquisition, and management of businesses in various
brokerage markets, including retail food, food service, and private label
markets.
Sell. In January 1999, the Company acquired Sell, Inc. d/b/a The Sell
Group-Cincinnati ("Sell"), a brokerage firm operating in the Midwest region of
the United States. The Company completed the acquisition
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of Sell for an aggregate discounted purchase price of approximately $8.5
million, which included approximately $3.1 million in cash payments, $3.8
million in new debt, and $1.6 million in assumed debt.
UBC. In April 1999, the Company acquired United Brokerage Company d/b/a The
Sell Group-Grand Rapids ("UBC"), a brokerage firm operating in the Midwest
region of the United States. The Company acquired UBC for an aggregate
discounted purchase price of approximately $6.6 million, which included
approximately $0.9 million in cash payments, $3.3 million in new debt, and $2.4
million in assumed debt.
Buckeye. In July 1999, the Company acquired Buckeye Sales and Marketing
d/b/a The Sell Group-Cleveland ("Buckeye"), a brokerage firm operating in the
Cleveland, Ohio; Pittsburgh, Pennsylvania; and upstate New York markets. The
Company acquired Buckeye for an aggregate discounted purchase price of
approximately $5.0 million, which included approximately $0.1 million in cash
payments, $3.4 million in new debt, and $1.5 million in assumed debt.
Richmont. On August 18, 1999, the Company merged with Dallas, Texas-based
Richmont Marketing Specialists Inc. ("Richmont"), one of the largest food
brokers in the United States (the "Merger"). The Company completed the Merger
for an aggregate discounted purchase price of approximately $236.8 million,
which included approximately $3.4 million in cash payments, $170.0 million in
assumed debt, and $63.4 million in Common Stock and options. Under the terms of
the Merger, Richmont stockholders received 6,705,551 shares of Common Stock. The
Company also granted certain Richmont stockholders and employees options to
purchase 800,000 in additional shares of Common Stock at a price equal to $13.50
per share. Immediately following the Merger, the Company amended its certificate
of incorporation to change its corporate name to "Marketing Specialists
Corporation".
Prior to the Merger, Richmont pursued consolidation opportunities within
the food brokerage industry. Richmont's strategy was to complete acquisitions in
areas where it did not currently operate to better service its Manufacturers and
Retailers. Since the beginning of 1997, Richmont acquired, among others, Tower
Marketing, Inc. ("Tower") and Atlas Marketing Company, Inc. ("Atlas"), for total
consideration of approximately $14.4 million and $45.7 million, respectively.
Tower served Manufacturers and Retailers primarily in Texas. Atlas was based in
Charlotte, North Carolina, and served Manufacturers and Retailers primarily in
the Southeast and mid-Atlantic regions of the United States. In April 1999,
Richmont acquired Timmons-Sheehan, Inc. d/b/a The Sell Group -- Minneapolis
("Timmons-Sheehan") for an aggregate purchase price of approximately $3.7
million, which included approximately $1.7 million in cash payments and $2.0
million in new and assumed debt. Prior to the acquisition, Timmons-Sheehan
served Manufacturers and Retailers in Minnesota, Wisconsin, Iowa, the Dakotas,
and Nebraska.
Inman. In October 1999, the Company acquired Paul Inman Associates, Inc.
("Inman"), a brokerage firm operating in the Midwest region of the United
States. The Company completed the acquisition of Inman for an aggregate
discounted purchase price of approximately $14.0 million, which included
approximately $9.8 million in cash payments, $1.0 million in new debt, and $3.2
million in assumed debt.
Johnson-Lieber. On January 27, 2000, the Company acquired substantially all
of the assets of Johnson-Lieber, Inc. ("Johnson-Lieber"), a brokerage firm
operating in the Seattle, Washington; Spokane, Washington; Portland, Oregon;
Billings, Montana; and Anchorage, Alaska markets. The Company acquired Johnson-
Lieber for an aggregate discounted purchase price of approximately $12.2
million, which included approximately $3.0 million in cash payments and $9.2
million in subordinated notes and assumed debt.
Sales Force. On March 2, 2000, the Company entered into a definitive
agreement to acquire The Sales Force Companies ("Sales Force"), a brokerage firm
operating in the Central region of the United States. The estimated aggregate
discounted purchase price for the acquisition of Sales Force, which is scheduled
to close in April 2000, is approximately $21.8 million in cash, subordinated
notes and assumed debt.
As of December 31, 1999, the Company had 74 offices servicing Retailers
throughout the United States. In 1999, the Company had pro forma combined
revenues of approximately $423.6 million and pro forma combined net loss of
approximately $(23.4) million (giving effect to the Merger only), exclusive of
the estimated effects of the integration activities and the elimination of
certain nonrecurring charges. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
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INDUSTRY OVERVIEW
Food brokers are third-party companies that offer sales, marketing,
merchandising and order management services to Manufacturers and Retailers. Food
brokers are generally paid by Manufacturers on a percentage of product sales
made to Retailers. Sales of Manufacturers' products are primarily made through
grocery stores operated by Retailers. Manufacturers use food brokers as an
alternative to a direct sales force and rely on food brokers to provide local
market penetration, integrated brand and category management and access to local
merchandising data. The services provided by food brokers enable Retailers to
more efficiently source products from multiple Manufacturers, reduce in-store
personnel and benefit from food brokers' merchandising and promotional expertise
and knowledge of local market conditions.
Over the past ten years, the entire food distribution chain, including
Manufacturers, Retailers and food brokers, has been consolidating. Many
companies in the food brokerage industry, including the Company, have
participated in the trend toward consolidation by acquiring other food brokerage
businesses. The Company believes that the consolidation of food brokers is
primarily driven by the attempt of Manufacturers and Retailers to manage their
businesses more efficiently and effectively by reducing the number of food
brokers with which they must interact within a given region. The Company
believes that consolidation within the food brokerage industry is being driven
additionally in part, by the consolidation of Retailers and Manufacturers and
the increasing demand for the application of more sophisticated information
technology on the part of food brokers. Retail food brokers represent
approximately 3,200 Manufacturers that sell to approximately 128,000 retail
outlets, including chain and independent supermarkets, convenience stores,
wholesale clubs and other outlets and more than 700 wholesalers nationwide. The
industry includes the following three types of food brokers:
Retail Food Brokers. Manufacturers of branded food and non-food products
use retail food brokers as a cost effective alternative to a direct sales force.
They rely on retail food brokers to provide local market penetration, integrated
brand and category-management and access to local merchandising data. Retail
food brokers provide a full array of these services and generally earn
commissions of approximately 3% of the Manufacturer's net sales to Retailers.
Retail food brokers typically perform two types of services on behalf of
Manufacturers: headquarter functions and retail store functions.
Headquarters functions include services provided at the headquarters level
to both Manufacturers and Retailers. At this level, retail food brokers conduct
business development activities, on behalf of Manufacturers, including sales
calls and new product introductions to Retailers. Retail food brokers also
assist Manufacturers in developing, reviewing and executing annual marketing
plans. Other headquarters services include order management, supervision of
shelf space management, coordination of Manufacturers' promotional spending, and
assistance with the resolution of billing issues between Manufacturers and
Retailers. Additionally, retail food brokers assist Retailers at the
headquarters level by gathering and analyzing demographic, consumer and store
sales information.
Retail store functions include all of the services and activities necessary
at the store level for the execution of the Manufacturers' sales plans. These
sales plans are executed by retail food brokers through merchandising, shelf and
display management, new store set-ups, implementation of promotional plans, and
placement of point-of-sale coupons, signs and other promotional information.
Retail food brokers also assist Retailers with coupon and advertising programs,
quality assurance and technical training, primarily in relation to prepared
food. In addition, retail food brokers collect and analyze retail sales data
which they use to assist Retailers and Manufacturers in maximizing sales.
Private Label Food Brokers. Private label food brokers work with
Manufacturers to develop and manage private label programs on behalf of
Retailers. These programs supply products to Retailers which are labelled with a
Retailer's own brand. A food broker's responsibilities in connection with a
private label program may include procurement, inventory management and in-store
delivery of private label products.
Food Service. Food service providers include operators of restaurants,
school and hospital cafeterias and other similar institutional establishments.
The food service business also includes prepared meals sold at
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convenience stores. Food brokers sell Manufacturers' products to food service
providers through a number of means, including headquarters sales calls and the
representation of Manufacturers' products at trade shows.
COMPANY STRATEGY
The Company's objective is to be a leading national provider of outsourced
sales, merchandising and marketing services to Manufacturers, Retailers and food
service providers throughout the United States. To achieve this objective, the
Company seeks to increase its representation of existing Manufacturers' product
lines in new geographic markets and non-grocery trade channels, including mass
merchandisers, food service providers, membership warehouses, drug stores and
convenience stores.
The Company seeks to utilize its marketing expertise and information
technology to develop and implement targeted consumer sales promotions for its
Manufacturers' products. The Company also plans to continue to deploy category
analysts who use local sales data to assist Retailers with shelf schematics,
category layouts and total store space management.
The Company intends to implement its overall strategy through the following
measures:
Increase Customer Coverage. The Company believes that the number of
Retailers who capture the majority of the supermarket sales should continue to
decline due to consolidation in the industry. By positioning itself as a leader
in North America, the Company believes it will be able to both maintain current
Retailer relationships and expand its Retailer base as a result of future
Retailer consolidations. The Company is also seeking to enhance its Retailer
base through its Channel Marketing division by further developing relationships
with mass merchandisers and membership warehouses.
Develop Manufacturer Relationships and Expansion Strategy. The Company
believes that its base of Manufacturer relationships will continue to increase,
both through expansion of existing relationships and by attracting new
Manufacturers that recognize the Company's ability to provide a wide range of
marketing services on both a broad geographic and a local basis at a cost lower
than Manufacturers would be able to attain with their own sales forces. The
Company continues to seek expanding penetration of its existing Manufacturers'
product lines into new geographic markets and non-grocery trade channels,
including mass merchandisers, membership warehouses, drug stores and convenience
stores.
Hybrid Services. The Company typically provides Retailers with a full range
of account, retail, marketing and order management services for which it
receives commissions from Manufacturers based on a percentage of product sales
made to Retailers. The Company also has "hybrid" agreements, generally with
Manufacturers that did not previously use a food broker's services, under which
the Company provides only specified retail services for fees based on the
services provided. The Company believes that such Manufacturers are moving
toward outsourcing retail services at the store level in order to eliminate the
significant expense associated with the maintenance of their own in-store retail
representatives. The Company anticipates that it is well-positioned to take
advantage of this trend due to its broad geographic coverage and knowledge of
local markets. Although hybrid agreements currently do not represent a
significant portion of the Company's revenue, the Company believes that hybrid
agreements will, in the future, generate substantial revenue and operating
profits and may attract new Manufacturers, who may later expand their use of the
Company's services.
Achieve Cost Savings. During its expansion phase, the Company plans to
reduce its operating overhead at acquired companies through the elimination of
duplicative personnel, operating expenses and facilities. The Company intends to
continue its plan of aggregation of various management, sales and order entry
functions to benefit from economies of scale.
SERVICES AND OPERATIONS
The Company has traditionally provided Manufacturers with a full array of
sales, marketing and administrative services and has been paid a commission by
Manufacturers. In certain cases, the Company has entered into "hybrid"
arrangements with Manufacturers under which the Company provides less than full
geographic coverage and services. Commissions from full and hybrid services
represented approximately 80%
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of the Company's revenues for the period ended December 31, 1999. The functions
and services provided by the Company are described below:
Full Services. The Company currently provides full brokerage services to
most of the Manufacturers that it represents. These Manufacturers generally pay
the Company a commission of approximately 3% of the Manufacturer's net sales to
Retailers. In general, our business managers service Manufacturers under these
arrangements. Our managers, customer service personnel and support staff utilize
information collected and developed by the Company to assist Manufacturers in
devising strategic sales plans and achieving merchandising goals. In addition,
the Company uses retail information to develop customized marketing strategies.
These strategies include a determination of the optimum mix of current and new
products to be offered and the type of promotions needed to increase revenues
and profitability.
The Company also handles both order and certain billing management services
for Manufacturers. The Company's order management system enables it to perform
all major functions relating to orders for goods from Retailers to
Manufacturers.
The Company's category management analysts and shelf space management
analysts link the Company, its business managers and Manufacturer teams with
Retailer teams. These Retailer teams are comprised of headquarters account
managers and retail merchandisers. These analysts develop information from
retail data collected by the Company's Retailer teams and by outside sources,
including A.C. Nielson Corp. and Information Resources, Inc. Business managers
use this information in developing strategies with Manufacturers. The Retailer
teams use this knowledge, as well as store-specific sales and demographic
information provided by the analysts, to implement sales and merchandising
strategies at the local store level.
Headquarters account managers help execute sales plans developed by
business managers and Manufacturers. The Company's retail merchandisers develop
relationships with store managers and in-store category managers and assist
headquarters account managers in executing sales plans for Manufacturers'
products. The Company's retail merchandisers execute sales plans at the store
level by providing shelf and display management, new store set-ups, stocking of
new items and placement of point-of-sale coupons and signs.
Hybrid Services. In response to increasing demand from certain
Manufacturers who outsource only a portion of their retail services functions,
the Company instituted the use of "hybrid" agreements. Under these agreements,
the Company provides only the limited services, geographic coverage and/or
Retailer coverage specified by the agreement. Providing retail-only services is
a common hybrid arrangement. Retail-only services primarily include initial
retail shelf set-ups and subsequent store shelf space management. These services
generally provide for compensation equivalent to a commission of approximately
1% of the value of product sales to the Retailer.
Private Label. The Company's private label division develops, procures, and
manages inventory of private label products, including frozen fruits and
vegetables and other products on behalf of certain Retailers. The Company's
private label division accounted for approximately 14% of the Company's revenues
during 1999.
Store Supplies. The Company's store supplies division operates as a
distributor for Monarch Marking Systems, Inc., selling price marking equipment,
labels and other related store supplies to Retailers in New England and
metropolitan New York City. In addition, the Company sells a bio-degreaser
product to Retailers' supermarket meat and bakery departments, restaurants and
other food service customers directly and through local distributors. The
Company's store supplies division accounted for approximately 1% of the
Company's revenues during 1999.
Channel Marketing. The Company has developed its channel marketing division
in response to the rapidly growing trend of non-grocery outlets, particularly
mass merchandisers, supercenters, membership warehouses, drug stores and
specialty food outlets. This division's primary focus is to support Retailers to
ensure Manufacturers' products are available to the consumers at the point of
purchase. Scan data is utilized to identify retail problems, which are then
communicated to the Company's field merchandisers for correction. In addition,
store specific consumer demographics information is also utilized to support
targeted merchandis-
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ing programs. The Company's channel marketing division presently accounts for
approximately 5% of the Company's revenues.
SEASONALITY
The Company has experienced and expects to continue to experience
fluctuations in quarterly revenues and operating results as a result of seasonal
patterns. The revenues of the Company have been stronger in the third and fourth
calendar quarters as a result of historically strong sales associated with
consumer consumption during the holiday season and weaker in the first calendar
quarter following such season. Results of operations for any particular quarter
therefore are not necessarily indicative of the results of operations for any
future period. Future seasonal and quarterly fluctuations could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
MANAGEMENT INFORMATION SYSTEMS
The application of information technology has become an increasingly
important service in the food brokerage industry. The Company has followed this
trend by investing in information technology.
Electronic Data Interchange. The Electronic Data Interchange ("EDI") was
developed to streamline order communications between food brokers, Manufacturers
and Retailers. Orders sent by EDI are transmitted on-line from Retailers to the
Company and entered automatically into the Company's order databases. Orders are
reviewed by the Company to verify that quantities, product codes, pricing, pack
sizes and promotions have been correctly submitted. The Company then places
orders with certain Manufacturers via EDI. By reducing manual effort, the system
curtails order input errors, expedites order processing and reduces the number
of personnel required to fulfill this function. Currently, a majority of all of
the Company's Manufacturers utilize EDI, including 80% of the Company's major
Manufacturers.
Network and Web Technology. The Company uses a wide area network to provide
on-line information to Manufacturers and Retailers. The Company utilizes the
Internet and dedicated extranets to disseminate information and communicate with
Manufacturers in a highly secure manner. The Company currently has twenty-three
extranets with twelve additional extranets in development with Manufacturers.
Retailers and Manufacturers using the Company's on-line service may access
marketing, sales and other information related to their products and operations.
The Company's intranet has become a major tool in communicating with its
employees by allowing the Company to provide its employees with policies and
procedures, human resource forms, and other valuable information. The Company's
Internet site located at www.mssc.com allows the Company to market its services
to potential Manufacturers and Retailers.
Retail Information. The Company utilizes an advanced retail reporting
system called RW3 Enterprise to provide Manufacturers with current in-store data
regarding their products. Retail representatives record in-store merchandising
conditions, including product placement and pricing information, using small,
hand-held computers. This information is downloaded to the Company's retail
reporting system. The system allows both the Company and its Manufacturers to
easily access store-level information.
PeopleSoft. The Company utilizes a software application commonly referred
to as "PeopleSoft". PeopleSoft is used for financial systems including treasury,
accounts payable, accounts receivable, budget, general ledger, as well as human
resources and payroll. PeopleSoft allows the Company to keep sales, expense and
related data in one location. All of the other systems installed at the Company
use PeopleSoft as a base for all data. Since the consummation of the Merger, the
Company has benefited from its use of PeopleSoft in connection with the
Company's acquisition of other entities and integration of the acquired
entities' finance, human resources and payroll departments. The flexibility of
the software allows the systems of the acquired companies to be more easily
converted to the Company's systems.
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COMPETITION
The food brokerage market is large and fragmented, with many small brokers
serving numerous local markets and a few large brokers serving multiple regions
in the United States. The Company competes with other food brokers for product
lines of Manufacturers and Retailers. Competition is based primarily on breadth
of geographic coverage and the level of services provided.
The entire food distribution chain, including Manufacturers, Retailers and
food brokers, has been consolidating over the past ten years. As the market
becomes more concentrated in terms of the total number of Manufacturer and
Retailer accounts served by food brokers, the Company believes large brokers
that can provide a full array of services to leading Manufacturers and Retailers
across geographic markets have a competitive advantage. Accordingly, the Company
expects that Manufacturers and Retailers will favor large regional and national
food brokers having the resources to invest in the personnel and technology
necessary to operate in an increasingly sophisticated and complex environment,
while continuing to provide the local market focus required by Manufacturers and
Retailers.
The Company is one of the leading food brokers in the United States, with
operations across the country. The Company competes with other national and
multi-regional food brokers, including Advantage Sales, Crossmark and Acosta
Sales Co., Inc. In addition, the Company competes with third-party merchandising
companies, such as PIA Merchandising Services, Inc. and others for retail
services only.
EMPLOYEES
The Company has approximately 6,000 employees, including approximately
4,680 full-time employees and 1,320 part-time employees. None of the Company's
employees are union members, and the Company and its employees have not entered
into any collective bargaining agreements. The Company has not experienced any
work stoppages or strikes. The Company believes that it has good relations with
its employees.
FINANCIAL INFORMATION ABOUT SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The Company operates in two principal business segments: Food Brokerage and
Private Label, principally in the United States. See Note 15 of the Company's
Notes to Consolidated Financial Statements.
AVAILABLE INFORMATION
The Company files annual, quarterly, and special reports, proxy statements
and other information with the Securities and Exchange Commission (the "SEC").
You may read and copy any documentation the Company files at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the Public Reference Room. SEC
filings are also available to the public at the SEC's web site at
http://www.sec.gov.
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RISK FACTORS
The following risk factors should be carefully reviewed in addition to
other information in this Annual Report on Form 10-K. This Annual Report on Form
10-K contains, in addition to historical information, forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
significantly from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include those risk
factors set forth below as well as those factors discussed elsewhere in this
Annual Report on Form 10-K.
SUBSTANTIAL LEVERAGE
The Company has and will continue to have a significant amount of
indebtedness. The degree to which the Company is leveraged could have
significant consequences, including the following: (i) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired; (ii) a
substantial portion of the Company's cash flows from operations must be
dedicated to the payment of interest and principal on its indebtedness, thereby
reducing funds available to the Company for other purposes; (iii) the agreements
governing the Initial Credit Facility, the Amended Term Loan and the New
Revolver (each as defined below) contain certain restrictive financial and
operating covenants which may impact the Company's operations and ability to
meet its obligations; and (iv) the Company's degree of leverage may limit its
flexibility to adjust to changing market conditions, reduce its ability to
withstand competitive pressures and make it more vulnerable to a downturn in
general economic conditions or its business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
Consent Solicitation
The Company recently refinanced and increased its existing senior credit
facilities from $68.0 million to $85.0 million. Since the Company's Indenture
relating to its 10 1/8% Senior Subordinated Notes due 2007 (the "Notes")
restricted the Company's ability to incur bank indebtedness in excess of $25.0
million, the Company had to solicit and obtain the consent of holders
representing at least 51% of the Notes to the refinancing. On March 28, 2000,
the Company distributed consent solicitation statements to all of the holders of
the Notes for the purpose of seeking the required consent to the increase in
bank debt and certain other matters. As of March 30, 2000, the Company had
received consents from holders representing 77% of the Notes. In exchange for
the consent to the refinancing and other proposed amendments, the holders were
paid a consent fee of $2.0 million in cash. The Company also paid a fee of $0.5
million to Chase Securities Inc. for its services as solicitation agent.
Amended Term Loan
In connection with the closing of the Combination and the Offering, the
Company obtained a $75.0 million credit facility from First Union National Bank
and First Union Capital Markets (as amended, the "Initial Credit Facility"). The
Initial Credit Facility consisted of a five-year secured, fully amortizing $50.0
million term loan (the "Initial Term Loan") and a three-year, secured $25.0
million revolving line of credit (the "Initial Revolving Credit").
On March 30, 2000, the Company became a party to a Second Amended and
Restated Credit Agreement among the Company and First Union National Bank, as
Agent, and the lenders named therein (the "Amended Term Loan"). Under the
Amended Term Loan, the principal amount was reduced from $43.0 million to $35.0
million with no principal payments due until it matures in two years. The
Company paid commitment and other fees of approximately $0.9 million in
connection with obtaining the Amended Term Loan. The provisions of the Amended
Term Loan are more fully described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
8
<PAGE> 11
New Revolver
On March 30, 2000, the Company became a party to a Credit Agreement among
the Company, certain of its subsidiaries, and The Chase Manhattan Bank, as
Agent, and the lenders named therein (the "New Revolver"). The New Revolver
consists of a two year, senior secured $50.0 million revolving line of credit.
The Company paid commitment and other fees of approximately $0.6 million in
connection with obtaining the New Revolver. Funds advanced under the New
Revolver will be used by the Company to repay a portion of outstanding amounts
under the Initial Credit Facility, to finance the Company's acquisition of Sales
Force, to finance the Company's working capital and capital expenditure
requirements in the ordinary course of business, and to pay fees and expenses
relating to the closing of the New Revolver. The provisions of the New Revolver
are more fully described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources".
As a result of the Initial Credit Facility, the Amended Term Loan and the
New Revolver, the Company has indebtedness (approximately $60.0 million as of
March 31, 2000) that is substantial in relation to its stockholders' equity, as
well as interest and debt service requirements that are significant compared to
its income and cash flows from operations. The Company also anticipates that it
will incur approximately $2.4 million in other fees related to the consent
solicitation, Amended Term Loan and New Revolver.
HISTORY OF OPERATING LOSSES
Prior to and after the consummation of the Merger, the Company had a recent
history of operating losses. The Company may continue to experience net losses
or may have a greater working capital deficit in the future. If these occur, the
Company may have an increased net loss per share and the market price of the
common stock may decline as a result. The Company's ability to be profitable in
the future will be dependent upon a number of factors, including:
- the Company's ability to increase revenues by attracting and retaining
national Manufacturers and Retailers;
- the Company's ability to realize cost-savings by successfully integrating
companies that are acquired; and
- various other extraneous factors, including, without limitation,
economic, financial and competitive conditions such as the consolidation
occurring within the food distribution industry.
INTEGRATION OF ACQUISITIONS; RISKS RELATED TO GROWTH STRATEGY
The Company expects to spend significantly less time and effort in
identifying acquisition targets and to focus on completing and integrating prior
and pending acquisitions. There can be no assurance that the Company will be
able to successfully integrate recently acquired or additional companies into
the Company without substantial costs, delays or other problems. The Company's
inability to manage such acquired businesses profitably could have a material
adverse effect on the Company's business, financial condition and results of
operations.
There can be no assurance that the Company's growth strategy will be
successful or that the Company will be able to generate cash flows sufficient to
fund its operations and to support internal growth. The Company's inability to
achieve internal earnings growth or otherwise execute its growth strategy could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Item 1. Business -- Company Strategy".
9
<PAGE> 12
RAPID GROWTH
The Company has grown rapidly and has expanded its operations throughout
the United States. The growth is primarily attributed to several large
acquisitions the Company, or its predecessors, have completed since 1996. The
Company's future operations and financial strength depend largely upon its
ability to successfully manage its growing business. The Company makes no
assurances that it will be able to successfully manage its rapid growth or that
such growth will lead to profitability.
MANUFACTURER REPRESENTATION CONFLICTS
The Company represents certain Manufacturers that do not allow the Company
to market and sell their competitors' products in our assigned territories.
Manufacturers can be highly subjective in their definition of a conflict and may
contend that products with a varying degree of similarity are competing
products. In addition, some Manufacturers object to the Company's representation
of other Manufacturers that produce a similar product for sale even though such
representation of the competing Manufacturer is for different geographic regions
or trade channels. The Company is sensitive to potential conflicts and must
exercise care in determining how to resolve conflicts and potential conflicts as
new food broker businesses are acquired and as Manufacturers continue to grow,
merge and expand into new product categories and geographic areas. The Merger
has resulted, and may continue to result, in certain Manufacturer conflicts,
particularly where the operations of the Company and Richmont overlap. The
Company may be required, in order to resolve a conflict, to represent particular
lines or products in lieu of others, and the Company may not select the lines of
products that are ultimately the most successful. The inability of the Company
to resolve or deal with Manufacturer representation conflicts or potential
conflicts could have a material adverse effect on the Company's business,
financial condition and results of operations.
MATERIALITY AND ACCOUNTING TREATMENT OF GOODWILL
The Company's consolidated balance sheet as of December 31, 1999, includes
an amount designated as "goodwill" that represents a material portion of the
Company's assets. Goodwill arises when an acquiror pays more for a business than
the fair value of the tangible and separately measurable intangible net assets.
Accounting principles generally accepted in the United States require that
goodwill and all other intangible assets be amortized over the period benefited.
Management has determined the amortization periods for goodwill to range from 20
to 40 years. If management used a 40 year amortization period for goodwill or
any other material intangible asset having an actual benefit period of less than
40 years, earnings reported in periods following the acquisition of such
goodwill or intangible assets would be overstated. If the amortization period
used by management is longer than the related benefit period, in later years the
Company would be burdened by a continuing charge against earnings without the
associated benefit to income valued by management in arriving at the
consideration paid for the business. In addition, earnings in later years could
also be significantly affected if management then determined that the remaining
balance of goodwill was impaired. Management has concluded that the anticipated
future cash flows associated with goodwill recognized in the Combination and the
Merger will continue for approximately 40 years and has concluded that no
material portion of the recorded goodwill will dissipate over a period shorter
than 40 years.
The Financial Accounting Standards Board (the "FASB") has undertaken a
project to comprehensively reconsider the accounting standards for business
combinations. In connection with this project, the FASB has tentatively proposed
that the maximum useful life for goodwill arising from future transactions
should not exceed 20 years. The Company is presently unable to determine when
the proposed statement might become effective or what the final provisions of
the statement might be.
10
<PAGE> 13
SHORT TERM AGREEMENTS
A majority of the Company's contracts with its Manufacturers have 30 day
terms. As a result, the Manufacturers can transfer their business to another
food broker upon short notice. While the Company has long-term relationships
with many of the Manufacturers it represents, it could lose relationships with
these Manufacturers due to consolidations within the industry or the Company's
inability to meet sales and performance objectives.
DEPENDENCE ON KEY PERSONNEL
The Company's business depends upon its retention of employees who maintain
key relationships with its larger Retailers and Manufacturers. The loss of any
of these employees to a competitor could have a significant adverse impact on
the Company's business if major Manufacturers follow these employees and
transfer business to the competitor. See "Item 10. Directors and Executive
Officers of the Company" for the identification of certain of the Company's key
employees.
VOTING CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
As of March 31, 2000, an aggregate of approximately 85% of the Company's
outstanding Common Stock is beneficially owned by its directors and executive
officers and their affiliates. This percentage ownership does not give effect to
the exercise of options to purchase 51,000 shares of Common Stock held by
certain of these individuals, which, if exercised in whole or in part, will
further concentrate ownership of the Common Stock. Such concentration of
ownership, together, in some cases, with certain provisions of the Company's
Second Amended and Restated Certificate of Incorporation and Amended and
Restated By-Laws and certain sections of the Delaware General Corporation Law,
may have the effect of delaying or preventing a "change in control" of the
Company. See "Anti-Takeover Effect of Certificate of Incorporation, By-law
Provisions and Delaware Law" and "Item 12. Security Ownership of Certain
Beneficial Owners and Management".
MS Acquisition Limited ("MS Acquisition") owns approximately 48.5% of the
outstanding shares of Common Stock of the Company. As the Company's largest
stockholder, MS Acquisition is likely to be able to maintain effective control
of the Company, including the ability to elect a majority of the Board of
Directors. The ownership by MS Acquisition of shares of Common Stock may
discourage or prevent unsolicited mergers, acquisitions, tender offers, proxy
contests or changes of incumbent management, even when stockholders other than
MS Acquisition consider such a transaction or event to be in their best
interest. Accordingly, holders of Common Stock may be deprived of an opportunity
to sell their shares at a premium over the trading price of the shares.
ANTI-TAKEOVER EFFECT OF CERTIFICATE OF INCORPORATION, BY-LAW PROVISIONS AND
DELAWARE LAW
Certain provisions of the Company's Second Amended and Restated Certificate
of Incorporation and Amended and Restated By-Laws, certain sections of the
Delaware General Corporation Law and the ability of the Company's Board of
Directors (the "Board of Directors") to issue shares of preferred stock and to
establish the voting rights, preferences and other terms thereof may be deemed
to have an anti-takeover effect. These provisions may discourage takeover
attempts not first approved by the Board of Directors, including takeovers that
certain stockholders may deem to be in their best interests. In addition, these
provisions could delay or frustrate the removal of incumbent directors or the
assumption of control by stockholders, even if such removal or assumption of
control would be beneficial to stockholders. See "Item 10. Directors and
Executive Officers of the Company".
YEAR 2000
Many computer programs have been written using two digits rather than four
to define the applicable year. This poses a problem in Year 2000 because these
computer programs do not properly recognize the year. Although the Company
experienced no significant Year 2000 issues in January 2000, no assurance can be
given that Year 2000 compliance issues will not materialize and be resolved
without disruption or that the Company will not incur significant additional
expense in the future which could have a material adverse effect
11
<PAGE> 14
on the Company. In addition, we cannot assure you that Retailers, Manufacturers,
third parties and others outside of the Company's control will not suffer from
Year 2000 issues in the future. Such entities' failure to be Year 2000 compliant
could result in a systematic failure beyond our control which could have a
material adverse effect on the Company.
ITEM 2. PROPERTIES
Executive Offices
The Company operates two offices in connection with the performance of
executive and corporate activities. The Company's primary executive and
corporate facility is located in an office building in Dallas, Texas. This
facility is leased under an operating lease expiring in September 2003 and
consists of approximately 56,000 square feet. The Company also continues to own
and operate its approximately 41,000 square foot former headquarters in Canton,
Massachusetts. The Company is considering various alternatives with respect to
the sale or lease of this facility, which is subject to a mortgage and a $2.5
million real estate attachment in favor of Monroe & Company, LLC. See "Item 3.
Legal Proceedings and Administrative Matters".
Sales Offices
As of December 31, 1999, the Company operated 74 sales offices in 33
states. An additional 37 facilities have been vacated and their functions
consolidated with other offices. The Company is subject to continuing lease
obligations in connection with 24 of these vacated facilities. However, since
December 31, 1999, the Company has been able to secure full releases on 13 of
these properties and will continue to pursue full releases or other options on
the remaining facilities.
The Company's two largest sales offices are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
CITY, STATE ADDRESS USAGE AREA IN SQ. FT. LEASED/OWNED
- ----------- ------- ------ --------------- ------------
<S> <C> <C> <C> <C>
Charlotte, N.C. ....... 7315 Pineville-Matthews Office 54,000 Owned
Rd.
Charlotte, N.C. ....... 8501 Tower Point Rd. Office 50,000 Owned
</TABLE>
The Company is currently in negotiations to sell these two North Carolina
offices and expects to execute a definitive agreement for the sale of both
buildings by June 30, 2000. A portion of the proceeds from the sale of these
buildings will be used to satisfy the mortgage on the Pineville-Matthews
property, as well as pay $2.5 million in Real Estate Bonuses (defined below)
pursuant to a settlement agreement reached between certain former stockholders
of Rogers and the Company. See "Item 3. Legal Proceedings and Administrative
Matters".
Condition and Adequacy
The Company believes that its properties are generally well maintained, in
good condition, and adequate for its present needs. Generally, the Company has
been able to secure replacement and additional space as required by changing
market conditions.
Property Strategy
The Company's objective is to effectively manage its facilities across all
business units. To accomplish this objective, the Company plans to sell all
owned office space during 2000 and make a transition of its properties to a 100%
lease-based office portfolio. The Company seeks to incorporate maximum
flexibility into all of its lease terms. Such a transition should allow the
Company to adjust office presence and size to best meet changing Manufacturer
and Retailer needs primarily created by Manufacturer and Retailer consolidation
and centralized buying and merchandising. The Company has recently commenced the
sale and leaseback of certain properties. See "Recent Sales and Leasebacks".
12
<PAGE> 15
Recent Sales and Leasebacks
Phoenix, Arizona. On February 17, 2000, the Company sold improved real
property containing general office space situated in Maricopa County, Arizona to
RCPI Office Properties, ("LLC"), an affiliate of MS Acquisition and Richmont
Capital Partners I, LLP, for approximately $2.4 million. Concurrently therewith,
the Company leased back the premises from LLC at a fixed monthly rental of
approximately $20,000. Unless terminated earlier by LLC after six months notice,
the expiration date of the lease is February 28, 2001.
Orange County, California. On February 17, 2000, the Company sold its 3.47
acres of improved real property containing office and warehouse space situated
in Orange County to LLC for approximately $4.9 million. Concurrently therewith,
the Company leased back the premises from LLC at a fixed monthly rental of
approximately $42,500. Unless terminated earlier by LLC after six months notice,
the expiration date of the lease is February 28, 2004, subject to renewal
options.
ITEM 3. LEGAL PROCEEDINGS AND ADMINISTRATIVE MATTERS
On October 1, 1999, Monroe & Company, LLC ("Monroe") filed suit in the
Middlesex Superior Court of the Commonwealth of Massachusetts against the
Company seeking a $2.5 million fee for services rendered in connection with the
Merger under a financial advisory agreement. On November 7, 1999, the Court
entered a pre-trial order granting Monroe's emergency ex parte motion for a $2.5
million real estate attachment on the Company's buildings located in Canton,
Massachusetts. The Company's motion to dissolve the attachment is currently
pending before the court. A motion for summary judgment filed by Monroe was
denied by the Court on December 30, 1999. Monroe subsequently filed a motion for
reconsideration that remains pending before the Court. Discovery in the lawsuit
has commenced and is expected to be completed by July 31, 2000. The Company
plans to continue to vigorously defend against this action. See "Item 2.
Properties" for a description of the affected buildings.
On October 4, 1999, the Internal Revenue Service ("IRS") accepted payment
from the Company and agreed to a settlement concerning asserted deficiencies in
federal corporate income taxes for Atlas for tax years 1993 through 1995. The
deficiencies related to the deductibility of certain compensation and benefit
expenses. Under the stock purchase agreement with Atlas, the Company could have
been held liable for up to $1.0 million in this tax matter. The total amount of
the agreed settlement between the Company and the IRS was approximately $0.2
million.
On December 2, 1999, a settlement was reached between Curtis L. Rogers,
Jr., as representative of the former stockholders of Rogers, and the Company in
connection with a civil action pending in the Superior Court of Mecklenburg
County, North Carolina. Mr. Rogers alleged that the Company, as successor in
interest to Merkert American Corporation, breached its obligation under a stock
purchase agreement to make payments to certain former shareholders of Rogers
equal to (i) the proceeds received from the sale of real property in Charlotte,
North Carolina ("Real Estate Bonuses"), and (ii) refunds of federal and state
income taxes for 1995-1997 from tax returns filed on Rogers' behalf ("Tax Refund
Bonuses").
Under the terms of the settlement agreement, the Company agreed to pay Real
Estate Bonuses in the amount of $2.5 million. The Real Estate Bonuses will be
paid from the net proceeds of the expected sale of the two Company-owned
buildings in Charlotte, North Carolina. Effective May 1, 2000, any unpaid
balance will accrue interest at 8% and will be payable monthly beginning June 1,
2000. The entire unpaid balance is to be paid upon the earlier to occur of: (i)
the expiration of 30 days from the closing on the sale of the second of the two
buildings, or (ii) September 30, 2000.
Pursuant to the settlement agreement, Tax Refund Bonuses in the aggregate
amount of approximately $1.1 million were distributed to certain former
shareholders of Rogers in December 1999. The remainder of the outstanding Tax
Refund Bonuses are to be disbursed by the Company on a quarterly basis beginning
April 1, 2000. Tax Refund Bonuses equal to approximately $53,000 were
distributed in March 2000. The Company estimates the remaining balance of the
Tax Refund Bonuses not yet received by the Company or disbursed, to be
approximately $31,000.
13
<PAGE> 16
Various other suits and claims are filed against the Company from time to
time in the ordinary course of business and are currently pending. The Company
is not party to any other legal proceeding that, in the opinion of its
management, will have a material adverse effect on its business or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock traded on the National Market under the symbol
"MERK" from December 18, 1998 until August 18, 1999 when the Company's Common
Stock began trading under the symbol "MKSP" on the National Market. The
following table sets forth the high and low closing sale prices for each full
quarterly period for the Common Stock from December 18, 1998 (the date of the
Initial Public Offering) through February 29, 2000:
<TABLE>
<CAPTION>
DATE HIGH LOW
- ---- ----- -----
<S> <C> <C>
First Quarter 1999.......................................... 15.50 10.25
Second Quarter 1999......................................... 11.88 8.63
Third Quarter 1999.......................................... 10.81 5.25
Fourth Quarter 1999......................................... 5.63 2.00
</TABLE>
As of March 16, 2000, there were approximately 63 holders of record of the
Company's Common Stock, including 51 holders of record of the Company's Common
Stock and 12 of the Company's restricted Common Stock.
Dividend Policy. The Company has not paid any dividends in the last two
fiscal years. The Company intends to retain earnings, if any, to finance the
growth and development of its business and does not anticipate paying cash
dividends in the foreseeable future. Under the New Revolver and Amended Term
Loan, the Company and its subsidiaries are prohibited from declaring or paying
any dividend or other distribution on account of any shares, except the
Company's subsidiaries may pay dividends to the extent necessary to pay the
Company's obligation under the New Revolver and expenses and taxes incurred in
the ordinary course of business. The Company and its subsidiaries may also
declare common stock dividends on their Common Stock.
Recent Sales of Unregistered Securities. On January 7, 2000, the Company
received an equity investment from its largest stockholder, MS Acquisition. MS
Acquisition increased its equity position by purchasing 1,577,287 additional
shares of Common Stock at an aggregate purchase price of $5.0 million ($3.17 per
share representing the fair market value thereof) pursuant to the terms of a
stock purchase agreement. The proceeds were intended as an additional source of
capital for the Company's operations and to provide the Company with additional
short-term liquidity. The offering, sale and issuance of these shares were
exempt from registration under the Securities Act of 1933, as amended, pursuant
to a private offering exemption under Section 4(2) promulgated thereunder.
On March 30, 2000, the Company received another equity investment when MS
Acquisition purchased an additional 4,000,000 shares of Common Stock at a price
of $2.50 per share pursuant to the terms of a stock purchase agreement. As a
result of this transaction, MS Acquisition now owns approximately 48.5% of the
Company's outstanding capital stock. The Company intends to use the proceeds to
support the Company's operations and improve the Company's liquidity position.
14
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA FOR MARKETING SPECIALISTS CORPORATION
The following selected consolidated financial data sets forth, for the
periods and the dates indicated, summary consolidated financial data of the
Company and its subsidiaries. The consolidated statement of operations data for
each of the two years ended December 31, 1997 and for the period ended December
18, 1998 are derived from consolidated financial statements of each of Merkert
and Rogers which have been audited by Arthur Andersen LLP, independent
accountants. The consolidated statement of operations data for the period from
the Company's inception (March 4, 1998) through December 31, 1998 and for the
year ended December 31, 1999 and the consolidated balance sheet data at December
31, 1998 and 1999 are derived from consolidated financial statements of the
Company which have been audited by Arthur Andersen LLP, independent accountants,
and are included in Item 8 of this Annual Report on Form 10-K. The financial
data presented below is qualified by reference to the consolidated financial
statements included herein and in the Company's public filings with the
Securities and Exchange Commission and should be read in conjunction with such
financial statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED INCEPTION TO YEAR ENDED
----------------------- DECEMBER 18, DECEMBER 31, DECEMBER 31,
1996 1997 1998 1998 1999
---------- ---------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MERKERT:(3)
Statement of Operations Data:
Commissions...................... $ 80,661 $104,274 $ 90,254 $ -- $ --
Sales............................ 44,916 43,105 42,185 -- --
-------- -------- --------
Revenues...................... 125,577 147,379 132,439 -- --
Operating income (loss)(1)....... 633 1,373 (6,278) -- --
Net income (loss)................ (2,074) (3,449) (10,988) -- --
Other Financial Data:
EBITDA(2)........................ 3,080 5,857 1,841 -- --
ROGERS:(3)
Statement of Operations Data:
Commissions...................... $ 63,311 $ 82,985 $ 79,558 $ -- $ --
Operating income (loss)(1)....... 107 4,085 (15,949) -- --
Net income (loss)................ (1,089) 745 (17,889) -- --
Other Financial Data:
EBITDA(2)........................ 1,753 6,601 (13,510) -- --
MARKETING SPECIALISTS CORPORATION:
Commissions...................... $ -- $ -- $ -- $ 5,975 $246,714
Sales............................ -- -- -- 2,420 43,891
-------- --------
Revenues...................... -- -- -- 8,395 290,605
Operating income (loss)(1)....... -- -- -- (1,187) (7,960)
Net income (loss)................ -- -- -- (1,466) (21,567)
Other Financial Data:
EBITDA(2)........................ -- -- -- (1,008) 5,544
BALANCE SHEET DATA -- MARKETING
SPECIALISTS CORPORATION (END OF
PERIOD):
Working capital (deficit)........ $ -- $ -- $ -- $ (2,108) $(29,908)
Total assets..................... -- -- -- 188,410 449,616
Long-term obligations, less
current maturities............ -- -- -- 74,673 227,831
Stockholders' equity............. -- -- -- 72,595 118,242
</TABLE>
15
<PAGE> 18
- ---------------
(1) Includes restructuring charges for Merkert of $5,987 and $948 for Rogers for
the period ended December 18, 1998 and $13,290 for the Company for the year
ended December 31, 1999.
(2) EBITDA represents earnings before interest, taxes, depreciation and
amortization excluding other income. The Company believes that EBITDA may be
useful to investors for measuring the Company's ability to service debt, to
make new investments and to meet working capital requirements. EBITDA as
calculated by the Company may not be consistent with calculations of EBITDA
by other companies. EBITDA should not be considered in isolation from or as
a substitute for net income (loss), cash flows from operating activities or
other statements of operations or cash flows prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity.
(3) Represents predecessor financials.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Annual Report on Form 10-K contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ significantly from the results
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors" as well
as those discussed elsewhere herein. The following discussion and analysis
should be read in conjunction with the Company's consolidated financial
statements as of and for the year ended December 31, 1999, and Merkert's and
Rogers' respective financial statements and related notes thereto presented
elsewhere in this Annual Report on Form 10-K.
INTRODUCTION
Marketing Specialists Corporation (formerly Merkert American Corporation,
the "Company") was incorporated on March 4, 1998, to create a leading national
food brokerage firm providing outsourced sales, merchandising and marketing
services to Manufacturers. The Company acts as an independent sales and
marketing representative, selling grocery and consumer products on behalf of
Manufacturers and coordinating the execution of Manufacturers' marketing
programs with Retailers. The Company's principal source of revenue is
commissions it receives from Manufacturers. The Company's other activities
include managing private label programs on behalf of selected Retailers.
On December 18, 1998, the Company consummated its Initial Public Offering
of 4,400,000 shares of Common Stock at an offering price of $15.00 per share.
Simultaneously with the Offering, the Company purchased in separate transactions
all of the issued and outstanding capital stock of Merkert and Rogers. As a
result, each of Merkert and Rogers became a wholly-owned subsidiary of the
Company. Prior to December 18, 1998, the Company conducted operations only in
connection with the Combination and the Offering. In January 1999, the Company
issued 290,000 shares of Common Stock in connection with the exercise of a
portion of the over-allotment option by the underwriters of the Offering,
raising net proceeds of approximately $4.0 million.
ACQUISITION HISTORY
General
The Merger and other acquisitions noted below were accounted for using the
purchase method of accounting. The intangible assets resulting from each
acquisition are being amortized over their estimated useful lives.
The Merger
On August 18, 1999, the Company completed the Merger with Richmont for an
aggregate discounted purchase price of approximately $236.8 million, which
included approximately $3.4 million in cash payments for closing costs, $170.0
million in assumed debt and $63.4 million in Common Stock and options. Under the
terms of the Merger, Richmont stockholders received 6,705,551 shares of the
Company's Common Stock.
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<PAGE> 19
The Company also granted certain Richmont stockholders and employees options to
purchase 800,000 in additional shares of the Company's Common Stock at a price
equal to $13.50 per share. For financial reporting purposes, the Company is
presented as the acquiring entity, since the Company's stockholders own the
largest portion of the Common Stock of the combined Company. Immediately
following the Merger, the Company amended its certificate of incorporation to
change its corporate name to "Marketing Specialists Corporation." The operating
results of Richmont have been included in the Company's operating results for
all periods subsequent to the Merger.
Other Acquisitions
In January 1999, the Company acquired Sell for an aggregate discounted
purchase price of approximately $8.5 million, which included approximately $3.1
million in cash payments, $3.8 million in new debt, and $1.6 million in assumed
debt. The operating results of Sell have been included in the Company's
operating results for all periods subsequent to the acquisition date.
In April 1999, the Company acquired UBC for an aggregate discounted
purchase price of approximately $6.6 million, which included approximately $0.9
million in cash payments, $3.3 million in new debt, and $2.4 million in assumed
debt. The operating results of UBC have been included in the Company's operating
results for all periods subsequent to the acquisition date.
In July 1999, the Company acquired Buckeye for an aggregate discounted
purchase price of approximately $5.0 million, which included approximately $0.1
million in cash payments, $3.4 million in new debt, and $1.5 million in assumed
debt. The operating results of Buckeye have been included in the Company's
operating results for all periods subsequent to the acquisition date.
In October 1999, the Company acquired Inman for an aggregate discounted
purchase price of approximately $14.0 million, which included approximately $9.8
million in cash payments, $1.0 million in new debt, and $3.2 million in assumed
debt. The operating results of Inman have been included in the Company's
operating results for all periods subsequent to the acquisition date.
RESULTS OF OPERATIONS
The following defined terms are used in conjunction with the Company's
discussion of operating results.
Revenues. Revenues are derived mainly from commissions earned from
Manufacturers based on the Manufacturers' invoices to Retailers for products
sold. Commissions are usually expressed as a percentage of the invoice as agreed
by contract between the Manufacturer and broker. Commission rates typically
range from 3% for full brokerage services to 1% for retail-only services. The
Company also derives revenues, referred to as "Sales," from the sale of products
including private label packaging materials and frozen products, such as fruits
and vegetables, to certain Retailers, and other products for certain
Manufacturers.
Cost of sales. Cost of sales are primarily the direct cost of private label
products sold by the Company, such as the cost of packaging and frozen
vegetables purchased from suppliers.
Selling, general and administrative expenses. Selling expenses consist
predominately of salaries, fringe benefits and incentives for personnel directly
involved in providing services to Manufacturers and Retailers. Other selling
expenses include, among other things, automobiles utilized by the sales
personnel, promotional expenses, and travel and entertainment. General and
administrative expenses consist primarily of salaries and fringe benefits for
administrative and corporate personnel, occupancy and other office expenses,
information technology, communications and insurance.
Depreciation and amortization expenses. Depreciation and amortization
expenses relate to property, plant and equipment and intangible assets,
including goodwill and non-compete agreements.
Restructuring charges. Restructuring charges relate to severance costs
associated with the reduction in redundant employee positions and the closure of
redundant facilities in connection with the Merger.
17
<PAGE> 20
The following table sets forth the results of operations of the Company for
the periods indicated. The 1997 and 1998 amounts represent the combined,
historical results of the Company, Merkert and Rogers and do not reflect the
effect of any pro forma adjustments (unaudited and dollars in thousands). The
reader should note references to "annualized" results for the period ended
December 18, 1998, since such information is more meaningful to a discussion of
the change between the period ended 1998 and the year ended 1999.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 18, 1998 DECEMBER 31, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Commissions.......................... $187,259 $169,812 $246,714
Sales................................ 43,105 42,185 43,891
-------- -------- --------
Revenues........................ $230,364 100.0% $211,997 100.0% $290,605 100.0%
Cost of sales........................ 39,027 16.9 38,709 18.3 39,744 13.7
Selling expenses..................... 133,274 57.9 136,672 64.5 177,043 60.9
General and administrative........... 45,605 19.8 45,032 21.2 54,984 18.9
Depreciation and amortization........ 7,000 3.0 6,876 3.2 13,504 4.6
Restructuring charge................. -- -- 6,935 3.3 13,290 4.6
-------- ----- -------- ----- -------- -----
Operating income (loss).............. 5,458 2.4 (22,227) (10.5) (7,960) (2.7)
Interest expense, net................ 7,490 3.3 6,797 3.2 13,854 4.8
Other (income) expense, net.......... (23) -- 530 0.2 (247) (0.1)
-------- ----- -------- ----- -------- -----
Loss before income taxes............. (2,009) (0.9) (29,554) (13.9) (21,567) (7.4)
Provision (benefit) for income
taxes.............................. 695 0.3 (377) (0.1) -- --
-------- ----- -------- ----- -------- -----
Net Loss............................. (2,704) (1.2) (29,177) (13.8) (21,567) (7.4)
Preferred stock dividend............. 445 0.2 -- -- -- --
-------- ----- -------- ----- -------- -----
Net Loss applicable to common
stockholders....................... $ (3,149) (1.4)% $(29,177) (13.8)% $(21,567) (7.4)%
======== ===== ======== ===== ======== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO PERIOD ENDED DECEMBER 18, 1998
Commissions. Commissions increased $76.9 million (or 45.3%) to $246.7
million for the year ended December 31, 1999, as compared to $169.8 million for
the period ended December 18, 1998. The Company's revenues for the year ended
December 31, 1999, include $79.8 million relating to Richmont. The Company's
revenues (without Richmont) for the year ended December 31, 1999, were $166.9
million versus $176.1 million for the annualized year ended December 18, 1998.
This overall decline in revenue was the result of the full year effect of
Manufacturer conflicts resulting from the Combination and, to a lesser extent,
the Merger. In addition, the continued consolidation of Manufacturer
representation by food brokers has negatively affected results.
Sales. Sales increased to $43.9 million for the year ended December 31,
1999 from $43.8 million for the annualized year ended December 18, 1998. Gross
profit on sales also increased to $4.1 million (or 9.4% of sales) for the year
ended December 31, 1999, from $3.6 million (or 8.2% of sales) for the annualized
year ended December 18, 1998.
Selling expenses. Selling expenses increased $40.4 million (or 29.5%) to
$177.0 million for the year ended December 31, 1999, as compared to $136.7
million for the period ended December 18, 1998. The Company's expenses for the
year ended December 31, 1999, include $51.6 million relating to Richmont. The
Company's selling expenses (excluding Richmont) for the year ended December 31,
1999, were $125.4 million versus $141.8 million for the annualized year ended
December 18, 1998, a $16.4 million decline. The overall decline on an annualized
basis was attributable to reductions in the sales force resulting from the full
year effect of Manufacturer conflicts from the Combination and, to a lesser
extent, the Merger. In addition, the continued consolidation of Manufacturer
representation by food brokers has negatively affected results.
General and administrative expenses. General and administrative expenses
increased $10.0 million (or 22.1%) to $55.0 million for the year ended December
31, 1999, as compared to $45.0 million for the period ended December 18, 1998.
The Company's expenses for the year ended December 31, 1999, include
18
<PAGE> 21
$18.8 million relating to Richmont. The Company's expenses (without Richmont)
for the year ended December 31, 1999, were $36.2 million as compared to $46.7
million for the annualized year ended December 18, 1998, a $10.5 million
decline. This overall decline was the result of the full year effect of cost
saving measures put in place to eliminate duplicative facilities resulting from
the Combination.
As a percentage of total revenues, selling, general and administrative
expenses decreased to 79.8% for 1999 from 85.7% in 1999 (or 88.9% on an
annualized basis) due to the factors discussed above.
Earnings before depreciation, amortization, and restructuring charge
increased to $18.8 million for the year ended December 31, 1999, as compared to
a loss of ($8.4) million for the period ended December 18, 1998, as a result of
the factors noted above.
Depreciation and amortization. Depreciation and amortization expenses
increased $6.6 million (or 96.4%) to $13.5 million (including approximately $2.9
million related to Richmont) for the year ended December 31, 1999, as compared
to $6.9 million for the period ended December 18, 1998. This increase is the
result of the full year effect of the goodwill and other amortization associated
with the Combination and the Merger.
Restructuring charge. The results for the period ended December 18, 1998
reflect restructuring charge of $6.9 million as a result of the Combination and
include the elimination of redundant personnel and facilities costs. For the
year ended December 31, 1999, restructuring charge amounted to approximately
$13.3 million in connection with the Merger. The charge consisted of
approximately $8.6 million relating to non-cancelable lease obligations on
abandoned facilities and $4.7 million relating to severance and related
personnel amounts.
Interest expense. Interest expense increased $7.1 million to $13.9 million
for the year ended December 31, 1999, as compared to $6.8 million for the period
ended December 18, 1998. Interest expense for the year ended December 31, 1999
(excluding Richmont) was $7.6 million versus $6.8 million for the period ended
December 18, 1998. The increase in 1999 is attributable to increased borrowing.
Loss before income taxes. The loss before income taxes decreased from
($29.6) million for the period ended December 18, 1998 to ($21.6) million for
the year ended December 31, 1999 as a result of the factors noted above.
Provision for income taxes. The Company has not recorded the full tax
benefit associated with the losses for the year ended December 31, 1999, since
its future realizability is not assured.
Net loss. As a result of the factors noted above, the Company's net loss
decreased to ($21.6) million in the year ended December 31, 1999, as compared to
a net loss of ($29.2) million in the period ended December 18, 1998.
RESULTS FOR THE PERIOD ENDED DECEMBER 18, 1998 COMPARED TO YEAR ENDED DECEMBER
31, 1997
Commissions. Commissions decreased by $17.5 million (or 10.3%) from $187.3
million for the year ended December 31, 1997 to $169.8 million for the period
ended December 18, 1998. On an annualized basis, revenues were $176.1 million
for 1998. The annualized $11.2 million decrease in revenues was due to
Manufacturer conflicts in the Mid-Atlantic area resulting from the Combination
and the discontinuation of the retail merchandising operation that was
established in 1995 to serve one specific Retailer.
Sales. Sales decreased by $0.9 million (or 2.1%) from $43.1 million for the
year ended December 31, 1997 to $42.2 million for the period ended December 18,
1998 due to decreases in the volume of private label sales.
Selling expenses. Selling expenses increased by $3.4 million (or 2.6%) from
$133.3 million in 1997 to $136.7 million for the period ended December 18, 1998.
On an annualized basis, selling expenses were $141.7 million for 1998. The
increase resulted from a $14.8 million non-cash, non-recurring compensation
charge due to the transfer of shares of common stock of Rogers by the then
principal stockholders to certain minority stockholders. In addition, certain
life insurance polices and other assets were distributed to certain
19
<PAGE> 22
former stockholders of Rogers. This increase was offset by the reduction in
personnel associated with acquisitions in overlapping geographic areas along
with the discontinued merchandising operations.
General and administrative expenses. General and administrative expenses
decreased by $0.6 million (or 1.3%) from $45.6 million for the year ended
December 31, 1997 to $45.0 million for the period ended December 18, 1998. On an
annualized basis, general and administrative expenses were approximately $46.7
million for 1998. The annualized increase of $1.1 million is attributable to
increases in legal fees and travel related costs incurred in connection with the
Combination, increases in communication costs and computer software upgrades.
As a percentage of total revenues, selling, general and administrative
expenses increased from 77.7% for 1997 to 85.7% in 1998 due to the factors
discussed above.
Depreciation and amortization. Depreciation and amortization expenses were
substantially unchanged from the year ended December 31, 1997 to the period
ended December 18, 1998. On an annualized basis, depreciation expense would have
been approximately $0.1 million higher in 1998 versus 1997 due to depreciation
expense increases associated with the new Merkert corporate headquarters
completed in the third quarter of 1997.
Restructuring charge. The results for the period ended December 18, 1998
reflect a restructuring charge of $6.9 million with no corresponding charge
during 1997. This charge related to severance costs associated with elimination
of certain positions, primarily as a result of integration activities in the
metropolitan New York and mid-Atlantic regions, as well as costs associated with
the disposition of excess lease space in these regions.
Interest expense. Interest expense decreased by $0.7 million (or 9.3%) from
$7.5 million for the year ended December 31, 1997 to $6.8 million for the period
ended December 18, 1998. Approximately $0.3 million of the decrease is
attributable to the shorter 1998 operating period. The remaining $0.4 million
decrease was caused by reductions in debt due to principal payments made during
the period and a reduction in interest expense associated with the IRS
obligation offset by the increased borrowing under the Initial Credit Facility.
Loss before income taxes. The loss before income taxes increased from
$(2.0) million for the year ended December 31, 1997 to $(29.6) million for the
period ended December 18, 1998 due to the factors stated above.
Provision (benefit) for income taxes. The provision for income taxes
decreased by $1.1 million from a provision of $0.7 million for the year ended
December 31, 1997 to a benefit of $(0.4) million for the period ended December
18, 1998 due to the increase in the valuation allowance for deferred tax assets.
Net loss. The net loss increased from $(2.7) million for the year ended
December 31, 1997, to $(29.2) million for the period ended December 18, 1998.
Preferred stock dividends. The amount payable in respect of preferred stock
dividends decreased from $0.4 million for the year ended December 31, 1997 to
nothing for the period ended December 18, 1998.
Net loss applicable to common stockholders. The net loss applicable to
common stockholders increased by $26.0 million from the year ended December 31,
1997 to the period ended December 18, 1998.
COMBINED INTEGRATION ACTIVITIES
During 1999, the Company completed five acquisitions, resulting in the
coverage of new geographic markets and expanding representation of
Manufacturers' product offerings within existing markets. The Company's
strategic acquisition plan includes the selection, acquisition and management of
businesses in various brokerage markets, including the retail food, food service
and private label markets.
As part of the Merger, the Company further integrated many of its sales
offices and most of its administrative operations (including accounting,
treasury, payroll, human resources, and information technol-
20
<PAGE> 23
ogy). This process resulted in the integration and consolidation of 37
facilities throughout the Southeast and Mid-Atlantic regions of the country. As
a result of its ongoing integration activities, the Company recorded a
restructuring charge during the year ended December 31, 1999 of approximately
$13.3 million. The charge consisted of approximately $8.6 million relating to
non-cancelable lease obligations on vacated facilities and $4.7 million relating
to severance and other personnel-related amounts .
As set forth in the following table (dollars in thousands), the Company's
unaudited pro forma (giving effect to the Merger only) combined EBITDA for the
year ended December 31, 1999 was $25.1 million compared to actual EBITDA of $5.5
million for the year ended December 31, 1999.
<TABLE>
<CAPTION>
PRO-FORMA YEAR
YEAR ENDED ENDED
DECEMBER 31, 1999 DECEMBER 31, 1999
------------------ ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Commissions............................................ $246,714 $379,698
Sales.................................................. 43,891 43,891
-------- --------
Revenues............................................... $290,605 100.0% $423,589 100.0%
Cost of sales.......................................... 39,744 13.7 39,744 9.4
Selling expenses....................................... 177,043 60.9 248,443 58.7
General and administrative............................. 54,984 18.9 110,287 26.0
Depreciation and amortization.......................... 13,504 4.6 24,990 5.9
Restructuring charge................................... 13,290 4.6 --
-------- ----- -------- -----
Operating income (loss)................................ (7,960) (2.7) 125 0.0
EBITDA................................................. 5,544 1.9 25,115 5.9
Interest expense, net.................................. 13,854 4.8 24,415 5.8
Other (income) expense, net............................ (247) (0.1) (598) (0.1)
-------- ----- -------- -----
(Loss) before income taxes............................. (21,567) (7.4) (23,692) (5.7)
Provision (benefit) for income taxes................... -- -- (1,338) 0.3
-------- ----- -------- -----
Loss before extraordinary item......................... (21,567) (7.4) (22,354) (5.4)
Extraordinary loss, net of tax......................... -- -- (1,038) (0.2)
-------- ----- -------- -----
Net (loss) applicable to common stockholders........... $(21,567) (7.4)% $(23,392) (5.6)%
======== ===== ======== =====
</TABLE>
Assuming the implementation of the Company's 1999 integration plans all
occurred as of January 1, 1999, the Company would have eliminated duplicative
salaries, benefits, bonuses and other direct costs of $8.1 million and a net
reduction of rental and other office expenses of $3.2 million for the year ended
December 31, 1999. In addition, in connection with these integration activities,
the Company has lost (net of gains) for the overlapping markets approximately
$10.8 million of revenues for the year ended December 31, 1999, as a result of
Manufacturer conflicts and other factors. After giving effect, on a pro forma
basis, to the elimination and other effects of the Company's integration
activities described above, assuming these integration activities were completed
as of January 1, 1999, the Company's adjusted unaudited pro forma combined
EBITDA and adjusted unaudited pro forma combined net loss for the year ended
December 31, 1999 would have been $25.6 million and $22.9 million, respectively.
EBITDA represents earnings before interest, taxes, depreciation and
amortization. The Company believes that EBITDA may be useful for measuring the
Company's ability to service debt, to make new investments and to meet working
capital requirements. EBITDA as calculated by the Company may not be consistent
with calculations of EBITDA by other companies. EBITDA should not be considered
in isolation from or as a substitute for net income (loss), cash flows from
operating activities or other statements of operations or cash flows prepared in
accordance with generally accepted accounting principles or as a measure of
profitability or liquidity. None of the unaudited pro forma financial data, as
adjusted, purports to represent what the Company's combined results of
operations would have been or may be for any future period and all such
information should be read only in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto and the Merkert and Rogers Financial
Statements and the Notes thereto included elsewhere in this Annual Report on
Form 10-K.
21
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
In January 1999, the Company issued 290,000 shares of its Common Stock in
connection with the exercise of a portion of the over-allotment option by the
underwriters of the offering, raising net proceeds of approximately $4.0
million.
On August 18, 1999, the Company merged with Richmont. Under the terms of
the Merger, Richmont received 6,705,551 shares of Common Stock, and the Company
assumed all of Richmont's outstanding debt which, net of cash on hand, totaled
approximately $166.8 million.
In connection with the Offering and Combination, the Company obtained a
credit facility (the "Initial Credit Facility") dated December 18, 1998,
consisting of a five-year, secured, fully amortizing $50.0 million term loan
(the "Initial Term Loan") and a three-year, secured $25.0 million revolving line
of credit (the "Initial Revolving Credit"). The balance outstanding under the
Initial Credit Facility was $64.1 million at December 31, 1999 ($20.3 million
under the Initial Revolving Credit and $43.8 million under the Initial Term
Loan). The Company's Initial Credit Facility was amended on August 18, 1999. The
Initial Credit Facility required the payment of a consent fee equal to 1% of the
aggregate amount of the credit facility payable upon the earlier of (i)
syndication or refinancing the facility, (ii) March 31, 2000 or (iii) default
under the facility. The Initial Credit Facility also required the payment of a
syndication fee of $0.3 million on March 31, 2000 if the credit facility had not
been syndicated by that time, with additional fees of $0.4 million at June 30,
2000, and $0.2 million at the end of each month thereafter until the credit
facility has been syndicated.
Interest was payable on the Initial Term Loan and the Initial Revolving
Credit at the base rate, as defined in the Initial Credit Facility. The rate on
the outstanding balance of the Initial Revolving Credit and the Initial Term
Loan was 9.16% and 10.50%, respectively, as of December 31, 1999. The Initial
Credit Facility required the Company to comply with various affirmative and
negative covenants, including among others: (i) the maintenance of certain
financial ratios, (ii) restrictions on certain additional indebtedness, (iii)
restrictions on liens, guarantees, dividends and the disposition of assets and
(iv) obtaining the lenders' consent to acquisitions involving cash consideration
in excess of a specified amount. Certain financial ratio compliance measures
were also expanded to reflect the Merger. The Company was not in compliance with
its covenants at December 31, 1999.
At December 31, 1999, the working capital deficit of the Company was
approximately $(29.9) million. The Company believes that cash flows provided by
its operations, together with its existing cash and amounts available under the
Initial Credit Facility, the Amended Term Loan (defined below) and the New
Revolver (defined below), should be sufficient to fund its debt service
requirements, working capital needs, capital expenditures, and other operating
expenses in the foreseeable future. The Company's future operating performance
and ability to service or refinance long-term obligations will be subject to
future economic conditions and to financial, business, and other factors, many
of which are beyond the Company's control.
REFINANCING OF COMPANY'S EXISTING CREDIT FACILITY
The Initial Credit Facility was amended and restated August 18, 1999, among
the Company and First Union National Bank, as agent. The Initial Credit
Facility, as amended, refinanced, in part, the Credit Agreement dated as of
October 14, 1997, as amended and restated, among Richmont and The Chase
Manhattan Bank, as agent (the "Former Chase Facility") at the effective time of
the Merger. The Former Chase Facility provided for a revolving credit facility
with a maximum borrowing capacity of $25.0 million. As of the effective time of
the Merger, the Initial Credit Facility had outstanding borrowings under the
Initial Revolving Credit of approximately $11.1 million and the Former Chase
Facility had no outstanding borrowings. As of March 15, 2000, the Initial Credit
Facility had outstanding borrowings under the Initial Revolving Credit of
approximately $17.3 million, plus an outstanding letter of credit in the amount
of approximately $1.1 million. The letter of credit secures the Company's rental
payment obligations for its corporate headquarters in Dallas. In addition, the
outstanding balance of the Initial Term Loan was approximately $43.0 million.
The borrowings of the Company under the Initial Credit Facility were
secured by a lien on substantially all of the Company's and its subsidiaries
tangible and intangible property. In addition, the Company's
22
<PAGE> 25
obligations under the Initial Credit Facility were jointly and severally
guaranteed by all of the Company's operating subsidiaries.
Amended Term Loan
On March 30, 2000 the Company became a party to a Second Amended and
Restated Credit Agreement among the Company and First Union National Bank, as
agent (the "Amended Term Loan"). The Amended Term Loan consists of a two year,
secured $35.0 million term loan. The Company paid commitment and other fees of
approximately $0.9 million in connection with obtaining the Amended Term Loan.
Under the Amended Term Loan, the principal amount of the term loan was reduced
from $43.0 million to $35.0 million.
The Amended Term Loan is secured by a lien on substantially all of the
Company's and its subsidiaries' tangible and intangible property. In addition,
the Amended Term Loan will be jointly and severally guaranteed by all current
and future subsidiaries of the Company. Interest is payable on the Amended Term
Loan at a rate based on one of two customary interest rates plus an additional
interest margin of 375 or 500 basis points, as applicable.
The Amended Term Loan requires the Company to comply with various
affirmative and negative covenants, including, among others: (i) the maintenance
of certain financial ratios, (ii) restrictions on additional indebtedness, (iii)
restrictions on liens, guarantees, dividends and the disposition of assets and
(iv) restrictions on certain mergers, consolidations, and acquisitions. The
Amended Term Loan contains customary events of default, including cross-default
provisions relating to the Notes.
In connection with the Amended Term Loan, the Company will issue to an
affiliate of First Union National Bank detachable warrants to purchase up to
4.0% of the Company's Common Stock on a fully-diluted basis. The exercise price
of the warrants will be nominal, and the warrants will be exercisable at any
time after the second anniversary of the issuance of the warrants.
The letter of credit outstanding under the Initial Credit Facility will be
replaced by a $1.1 million letter of credit issued for the account of Richmont
Capital Partners I, L.P. ("RCPI"), an affiliate of MS Acquisition Limited ("MS
Acquisition"), the Company's largest shareholder. The Company will in turn issue
to RCPI a reimbursement note subordinated in right of payment to the Notes in
the amount of the letter of credit. The promissory note will become payable if
the letter of credit is drawn.
New Revolver
On March 30, 2000, the Company also became a party to a Credit Agreement
among the Company, certain of its subsidiaries and The Chase Manhattan Bank, as
agent, and the lenders named therein (the "New Revolver", and together with the
Amended Term Loan, the "New Senior Credit Facility"). The New Revolver consists
of a two year, senior secured $50 million revolving line of credit, subject to a
borrowing base equal to a specified percentage of eligible receivables. The
Company will pay commitment and other fees of approximately $0.6 million in
connection with obtaining the New Revolver. Funds advanced under the New
Revolver will be used by the Company to repay a portion of outstanding amounts
under the Initial Credit Facility, to partially finance the acquisition of Sales
Force, to finance the Company's working capital and capital expenditure
requirements in the ordinary course of business, and to pay fees and expenses
relating to the closing of the New Senior Credit Facility. The New Revolver
contains customary events of default, including cross-default provisions
relating to the Notes.
The New Revolver will be secured by a first priority security interest in
cash, cash equivalents, accounts receivable and inventory of the Company and its
subsidiaries and proceeds thereof but not in assets that are the proceeds of
equipment, fixtures, real estate, intellectual property or the stock of
subsidiaries. In addition, Inman, Marketing Specialists Sales Company ("MSSC")
and Bromar, Inc. (a California corporation and a wholly owned subsidiary of
MSSC) will be co-borrowers under the New Revolver, jointly and severally liable
for all borrowings and other related obligations thereunder. Interest is payable
on the New Revolver at a rate based on one of two customary interest rates plus
an additional interest margin ranging from 150 to 350 basis points. The
applicable margin is determined based on certain financial ratios of the
Company.
23
<PAGE> 26
The New Revolver requires the Company to comply with various affirmative
and negative covenants, including, among others: (i) the maintenance of certain
financial ratios, (ii) restrictions on additional indebtedness, (iii)
restrictions on liens, guarantees, dividends and the disposition of assets and
(iv) restrictions on certain mergers, consolidations, and acquisitions.
Amounts borrowed under the New Revolver will be guaranteed by RCPI, subject
to a maximum guaranty amount of $10 million. The RCPI guaranty will be released
by the lenders if the Company achieves $40 million of EBITDA for the 9 month
period ended December 31, 2000 or if the Company achieves $50 million of EBITDA
during any subsequent 12 month period.
On January 7, 2000, the Company received an equity investment from its
largest stockholder, MS Acquisition. MS Acquisition increased its equity
position by purchasing 1,577,287 additional shares of Common Stock at an
aggregate purchase price of $5.0 million ($3.17 per share) pursuant to the terms
of a stock purchase agreement. On March 30, 2000, MS Acquisition purchased an
additional 4,000,000 shares of Common Stock for an aggregate purchase price of
$10.0 million ($2.50 per share) pursuant to the terms of a stock purchase
agreement. The funds will serve as an additional source of capital for the
Company's operations, and will provide the Company with additional short-term
and long-term liquidity. The offering, sale and issuance of these shares was
exempt from registration under the Securities Act of 1933, as amended, pursuant
to a private offering exemption under Section 4(2) promulgated thereunder.
At December 31, 1999, the working capital deficit of the Company was
approximately $(29.9) million. The Company believes that cash flows provided by
its operations, together with its existing cash and amounts available under the
Initial Credit Facility, the Amended Term Loan and the New Revolver, should be
sufficient to fund its debt service requirements, working capital needs, capital
expenditures, and other operating expenses in the foreseeable future. The
Company's future operating performance and ability to service or refinance
long-term obligations will be subject to future economic conditions and to
financial, business, and other factors, many of which are beyond the Company's
control.
Net cash provided by operating activities for the year ended December 31,
1999 amounted to approximately $2.2 million. The Company's net loss of
approximately $(21.6) million was primarily offset by non-cash amortization
charges of approximately $13.5 million and decreases in accounts receivable and
income taxes receivable aggregating approximately $11.0 million.
Net cash used in investing activities was $15.3 million for the year ended
December 31, 1999. Approximately $13.7 million of the 1999 cash was used for the
acquisitions of Sell, UBC, Buckeye and Inman, offset by cash assumed with the
Merger. The remaining amount relates to investments in capital expenditures.
Net cash provided by financing activities for the year ended December 31,
1999 was $12.0 million, primarily as a result of the issuance of additional
shares of Common Stock ($4.0 million; approximately $3.8 million net of
expenses), borrowings under the Initial Credit Facility ($20.3 million), and the
release of restricted cash ($9.0 million). These cash increases were offset by
approximately $21.2 million in payments under the Initial Term Loan and certain
long-term obligations associated with the Company's acquisition activity.
SEASONALITY; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced and expects to continue to experience
fluctuations in quarterly revenues and operating results as a result of seasonal
patterns. The revenues of the Company have been stronger in the third and fourth
calendar quarters as a result of the historically strong sales associated with
consumer consumption during the holiday season and weaker in the first quarter
following such season. Results of operations for any particular quarter
therefore are not necessarily indicative of the results of operations for any
future period. Future seasonal and quarterly fluctuations could have a material
adverse effect on the Company's business, financial condition and results of
operations.
INFLATION
The Company does not believe that its revenues have been materially
affected by inflation.
24
<PAGE> 27
YEAR 2000 DISCLOSURE
The Company dedicated internal resources and engaged external resources to
identify and resolve "Year 2000" compliance issues with respect to computer
systems and applications utilized by the Company.
The Company experienced no significant Year 2000 issues in January 2000. No
assurance can be given that Year 2000 compliance issues will not materialize and
be resolved without future disruption or that the Company will not incur
significant additional expense. In addition, the failure of certain of the
Company's significant suppliers, Manufacturers and Retailers to address the Year
2000 compliance issues could have a material adverse effect on the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to its Initial Credit
Facility as discussed in the notes to the Company's consolidated financial
statements. The interest on the Initial Credit Facility is subject to
fluctuations in the market. The Company does not believe that a change in the
interest rate will have a material effect on its financial position, results of
operations or cash flows.
The Company does not engage in trading market risk sensitive instruments
and does not purchase as investments, as hedges, or for purposes "other than
trading", instruments that are likely to expose the Company to certain types of
market risk, including interest rate, commodity price or equity price risk. The
Company has not entered into any forward or futures contracts, purchased any
options or entered into any swaps.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Financial Statement Schedule filed as a part
of this Annual Report on Form 10-K are listed on the Index to Consolidated
Financial Statements and Consolidated Financial Statement Schedule on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information concerning the Company's
directors and executive officers and the offices held by each on March 31, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ronald D. Pedersen.................... 60 Chairman of the Board, Director
Gerald R. Leonard..................... 53 President, Chief Executive Officer and
Director
Timothy M. Byrd....................... 45 Chief Financial Officer and Director
John P. Rochon........................ 48 Director
Nick G. Bouras........................ 47 Director
Edward P. Grace, III(1)(2)............ 49 Director
Michael J. Merriman(1)(2)............. 43 Director
James A. Schlindwein(1)(2)............ 71 Director
Douglas H. Holstein................... 46 Executive Vice President of Sales
Glenn F. Gillam....................... 48 President of Broker Operations
Bruce A. Butler....................... 50 President of Brand Development
</TABLE>
- ---------------
(1) Audit Committee Member
(2) Compensation Committee Member
25
<PAGE> 28
Ronald D. Pedersen has served as Chairman of the Board of Directors of the
Company since the consummation of the Merger. He formerly served as President,
Chief Executive Officer and as a Director of Richmont Marketing Specialists Inc.
("Richmont"). Mr. Pedersen has also served during 1999 as President, Chief
Executive Officer of Marketing Specialists Sales Company, a wholly-owned
subsidiary of the Company ("MSSC") and currently serves as a director of MSSC.
Mr. Pedersen has been in the food industry for over 30 years, including three
years with Anderson Clayton foods and seven years with Colgate Palmolive. He is
past Chairman and current member of the Board of the Association of Sales and
Marketing Companies.
Gerald R. Leonard has been Chief Executive Officer and President of the
Company since the consummation of the Combination. His current term as Director
expires in 2001. Effective March 2, 2000, Mr. Leonard became President and Chief
Executive Officer of MSSC. Mr. Leonard was previously Chief Executive Officer of
Merkert Enterprises, Inc. ("Merkert") from September 1994 until December 1998,
and served as the President of Merkert from September 1994 until June 1998. From
May 1992 to September 1994, Mr. Leonard served Merkert as President of the Food
Enterprises, New England Division, and has been with Merkert in various
executive capacities since 1983.
Timothy M. Byrd has been a Director of the Company since the consummation
of the Merger. He has served as the Chief Financial Officer of the Company since
September 1999. His current term as Director expires in 2000. He was previously
the Chief Administrative Officer, Assistant Treasurer and a Director of
Richmont. Mr. Byrd served as a Director of Richmont from 1997 until the Merger.
Mr. Byrd has also served as Chief Administrative Officer of MSSC since September
1998, and as a Director of MSSC since 1996. Since 1990, Mr. Byrd has been the
Chief Financial Officer of Mary Kay Holding Corporation as well as the Chief
Financial Officer of Richmont Corporation. From 1980 to 1990, Mr. Byrd served in
various accounting and finance positions at Mary Kay, Inc., including Chief
Financial Officer, Vice President and Controller. He is also a member of the
Office of the Chairman of Mary Kay Holding Corporation.
John P. Rochon has been a Director of the Company since the consummation of
the Merger. His current term as Director expires in 2002. He was previously the
Chairman of the Board of Directors of Richmont and served in that capacity and
as a Director from 1997 until the closing of the Merger. Mr. Rochon has served
on the Board of Directors of MSSC since 1996 and is currently Chairman of the
Board of Directors of Richmont Corporation, a merchant banking, investment
holding and trading company, and Chief Executive Officer of Mary Kay Holding
Corporation, a role he has had since 1991. Formerly, Mr. Rochon held several
executive positions with Mary Kay, Inc., including Vice Chairman, Chief
Financial Officer, Controller and Director of Manufacturing. Mr. Rochon
currently serves on the Board of Directors of Nu-kote Holding, Inc. and Royal
Appliance Mfg. Co.
Nick G. Bouras has been a Director of the Company since consummation of the
Merger. He formerly served as Vice President, Assistant Secretary and as a
Director of Richmont. His current term as Director expires in 2001. He is Vice
President, Assistant Secretary and a Director of MSSC. Mr. Bouras has been
President and Chief Executive Officer of Richmont Corporation since 1989. Prior
to his role at Richmont, Mr. Bouras was Vice President, Investments of Mary Kay,
Inc. Mr. Bouras also spent several years as a tax accountant with Ernst & Young
and Touche Ross & Company.
Edward P. Grace III has served as a Director of the Company since the
consummation of the Combination. His current term as Director expires in 2001.
Mr. Grace is also Managing Director of Webvestors Equity Partners, LP, a venture
capital firm, as well as Managing Member of iHatch.com, LLC, a virtual incubator
company. From 1989 until September 1996, Mr. Grace served as Chairman of the
Board, President and Chief Executive Officer of Bugaboo Creek Steak House, Inc.,
operator of Bugaboo Creek Steak House and The Capital Grille restaurants. Mr.
Grace is a director of Mantra Communications, Inc., Bungo.com, Inc. and
Professional Facilities Management, Inc. He also serves as a Trustee of Bryant
College and Johnson & Wales University.
Michael J. Merriman has served as Director of the Company since the
consummation of the Merger. His current term as Director expires in 2002. He has
also served as a Director of Royal Appliance Mfg. Co., the parent company of
Dirt Devil, Inc., since 1993. Mr. Merriman was appointed Chief Executive Officer
of Royal Appliance in July 1995 and President and Chief Operating Officer in
January 1995. From May 1992 until his
26
<PAGE> 29
appointment as President, he had been Vice President -- Finance, Treasurer and
Secretary of Royal Appliance. Richmont Capital Partners I, L.P. owns
approximately 15.6% of the common stock of Royal Appliance.
James A. Schlindwein has been a Director of the Company since the
consummation of the Combination. His current term as Director expires in 2001.
Prior to his retirement in September 1994, Mr. Schlindwein served as Executive
Vice President, Merchandising Services, and a director of Sysco Corporation, a
national institutional food service distributor, where he had served since 1980.
He is also a director of Tri-Valley Growers, EMMPAK Foods, Inc., Alaska Seafood
International, Agra Quest, Inc., Chilay Corporation and Thompson's Pet Pasta
Products, Inc.
Bruce A. Butler served as Chief Operating Officer of the Company following
the consummation of the Merger and in February 2000, became President of Brand
Development. He was formerly the Executive Vice President, Chief Operating
Officer and a Director of Richmont. Mr. Butler has held several positions since
1991, including Vice President-Branch Manager, Tampa Operations and Director of
Confection, and currently serves as a member of MSSC's Board of Directors. Mr.
Butler began his career with MSSC when his former employer, the Trigg Company,
Inc., was acquired by MSSC in 1991. Prior to that time, Mr. Butler held
management positions with the Kroger Company and Paul Inman Associates, Inc., a
Detroit based food broker.
Glenn F. Gillam recently became President of Broker Operations for the
Company. Previously, Mr. Gillam served as the President of the Northern
Division. He joined Merkert in 1983 and has held numerous sales and management
positions. From 1994 until 1998, Mr. Gillam served as President of the Food
Enterprises, New England Division, of Merkert.
Douglas H. Holstein is the Executive Vice President of Sales for the
Company. Mr. Holstein is the former Chief Operating Officer of the Company.
Prior to his service with the Company, Mr. Holstein held various executive
capacities with Rogers-American Company, Inc. ("Rogers"), including President.
Prior to his joining Rogers, Mr. Holstein was the Regional Director of the
Southeast for the Green Giant Company. Mr. Holstein has served on several broker
advisory boards including: The Minute Maid Company, Land O'Lakes, The Pillsbury
Company, The J.M. Smucker Company, Hershey and is currently serving on both The
Quaker Oats and Good Humor/Breyers broker advisory boards.
There are no family relationships among any of the directors and executive
officers of the Company.
BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Board of
Directors and is fixed by resolution duly adopted from time to time by the Board
of Directors. The Company's Second Amended and Restated Certificate of
Incorporation provides that the Board of Directors shall be divided into two
classes until a third class is elected at the annual meeting of stockholders to
be held in 2000. From and after such date, the Board of Directors shall be
divided into three classes (such date, the "Board Conversion"), as nearly equal
in number as possible. The Class I directors who were elected at the annual
meeting of stockholders in 1999 shall hold office for a term expiring at the
annual meeting of stockholders to be held in 2001. The initial Class II
directors shall hold office for a term expiring at the annual meeting of
stockholders to be held in 2000. The successor Class II directors who are
elected at the annual meeting of stockholders to be held in 2000 shall hold
office for a term expiring at the annual meeting of stockholders to be held in
2002. The initial Class III directors shall hold office for a term expiring at
the annual meeting of stockholders to be held in 2003. At the annual meeting of
stockholders to be held in 2001, and at each annual meeting of stockholders held
thereafter, the directors elected to succeed the class of directors whose term
expires at that meeting shall hold office for a term expiring at the annual
meeting of stockholders to be held in the third year following the year of their
selection.
Stockholders have no right to cumulative voting in the election of
directors. Consequently, at each annual meeting, the holders of a plurality of
the voting power of the Common Stock will be able to elect all of the successors
of the class of directors whose terms expire at that meeting.
27
<PAGE> 30
MEETINGS OF BOARD OF DIRECTORS AND COMMITTEES
Since the Merger, the Board of Directors held eight meetings in 1999.
The Board of Directors has established an audit committee (the "Audit
Committee") and a compensation committee (the "Compensation Committee"). The
Audit Committee, which consists of Messrs. Merriman, Grace and Schlindwein,
generally meets on a quarterly basis, but met two times in 1999. The Audit
Committee recommends to the Board of Directors the firm to be appointed as
independent accountants to audit financial statements and to perform services
related to the audit. The Audit Committee also reviews the scope and results of
the audit with the independent accountants, reviews with management and the
independent accountants the Company's year-end operating results and the
accounting issues facing the Company, considers the adequacy of the internal
accounting procedures and considers the effect of such procedures on the
accountants' independence.
The Compensation Committee, which consists of Messrs. Merriman, Grace and
Schlindwein, met on two occasions during 1999. The Compensation Committee
reviews and recommends to the Board of Directors the compensation arrangements
for all directors and officers, approves such arrangements for other senior
level employees and administers and takes such other action as may be required
in connection with certain compensation and incentive plans of the Company. The
Compensation Committee also determines the number of options to be granted or
shares of Common Stock to be issued to eligible persons under the Company's
stock option plans and prescribes the terms and provisions of each grant made
under the stock option plans. In addition, the Compensation Committee interprets
the stock option plans and grants thereunder, and establishes, amends and
revokes rules and regulations for administration of such plans.
All Directors are reimbursed for travel expenses incurred in attending
meetings of the Board of Directors and its committees.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The Company's executive officers and directors and beneficial owners of
more than 10% of its Common Stock are required under Section 16(a) of the
Exchange Act to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Copies of those reports must also be
furnished to the Company. Based solely on a review of the copies of reports
furnished to the Company, and written representations from certain reporting
persons that no other reports were required, the Company believes that during
1999 no person who was a director, executive officer or beneficial owner of more
than 10% of the Common Stock failed to file on a timely basis all reports
required by Section 16(a).
ITEM 11. EXECUTIVE COMPENSATION
The following sections of this Annual Report on Form 10-K set forth and
discuss the compensation paid or awarded to the Company's Chief Executive
Officer and the five most highly compensated executive officers. Since the
Company paid no compensation prior to the consummation of the Offering on
December 18, 1998, most of the compensation reported for 1998 for those former
Merkert and Rogers employees was paid by Merkert and Rogers prior to the
Combination on December 18, 1998. Certain former Richmont employees did not
serve as executive officers until after the consummation of the Merger on August
18, 1999. Since the Company paid no compensation prior to such date for these
individuals, 1998 compensation is not listed below and most of the compensation
reported for 1999 in these sections was paid by Richmont.
28
<PAGE> 31
SUMMARY COMPENSATION TABLE
The following table shows (i) for former Merkert and Rogers employees, the
1998 and 1999 compensation paid by the Company, including compensation paid by
Merkert and Rogers prior to December 18, 1998, and (ii) for former Richmont
employees, the 1999 compensation paid by the Company, including compensation
paid by Richmont prior to August 18, 1999:
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------
AWARDS
SECURITIES
ANNUAL COMPENSATION UNDERLYING PAYOUTS
NAME AND ------------------------------------- OPTIONS/ ALL OTHER
PRINCIPAL POSITION(1) YEAR SALARY($) BONUS($) OTHER SARS(#) COMPENSATION($)
- --------------------------------------- ---- --------- -------- ------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Leonard(**).................. 1998 $370,820 -- $11,208 40,000 --
Chief Executive Officer 1999 433,910 -- 6,958 60,000 $ 10,267(1)
and President
Sidney D. Rogers, Jr.(****)............ 1998 201,667 -- 3,584 70,000 --
Chief Administrative Officer, Vice 1999 195,000 -- 2,214 -- 7,437(1)
President and Secretary
Bruce A. Butler(*)..................... 1999 343,076 $145,000 -- -- 69,805(2)
Chief Operations Officer
Glenn F. Gillam(**).................... 1998 268,333 100,000 10,927 100,000 --
President of Broker Operations 1999 304,166 100,000 3,378 -- 5,542(1)
Douglas H. Holstein(**)................ 1998 275,866 -- -- 50,000 338,708
Executive Vice President of Sales 1999 290,769 -- 300,077 -- 2,674(1)
Ronald D. Pedersen(***)................ 1999 441,000 -- -- -- 4,800(1)
Chairman of the Board
</TABLE>
- ---------------
(*) Former Richmont employee who did not serve as an executive officer until
the Merger.
(**) Former Merkert or Rogers employees who commenced employment with the
Company upon the Combination.
(***) Former Richmont CEO and Chairman of the Board until the Merger.
Currently, serves as Chairman of the Board of the Company.
(****) Former Merkert employee who commenced employment with the Company upon
the Combination. As of March 31, 2000, Mr. Rogers is no longer employed
with the Company.
(1) Consists of amounts contributed by the Company to the Company's 401(k)
Plan in which all employees of the Company are eligible to participate.
(2) Consists of amounts contributed by the Company to the Company's 401(k)
Plan in which all employees of the Company are eligible to participate
and $65,005 for moving and relocation expenses.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the options granted in 1999 to the named
executive officers:
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE
TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS EXERCISE OF SHARE PRICE APPRECIATION
SHARES GRANTED TO OR BASE FOR OPTION TERM
UNDERLYING EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME OPTIONS GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- --------------- ------------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Leonard...... 60,000 6.09% $13.50 8/09 $509,400 $1,290,930
Sidney D. Rogers....... -- -- -- -- -- --
Bruce A. Butler........ -- -- -- -- -- --
Glen F. Gillam......... -- -- -- -- -- --
Douglas H. Holstein.... -- -- -- -- -- --
Ronald D. Pedersen..... -- -- -- -- -- --
</TABLE>
29
<PAGE> 32
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information concerning the number and value
of unexercised options to purchase shares of the Common Stock held by each of
the named executive officers who held such options at December 31, 1999. None of
the named persons exercised any stock options during 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT DECEMBER 31, 1999 DECEMBER 31, 1999(1)
ACQUIRED ON VALUE ------------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Leonard........... -- -- 8,000 92,000 -- --
Sidney D. Rogers, Jr. ...... -- -- 14,000 56,000 -- --
Glen F. Gillam.............. -- -- 20,000 80,000 -- --
Douglas H. Holstein......... -- -- 10,000 40,000 -- --
Bruce A. Butler............. -- -- -- -- -- --
Ronald D. Pedersen.......... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Since the exercise price of the options for these individuals (i.e. $11.25,
$13.50 and $15.00) was greater than the closing sale price of the Common
Stock, as reported by the Nasdaq National Market, on December 31, 1999
($4.44), none of the options were "in-the-money".
COMPENSATION OF DIRECTORS
Employee Directors do not receive compensation for their services on the
Board of Directors or committees thereof. Each Director who is not an employee
of the Company (an "Independent Director") receives annual compensation in the
amount of $25,000. Under the Company's stock option plan, each Independent
Director elected following the Offering is entitled to receive an initial option
to purchase approximately 20,000 shares of Common Stock upon his or her election
to the Board of Directors, and each Independent Director who is serving as a
Director on the fifth business day after each annual meeting of stockholders
will receive an option to purchase approximately 5,000 additional shares of
Common Stock.
The Independent Director who serves as chairman of the Audit Committee may
receive options to purchase an additional 5,000 shares of Common Stock on the
fifth business day after each annual meeting of stockholders. All options
granted to Independent Directors under the Company's stock option plan vest 50%
upon the first anniversary of the grant date and the remaining 50% vests in
equal annual installments over the number of years remaining in each Director's
term as of the first anniversary of the grant date. Such options terminate upon
the tenth anniversary of the grant date and have an exercise price per share
equal to the fair market value of the Common Stock on the grant date.
EMPLOYMENT AND NONCOMPETE AGREEMENTS WITH EXECUTIVE OFFICERS
On April 27, 1999, Mr. Leonard entered into an employment and
noncompetition agreement with the Company providing for a base salary, which is
currently $455,000. The term of employment is for five years, and will continue
from month to month thereafter unless terminated by either party. If the Company
terminates Mr. Leonard's employment without cause, Mr. Leonard is entitled to
receive his then current base salary until expiration of the initial term or the
extension period. Mr. Leonard would also receive a continuation of group health
and automobile benefits during such time period. Pursuant to the agreement, Mr.
Leonard is subject to noncompetition and nonsolicitation provisions for one year
after the termination of his employment.
On April 2, 1996, Mr. Butler entered into an employment agreement with
MSSC, providing for a base salary, which is currently $350,000, and for a term
of three years. The term is automatically extended for additional one year terms
unless terminated by the Company. If the Company terminates Mr. Butler's
employment without cause, Mr. Butler is entitled to receive his then current
base salary until the expiration of the extension period. Pursuant to the
agreement, Mr. Butler is subject to noncompetition and nondisclosure provisions
for one year after the termination of his employment. Additionally, Mr. Butler
entered into an
30
<PAGE> 33
executive retention bonus agreement with MSSC providing for a special retention
bonus of $250,000, provided that Mr. Butler, among other conditions, continues
to be employed by the Company through November 30, 2000. Mr. Butler received
$125,000 of the bonus in a lump sum payment and is receiving the balance in
equal installments over a 12 month period. On November 20, 1995, Mr. Butler and
the Company entered into an amendment to his deferred compensation plan that
provides for the sum of $1,250,000 to be distributed to Mr. Butler in the event
of his death or termination of employment. Pursuant to this amendment, Mr.
Butler is fully vested without regard to age or years of employment, however, if
Mr. Butler voluntarily terminates his employment prior to December 31, 2006, he
forfeits 50% of the vested amount.
Effective as of March 31, 2000, Sidney D. Rogers, Jr.'s employment with the
Company was terminated. Pursuant to the separation and release agreement with
the Company, dated March 27, 2000, Mr. Rogers will be entitled to receive
severance in the amount of approximately $344,000 payable in 45 installments in
accordance with the Company's regularly scheduled payroll and certain other
benefits specified in the agreement.
On April 2, 1996, Mr. Pedersen entered into an employment agreement with
MSSC providing for a base salary which is currently $441,000. In addition, if
the Company terminates Mr. Pedersen's employment, Mr. Pedersen is entitled to
receive his then current base salary for a period of two years after
termination. Pursuant to the agreement, Mr. Pedersen is subject to
noncompetition provisions for a period of two years following his termination.
On November 20, 1995, Mr. Pedersen and the Company entered into an amendment to
his deferred compensation plan that provides the principal amount to be
distributed to Mr. Pedersen in the event of his death or termination of
employment. Pursuant to this amendment, Mr. Pedersen is fully vested without
regard to his age or years of employment in the amount of $2,750,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1999, James A. Schlindwein, Edward P. Grace, III and Michael Merriman
served as members of the Compensation Committee of the Company. Each member is
an outside Independent Director and is not a current or former officer or
employee of the Company or any of its affiliates.
31
<PAGE> 34
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 31, 2000, by (i)
each person known by the Company to beneficially own five percent or more of the
outstanding shares of the Common Stock, (ii) each director and named executive
officers of the Company named below, and (iii) all directors and executive
officers of the Company as a group. As of March 31, 2000, the Company had
19,790,835 shares of Common Stock outstanding, including 19,455,135 shares of
unrestricted Common Stock and 335,700 shares of restricted Common Stock
outstanding. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY OF SHARES
NAME OF BENEFICIAL OWNER(1) OWNED(2) BENEFICIALLY OWNED
- --------------------------- ------------ ------------------
<S> <C> <C>
MS Acquisition Ltd.(3)...................................... 13,086,589(4) 66.1%
17855 N. Dallas Parkway, Suite 200
Dallas, Texas 75287
James L. Monroe............................................. 13,377,911(5) 67.7%
8 Cedar Street, Suite 54A
Woburn, Massachusetts 01801
John P. Rochon(3)........................................... 13,086,589(4) 66.1%
Timothy M. Byrd(3).......................................... 13,086,589(4) 66.1%
Nick G. Bouras(3)........................................... 13,086,589(4) 66.1%
Edward P. Grace, III........................................ 59,045(6) *
Gerald R. Leonard........................................... 234,152(7) 1.2%
James A. Schlindwein........................................ 485,819(8) 2.5%
Glenn F. Gillam............................................. 24,325(9) *
Michael J. Merriman......................................... 0(10) *
Bruce A. Butler............................................. 13,136,589(11) 66.5%
Gary R. Guffey.............................................. 13,136,589(12) 66.5%
Jeffrey A. Watt............................................. 13,136,589(13) 66.5%
Ronald D. Pedersen.......................................... 13,136,589(14) 66.5%
Goldman Sachs Asset Management(15).......................... 991,000 5.0%
One New York Plaza
New York, NY 10004
All directors and executive officers as a group (11
persons).................................................. 13,939,930(16) 70.4%
</TABLE>
- ---------------
* less than 1%
(1) Unless otherwise indicated, the mailing address for each stockholder and
director is c/o the Company, 17855 North Dallas Parkway, Suite 200, Dallas,
Texas 75287.
(2) Beneficial ownership information is determined in accordance with the rules
of the Securities and Exchange Commission. In computing the number of
shares of Common Stock beneficially owned by a person, shares of Common
Stock subject to options held by that person that are currently exercisable
or exercisable within 60 days of this report are deemed outstanding, but
are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(3) Beneficial ownership information is based on a report on Schedule 13D filed
with the SEC, dated April 3, 2000. Because of their direct or indirect
ownership interests in, or control of, MS Acquisition Limited, each of MSSC
Acquisition Corporation, Richmont Capital Partners I, L.P., J.R.
Investments Corp., John P. Rochon, Timothy M. Byrd and Nick G. Bouras may
be deemed to beneficially own such shares.
(4) Beneficial ownership information is based on a report on Schedule 13D filed
with the SEC, dated April 3, 2000. Such shares include 9,600,617 shares of
Common Stock directly owned by MS Acquisi-
32
<PAGE> 35
tion Limited. Such shares also include 3,485,972 shares of Common Stock
that are the subject of a certain Voting Agreement, dated as of August 18,
1999 by and among MS Acquisition Ltd., Ronald D. Pedersen, Bruce A. Butler,
Gary R. Guffey, Jeffrey A. Watt, JLM Management Company, LLC and Monroe &
Company, LLC. Each of MS Acquisition Ltd., MSSC Acquisition Corporation,
Richmont Capital Partners I, L.P., J.R. Investments Corp., John P. Rochon,
Nick G. Bouras and Timothy M. Byrd disclaims beneficial ownership of these
shares.
(5) Beneficial ownership information is based on the Schedule 13D/A filed by
James L. Monroe, JLM Management, LLC and Monroe & Company, LLC on October
14, 1999. Such Schedule 13D/A states that 7,800,624 shares of Common Stock
are beneficially owned, including (i) 405,210 shares of Common Stock and
111,900 shares of restricted Common Stock, which shares are convertible
into shares of Common Stock in specific circumstances, that are held by
Monroe & Company, LLC, of which Mr. Monroe is the sole manager; (ii)
398,544 shares of Common Stock and 111,900 shares of restricted Common
Stock that are held by JLM Management, LLC, of which Mr. Monroe is the sole
manager; and (iii) 21,927 shares of Common Stock and 5,595 shares of
restricted Common Stock held by Sandra Monroe, Mr. Monroe's spouse, and for
which Mr. Monroe disclaims beneficial ownership. The number also includes
shares of Common Stock which are the subject of a certain Voting Agreement,
dated as of August 18, 1999 by and among MS Acquisition Limited, Ronald D.
Pedersen, Bruce A. Butler, Gary R. Guffey, Jeffrey A. Watt, JLM Management
Company, LLC and Monroe & Company, LLC including 5,577, 287 shares acquired
by MS Acquisition Limited in January 2000 and March 2000 and subject to the
Voting Agreement. Mr. Monroe disclaims beneficial ownership of these
shares. See footnotes (3) and (4).
(6) Includes 4,000 shares subject to options exercisable within 60 days of
March 31, 2000.
(7) Includes (i) 4,275 shares of Common Stock held by Merkert Enterprises, Inc.
Employee Stock Ownership Trust and allocable to Mr. Leonard; and (ii)
44,760 shares of restricted Common Stock, which shares are convertible into
shares of Common Stock in certain circumstances. Does not include an
aggregate of 55,044 shares held by The Corrie E. Leonard Irrevocable Trust
and The Kevin M. Leonard Irrevocable Trust, for which Mr. Leonard serves as
a Trustee. Mr. Leonard disclaims beneficial ownership of the shares of
Common Stock held by such trusts. Includes 8,000 shares subject to options
exercisable within 60 days of March 31, 2000.
(8) Includes 473,319 shares held by the Merkert Enterprises, Inc. Employee
Stock Ownership Trust, of which Mr. Schlindwein is the trustee. Mr.
Schlindwein disclaims beneficial ownership of these shares. Includes 5,000
shares subject to options exercisable within 60 days of March 31, 2000.
(9) Includes 3,925 shares held by the Merkert Enterprises, Inc. Employee Stock
Ownership Trust and allocable to Mr. Gillam. Includes 20,000 shares subject
to options exercisable within 60 days of March 31, 2000.
(10) Excludes 20,000 shares subject to options not exercisable within 60 days of
March 31, 2000.
(11) Beneficial ownership information is based on the Schedule 13D filed by
Bruce A. Butler on August 27, 1999. Such Schedule 13D states that 7,559,302
shares of Common Stock are beneficially owned. Mr. Butler directly owns
301,721 shares and disclaims 7,257,581 shares of Common Stock that are the
subject of a certain Voting Agreement, dated as of August 18, 1999 by and
among MS Acquisition Limited, Ronald D. Pedersen, Bruce A. Butler, Gary R.
Guffey, Jeffrey A. Watt, JLM Management Company, LLC and Monroe & Company,
LLC. Mr. Butler also beneficially owns 5,577,287 shares acquired by MS
Acquisition Limited in January 2000 and March 2000 that are subject to the
Voting Agreement. Mr. Butler disclaims beneficial ownership of these
shares. See footnotes (3) and (4).
(12) Beneficial ownership information is based on the Schedule 13D filed by Gary
R. Guffey on August 27, 1999. Such Schedule 13D states that 7,559,302
shares of Common Stock are beneficially owned. Mr. Guffey directly owns
301,721 shares and disclaims 7,257,581 shares of Common Stock that are the
subject of a certain Voting Agreement, dated as of August 18, 1999 by and
among MS Acquisition Limited, Ronald D. Pedersen, Bruce A. Butler, Gary R.
Guffey, Jeffrey A. Watt, JLM Management Company, LLC and Monroe & Company,
LLC. Mr. Guffey also beneficially owns 5,577,287 shares
33
<PAGE> 36
acquired by MS Acquisition Limited in January 2000 and March 2000 that are
subject to the Voting Agreement. Mr. Guffey disclaims beneficial ownership
of these shares. See footnotes (3) and (4).
(13) Beneficial ownership information is based on the Schedule 13D filed by
Jeffrey A. Watt on August 27, 1999. Such Schedule 13D states that 7,559,302
shares of Common Stock are beneficially owned. Mr. Watt directly owns
819,759 shares and disclaims 6,739,543 shares of Common Stock that are the
subject of a certain Voting Agreement, dated as of August 18, 1999 by and
among MS Acquisition Limited, Ronald D. Pedersen, Bruce A. Butler, Gary R.
Guffey, Jeffrey A. Watt, JLM Management Company, LLC and Monroe & Company,
LLC. Mr. Watt also beneficially owns 5,577,287 shares acquired by MS
Acquisition Limited in January 2000 and March 2000 that are subject to the
Voting Agreement. Mr. Watt disclaims beneficial ownership of these shares.
See footnotes (3) and (4).
(14) Beneficial ownership information is based on the Schedule 13D filed by
Ronald D. Pederson on August 27, 1999. Such Schedule 13D states that
7,559,302 shares of Common Stock are beneficially owned. Mr. Pederson
directly owns 1,259,017 shares and disclaims 6,300,285 shares of Common
Stock that are the subject of a certain Voting Agreement, dated as of
August 18, 1999 by and among MS Acquisition Limited, Ronald D. Pedersen,
Bruce A. Butler, Gary R. Guffey, Jeffrey A. Watt, JLM Management Company,
LLC and Monroe & Company, LLC. Mr. Pederson also beneficially owns
5,577,287 shares acquired by MS Acquisition Limited in January 2000 and
March 2000 that are subject to the Voting Agreement. Mr. Pederson disclaims
beneficial ownership of these shares. See footnotes (3) and (4).
(15) Beneficial ownership information is based on the Schedule 13G/A filed by
Goldman Sachs Asset Management, a separate operating division of Goldman,
Sachs & Co., on February 10, 2000.
(16) Includes 51,000 shares subject to options exercisable within 60 days of
March 31, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the founding and organization of the Company, Monroe &
Company II, LLC purchased 1,376,111 shares of Common Stock for a nominal
purchase price. On May 11, 1998, Monroe & Company, LLC, a Delaware limited
liability company and an affiliate of James Monroe, a shareholder and former
director of the Company ("Monroe"), entered into a consulting agreement with
Merkert American Corporation formerly known as Monroe, Inc., also an affiliate
of James Monroe ("MAC"), pursuant to which Monroe was engaged to render certain
business consulting, financial advisory and investment banking services to MAC
on an exclusive basis for three years (the "1998 Consulting Agreement").
Pursuant to the 1998 Consulting Agreement, Monroe was to be paid a financial
advisory fee equal to (i) 5% of any consideration paid by the Company in
connection with any transaction which results in the merger, consolidation or
combination of the Company and a third party, the acquisition by the Company of
the capital stock or assets of a third party or a joint venture with any third
party ("Consideration") up to $1.0 million; plus (ii) 4% of the Consideration
paid in excess of $1.0 million and up to $2.0 million; plus (iii) 3% of the
Consideration paid in excess of $2.0 million and up to $3.0 million; plus (iv)
2% of the Consideration paid in excess of $3.0 million and up to $4.0 million;
plus (v) 1% of the Consideration paid in excess of $4.0 million. Under the 1998
Consulting Agreement, Monroe was also to be paid a fee equal to 0.75% of any
principal amount committed under a senior credit facility for the Company from a
lending institution. An additional fee was payable to Monroe upon increases in
such amount or upon refinancing with a new lender during the term of the
consulting agreement. The Company also agreed to indemnify Monroe against
certain liabilities. On October 1, 1999, Monroe filed suit in Massachusetts
state court against the Company seeking a $2.5 million fee as a result of the
Merger.
On August 18, 1999, the 1998 Consulting Agreement (without giving effect to
fees that may be owed in connection with the Merger) was superseded and replaced
with a letter agreement (the "1999 Consulting Agreement") between Monroe,
Richmont Capital Partners I, L.P., a Delaware limited partnership ("Richmont
Capital", and together with Monroe, the "Consultants") and MAC. The 1999
Consulting Agreement provides for the Consultants to render certain business
consulting, financial advisory and investment banking services to MAC on an
exclusive basis in connection with possible transactions (as defined) and
consulting projects for a term of three years. The financial advisory fees to be
paid under the
34
<PAGE> 37
1999 Consulting Agreement are the same as those under the 1998 Consulting
Agreement except that they would be split equally between the Consultants. The
Company also agreed to indemnify the Consultants against certain liabilities.
In April 1998, Gerald R. Leonard, Chairman of the Board, Chief Executive
Officer and President of the Company, purchased approximately 275,000 shares of
Common Stock from the Company for an aggregate purchase price of $1.5 million.
The purchase price for such stock was paid by a promissory note from Mr. Leonard
to the Company in the principal amount of $1.5 million (the "Leonard Note"). The
Leonard Note provides that amounts outstanding thereunder will bear interest at
a rate per annum of 6%, compounded semi-annually and that the entire principal
amount and accrued interest will be due and payable on April 8, 2003. Mr.
Leonard's obligations under the Leonard Note are secured by a pledge of 98,361
of the shares of Common Stock pursuant to a stock pledge agreement. The Leonard
Note is a recourse obligation of Mr. Leonard with respect to the sum of (i) the
outstanding principal amount from time to time less $0.8 million (but not less
than $0) plus (ii) one-half of the accrued and unpaid interest at such time.
On February 17, 2000, the Company sold certain improved real properties
containing general office and warehouse space situated in Arizona and California
to RCPI Office Properties, LLC, a company affiliated with MS Acquisition Limited
("MS Acquisition"), for approximately $7.3 million. Concurrently therewith, the
Company leased back from RCPI Office Properties, LLC, the premises at fixed
monthly rentals of approximately $20,000 per month for the Arizona property and
$42,000 per month for the California property. The Arizona and California leases
expire in February 2001 and February 2004, respectively, subject to renewal
options and early termination provisions. The Company believes that the terms of
these transactions were similar to those that would have been obtained as a
result of arms length negotiations between unrelated parties.
On January 7, 2000, the Company received an equity investment from MS
Acquisition. MS Acquisition increased its equity position by purchasing
1,577,828 additional shares of Common Stock at an aggregate purchase price of
$5.0 million ($3.17 per share representing the fair market value thereof)
pursuant to the terms of a stock purchase agreement. On March 30, 2000, the
Company received another equity investment when MS Acquisition purchased an
additional 4.0 million shares of Common Stock at a price of $2.50 per share
pursuant to the terms of a stock purchase agreement.
Company Policy
The Company's policy is that any future transactions with directors,
officers, employees or affiliates of the Company be approved in advance by a
majority of the Company's Board of Directors, including a majority of the
disinterested members of the Board of Directors, and be on terms no less
favorable to the Company than the Company could obtain from unaffiliated
parties.
35
<PAGE> 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this Annual Report on Form 10-K.
1. Financial Statements.
The Financial Statements filed as a part of this Annual Report on Form
10-K are listed on the Index to Consolidated Financial Statements and
Consolidated Financial Statement Schedule on page F-1.
2. Financial Statement Schedule.
The Financial Statement Schedule filed as a part of this Annual Report on
Form 10-K is listed on the Index to Consolidated Financial Statements and
Consolidated Financial Statement Schedule on page F-1.
3. Exhibits.
The Exhibits filed as a part of this Form 10-K are listed on the Index to
Exhibits immediately following the Company's Financial Statements.
(b) Reports on Form 8-K.
1. Current report on Form 8-K dated October 14, 1999, reporting the
resignation, effective October 6, 1999, of James L. Monroe from the
Company's Board of Directors.
2. Current report on Form 8-K dated October 15, 1999, reporting (i) the
appointment of Timothy M. Byrd as Chief Financial Officer, (ii) the
acquisition of Paul Inman Associates, Inc., a full service food
brokerage firm with operations in the Midwest, (iii) the resignation of
James L. Monroe from the Company's Board of Directors and (iv)
revisions to the Company's Year 2000 earnings estimates for the third
and fourth quarters.
36
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MARKETING SPECIALISTS CORPORATION
By: /s/ Timothy M. Byrd
--------------------------------------
Timothy M. Byrd,
Chief Financial Officer, Director
Dated: April 12, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated on April 12, 2000.
Each person whose signature appears below hereby constitutes and appoints
Timothy M. Byrd his true and lawful attorney-in-fact, for him and in his name,
place and stead, to sign any and all amendments to this report and to cause the
same to be filed with the Securities and Exchange Commission, hereby granting to
said attorney-in-fact full power and authority to do and perform all and every
act and thing whatsoever requisite or desirable to be done in and about the
premises as fully to all intents and purposes as the undersigned might or could
do in person hereby ratifying and confirming all acts and things that said
attorney-in-fact may do or cause to be done by virtue of these presents.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ RONALD D. PEDERSEN Chairman of the Board
- -----------------------------------------------------
Ronald D. Pedersen
/s/ GERALD R. LEONARD, Chief Executive Officer, President, Director
- ----------------------------------------------------- (Principal Executive Officer)
Gerald R. Leonard
/s/ TIMOTHY M. BYRD Chief Financial Officer, Director (Principal
- ----------------------------------------------------- Financial Officer)
Timothy M. Byrd
/s/ JAY DINUCCI Corporate Controller (Principal Accounting
- ----------------------------------------------------- Officer)
Jay DiNucci
/s/ NICK G. BOURAS Director
- -----------------------------------------------------
Nick G. Bouras
/s/ EDWARD P. GRACE, III Director
- -----------------------------------------------------
Edward P. Grace, III
/s/ MICHAEL J. MERRIMAN Director
- -----------------------------------------------------
Michael J. Merriman
/s/ JOHN P. ROCHON Director
- -----------------------------------------------------
John P. Rochon
/s/ JAMES A. SCHLINDWEIN Director
- -----------------------------------------------------
James A. Schlindwein
</TABLE>
37
<PAGE> 40
ITEM 14A.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL
STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES:
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Stockholders' Equity........... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
MERKERT ENTERPRISES, INC. AND SUBSIDIARY:
Report of Independent Public Accountants.................. F-27
Consolidated Statements of Operations..................... F-28
Consolidated Statements of Stockholders' Equity........... F-29
Consolidated Statements of Cash Flows..................... F-30
Notes to Consolidated Financial Statements................ F-31
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY:
Report of Independent Public Accountants.................. F-35
Consolidated Statements of Operations..................... F-36
Consolidated Statements of Stockholders' Equity........... F-37
Consolidated Statements of Cash Flows..................... F-38
Notes to Consolidated Financial Statements................ F-39
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE:
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES:
II. Valuation and Qualifying Accounts for the year ended
December 31, 1999...................................... S-1
</TABLE>
SCHEDULES OMITTED:
All other schedules are omitted as they are not applicable or the
information is shown in the consolidated financial statements or notes thereto.
F-1
<PAGE> 41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Marketing Specialists Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Marketing
Specialists Corporation and Subsidiaries (formerly Merkert American Corporation
and Subsidiaries -- the "Company") as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1999, and for the period from inception
(March 4, 1998) through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial position of Marketing Specialists
Corporation and Subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for the year ended December 31, 1999,
and for the period from inception (March 4, 1998) through December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 3, 2000 (except with respect to the matter
discussed in Note 17, as to which the date is
March 30, 2000)
F-2
<PAGE> 42
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ -- $ 1,185
Restricted cash........................................... 1,200 9,981
Accounts receivable, less allowance for doubtful accounts
of $5,730 and $1,374 at December 31, 1999 and 1998,
respectively........................................... 53,579 22,334
Income taxes receivable................................... -- 2,647
Inventories............................................... 1,221 1,623
Properties held for sale.................................. 7,312 --
Prepaid expenses and other................................ 2,895 1,018
-------- --------
Total current assets.............................. 66,207 38,788
-------- --------
Property, plant and equipment, net.......................... 35,204 17,417
Intangibles, net............................................ 338,540 126,461
Other assets................................................ 9,665 5,744
-------- --------
Total assets...................................... $449,616 $188,410
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations............... $ 48,055 $ 10,523
Accounts payable.......................................... 14,396 9,293
Accrued expenses.......................................... 33,664 21,080
-------- --------
Total current liabilities......................... 96,115 40,896
Long-term obligations, net of current portion:
Long-term debt and notes payable.......................... 170,065 61,445
Acquisition related deferred compensation liabilities..... 35,921 1,234
Covenants not to compete.................................. 21,041 11,844
Obligations under capital leases.......................... 804 150
-------- --------
Total long-term obligations, net of current
portion......................................... 227,831 74,673
Other liabilities, net of current portion................... 7,428 246
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value -- Authorized -- 54,000,000
shares
Issued and outstanding -- 14,173,844 and 7,218,000,
respectively.......................................... 142 72
Additional paid-in capital................................ 143,080 75,489
Note for sale of common stock............................. (1,500) (1,500)
Accumulated deficit....................................... (23,033) (1,466)
Treasury stock, at cost -- 39,707 and 0 shares,
respectively........................................... (447) --
-------- --------
Total stockholders' equity........................ 118,242 72,595
-------- --------
Total liabilities and stockholders' equity........ $449,616 $188,410
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 43
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED (MARCH 4, 1998) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- ------------------
<S> <C> <C>
Commissions................................................. $ 246,714 $ 5,975
Sales....................................................... 43,891 2,420
---------- ----------
Revenues.......................................... 290,605 8,395
Cost of sales............................................... 39,744 2,368
Selling expenses............................................ 177,043 4,293
General and administrative expenses......................... 54,984 2,742
Depreciation and amortization............................... 13,504 179
Restructuring charge........................................ 13,290 --
---------- ----------
Operating loss.................................... (7,960) (1,187)
Interest expense, net....................................... 13,854 273
Other (income) expense, net................................. (247) 6
---------- ----------
Loss before provision for income taxes............ (21,567) (1,466)
Provision for income taxes.................................. -- --
---------- ----------
Net loss.......................................... $ (21,567) $ (1,466)
========== ==========
Net loss per share -- basic and diluted..................... $ (2.16) $ (0.78)
========== ==========
Weighted average shares outstanding -- basic and diluted.... 9,973,759 1,891,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 44
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK, NOTE FOR
$.01 PAR VALUE ADDITIONAL SALE OF TREASURY
------------------- PAID IN COMMON ACCUMULATED STOCK,
SHARES AMOUNT CAPITAL STOCK DEFICIT AT COST TOTAL
---------- ------ ---------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 4, 1998....... -- $ -- $ -- $ -- $ -- $ -- $ --
Shares issued upon founding
the organization........... 1,376,111 14 (14) -- -- -- --
Shares issued to employee.... 275,222 2 2,769 (1,500) -- -- 1,271
Shares issued in connection
with the Combination....... 1,166,667 12 14,863 -- -- -- 14,875
Shares sold in connection
with the Offering, net of
expenses................... 4,400,000 44 57,871 -- -- -- 57,915
Net loss..................... -- -- -- -- (1,466) -- (1,466)
---------- ---- -------- ------- -------- ----- --------
BALANCE, DECEMBER 31, 1998... 7,218,000 $ 72 $ 75,489 $(1,500) $ (1,466) $ -- $ 72,595
Shares issued upon exercise
of over-allotment option... 290,000 3 4,043 -- -- -- 4,046
Shares issued in connection
with the Merger............ 6,705,551 67 63,364 -- -- -- 63,431
Deferred
compensation -- option
plans...................... -- -- 184 -- -- -- 184
Treasury stock purchases..... (39,707) -- -- -- -- (447) (447)
Net loss..................... -- -- -- -- (21,567) -- (21,567)
---------- ---- -------- ------- -------- ----- --------
BALANCE, DECEMBER 31, 1999... 14,173,844 $142 $143,080 $(1,500) $(23,033) $(447) $118,242
========== ==== ======== ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
Statements.
F-5
<PAGE> 45
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED (MARCH 4, 1998) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(21,567) $ (1,466)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities --
Depreciation and amortization........................... 13,504 179
Restructuring charge.................................... 13,290 --
Other................................................... 930 --
Changes in assets and liabilities, exclusive of
acquisitions --....................................... --
(Increase) decrease in --
Restricted cash.................................... 1,587 (28)
Accounts receivable, net........................... 8,531 950
Income taxes receivable............................ 2,452 --
Inventories........................................ 402 (277)
Prepaid expenses and other current assets.......... (32) --
Other assets....................................... 2,031 --
Increase (decrease) in --
Accounts payable................................... (1,629) (3,141)
Accrued expenses................................... (17,344) 1,700
-------- --------
Net cash provided by (used in) operating
activities....................................... 2,155 (2,083)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (1,583) --
Acquisitions, net of cash acquired...................... (13,711) (96,147)
-------- --------
Net cash (used in) investing activities............ (15,294) (96,147)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash......................................... 9,015 (9,000)
Borrowings under Credit Facility........................ 20,300 50,000
Principal payments on notes payable and other long-term
obligations........................................... (18,951) --
Principal payments on acquisition related deferred
compensation agreements............................... (1,304) --
Principal payments on covenants not to compete.......... (898) --
Issuance of Common Stock, net of expenses............... 3,792 57,915
-------- --------
Net cash provided by financing activities.......... 11,954 98,915
-------- --------
Net increase (decrease) in cash.................... (1,185) 685
-------- --------
CASH AT BEGINNING OF PERIOD................................. 1,185 500
-------- --------
CASH AT END OF PERIOD....................................... $ -- $ 1,185
======== ========
SUPPLEMENTAL DISCLOSURES OF:
Cash flow information --
Cash payments for --
Interest........................................... $ 12,558 $ 7
======== ========
Income taxes....................................... 54 --
======== ========
Non-cash flow information --
Note for sale of Common Stock...................... $ -- $ 1,500
======== ========
Common Stock issued in the Combination............. $ -- $ 14,875
======== ========
Acquisition cost financed with debt................ $ 11,513 $ --
======== ========
Common Stock issued in the Merger.................. $ 63,431 $ --
======== ========
Net liabilities assumed............................ $125,190 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 46
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BUSINESS AND ORGANIZATION
Marketing Specialists Corporation (formerly Merkert American
Corporation -- the "Company") was incorporated on March 4, 1998, to create a
leading national food brokerage firm providing outsourced sales, merchandising
and marketing services to manufacturers, suppliers and producers of food
products and consumer goods ("Manufacturers"). On December 18, 1998,
simultaneously with the consummation of the Company's Initial Public Offering
(the "Offering"), the Company purchased, in separate transactions (collectively,
the "Combination") all of the issued and outstanding capital stock of Merkert
Enterprises, Inc., a Massachusetts corporation ("Merkert") and Rogers-American
Company, Inc., a North Carolina corporation ("Rogers"). From March 4, 1998
through December 18, 1998, the Company's only operations related to the Offering
and Combination.
On August 18, 1999, the Company completed a merger with Dallas, Texas-based
Richmont Marketing Specialists Inc., ("Richmont") and changed its name to
Marketing Specialists Corporation (the "Merger" -- see Note 4).
The Company acts as an independent sales and marketing representative,
selling grocery and consumer products on behalf of Manufacturers and
coordinating the execution of Manufacturers' marketing programs with retailers,
mass merchandisers, supercenters, membership warehouses, drug stores, speciality
food outlets, and wholesalers ("Retailers"). The Company's principal source of
revenue is commissions it receives from Manufacturers. The Company's other
activities include managing private label programs on behalf of selected
Retailers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of these financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Revenue Recognition
Revenue is earned from commissions on sales of food products and consumer
goods on behalf of Manufacturers. Commission revenue is recorded as income when
product shipment has occurred and notification of such shipment is received from
the Manufacturers. Product sales revenue is recognized upon shipment by the
Company.
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, 1999,
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, 1999, based
F-7
<PAGE> 47
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
upon current market interest rates in relation to the imputed interest rate of
each instrument and the relative liquidity of each instrument.
Net Loss Per Share
The basic and diluted net loss per share is computed based upon the
weighted average number of shares outstanding of 9,973,759 for the year ended
December 31, 1999, and 1,891,000 for the period ended December 31, 1998,
respectively. The effect of outstanding options is anti-dilutive.
Statements of Cash Flows
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk principally consist of accounts receivable and
notes receivable. As of December 31, 1999 and 1998, no individual Manufacturer
represents a significant concentration of accounts receivable. The Company
generally does not require collateral on accounts receivable and notes
receivable, as the Company's Manufacturers are generally large, well-established
companies. The Company periodically performs credit evaluations of its
Manufacturers and maintains reserves for potential losses. The established
reserves and the credit losses have historically been within Company estimates.
Inventories
Inventories are primarily finished goods and consist of packaged food,
price marking guns and labels as well as other supplies sold to Retailers.
Inventories are stated at the lower of cost or market and are valued on a
first-in, first-out (FIFO) basis.
Property and Equipment
Property and equipment are stated at estimated fair value, or cost
(subsequent to the acquisition). Depreciation and amortization are computed
using straight-line or accelerated methods over the estimated useful lives.
Intangible Assets
Intangible assets include goodwill, covenants not to compete, Manufacturer
relationships, and trained workforce. Goodwill represents the excess of the
purchase price over the fair value of the net assets of various businesses
acquired. The recorded goodwill is amortized over its estimated useful life,
which ranges from 20 to 40 years. Non-compete assets are recorded at fair value
and are amortized over the term of the related agreement, generally three to ten
years. Manufacturer relationships and trained workforce are recorded at
estimated fair value based on independent appraisals and are amortized over
periods ranging from one to ten years.
Income Taxes
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") 109, Accounting for Income Taxes. SFAS
109 recognizes tax assets and liabilities for the cumulative effect of all
temporary differences between the financial statement carrying amounts and the
F-8
<PAGE> 48
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
tax basis of assets and liabilities and are measured using the enacted tax rates
which will be in effect when these differences are expected to reverse.
Comprehensive Income
In 1998, the Company adopted SFAS 130, Reporting Comprehensive Income,
which establishes standards for the reporting and display of comprehensive
income and other comprehensive income items. In general, comprehensive income
combines net income and other changes in equity during the year from non-owner
sources. The adoption of this statement had no impact on total stockholders'
equity for the year ended December 31, 1999 and the period ended December 31,
1998.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
133, Accounting for Derivative Instruments and Hedging Activities. This
statement established accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts and for hedging activities) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS 133 requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedging accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS 133 is effective for fiscal years beginning
after June 15, 2000. A company may also implement SFAS 133 as of the beginning
of any fiscal quarter after issuance (that is, fiscal quarters beginning June
16, 1998 and thereafter). SFAS 133 cannot be applied retroactively. The Company
does not anticipate that the adoption of this new standard will have a material
impact on the Company's fiscal position or results of operations.
Impairment of Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets in
accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of. Accordingly, the Company evaluates
long-lived assets including property and equipment and intangible assets
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. Under SFAS 121, an assessment is made to determine whether
the sum of the expected future undiscounted cash flows from the use of the
assets and eventual disposition is less than the carrying value. If the sum of
the expected undiscounted cash flows is less than the carrying value, an
impairment loss is recognized by measuring the excess of carrying value over
fair value (generally estimated by projected future discounted cash flows for
the applicable operation or independent appraisal). At December 31, 1999 and
1998, management believes no such impairment of assets was indicated.
Restructuring
Following the Merger, a decision was made to eliminate redundant personnel
and facilities costs. This resulted in the recognition of a $13.3 million
restructuring charge in the third quarter. The charge consists of approximately
$8.6 million relating to non-cancelable lease obligations on vacated facilities
and $4.7 million relating to severance and other personnel amounts in connection
with the elimination of approximately 400 jobs. Payments of $1,378 were made
prior to December 31, 1999. The balance of this restructuring charge, $11,912
has been, or will be paid subsequent to December 31, 1999. As the Company
continues its integration plans, additional restructuring charges may be
required.
F-9
<PAGE> 49
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
In 1998, restructuring reserves of $6,935 were established for severance
prior to the Combination, of which approximately $1,679 remains outstanding as
of December 31, 1999.
The following is a rollforward of the restructuring charges recorded by the
Company:
<TABLE>
<CAPTION>
BEGINNING CHARGED TO
YEAR BALANCE INCOME USAGE ENDING BALANCE
- ---- ----------------- ---------- ------- --------------
<S> <C> <C> <C> <C>
1998 $6,935(1) $ -- $(1,789) $ 5,146
1999 $5,146 $13,290 $(4,845) $13,591(2)
</TABLE>
- ---------------
(1) The beginning balance was obtained in the Combination (see Note 4).
(2) The current portion of this charge, $8,189, has been reflected in the
Accrued Expenses, with the remainder recorded in Other Liabilities in the
accompanying consolidated balance sheet at December 31, 1999.
Stock-Based Compensation Plans
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. The Company has adopted the disclosure-only provisions of SFAS 123,
Accounting for Stock-Based Compensation.
Promotional Advances
Promotional advances represent amounts received from Manufacturers 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 Manufacturers.
Prior Year Reclassifications
Certain prior-year balances have been reclassified to conform to the
current year presentation.
3. THE OFFERING
On December 18, 1998, the Company completed the Offering and sold 4,400,000
shares of its Common Stock at a price of $15.00 per share and received net
proceeds of approximately $57,915 used primarily to fund the Combination. The
Common Stock sold in the Offering does not include an additional 1,651,333
shares issued to related parties in connection with the organization and initial
capitalization of the Company (see Note 11), nor 1,166,667 shares issued in
connection with the Combination (see Note 4). In January 1999, the Company
issued 290,000 shares of its Common Stock in connection with the exercise of a
portion of the over-allotment option by the underwriters of the Offering,
raising net proceeds of approximately $4,046 used by the Company to fund certain
acquisitions and for other corporate purposes. (See Note 4)
The Company and certain executives and directors are parties to a
Registration Rights Agreement, as amended, pursuant to which the individuals
have certain "piggy-back" registration rights in the event the Company registers
any of its securities for either itself or for security holders exercising their
registration rights.
In connection with the Combination, the Company entered into Registration
Rights Agreements with the former stockholders of Merkert and Rogers,
respectively, pursuant to which such former stockholders have the right, subject
to certain restrictions, to include their shares of Common Stock received in the
Combination in a registration statement filed by the Company under the
Securities Act.
F-10
<PAGE> 50
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. BUSINESS COMBINATIONS
The Combination
In December 1998, concurrently with and as a condition to the consummation
of the Offering, the Company purchased all of the outstanding capital stock of
Merkert and Rogers. The Company was designated as the accounting acquirer
pursuant to Staff Accounting Bulletin 97, because the then current stockholders
of the Company owned the largest portion of Common Stock after the consummation
of the Offering and the Combination.
The aggregate consideration paid by the Company for Merkert and Rogers was
approximately $74,100, consisting of approximately $56,600 in cash and 1,166,667
shares of Common Stock. In connection with the Combination, the Company repaid
in the aggregate, approximately $34,000 of indebtedness and certain then
existing acquisition obligations of Merkert and Rogers from a portion of the net
proceeds of the Offering and from net available borrowings under the Company's
$75,000 Credit Facility (as described in Note 8, the "Credit Facility"). In
addition, on behalf of Merkert, the Company funded approximately $1,461 of
buyouts of certain employment agreements with two former employees of Merkert.
The Combination was accounted for using the purchase method of accounting;
accordingly, the results of operations of Merkert and Rogers are included in the
accompanying consolidated financial statements from December 18, 1998. The
Company has recorded the excess of the purchase price over the estimated fair
value of the businesses acquired, approximately $124,587 (net of approximately
$2,000 in value assigned to certain noncompete agreements) as "goodwill" in the
accompanying consolidated balance sheets. The goodwill is being amortized over a
forty-year period.
The Merger
On August 18, 1999, the Company completed a merger with Dallas, Texas-based
Richmont, one of the largest food brokers in the United States (the "Merger").
The Company completed the Merger for an aggregate purchase price of
approximately $236,838, which included approximately $3,384 in cash payments
(i.e., for closing costs), no new debt, $170,023 in assumed debt and $63,431 in
Common Stock and options. Under the terms of the Merger, Richmont stockholders
received 6,705,551 shares of the Company's Common Stock. The Company also
granted certain Richmont stockholders and employees options to purchase 800,000
in additional shares of the Company's Common Stock at a price equal to $13.50
per share. For financial reporting purposes, the Company is presented as the
acquiring entity, since the Company's stockholders own the largest portion of
the Common Stock of the combined Company. Immediately following the Merger, the
Company amended its certificate of incorporation to change its corporate name to
"Marketing Specialists Corporation". The purchase price was allocated to the net
assets of Richmont on a preliminary basis (subject to revision) based on their
estimated fair values. The Company has recorded the excess of the purchase price
over the estimated fair value of the net assets acquired, approximately $128,356
(net of approximately $11,095, $20,000, and $32,000 assigned on a preliminary
basis (subject to revision) to non-competes, trained workforce, and Manufacturer
relationships, respectively) as goodwill in the accompanying consolidated
balance sheet as of December 31, 1999. See Note 1 for a discussion of the
estimated useful life of each category of intangible assets. The operating
results of Richmont have been included in the Company's operating results for
all periods subsequent to the Merger.
F-11
<PAGE> 51
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table presents unaudited pro forma operating results
(excluding restructuring charges) as if Richmont merged with the Company at
January 1, 1999:
<TABLE>
<CAPTION>
YEAR ENDED
12/31/99
-----------
<S> <C>
Revenues.................................................... $ 423,589
Net loss.................................................... (23,392)
Net loss per share -- basic and diluted..................... $ (1.65)
Weighted averages shares outstanding -- basic and diluted... 14,198,648
</TABLE>
Other Acquisitions
In January 1999, the Company completed the acquisition of Sell, Inc.
("Sell"), a brokerage firm operating in the Midwest region of the United States.
The Company completed the acquisition of Sell for an aggregate discounted
purchase price of approximately $8,535, which included approximately $3,144 in
cash payments, $3,768 in new debt, and $1,623 in assumed debt. The operating
results of Sell have been included in the Company's operating results for all
periods subsequent to the acquisition date.
In April 1999, the Company completed the acquisition of United Brokerage
Company ("UBC"), a brokerage firm that has operated in the Midwest region of the
United States under an alliance known as "The Sell Group" since 1998. The
Company completed the acquisition of UBC for an aggregate discounted purchase
price of approximately $6,670, which included approximately $940 in cash
payments, $3,293 in new debt, and $2,437 in assumed debt. The operating results
of UBC have been included in the Company's operating results for all periods
subsequent to the acquisition date.
In July 1999, the Company completed the acquisition of Buckeye Sales and
Marketing ("Buckeye"), a brokerage firm with operations in Cleveland, Ohio;
Pittsburgh, Pennsylvania; and upstate New York markets. The Company completed
the acquisition of Buckeye for an aggregate discounted purchase price of
approximately $5,048, which included approximately $150 in cash payments, $3,412
in new debt, and $1,486 in assumed debt. The operating results of Buckeye have
been included in the Company's operating results for all periods subsequent to
the acquisition date.
In October 1999, the Company completed the acquisition of Paul Inman
Associates, Inc. ("Inman"), a brokerage firm operating in the Midwest region of
the United States. The Company completed the acquisition of Inman for an
aggregate discounted purchase price of approximately $14,023, which included
approximately $9,754 in cash payments, $1,040 in new debt, and $3,229 in assumed
debt. The operating results of Inman have been included in the Company's
operating results for all periods subsequent to the acquisition date.
Each of the above acquisitions was accounted for as a purchase, and the
purchase price was allocated to the net assets based on their estimated fair
values. The resulting goodwill is being amortized over twenty years. The pro
forma impact of each of the above acquisitions was not material.
F-12
<PAGE> 52
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- USEFUL LIVES
1999 1998 (YEARS)
------- ------- ------------
<S> <C> <C> <C>
Land.................................................. $ 5,233 $ 1,081 --
Buildings and improvements............................ 14,139 10,418 40
Leasehold improvements................................ 1,699 878 5
Furniture, fixtures and equipment..................... 14,362 5,093 3-5
Purchased software.................................... 3,398 -- 3
------- -------
38,831 17,470
Less -- accumulated depreciation...................... 3,627 53
------- -------
$35,204 $17,417
======= =======
</TABLE>
Depreciation expense was $3,834 for the year ended December 31, 1999 and
$53 for the period ended December 31, 1998, respectively.
Current assets as of December 31, 1999, include approximately $7,312 of
properties held for sale. See Note 17 for further discussion.
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Goodwill.................................................... $282,463 $124,587
Manufacturer relationships.................................. 32,000 --
Trained workforce........................................... 20,000 --
Covenants not to compete.................................... 13,095 2,000
-------- --------
347,558 126,587
Less -- accumulated amortization............................ 9,018 126
-------- --------
$338,540 $126,461
======== ========
</TABLE>
Amortization expense related to intangible assets was $8,892 for the year
ended December 31, 1999 and $126 for the period ended December 31, 1998,
respectively.
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Compensation and related.................................... $11,986 $ 9,295
Restructuring -- current portion............................ 8,189 5,146
Other accruals.............................................. 13,489 6,639
------- -------
$33,664 $21,080
======= =======
</TABLE>
F-13
<PAGE> 53
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. LONG-TERM OBLIGATIONS
Debt
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
-------- -------
<S> <C> <C>
$100,000, 10.125% Senior Subordinated Notes, due December
15, 2007.................................................. $100,000 $ --
Initial Credit Facility:
Initial Revolving Credit.................................. 20,300 --
Term Loan................................................. 43,750 50,000
Notes payable............................................... 26,113 4,246
Bank -- mortgage loans...................................... 12,781 13,078
Notes payable to related parties............................ 6,266 --
Other....................................................... -- 284
-------- -------
209,210 67,608
Less -- current maturities.................................. (30,395) (6,163)
-------- -------
Net long-term debt................................ $178,815 $61,445
======== =======
</TABLE>
The aggregate maturities of debt at December 31, 1999, are as follows:
<TABLE>
<S> <C>
2000..................................................... $ 30,395
2001..................................................... 16,452
2002..................................................... 27,637
2003..................................................... 18,566
2004..................................................... 3,030
Thereafter............................................... 113,130
--------
$209,210
========
</TABLE>
Senior Subordinated Notes
In December 1997, concurrently with the sale by Richmont of $100,000 of
10 1/8% Senior Subordinated Notes due 2007 (the "Issued Notes"), Richmont
entered into an Exchange and Registration Rights Agreement with the initial
purchaser of the Issued Notes. Under the terms of that agreement, Richmont
agreed to file a registration statement regarding the exchange of the Issued
Notes for new notes registered under the Securities Act of 1933, and to offer
the holders of the Issued Notes an opportunity to exchange their unregistered
notes for registered notes.
On June 21, 1999, Richmont filed a Registration Statement on Form S-4 with
the Securities and Exchange Commission to register $100,000 of new notes (the
"Notes"). Subsequently, Richmont completed an exchange of the Issued Notes for
the Notes. The Notes are identical in all material respects to the Issued Notes,
except for transfer restrictions and registration rights. The Company assumed
this outstanding indebtedness in connection with the Merger.
The Notes are unsecured and will be subordinated in right of payment to all
existing and future senior indebtedness of the Company. The Notes are fully and
unconditionally guaranteed on an unsecured, senior subordinated, joint and
several basis by certain guarantor wholly-owned subsidiaries of the Company as
defined in the Registration Statement, which comprise substantially all the
direct and indirect subsidiaries of the Company. The Company is a holding
company with no assets or operations other than its interests in its
F-14
<PAGE> 54
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
subsidiaries. Separate financials and other disclosures for such subsidiaries
have not been presented due to management's determination that such information
is not material to investors.
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, the Company may
not redeem the Notes prior to December 15, 2002. On or after such date, the
Company 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. The Notes are not subject to any sinking fund requirement.
Upon a change of control, as defined (not triggered by the Merger), each holder
of the Notes will have the right to require the Company 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 subject the Company to certain limitations and restrictions
primarily related to obtaining additional indebtedness, payment of dividends,
and sales of assets and subsidiary stock.
Credit Facility
In connection with the Offering and Combination, the Company obtained a
$75,000 Credit Facility (as amended on August 18, 1999) from a bank (the
"Initial Credit Facility"). The Initial Credit Facility consists of a five-year,
secured, fully amortizing $50,000 term loan (the "Initial Term Loan") and a
three-year, secured $25,000 revolving line of credit (the "Initial Revolving
Credit"). The balance outstanding under the Initial Credit Facility was $64,050
at December 31, 1999 ($20,300 under the revolver and $43,750 under the term
loan). Amounts outstanding under this facility are collateralized by
substantially all of the Company's assets.
Interest is payable on the Initial Term Loan and the Initial Revolving
Credit at the base rate, as defined in the amended Initial Credit Facility. The
rate on the outstanding balance of the Revolver and the Initial Term Loan was
9.16% and 10.50%, respectively, as of December 31, 1999. The Initial Credit
Facility requires the Company to make certain mandatory prepayments of amounts
outstanding under the Initial Credit Facility with the use of certain proceeds
from asset sales and debt and equity financing. The amended Initial Credit
Facility requires the Company to comply with various affirmative and negative
covenants, including among others: (i) the maintenance of certain financial
ratios, (ii) restrictions on certain additional indebtedness, (iii) restrictions
on liens, guarantees, dividends and the disposition of assets and (iv) obtaining
the lenders' consent to acquisitions involving cash consideration in excess of a
specified amount. The Company was not in compliance with certain covenants at
December 31, 1999.
See Note 17 for a discussion of certain refinancing events occurring
subsequent to December 31, 1999.
Notes Payable
The notes payable amounts generally consist of the total estimated payments
to be made pursuant to acquisition agreements. The total estimated payments have
been discounted at rates ranging from 8% to 10%. The amounts due under the
acquisition agreements are unsecured and extend through 2011. These amounts are
payable in either monthly or quarterly installments.
Banks -- Mortgage Loans
Certain of the Company's office space in Canton, Massachusetts is secured
by a mortgage with a real estate lender. The balance outstanding under the
mortgage note of approximately $9,161 at December 31, 1999, bears interest at
8.56%, requires monthly payments of approximately $82 (including interest) and
matures on March 1, 2018.
F-15
<PAGE> 55
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company also has a mortgage note with a bank that is secured by certain
land, a building and fixtures. The balance outstanding under this mortgage of
approximately $3,620 at December 31, 1999, bears interest at 8.5% with monthly
payments of approximately $34 (including interest) and a balloon payment of
approximately $3,589 due in June 2000.
Capital Leases
The Company leases its office facilities and certain office equipment under
long-term capital lease agreements, which expire in various years through 2007.
Some of the Company's leases provide for escalating minimum rent. Rent expense
is recognized on a straight-line basis over the life of such lease.
The annual future minimum lease payments under all noncancelable capital
leases, including leases for facilities that are no longer in use, at December
31, 1999, are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 525
2001........................................................ 409
2002........................................................ 256
2003........................................................ 105
2004........................................................ 105
Thereafter.................................................. 37
------
Total payments.................................... 1,437
Amount representing interest................................ (183)
------
1,254
Less -- current portion..................................... (450)
------
$ 804
======
</TABLE>
Acquisition related Deferred Compensation Liabilities
In conjunction with acquisitions of other brokerage companies, deferred
compensation agreements are generally executed or assumed with the former owners
and certain key employees of the acquired companies. Under these agreements, the
Company agrees to pay certain amounts upon either termination or retirement for
such executive, or, in the event of 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 ranging from 8% to 10%, was capitalized as an
intangible asset at the date of the acquisition as a component of the purchase
price.
In connection with the Merger, the Company assumed Richmont's deferred
compensation liabilities, whereby Richmont agreed to pay certain employees a
certain sum monthly for ten years upon the earlier of their retirement,
termination, or death. Compensation and interest expense are accrued ratably
over the employees' expected service period such that the liability, at the
anticipated vesting date, equals the then present value of the future benefits.
The deferred compensation liabilities have been recorded at their net present
value using imputed interest rates ranging from 8% to 10%. Deferred compensation
expense for the year ended December 31, 1999, was not material.
F-16
<PAGE> 56
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The future aggregate minimum payments for deferred compensation liabilities
at December 31, 1999, are as follows:
<TABLE>
<S> <C>
2000..................................................... $ 7,899
2001..................................................... 6,564
2002..................................................... 6,337
2003..................................................... 6,287
2004..................................................... 6,096
Thereafter............................................... 28,183
--------
Total payments................................. 61,366
Amount representing interest............................. (20,706)
--------
40,660
Less -- current portion.................................. (4,739)
--------
$ 35,921
========
</TABLE>
Covenants Not to Compete
The Company is obligated to make payments under agreements with former
owners of acquired companies and various other individuals for 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 three to ten years.
The future aggregate minimum payments under these agreements at December
31, 1999, are as follows:
<TABLE>
<S> <C>
2000...................................................... $ 5,471
2001...................................................... 5,062
2002...................................................... 4,866
2003...................................................... 4,588
2004...................................................... 4,325
Thereafter................................................ 7,871
-------
Total payments.................................. 32,183
Amount representing interest.............................. (7,421)
-------
24,762
Less -- current portion................................... (3,721)
-------
$21,041
=======
</TABLE>
F-17
<PAGE> 57
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. INCOME TAXES
The Company'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>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Benefit at U.S. statutory rates............................. $(7,560) $(513)
State income tax, net of federal tax benefit.............. (483) (132)
Nondeductible amortization of intangibles................. 1,761 --
Nondeductible expenses.................................... 839 74
Increase in valuation allowance on deferred tax assets.... 5,443 571
------- -----
Income tax (benefit)................................... $ -- $ --
======= =====
</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 the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 7,432 $ 9,575
Tax credit carryforwards.................................. 296 157
Deferred compensation agreements.......................... 11,938 --
Allowance for doubtful accounts........................... 3,264 542
Intangible assets......................................... 10,074 --
Restructuring reserves.................................... 5,763 --
Other..................................................... 2,916 7,081
-------- --------
Total deferred tax assets......................... 41,683 17,355
Valuation allowance....................................... (21,771) (16,328)
-------- --------
Total deferred tax assets, net of valuation
allowance....................................... 19,912 1,027
-------- --------
Deferred tax liabilities:
Identified intangibles.................................... (18,389) --
Other..................................................... (1,523) (1,027)
-------- --------
Total deferred tax liabilities.................... (19,912) (1,027)
-------- --------
Net deferred tax (liability)................................ $ -- $ --
======== ========
</TABLE>
The valuation allowance for deferred tax assets was increased by $5,443
during 1999.
At December 31, 1999, the Company had $36,718 of net operating loss
carryforwards, subject to certain limitations, available to offset future or
prior taxable income, that expire in varying amounts through 2019.
10. EMPLOYEE BENEFIT PLANS
The Company sponsors contributory plans for employees under the provisions
of Section 401(k) of the Internal Revenue Code (the "401(k) Plans"). Merkert
established the Merkert Advantage Plan, a 401(k) Plan, on January 1, 1997 to
provide a plan for contributions by employees. On July 1, 1999, the Merkert
F-18
<PAGE> 58
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
401(k) was amended to become the Company 401(k) plan. Rogers, Sell and UBC
sponsored 401(k) Plans which on August 1, 1999 were merged into the Company
401(k) plan.
Richmont sponsored a 401(k) savings plan for all employees who had been
employed by Richmont for at least one year. Effective on January 1, 2000, this
plan was merged into the Company 401(k) Plan.
Eligible employees of the Company can make voluntary contributions to their
respective 401(k) Plans. Under the provisions of the 401(k) Plans, the Company
currently matches varying percentages of an eligible employee's contribution up
to certain limits determined by the Company of the employee's salary.
For the year ended December 31, 1999, the Company's expense with regard to
the 401(k) Plans was $1,998. The expense for the period ended December 31, 1998
was not material.
The Company also sponsors a noncontributory Employee Stock Ownership Plan
("ESOP") available to former Merkert employees. During 1999, the Company made no
contributions to the ESOP.
11. RELATED PARTY TRANSACTIONS
In connection with the founding and organization of the Company, Monroe &
Company II, LLC, whose principal, James L. Monroe, served as a director of the
Company through September 1999, purchased 1,376,111 shares of Common Stock for a
nominal purchase price. On May 11, 1998, Monroe & Company, LLC, a Delaware
limited liability company, an affiliate of James Monroe, a shareholder and
former director of the Company ("Monroe") entered into a consulting agreement
with the Merkert American Corporation, formerly known as Monroe, Inc., also an
affiliate of James Monroe ("MAC") pursuant to which Monroe was engaged to render
certain business consulting, financial advisory and investment banking services
to the Company on an exclusive basis for three years (the "1998 Consulting
Agreement"). Pursuant to the 1998 Consulting Agreement, Monroe was to be paid a
financial advisory fee equal to (i) 5% of any consideration paid by the Company
in connection with any transaction which results in the merger, consolidation or
combination of the Company and a third party, the acquisition by the Company of
the capital stock or assets of a third party or a joint venture with any third
party ("Consideration") up to $1,000; plus (ii) 4% of the Consideration paid in
excess of $1,000 up to $2,000; plus (iii) 3% of the Consideration paid in excess
of $2,000 up to $3,000; plus (iv) 2% of the Consideration paid in excess of
$3,000 up to $4,000; plus (v) 1% of the Consideration paid in excess of $4,000.
Under the 1998 Consulting Agreement, Monroe was also to be paid a fee equal to
0.75% of any principal amount committed under a senior credit facility for the
Company from a lending institution. An additional fee was payable to Monroe upon
increases in such amount or upon refinancing with a new lender during the term
of the 1998 Consulting Agreement. The Company has agreed to indemnify Monroe &
Company, LLC against certain liabilities. On October 1, 1999, Monroe filed suit
in Massachusetts state court against the Company seeking a $2,500 fee as a
result of the Merger (see Note 12).
On August 18, 1999, the 1998 Consulting Agreement (without giving effect to
fees that may be owed in connection with the Merger) was superseded and replaced
with a letter agreement (the "1999 Consulting Agreement") between Monroe,
Richmont Capital Partners I, L.P., a Delaware limited partnership ("Richmont
Capital", and together with Monroe, the "Consultants") and the Company. The 1999
Consulting Agreement provides for the Consultants to render certain business
consulting, financial advisory and investment banking services to MAC on an
exclusive basis in connection with possible transactions (as defined) and
consulting projects for a term of three years. The financial advisory fees paid
under the 1999 Consulting Agreement are the same as those under the 1998
Consulting Agreement except that they would be split equally between the
Consultants. The Company has agreed to indemnify the Consultants against certain
liabilities.
F-19
<PAGE> 59
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
In April 1998, Gerald R. Leonard, Chairman of the Board, Chief Executive
Officer and President of the Company, purchased approximately 275,000 shares of
Common Stock from the Company for an aggregate purchase price of $1,500. The
purchase price for such stock was paid by a promissory note from Mr. Leonard to
the Company in the principal amount of $1,500 (the "Leonard Note"). The Leonard
Note provides that amounts outstanding thereunder will bear interest at a rate
per annum of 6%, compounded semi-annually and that the entire principal amount
and accrued interest will be due and payable on April 8, 2003. Mr. Leonard's
obligations under the Leonard Note are secured by a pledge of the 98,361 shares
of Common Stock purchased thereby pursuant to a stock pledge agreement. The
Leonard Note is a recourse obligation of Mr. Leonard with respect to the sum of
(i) the outstanding principal amount from time to time less $750 (but not less
than $0) plus (ii) one-half of the accrued and unpaid interest at such time.
The Company has unsecured long-term obligations to related parties of
approximately $16,881 as of December 31, 1999, bearing interest at rates ranging
from 6.00% to 10.125%. Principal and interest payments are due under various
arrangements over terms ranging from one to thirteen years.
See Note 14 for related-party option grants and Note 17 for subsequent
events transactions with related parties.
12. COMMITMENTS AND CONTINGENCIES
Promotional Funds
Certain Manufacturers provide the Company with funds to be used solely for
advertising and other promotional activities. The Company had cash of $1,200 and
$772 as of December 31, 1999 and 1998, respectively, which was restricted to
payment for promotional activities on behalf of its Manufacturers. The
offsetting liability is included in accrued expenses in the accompanying
consolidated balance sheets at December 31, 1999 and 1998.
Operating Leases
The Company leases certain office and warehouse facilities under operating
leases expiring on various dates through 2005. During 1999 and 1998, the Company
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.
The employees and related assets were consolidated into other offices in the
same geographic area. As a result, the Company recorded a restructuring charge
of approximately $13,290 during the third quarter of 1999 including
approximately $8,600 related to noncancelable lease obligations on 29 abandoned
facilities.
Rental costs, including real estate taxes, amounted to approximately
$14,442 and $188 the year ended December 31, 1999 and for the period ended
December 31, 1998, respectively.
F-20
<PAGE> 60
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following is a schedule of future minimum rental payments, exclusive of
real estate taxes, required under all operating leases (excluding those
considered redundant in the consolidation plan) that have initial or remaining
noncancelable lease terms in excess of one year as of December 31, 1999:
<TABLE>
<S> <C>
2000...................................................... $ 6,176
2001...................................................... 3,715
2002...................................................... 3,880
2003...................................................... 4,058
2004...................................................... 4,106
Thereafter................................................ 4,079
-------
$26,014
=======
</TABLE>
Legal Proceedings
On October 1, 1999, Monroe & Company, LLC, whose principal is a former
Director, filed suit against the Company seeking a $2,500 fee as a result of the
Merger. The Company plans to vigorously defend against this action. Monroe &
Company, LLC, together with certain affiliates, owns in excess of 5% of the
Company's stock.
On August 25, 1999, a panel of arbitrators issued an award in arbitration
proceedings brought by the sellers of an acquired food brokerage business
against Merkert alleging the breach of covenants contained in the agreement with
them and seeking acceleration of the payment of the deferred purchase price.
Under the award, the sellers did not recover on their primary claim for
acceleration, and the approximately $7,400 held as restricted cash as of
December 31, 1998, was released to the Company, and subsequently used to fund
acquisitions.
The Company is involved in various other legal proceedings that arise in
the ordinary course of business. Management believes that the outcome of such
legal proceedings will not have a material adverse impact on the Company's
consolidated financial position or results of operations.
13. STOCKHOLDERS' EQUITY
On December 15, 1998, the Company effected a stock dividend of 729.9074
shares of Common Stock and 186.5 shares of restricted Common Stock in respect of
each share of Common Stock outstanding on December 15, 1998. All share and per
share amounts give effect to such stock dividend.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders. The holders of restricted Common Stock
are entitled to 1/10th of one vote for each share held on all matters on which
they are entitled to vote. Holders of restricted Common Stock are entitled to
vote on all matter on which the holders of Common Stock are entitled to vote.
Each share of restricted Common Stock will automatically convert into
Common Stock on a share for share basis upon a disposition of such shares of
restricted Common Stock which occurs after the later to occur of (x) the first
day after the second anniversary of the consummation of the Offering and the
Combination and (y) the first day after the first election of Class II Directors
occurring after the consummation of the Offering and the Combination.
Upon amendment and restatement of the Company's Certificate of
Incorporation, the Company's authorized capital stock consists of 54,000,000
shares of Common Stock, $.01 par value per share, of which 4,000,000 are
designated as Restricted Common Stock and 1,000,000 shares of undesignated
preferred stock.
F-21
<PAGE> 61
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Common Stock
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the stockholders.
In the event of any liquidation, dissolution or winding-up of the affairs
of the Company, holders of Common Stock will be entitled to share ratably in the
assets of the Company remaining after payment or provision for payment of all of
the Company's debts and obligations and after liquidation payments to holders of
the outstanding shares of undesignated preferred stock, if any.
Undesignated Preferred Stock
At December 31, 1999 and 1998, there were no shares of undesignated
preferred stock outstanding. Holders of undesignated preferred stock would have
priority over the holders of Common Stock with respect to dividends and to other
distributions, including the distribution of assets upon liquidation. The Board
of Directors has the authority, without stockholder authorization, to issue
shares of undesignated preferred stock in one or more series and to fix the
terms, limitations, relative rights and preferences and variations.
14. STOCK OPTION PLAN
The Company maintains the Merkert American Corporation 1998 Stock Option
and Incentive Plan (the "1998 Stock Plan", as amended). The 1998 Stock Plan
provides for the award of incentive stock options ("ISOs"), non-qualified stock
options ("NQSOs"), stock appreciation rights, deferred stock awards, restricted
and unrestricted stock awards, performance share awards and dividend equivalent
rights to all directors and employees of and consultants to the Company. The
number of shares authorized for issuance under the 1998 Stock Plan, as amended,
is 1,847,762. In general, the terms of the awards granted are established by
either the Board of Directors or a committee established by the Board of
Directors, which will consist of no less than two non-employee directors.
In November and December 1998, the Company granted NQSOs to purchase up to
245,000 shares of Common Stock under the 1998 Stock Plan to persons who are
officers of the Company following the consummation of the Offering. These
options were issued at an exercise price of $11.25 per share and become
exercisable in five annual installments beginning on the first anniversary of
the date of grant. The difference between the exercise price, $11.25, and the
offering price will be recognized as compensation expenses over the vesting
period. In addition, in connection with the Offering, the Company granted to
employees of the Company options under the 1998 Stock Plan to purchase an
aggregate of 347,000 shares of Common Stock. Each such option has a per share
exercise price equal to the Offering price, will expire ten years from the date
of the grant and generally will become exercisable in five annual installments
beginning on the first anniversary of the date of grant. The Company also
granted to directors, options under the 1998 Stock Plan to purchase an aggregate
of 65,000 shares of Common Stock. Each such option has a per share exercise
price equal to the offering price, expires ten years from the date of grant and
generally becomes exercisable in annual installments vesting 50% upon the first
anniversary of the grant date and the remaining 50% vesting in equal
installments over the number of years remaining in each director's term as of
the first anniversary of the date of the grant.
In 1999, the Company granted options to purchase approximately 145,000
shares of Common Stock to several employees. Of this amount, 60,000 were granted
to the Chief Executive Officer. These options qualified as incentive stock
options for Internal Revenue Code purposes. These options were issued at $13.50
per share, and will become exercisable in five annual installments beginning on
the first anniversary of the date of grant.
F-22
<PAGE> 62
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company granted a total of 402,069 options to those employees of
Richmont that held senior management appreciation rights issued by Richmont.
These options qualified as incentive stock options for Internal Revenue Code
purposes. The options were issued at $13.50 and vest ratably over a five-year
term beginning from the date Richmont initially granted the senior management
appreciation rights. These options were on substantially similar terms to those
options granted to employees of the Company.
The Company granted options to purchase a total of 337,937 shares of Common
Stock to four persons who were deemed to be affiliates of Richmont Capital
Partners I, L. P. These options had a per share exercise price of $13.50. These
options did not qualify as incentive stock options for Internal Revenue Code
purposes. These options will vest ratably over a five-year term.
On the fifth day after the effective date of the Merger, the Company
granted options to purchase an additional 20,000 shares of Common Stock to three
individuals who became directors of the Company in connection with the Merger.
The stock option plan provides that new directors will each receive a grant of
20,000 options. These options have a per share exercise price equal to the fair
market value of Common Stock on the grant date. These options will vest ratably
over a five-year term. These options did not qualify as incentive stock options
for Internal Revenue Code purposes. These options are substantially similar to
options already granted to members of the Board of Directors who were not
employees of the Company. The Plan provides for certain option grants to
Directors who serve in various capacities on the Board of the Company. As of
December 31, 1999, approximately 40,000 options have been granted to such
directors. The options were issued at fair market value on the date of grant.
These options did not qualify as incentive stock options for Internal Revenue
Code purposes.
Information with respect to all stock options is summarized below:
<TABLE>
<CAPTION>
WEIGHTED AVG.
ISOS NQSOS TOTAL EXERCISE PRICE
-------- ------- --------- --------------
<S> <C> <C> <C> <C>
OUTSTANDING AT MARCH 4, 1998
(DATE OF INCEPTION).............................. -- -- -- --
Granted........................................ 347,000 310,000 657,000 $13.60
Exercised...................................... -- -- -- --
Canceled....................................... -- -- -- --
-------- ------- --------- ------
OUTSTANDING AT DECEMBER 31, 1998................. 347,000 310,000 657,000 $13.60
Granted........................................ 547,069 437,937 985,006 12.68
Exercised...................................... -- -- -- --
Canceled....................................... (162,859) (67,938) (230,797) 12.59
-------- ------- --------- ------
OUTSTANDING AT DECEMBER 31, 1999................. 731,210 679,999 1,411,209 $13.12
======== ======= ========= ======
EXERCISABLE AT DECEMBER 31, 1999................. 132,585 50,000 182,585
======== ======= =========
</TABLE>
The Company had 436,553 options available for grant under the 1998 Stock Plan at
December 31, 1999.
The Company has adopted the disclosure-only provisions of SFAS 123. As
such, had compensation expense for the Company's 1998 Stock Plan been determined
based on the fair value at the grant dates, the Company's pro-forma net loss
would have been $(23,149) and $(1,502) for the year ended December 31, 1999 and
the period ended December 31, 1998, respectively and basic and diluted pro-forma
net loss per share would have been $(2.32) and $(0.79) for the year ended
December 31, 1999 and the period ended December 31, 1998, respectively. Pro
forma compensation expense for options granted is reflected over the vesting
period; therefore, future compensation expense may be greater as additional
options are granted.
F-23
<PAGE> 63
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The fair value of stock options granted was estimated on the date of grant
using the Black-Scholes option-pricing model. The weighted average fair value of
options granted was $3.11 and $5.67 per share during 1999 and 1998 assuming an
expected volatility of 50.0% and 32.5% in 1999 and 1998, risk-free interest
rates of 6.15% and 5.25% in 1999 and 1998, expected lives of 7.0 and 9.9 years
in 1999 and 1998, and no dividend yield.
15. SEGMENT INFORMATION
In accordance with SFAS 131, Disclosures About Segments of an Enterprise
and Related Information, the Company has identified two principal segments: Food
Brokerage and Private Label. The Company provides outsourced sales and marketing
services to Manufacturers of branded food and non-food products in the Food
Brokerage segment. The Private Label segment includes the Company's private
label division, which procures private label products on behalf of certain
Retailers as well as the channel marketing and store supplies divisions, which
distribute price marking equipment and other ancillary products to Retailers.
Information on the Company's business segments is as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
12/31/99 12/31/98
---------- ------------
<S> <C> <C>
Revenues:
Food Brokerage............................................ $246,714 $ 5,975
Private Label............................................. 43,891 2,420
-------- -------
$290,605 $ 8,395
======== =======
Operating Profit:
Food Brokerage............................................ $ 33,700 $ 598
Private Label............................................. 2,420 52
General corporate expenses(1)............................. (44,080) (1,837)
-------- -------
Operating loss.............................................. $ (7,960) $(1,187)
======== =======
At December 31, 1999:
Identifiable Assets:
Food Brokerage............................................ $ 48,647
Private Label............................................. 6,004
General corporate assets(2)............................... 394,965
--------
$449,616
========
</TABLE>
(1) General corporate expenses not specific to an identifiable segment, include
restructuring, depreciation and amortization, interest and corporate related
expenses.
(2) General corporate assets not specific to an identifiable segment, include
intangible assets, fixed assets and other assets, excluding inventory and
accounts receivable.
F-24
<PAGE> 64
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
16. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
12/31/99 12/31/98
---------- ------------
<S> <C> <C>
Numerator:
Net loss.................................................. $ (21,567) $ (1,466)
========== ==========
Denominator:
Weighted average shares -- basic.......................... 9,973,759 1,891,000
Dilutive stock options.................................... -- --
---------- ----------
Weighted average shares -- diluted........................ 9,973,759 1,891,000
========== ==========
Number of options excluded as they would be
antidilutive........................................... 1,411,209 657,000
========== ==========
Net loss per common share:
Basic..................................................... $ (2.16) $ (0.78)
========== ==========
Diluted................................................... $ (2.16) $ (0.78)
========== ==========
</TABLE>
17. SUBSEQUENT EVENTS
On March 30, 2000, the Company became a party to a Second Amended and
Restated Credit Agreement among the Company and First Union National Bank, as
Agent (the "Amended Term Loan"). The Amended Term Loan consists of a two year,
secured $35.0 million term loan. The Company paid commitment and other fees of
approximately $0.9 million in connection with obtaining the Amended Term Loan.
Under the Amended Term Loan, the principal amount of the term loan was reduced
from $43.0 million to $35.0 million.
Interest is payable on the Amended Term Loan at a rate based on one of two
customary interest rates plus an additional interest margin of 3.75% or 5.0%, as
applicable. The Amended Term Loan is secured by a lien on all of the Company's
and its subsidiaries' assets. In addition, the Amended Term Loan will be jointly
and severally guaranteed by all current and future subsidiaries of the Company.
The Amended Term Loan requires the Company to comply with various
affirmative and negative covenants, including among others: (i) the maintenance
of certain financial ratios, (ii) restrictions on additional indebtedness, (iii)
restrictions on liens, guarantees, dividends and the disposition of assets and
(iv) restrictions on certain mergers, consolidations, and acquisitions.
In connection with the Amended Term Loan, the Company will issue to an
affiliate of First Union National Bank detachable warrants to purchase up to
4.0% of the Company's Common Stock on a fully-diluted basis. The exercise price
of the warrants will be nominal, and the warrants will be exercisable at any
time after the second anniversary of the issuance of the warrants.
On March 30, 2000, the Company became a party to a Credit Agreement among
the Company, certain of its subsidiaries, and The Chase Manhattan Bank, as Agent
(the "New Revolver"). The New Revolver consists of a two year, senior secured
$50.0 million revolving line of credit, subject to a borrowing base equal to a
specified percentage of eligible receivables. The Company will pay commitment
and other fees of approximately $0.6 million in connection with obtaining the
New Revolver. Funds advanced under the New Revolver will be used by the Company
to repay a portion of outstanding amounts under the Initial Credit Facility, to
finance the Company's pending acquisition of the Sales Force companies, to
finance the Company's working capital and capital expenditure requirements in
the ordinary course of business, and to pay fees and expenses relating to the
closing of the New Revolver.
F-25
<PAGE> 65
MARKETING SPECIALISTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Interest is payable on the New Revolver at a rate based on one of three
customary interest rates plus an additional interest margin between 1.50% and
3.50%. The applicable margin is determined based on certain financial ratios of
the Company. The New Revolver is secured by a first priority security interest
in the cash, cash equivalents, accounts receivable and inventory of the Company
and certain of its subsidiaries. In addition, the New Revolver will be jointly
and severally guaranteed by all current and future subsidiaries of the Company.
The New Revolver requires the Company to comply with various affirmative
and negative covenants, including among others: (i) the maintenance of certain
financial ratios, (ii) restrictions on additional indebtedness, (iii)
restrictions on liens, guarantees, dividends and the disposition of assets and
(iv) restrictions on certain mergers, consolidations, and acquisitions.
In January 2000, the Company's largest stockholder increased its equity
position by purchasing 1,577,287 additional shares of Common Stock at a purchase
price of $3.17 per share (at fair market value), for an aggregate purchase price
of $5.0 million pursuant to the terms of a stock purchase agreement. In March
2000, the Company received an additional $10.0 million equity investment from
the same shareholder, increasing its equity position by another 4,000,000 shares
at $2.50 per share, the approximate fair value. The funds will serve as
additional sources of capital for the Company's operations, and will provide the
Company with additional short-term and long-term liquidity.
In January 2000, the Company completed the acquisition of substantially all
of the assets of Johnson-Lieber, Inc., a full service brokerage firm in the
Pacific Northwest region of the United States, for an aggregate discounted
purchase price of approximately $3,000 in cash and $9,200 in notes.
On February 17, 2000, the Company sold certain improved real properties
containing general office and warehouse space situated in Arizona and California
to a related party for approximately $7.3 million. Concurrently therewith, the
Company leased back from the related party the premises at fixed monthly rentals
of approximately $63. The leases expire in February 2001 and February 2004,
subject to renewal options. The Company believes that the terms of this
transaction were similar to those that would have been obtained through an
unrelated party. The properties were presented as properties held for sale in
the accompanying consolidated balance sheet as of December 31,1999.
In March 2000, the Company entered into a definitive agreement for the
acquisition of the Sales Force Companies, a full service brokerage firm
operating in the Central Region of the United States for approximately $21,800
in cash and notes.
F-26
<PAGE> 66
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Merkert Enterprises, Inc. and Subsidiary:
We have audited the accompanying consolidated statements of operations,
stockholders' deficit and cash flows of Merkert Enterprises, Inc. ("Merkert")
and Subsidiary for the year ended December 31, 1997 and for the period from
January 1, 1998 through December 18, 1998. These financial statements are the
responsibility of Merkert'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 Merkert and Subsidiary for the year ended December 31, 1997, and for the
period from January 1, 1998 through December 18, 1998 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 30, 1999
F-27
<PAGE> 67
PREDECESSOR COMPANY
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1997 DECEMBER 18, 1998
----------------- -----------------
<S> <C> <C>
Revenues:
Commissions............................................... $104,274 $ 90,254
Sales..................................................... 43,105 42,185
-------- --------
147,379 132,439
Operating expenses:
Selling expenses.......................................... 69,913 59,778
Cost of sales............................................. 39,027 38,709
General and administrative................................ 32,582 29,806
Depreciation and amortization............................. 4,484 4,437
Restructuring charge...................................... -- 5,987
-------- --------
Operating income (loss)........................... 1,373 (6,278)
-------- --------
Other income (expense):
Interest expense, net..................................... (4,954) (4,180)
Other income (expense), net............................... 23 (530)
-------- --------
Total other income (expense)
(4,931) (4,710)
-------- --------
Loss before provision for income taxes...................... (3,558) (10,988)
Provision (benefit) for income taxes........................ (109) --
-------- --------
Net loss.......................................... (3,449) (10,988)
Preferred stock dividends................................... 445 300
-------- --------
Net loss applicable to common stockholders
$ (3,894) $(11,288)
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 68
PREDECESSOR COMPANY
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK,
$.01 PAR VALUE TREASURY STOCK ADDITIONAL
------------------ ---------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ ------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996...... 1,447,582 $14 215,000 $3,707 3,126 $(12,048) $(12,615)
Net loss...................... -- -- -- -- -- (3,449) (3,449)
Preferred dividend declared... -- -- -- -- -- (445) (445)
Issuance of stock -- 401(k)... -- -- (10,500) (174) -- -- 174
Purchase of treasury stock.... -- -- 18,500 370 -- -- (370)
--------- --- ------- ------ ------ -------- --------
BALANCE, DECEMBER 31, 1997...... 1,447,582 14 223,000 3,903 3,126 (15,942) (16,705)
Net loss...................... -- -- -- -- -- (10,988) (10,988)
Preferred dividend declared... -- -- -- -- -- (300) (300)
--------- --- ------- ------ ------ -------- --------
BALANCE, DECEMBER 18, 1998...... 1,447,582 $14 223,000 $3,903 $3,126 $(27,230) $(27,993)
========= === ======= ====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 69
PREDECESSOR COMPANY
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1997 DECEMBER 18, 1998
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(3,449) $(10,988)
Adjustments to reconcile net loss to net cash provided by
(used in) operating Activities --
Depreciation and amortization........................... 4,484 4,437
Loss (gain) on disposal of fixed assets................. 115 (251)
Deferred income taxes................................... -- (1,576)
Changes in assets and liabilities, exclusive of
acquisitions
(Increase) decrease in --
Restricted cash....................................... (227) 16
Accounts receivable, net.............................. (1,729) 4,076
Inventories, prepaid expenses and advances............ (155) 516
Other assets.......................................... 527 (330)
Increase (decrease) in --
Accounts payable...................................... (427) 3,163
Accrued expenses...................................... 4,098 1,865
------- --------
Net cash provided by operating activities.......... 3,237 928
------- --------
Cash flows from investing activities:
Additions to property, plant and equipment.................. (7,273) (1,586)
Net proceeds from sale of property, plant and equipment..... 530 647
Acquisitions, net of cash acquired.......................... (748) --
(Increase) decrease in cash surrender value, net of increase
in policy loans........................................... 202 (12)
------- --------
Net cash (used in) investing activities............ (7,289) (951)
------- --------
Cash flows from financing activities:
Dividends paid.............................................. (445) (300)
Borrowings under revolving line of credit................... 4,453 2,146
Issuance (repayment) of long-term debt...................... 3,419 978
Net (repayment) of notes payable............................ (2,529) (540)
Redemption of convertible preferred stock................... (640) (622)
Redemption of redeemable common stock....................... -- (350)
(Repurchase) issuance of treasury stock..................... (370) --
------- --------
Net cash (used in) provided by financing
activities....................................... 3,888 1,312
------- --------
Net increase (decrease) in cash.................... (164) 1,289
Cash at beginning of year................................... 730 566
------- --------
Cash at end of period....................................... $ 566 $ 1,855
======= ========
Supplemental disclosures of:
Cash flow information --
Cash payments for --
Interest........................................... $ 3,501 $ 4,200
======= ========
Income taxes....................................... $ 21 $ 1,780
======= ========
Non-cash flow information --
Purchase price financed by seller..................... $ 6,292 $ --
======= ========
Liabilities assumed................................... $ 560 $ --
======= ========
Stock issued to ESOP.................................. $ 174 $ 871
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 70
PREDECESSOR COMPANY
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. NATURE OF BUSINESS
Merkert Enterprises, Inc. ("Merkert") is a broker of food and various
food-related products. Merkert provides sales, marketing and merchandising
services to manufacturers ("Manufacturers") of consumer goods and serves as an
intermediary between the Manufacturers and retailers and wholesalers of the
consumer goods. Merkert also provides development, inventory management and
procurement and packaging services of private label frozen fruit and vegetable
products for several retailers. Merkert primarily operates throughout the
northeast and mid-Atlantic regions of the United States.
On May 20, 1998, and as amended from time to time, Merkert entered into a
stock purchase agreement with Merkert American Corporation and the stockholders
of Merkert (the "Purchase Agreement"). On December 18, 1998, pursuant to the
Purchase Agreement and simultaneously with an Initial Public Offering of Merkert
American Corporation common stock (collectively the "Combination"), Merkert
American Corporation purchased all of the outstanding shares of common and
convertible redeemable preferred stock of Merkert. The consideration paid by
Merkert American Corporation was approximately $31,000 in cash and 1,166,667
shares of its common stock. The cash portion of the consideration does not
reflect approximately $17,200 of payments made by Merkert of certain federal and
state tax obligations resulting from the settlement of an examination of
Merkert's tax filings for 1992, 1993 and 1994. See further discussion in Note 9.
On December 18, 1998, as a result of the Combination, Merkert became a
wholly-owned subsidiary of Merkert American Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Merkert and
its wholly-owned subsidiary Merkert Laboratories, Inc. These financial
statements reflect the historical statements of operations, stockholders'
deficit and cash flows for Merkert for the year ended December 31, 1997 and for
the period from January 1, 1998 through December 18, 1998. All intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates and
assumptions.
Revenue Recognition
Commissions are earned and recognized upon shipment by the Manufacturer to
the retailer or wholesaler. Merkert recognizes product sales revenue upon
shipment.
Fair Value of Financial Instruments
Effective December 31, 1995, Merkert adopted Statement of Financial
Accounting Standards ("SFAS") No. 107, Disclosures about Fair Value of Financial
Instruments. SFAS No. 107 requires that Merkert disclose estimated fair values
for certain of its financial instruments.
F-31
<PAGE> 71
PREDECESSOR COMPANY
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
Financial instruments that potentially subject Merkert to concentrations of
credit risk principally consist of trade receivables. Merkert's trade
receivables result primarily from commission sales. Merkert maintains reserves
for potential credit losses and such losses have been immaterial.
Property and Equipment
Depreciation is computed principally by accelerated methods over the
estimated useful lives of the assets.
Intangibles
Goodwill, the excess of the acquired business purchase price over the fair
value of the acquired assets, is amortized on a straight-line basis over
estimated useful lives that range from 10 to 20 years. Noncompete agreements are
amortized on a straight-line basis over the life of the respective agreement.
Amortization expense was $2,615 and $2,607 for the year ended December 31, 1997
and for the period ended December 18, 1998, respectively.
Income Taxes
Merkert provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes.
Restructuring
Merkert incurred restructuring charges in the period ended December 18,
1998 of $5,987 in connection with severance and other costs incurred prior to
the Combination.
3. ACQUISITIONS
Merkert completed two acquisitions of several food brokerage businesses
during 1997.
The acquisitions were accounted for using the purchase method of
accounting; accordingly, the results of operations are included in the
accompanying consolidated financial statements from their respective dates of
acquisition. Purchase price in excess of net identified tangible and intangible
assets is recorded as goodwill and amortized on a straight-line basis over
periods ranging from 10 to 20 years.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are depreciated as follow:
<TABLE>
<CAPTION>
DEPRECIABLE
LIFE
IN YEARS
-----------
<S> <C>
Buildings................................................. 25-39
Furniture and equipment................................... 5
Data processing........................................... 3
Motor vehicles............................................ 5
Leasehold improvements.................................... 5
</TABLE>
Depreciation expense for the year ended December 31, 1997 and for the
period ended December 18, 1998, was $1,869 and $1,830, respectively.
F-32
<PAGE> 72
PREDECESSOR COMPANY
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
On October 31, 1996, Merkert entered into an $8,500 secured revolving line
of credit agreement with a bank. The revolving line of credit bears interest at
the bank's base rate (8.5% at December 31, 1997).
On September 5, 1996, a bank mortgage secured by a building was refinanced
and Merkert entered into a new loan agreement with a bank. On February 13, 1998,
Merkert entered into a $9,500 secured mortgage agreement, effective April 1,
1998, with a real estate lender that replaced their existing mortgage and term
loans. The mortgage note bears interest at 8.56%.
In September 1995, Merkert repurchased 115,000 shares of common stock for
an aggregate purchase price of $1,909. Merkert paid $581 in cash and delivered
an unsecured promissory note in the amount of $1,328. The note requires three
annual principal payments of $443 and bears interest at 8.75%.
In February 1996, Merkert repurchased 92,000 shares of common stock for an
aggregate purchase price of $1,665. Merkert paid $333 and delivered an unsecured
subordinated promissory note in the amount of $1,332. The note requires five
annual principal payments of $266 and bears interest at 8.25%.
6. EMPLOYEE BENEFIT PLANS
Merkert sponsors the Merkert Enterprises, Inc. Employee Stock Ownership
Plan and Trust ("ESOP"). On January 1, 1997, Merkert amended its ESOP to provide
for a contributory plan under the provisions of Section 401(k) (the "401(k)
Plan") of the Internal Revenue Code. As of January 1, 1997, eligible employees
can make voluntary contributions to the 401(k) Plan.
Under the provisions of the 401(k) Plan, Merkert currently matches 100% of
an eligible employee's contribution up to certain limits determined by Merkert
(currently 4%) of the employee's salary. Prior to the adoption of the 401(k)
Plan, Merkert's contributions were made at the discretion of the Board of
Directors.
For the year ended December 31, 1997 and for the period ended December 18,
1998, Merkert expensed approximately $988 and $1,311, respectively, under the
terms of the ESOP and 401(k) Plans.
7. COMMITMENTS
Leases
Merkert leases certain office and warehouse facilities under operating
leases expiring on various dates through 2005.
Rental costs, including real estate taxes, amounted to approximately $4,386
and $3,489 in 1997 and for the period ended December 18, 1998, respectively.
F-33
<PAGE> 73
PREDECESSOR COMPANY
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 18,
1997 1998
------------ ------------
<S> <C> <C>
Federal --
Current........................................... $ (82) $--
Deferred.......................................... -- --
----- ---
(82) --
----- ---
State --
Current........................................... (27) --
Deferred.......................................... -- --
----- ---
(27) --
----- ---
$(109) $--
===== ===
</TABLE>
A reconciliation between the provision for income taxes computed at U.S.
federal statutory rates and the effective rates reflected in the accompanying
consolidated statements of operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 18,
1997 1998
------------ ------------
<S> <C> <C>
U.S. federal statutory provision.................... $(1,210) $(3,726)
State income taxes, net of federal income tax
Effect............................................ (213) (585)
Change in valuation allowance....................... 1,613 4,399
Permanent items..................................... 459 702
Other............................................... (758) (790)
------- -------
Effective tax provision........................... $ (109) $ --
======= =======
</TABLE>
F-34
<PAGE> 74
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rogers-American Company, Inc. and Subsidiary:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Rogers-American Company, Inc. ("Rogers")
and Subsidiary for the year ended December 31, 1997 and for the period from
January 1, 1998 through December 18, 1998. These financial statements are the
responsibility of Rogers' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Rogers and Subsidiary for the year ended December 31, 1997 and for the period
from January 1, 1998 through December 18, 1998, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
March 30, 1999
F-35
<PAGE> 75
PREDECESSOR COMPANY
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 18,
1997 1998
------------ ------------
<S> <C> <C>
Revenues:
Commissions............................................... $82,985 $ 79,558
------- --------
Operating expenses:
Selling expenses.......................................... 63,361 76,894
General and administrative................................ 13,023 15,226
Depreciation and amortization............................. 2,516 2,439
Restructuring charge...................................... -- 948
------- --------
Operating income (loss)........................... 4,085 (15,949)
Interest expense............................................ (2,536) (2,617)
------- --------
Income (loss) before provision for income taxes............. 1,549 (18,566)
Provision (benefit) for income taxes........................ 804 (677)
------- --------
Net income (loss)................................. $ 745 $(17,889)
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE> 76
PREDECESSOR COMPANY
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
$1.00 PAR VALUE ADDITIONAL EARNINGS/
--------------- PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------ ------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996................. 1,032 1 149 (956) (806)
Net income................................. -- -- -- 745 745
Redemption of 76.4 shares.................. (77) -- -- (112)
----- --- ------- -------- --------
BALANCE, DECEMBER 31, 1997................. 955 1 37 (211) (173)
Net loss................................... -- -- -- (17,889) (17,889)
Transfer of ownership interest -- -- 10,319 -- 10,319
----- --- ------- -------- --------
BALANCE, DECEMBER 18, 1998................. 955 $ 1 $10,356 $(18,100) $ (7,743)
===== === ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE> 77
PREDECESSOR COMPANY
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 18,
1997 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 745 $(17,889)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities --
Compensation expense............................... -- 15,529
Depreciation and amortization...................... 2,516 2,438
Loss on disposal of fixed assets................... -- 91
Deferred income taxes.............................. (126) 612
Changes in assets and liabilities, exclusive of
acquisitions (Increase) decrease in --
Restricted cash.................................... (285) 131
Accounts receivable, net........................... (2,659) 148
Income taxes receivable............................ 512 (1,147)
Prepaid expenses and advances...................... 74 (10)
Other assets....................................... (9) (41)
Increase (decrease) in --
Accounts payable................................... (1,053) 729
Accrued expenses................................... (91) 2,646
Other liabilities.................................. (572) --
------- --------
Net cash provided by (used in) operating
activities....................................... (948) 3,237
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.............. (453) (16)
Acquisitions, net of cash acquired...................... (192) --
(Increase) decrease in cash surrender value, net of
increase in policy loans............................... (789) (296)
------- --------
Net cash provided by (used in) investing
activities....................................... (1,434) (312)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit, net of
repayments............................................. 4,546 (553)
Repayment of long-term debt............................. (2,226) (2,656)
Redemption of Common Stock.............................. (112) --
------- --------
Net cash provided by (used in) financing
activities....................................... 2,208 (3,209)
------- --------
Net increase (decrease) in unrestricted cash....... (174) (284)
Unrestricted cash at beginning of year...................... 730 556
------- --------
Unrestricted cash at end of period.......................... $ 556 272
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for --
Interest........................................... $ 2,486 $ 2,494
======= ========
Income taxes....................................... $ 180 $ 234
======= ========
Non-cash flow information --
Purchase price financed by seller.................. $ 48 $ --
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-38
<PAGE> 78
PREDECESSOR COMPANY
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. NATURE OF BUSINESS
Rogers-American Company, Inc. ("Rogers") is a broker of food and various
food-related products. Rogers provides sales, marketing and merchandising
services to manufacturers ("Manufacturers") of consumer goods and serves as an
intermediary between the Manufacturers and retailers and wholesalers of the
consumer goods. Rogers primarily operates throughout the southeast and
mid-Atlantic regions of the United States.
On May 22, 1998 and as amended on November 16, 1998, Rogers entered into a
stock purchase agreement with Merkert American Corporation and the stockholders
of Rogers (the "Purchase Agreement"). On December 18, 1998, pursuant to the
Purchase Agreement and simultaneously with an Initial Public Offering of Merkert
American Corporation common stock (collectively the "Combination"), Merkert
American Corporation purchased all of the outstanding shares of common stock of
Rogers for approximately $25,635 in cash. On December 18, 1998, as a result of
the Combination, Rogers became a wholly-owned subsidiary of Merkert American
Corporation.
In connection with the consummation of the Purchase Agreement, the former
principal stockholders of Rogers transferred a portion of their shares of common
stock to certain minority stockholders to compensate those employees for
valuable prior services. As a result, the accompanying consolidated statement of
operations includes a compensation charge of $10,319 and other non-recurring
charges of approximately $5,210 for the period ended December 18, 1998. See
Notes 2, 5 and 11.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Rogers and
its wholly-owned subsidiary Rogers-American Company of Florida, Inc. These
financial statements reflect the historical statements of operations,
stockholders' deficit and cash flows for Rogers for the year ended December 31,
1997 and for the period from January 1, 1998 through December 18, 1998. All
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates and
assumptions.
Revenue Recognition
Commissions are earned and recognized upon shipment by the Manufacturer to
the retailer or wholesaler.
Concentration of Credit Risk
Financial instruments that potentially subject Rogers to concentrations of
credit risk consist principally of trade receivables. Rogers' trade receivables
result from commission sales. Rogers maintains reserves for potential credit
losses and such losses have been immaterial.
Property and Equipment
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
F-39
<PAGE> 79
PREDECESSOR COMPANY
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangibles
Goodwill, the excess of the acquired business purchase price over the fair
value of the acquired assets, is amortized on a straight-line basis over
estimated useful lives that range from 5 to 20 years. Noncompete agreements are
amortized on a straight-line basis over the life of the respective agreement.
Amortization expense was $2,040 and $1,946 for the year ended December 31, 1997
and for the period ended December 18, 1998, respectively.
Life Insurance
In connection with the consummation of the Purchase Agreement, Rogers
assigned the life insurance policies on key executives to certain former
stockholders. As a result, the accompanying consolidated statements of
operations includes a compensation charge of $3,535 for the period ended
December 18, 1998.
Income Taxes
Rogers provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes.
Restructuring
Rogers incurred a restructuring charge of $948 in the period ended December
18, 1998 in connection with the Combination.
3. ACQUISITIONS
Rogers completed acquisitions of several food brokerage businesses during
1997. The acquisitions were accounted for using the purchase method of
accounting; accordingly, the results of operations are included in the
accompanying consolidated financial statements from their respective dates of
acquisition. Purchase price in excess of identified tangible and intangible
assets is recorded as goodwill and amortized on a straight-line basis over
periods ranging from 5 to 20 years.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are depreciated as follows:
<TABLE>
<CAPTION>
DEPRECIABLE
LIFE
IN YEARS
-----------
<S> <C>
Building.................................................... 40
Furniture and equipment..................................... 5-7
Motor vehicles.............................................. 3-5
Leasehold improvements...................................... 20
</TABLE>
Depreciation expense for the year ended December 31, 1997 and for the
period ended December 18, 1998 was $476 and $492, respectively.
F-40
<PAGE> 80
PREDECESSOR COMPANY
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
On November 8, 1996, Rogers entered into a $10,000 secured revolving credit
facility with a bank. The revolving line of credit bears interest at a variable
rate based on the lesser of the bank's prime rate or LIBOR plus 2.7%, (8.67% at
December 31, 1997).
A mortgage note was entered into in February 1991 and refinanced in
February 1995. The note bears interest at 8.5%.
Rogers has debt resulting from business acquisitions with interest rates
ranging from 7% to 10% per annum. In connection with the Combination, the
Company recorded a compensation charge related to this indebtedness of $675 for
the period ended December 18, 1998.
Rogers has unsecured notes payable to various banks bearing interest at 10%
and 8.5%.
6. EMPLOYEE BENEFIT PLANS
Rogers sponsors the Rogers-American Company, Inc. 401(k) Profit Sharing
Plan (the "401(k) Plan") under the provisions of Section 401(k) of the Internal
Revenue Code. The 401(k) Plan covers all employees, except flexible part-time
employees, who are at least 21 years of age with at least six months of
employment service. These eligible employees can make voluntary contributions to
the 401(k) Plan.
Under the provisions of the 401(k) Plan, Rogers currently matches 25% of an
eligible employee's contribution up to certain limits determined by Rogers
(currently 6%) of the employee's salary. On an annual basis, Rogers may make a
discretionary contribution into the profit sharing component of the 401(k) Plan.
For the year ended December 31, 1997 and for the period ended December 18, 1998,
Rogers expensed approximately $403 and $444, respectively, under the terms of
the 401(k) Plan.
7. COMMITMENTS
Several key employees of Rogers have employment agreements that contain
incentive bonus awards. The awards are discretionary in nature and are in effect
for the period from 1999 to 2007. As of December 31, 1997, Rogers has not
accrued a liability for these awards and no amount is due for the year ended
December 31, 1997. Rogers may terminate any of the employment agreements for
just cause without incurring any liability.
Rogers has various supplemental pension agreements with individual
employees. These agreements provide benefits to those individuals at age 65 or
upon the termination of their employment with Rogers, whichever is later. The
vested benefits are payable in 120 equal monthly installments subsequent to the
employee's separation or retirement from Rogers. The amount expensed under these
agreements for the year ended December 31, 1997 and for the period ended
December 18, 1998 was $163 and $0, respectively.
Certain of Rogers' former shareholders, as a group, lease a sales office
located in North Carolina to Rogers. The annual rental of approximately $88 is
at fair value in the estimation of management. The lease expires in 2003.
Leases
Rogers leases certain office and warehouse facilities and automobiles under
operating leases. Rental costs, including real estate taxes, amounted to
approximately $7,985 and $7,778 for the years ended December 31, 1997 and for
the period ended December 18, 1998, respectively.
F-41
<PAGE> 81
PREDECESSOR COMPANY
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED PARTY TRANSACTIONS
Rogers owns 49% of the outstanding voting common stock of an affiliated
merchandising that began operations in 1997. Sales and net income (loss) of the
affiliate for 1997 and 1998 were $922 and $(1) and $2,948 and $1, respectively.
Certain of Rogers' former shareholders, as a group, owned 49% of the voting
common stock of another affiliated entity. During 1997 and 1998, Rogers recorded
commission revenues of approximately $183 and $253 from this affiliate.
9. INCOME TAXES
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 18,
1997 1998
------------ ------------
<S> <C> <C>
Federal --
Current................................................... $698 $(508)
Deferred.................................................. (95) --
---- -----
603 (508)
---- -----
State --
Current................................................... 232 (169)
Deferred.................................................. (31) --
---- -----
201 (169)
---- -----
$804 $(677)
==== =====
</TABLE>
A reconciliation between the provision for income taxes computed at U.S.
federal statutory rates and the effective rates reflected in the accompanying
consolidated statements of operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 18,
1997 1998
------------ ------------
<S> <C> <C>
U.S. federal statutory provision............................ $527 $(6,312)
State income taxes, net of federal income tax effect........ 87 (872)
Permanent items............................................. 140 713
Valuation allowance......................................... -- 5,794
Other....................................................... 50 --
---- -------
Effective tax provision........................... $804 $ (677)
==== =======
</TABLE>
In connection with the Combination, the Company has agreed to distribute
approximately $1,000 of refundable income taxes to the selling shareholders.
Accordingly, the accompanying consolidated statement of operations includes a
compensation charge of $1,000.
F-42
<PAGE> 82
MARKETING SPECIALISTS CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------- ------------ ---------- ---------- ----------- ------------
BEGINNING ADDITIONS ADDITIONS DEDUCTIONS ENDING
BALANCE, CHARGED TO CHARGED TO WRITTEN OFF BALANCE,
DECEMBER 31, COST AND OTHER AGAINST DECEMBER 31,
DESCRIPTION 1998 EXPENSES ACCOUNTS RESERVE 1999
- ----------- ------------ ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts.... 1,374 6,120 9,932 (11,696) 5,730
Restructuring reserve.............. 5,146 13,290 956 (5,801) 13,591
</TABLE>
S-1
<PAGE> 83
INDEX TO EXHIBITS
The following is a list of exhibits filed or incorporated by reference as a
part of this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- 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
Corporation's Proxy Statement dated July 12, 1999 and
incorporated herein by reference.
2.2 -- Agreement and Plan of Merger, dated as of April 28, 1999,
between Merkert American Corporation and Richmont
Marketing Specialists Inc., incorporated by reference to
Exhibit 2.1 to Merkert American Corporation's Current
Report on Form 8-K dated April 30,1999.
3.1 -- Second Amended and Restated Certificate of Incorporation
of Merkert American Corporation, incorporated by
reference to Exhibit 3.1 to Merkert American
Corporation's Amendment No. 7 to Registration Statement
on Form S-1 filed December 15, 1998 (No. 333-53419).
3.2 -- Certificate of Amendment to the Second Amended and
Restated Certificate of Incorporation of Merkert American
Corporation, dated August 18, 1999, incorporated by
reference as Exhibit 4.2 of the Company's Current Report
on Form 8-K dated September 2, 1999.
3.3 -- Amended and Restated By-laws of Merkert American
Corporation, incorporated by reference to Exhibit 3.2 of
the Company's Annual Report on Form 10-K dated March 31,
1999.
4.1 -- Indenture, dated as of December 19, 1997, among Richmont
Marketing Specialists Inc. and Texas Commerce Bank
National Association, as Trustee, incorporated by
reference to Exhibit 4.1 of Richmont Marketing
Specialists Inc. Registration Statement on Form S-4 dated
June 16, 1999.
4.2 -- First Supplemental Indenture, dated as of August 18,
1999, among the Company, Merkert American Co., Inc.,
United Brokerage Company, Buckeye Sales & Marketing,
Inc., Marketing Specialists Sales Company, Bromar, Inc.,
Brokerage Services, Inc., Atlas Marketing Company, Inc.,
Meatmaster Brokerage, Inc., and Chase Bank of Texas,
National Association, incorporated by reference to
Exhibit 4.3 of the Quarterly Report on Form 10-Q dated
September 30, 1999.
4.3* -- Second Supplemental Indenture, dated as of October 13,
1999, among the Company, its subsidiaries and Chase Bank
of Texas, National Association.
4.4* -- Third Supplemental Indenture, dated as of March 30, 2000,
among the Company, certain Guarantor Subsidiaries and
Chase Bank of Texas, National Association.
4.5 -- Certificate of Merger, dated August 18, 1999,
incorporated by reference to Exhibit 4.1 of the Company's
Current Report on Form 8-K dated September 2, 1999.
4.6 -- Specimen Certificate for shares of Common Stock of the
Company, incorporated by reference to Exhibit 4.1 of the
Company's Amendment No. 6 to Registration Statement on
Form S-1 dated November 19, 1998.
10.1* -- Common Stock Purchase Agreement, dated as of January 7,
2000, by and between Marketing Specialists Corporation
and MS Acquisition Limited.
10.2* -- Common Stock Purchase Agreement, dated as of March 30,
2000, by and between Marketing Specialists Corporation
and MS Acquisition Limited.
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.3* -- Warrant Agreement, dated as of March 30, 2000, among
Marketing Specialists Corporation and First Union
Investors, Inc.
10.4* -- Registration Rights Agreement, dated as of March 30,
2000, by and between Marketing Specialist Corporation and
First Union Investors, Inc.
10.5* -- Stockholders Agreement, dated as of March 30, 2000, by
and among Marketing Specialists Corporation, First Union
Investors, Inc., MS Acquisition Limited and Richmont
Capital Partners I, L.P.
10.6* -- Credit Agreement, dated March 30, 2000, among the Company
and certain of its subsidiaries, as Borrowers, Chase
Manhattan Bank, as agent, and the banks named therein.
10.7* -- Second Amended and Restated Credit Agreement, dated March
30, 2000, among First Union National Bank, for itself and
as agent, the other Lenders described therein and the
Company and the Guarantors described therein.
10.8* -- Second Amended and Restated Security Agreement, dated
March 30, 2000, by and among the Company and its
subsidiaries, in favor of First Union National Bank, as
agent.
10.9* -- Second Amended and Restated Pledge Agreement, dated March
30, 2000, by and among the Company and its subsidiaries,
in favor of First Union National Bank, as agent.
10.10* -- Second Amended and Restated Guaranty Agreement, dated
March 30, 2000, by and among Marketing Specialists Sales
Company, Bromar, Inc., and Paul Inman Associates, Inc.,
in favor of First Union National Bank.
10.11* -- Stock Purchase Agreement, dated March 2, 2000, by and
among Marketing Specialists Sales Company, as Buyer, The
Sales Force Companies, Inc., as the Company and the
Stockholders of the Company.
10.12* -- Contract of Sale of Improved Property, dated February 17,
2000, by and between Bromar, Inc. and RCPI Office
Properties, LLC (Arizona Property).
10.13* -- Lease, dated February 17, 2000, between RCPI Office
Properties, LLC and Marketing Specialists Sales Company
(Arizona Property).
10.14* -- Contract of Sale of Improved Property, dated February 17,
2000, by and between Bromar, Inc. and RCPI Office
Properties, LLC (California Property).
10.15* -- Lease, dated February 17, 2000, between RCPI Office
Properties, LLC and Marketing Specialists Sales Company
(California Property).
10.16* -- Asset Purchase Agreement, dated as of November 18, 1999,
by and among Marketing Specialists Sales Company and
Johnson-Lieber, Inc., as amended by that certain First
Amendment to Asset Purchase Agreement dated as of January
27, 2000.
10.17* -- Stock Purchase Agreement, dated July 7, 1999, by and
among Merkert American Corporation, as Buyer, Buckeye
Sales & Marketing, Inc., d/b/a The Sell Group-Cleveland,
as the Company, JF & JF Limited Partnership, as the
Stockholder of the Company, and the Primary Parties.
10.18* -- Stock Purchase Agreement, dated as of May 14, 1999, by
and among Richmont Marketing Specialists Inc., Paul Inman
Associates, Inc. and the Shareholders of Paul Inman
Associates, Inc., as amended by that certain First
Amendment to Stock Purchase Agreement dated as of August
13, 1999 and that certain Second Amendment to Stock
Purchase Agreement dated as of August 18, 1999.
</TABLE>
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.19* -- Stock Purchase Agreement, dated April 26, 1999, by and
among Merkert American Corporation, as Buyer, United
Brokerage Company d/b/a The Sell Group-Grand Rapids,
Toledo, Detroit, Indianapolis and Fort Wayne, as the
Company, and the Stockholders of the Company.
10.20 -- Stock Purchase Agreement, dated January 20, 1999, among
Merkert American Corporation, Sell, Inc. and the
stockholders of Sell, Inc., incorporated by reference to
Exhibit 10.36 of the Company's Annual Report on Form 10-K
dated March 31, 1999.
10.21* -- Employment Agreement, dated April 27, 1999, between the
Company and Gerald R. Leonard.
10.22 -- Employment Agreement, dated April 2, 1996, between
Marketing Specialists Sales Company and Ronald D.
Pedersen, incorporated by reference in Exhibit 10.8 of
Richmont Marketing Specialists Inc. Registration
Statement on Form S-4 dated June 16, 1999.
10.23 -- Employment Agreement, dated April 2, 1996, between
Marketing Specialists Sales Company and Bruce A. Butler,
incorporated by reference in Exhibit 10.9 of Richmont
Marketing Specialists Inc. Registration Statement on Form
S-4 dated June 16, 1999.
10.24 -- First Amendment to Amended and Restated Merkert American
Corporation 1998 Stock Option and Incentive Plan,
incorporated by reference as Exhibit 10.5 of the
Company's Current Report on Form 8-K dated September 2,
1999.
10.25 -- Registration Rights Agreement, dated as of August 18,
1999, by and among Merkert American Corporation, Gerald
R. Leonard, Monroe & Company, LLC, JLM Management, LLC,
Robert Doehler, Joseph T. Casey, Edward P. Grace, III,
James Philopkosky, Sandra Monroe, Sean P. Spaulding and
Jo-Anne Collins incorporated by reference as Exhibit 10.8
of the Quarterly Report on Form 10-Q dated November 15,
1999.
10.26 -- Post-Merger Voting Agreement, dated as of August 18,
1999, by and among MS Acquisition Limited, Ronald D.
Pedersen, Bruce A. Butler, Gary R. Guffey, Jeffery A.
Watt, Monroe & Company, LLC and JLM Management Company,
LLC incorporated by reference as Exhibit 10.9 of the
Quarterly Report on Form 10-Q dated November 15, 1999.
10.27 -- Advisory Agreement, dated as of August 18, 1999, by and
among the Company, Monroe & Company, LLC and Richmont
Capital Partners I, L.P. incorporated by reference to
Exhibit 10.10 of the Quarterly Report on Form 10-Q dated
November 15, 1999.
21.1* -- Subsidiaries of the Company.
23* -- Consent of Arthur Andersen LLP.
24* -- Power of Attorney (included on signature page of this
Form 10-K).
27.1* -- Financial Data Schedule.
</TABLE>
- ---------------
* Indicates that document is filed herewith.
<PAGE> 1
EXHIBIT 4.3
================================================================================
MARKETING SPECIALISTS CORPORATION,
a Delaware corporation,
as Issuer,
Each Subsidiary of the
Issuer listed on the
signatory pages hereto,
as Guarantor Subsidiaries,
and
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as Trustee
SECOND SUPPLEMENTAL INDENTURE
Dated as of October 13, 1999
to
INDENTURE
Dated as of December 19, 1997
10 1/8% Senior Subordinated Notes due 2007
================================================================================
<PAGE> 2
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE (this "SUPPLEMENTAL INDENTURE"), dated as
of October 13, 1999, among PAUL INMAN ASSOCIATES, INC., a Michigan corporation
(the "NEW GUARANTOR SUBSIDIARY"), a wholly-owned subsidiary of Marketing
Specialists Corporation, a Delaware corporation (formerly known as Merkert
American Corporation, a Delaware corporation) (the "COMPANY"), the existing
Guarantor Subsidiaries (the "EXISTING GUARANTOR SUBSIDIARIES") under the
indenture referred to below, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
successor-in-interest to TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as trustee
under the indenture referred to below (the "TRUSTEE").
W I T N E S S E T H:
WHEREAS Richmont Marketing Specialists Inc., a Delaware corporation
("RMSI"), and the Existing Guarantor Subsidiaries (or their predecessors) and
the Trustee, as trustee, are parties to that certain Indenture (the
"INDENTURE"), dated as of December 19, 1997, as supplemented by the First
Supplemental Indenture thereto, dated as of August 18, 1999, among the Company,
as successor by merger to RMSI, the Existing Guarantor Subsidiaries, as trustee,
and the Trustee, as trustee (as so supplemented the "INDENTURE") providing for
the issuance of an aggregate principal amount of up to $150,000,000 of 10 1/8%
Senior Subordinated Notes due 2007 (the "SECURITIES");
WHEREAS Section 4.11 of the Indenture provides that under certain
circumstances the Company is required to cause the New Guarantor Subsidiary to
execute and deliver to the Trustee a supplemental indenture pursuant to which
the New Guarantor Subsidiary shall unconditionally guarantee all of the
Company's obligations under the Securities and the Indenture pursuant to a
Subsidiary Guarantee on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee, the
Company and the Existing Guarantor Subsidiaries are authorized to execute and
deliver this Supplemental Indenture;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor Subsidiary, the Company, the Existing Guarantor Subsidiaries and the
Trustee mutually covenant and agree for the equal and ratable benefit of the
holders of the Securities as follows:
1. DEFINITIONS. (a) Capitalized terms used herein without definition shall have
the meanings assigned to them in the Indenture.
(b) For all purposes of this Supplemental Indenture, except as
otherwise herein expressly provided or unless the context otherwise requires:
(i) the terms and expressions used herein shall have the same meanings as
corresponding terms and expressions used in the Indenture; and (ii) the words
"herein," "hereof" and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
to any particular section hereof.
<PAGE> 3
2. AGREEMENT TO GUARANTEE. The New Guarantor Subsidiary hereby agrees, jointly
and severally with all other Guarantor Subsidiaries, to guarantee the Company's
obligations under the Securities and the Indenture on the terms and subject to
the considerations set forth in Article XI and Article XII of the Indenture and
to be bound by all other applicable provisions of the Indenture. Except as
expressly amended hereby, the Indenture is in all respects ratified and
confirmed and all the terms, conditions and provisions thereof shall remain in
full force and in effect. This Supplemental Indenture shall form a part of the
Indenture for all purposes, and every holder of Securities heretofore or
hereafter authenticated and delivered shall be bound hereby.
3. GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
4. TRUSTEE MAKES NO REPRESENTATION. The Trustee makes no representation as to
the validity or sufficiency of this Supplemental Indenture.
5. COUNTERPARTS. The parties may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
6. EFFECT OF HEADINGS. The Section headings herein are for convenience only and
shall not effect the construction thereof.
[SIGNATURE PAGE FOLLOWS]
2
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
PAUL INMAN ASSOCIATES, INC.
By:
----------------------------------
Name: Nick G. Bouras
Title: Vice President
MARKETING SPECIALISTS CORPORATION
By:
----------------------------------
Name:
-------------------------
Title:
-------------------------
MARKETING SPECIALISTS SALES COMPANY
By:
----------------------------------
Name:
-------------------------
Title:
-------------------------
BROMAR, INC.
(successor by merger to
Brokerage Services, Inc.)
By:
----------------------------------
Name: Nick G. Bouras
Title: Vice President
3
<PAGE> 5
ATLAS MARKETING COMPANY, INC.
(successor by merger to Meatmaster
Brokerage, Inc., Century Food
Brokers of Hickory, Inc., East
Coast Food Brokerage, Inc.,
Ultimate Food Sales, Inc. and
Cumberland Food Brokers, Inc.)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
MARKETING SPECIALISTS CO., INC.
(formerly known as Merkert American
Co., Inc.)
By:
--------------------------------
Name: Gerald R. Leonard
Title: President & Chief
Executive Officer
BUCKEYE SALES & MARKETING, INC.
By:
-------------------------------
Name: Gerald R. Leonard
Title: President
UNITED BROKERAGE COMPANY, INC.
By:
-------------------------------
Name: Gerald R. Leonard
Title: President
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Trustee
By:
--------------------------------
Name: Mauri J. Cowen
Title: Vice President and Trust
Officer
4
<PAGE> 1
EXHIBIT 4.4
THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE (the "Third Supple-
mental Indenture"), dated as of March 30, 2000, among Marketing Specialists
Corporation (formerly known as Merkert American Corporation), a Delaware
corporation (the "Company"), the Guarantor Subsidiaries set forth on the
signature pages hereto (the "Guarantor Subsidiaries"), and CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION (formerly know as Texas Commerce Bank, National
Association), a national banking association, as trustee under the indenture
referred to below (the "Trustee").
W I T N E S S E T H:
WHEREAS, Richmont Marketing Specialists Inc. ("Richmont") and
the Existing Guarantor Subsidiaries have heretofore executed and delivered to
the Trustee an indenture (the "Indenture"), dated as of December 19, 1997,
providing for the issuance of an aggregate principal amount of up to
$150,000,000 of 10 1/8% Senior Subordinated Notes due 2007 (the "Securities");
WHEREAS, pursuant to an Agreement and Plan of Merger, dated
as of April 28, 1999, by and among the Company, Richmont and the stockholders
of Richmont, Richmont merged with and into the Company and, pursuant to Section
5.01 of the Indenture, the Company executed and delivered to the Trustee a
supplemental indenture (the "First Supplemental Indenture") pursuant to which
the Company expressly assumed all the obligations of Richmont under the
Securities and the Indenture;
WHEREAS, pursuant to the Second Supplemental Indenture, dated
as of October 13, 1999, by and among Paul Inman Associates, Inc., ("Paul
Inman") a wholly-owned subsidiary of the Company, the Existing Guarantor
Subsidiaries (as defined therein) and the Trustee, Paul Inman unconditionally
guaranteed all of the Company's obligations under the Securities and Indenture
on the terms and subject to the considerations set forth in Article XI and
Article XII of the Indenture;
WHEREAS, the Company desires to amend certain provisions of
the Indenture as set forth herein, and it has received the consent of the
holders of a majority in principal amount of the Securities currently
outstanding to such amendments; and
1
<PAGE> 2
WHEREAS, pursuant to Section 9.02 of the Indenture, the
Trustee, the Company and the Existing Guarantor Subsidiaries are authorized to
execute and deliver this Third Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company, the Existing Guarantor Subsidiaries and the
Trustee mutually covenant and agree for the equal and ratable benefit of the
holders of the Securities as follows:
1. Definitions. (a) Capitalized terms used herein
without definition shall have the meanings assigned to them in the Indenture.
(b) For all purposes of this Third Supplemental
Indenture, except as otherwise herein expressly provided or unless the context
otherwise requires, the words "herein," "hereof" and "hereby" and other words
of similar import used in this Third Supplemental Indenture refer to this Third
Supplemental Indenture as a whole and not to any particular section hereof.
2. Amendments to Section 1.01: Definitions. Section
1.01 of the Indenture shall be amended as follows:
(a) The definition of Credit Agreement in Section 1.01
shall be deleted in its entirety and replaced with the following new
definition:
"Credit Agreement" means (i) the Credit Agreement, dated as
of March 30, 2000, as amended, restated, waived or otherwise modified
from time to time, among the Company and certain of its subsidiaries,
as borrowers, The Chase Manhattan Bank, as agent for the lenders and
the lenders from time to time party thereto, and (ii) the Second
Amended and Restated Credit Agreement, dated as of March 30, 2000, as
amended, restated, waived or otherwise modified from time to time,
among the Company, the lenders from time to time party thereto and
First Union National Bank, as agent for the lenders (except in each
case to the extent that any such amendment, waiver or other
modification thereto would be prohibited by the terms of this
Indenture, unless otherwise agreed to by the Holders of at least a
majority in aggregate principal amount of Securities at the time
outstanding)."
2
<PAGE> 3
(b) The definition of Senior Credit Documents in Section
1.01 shall deleted in its entirety and replaced with the following new
definition:
"Senior Credit Documents" means the collective
reference to the Credit Agreement, the notes issued pursuant
thereto, the guaranties thereof, and any security documents
related thereto, whether executed by the Company or any
Subsidiary."
(c) The following new defined term shall be inserted in
Section 1.01 after the definition of "Asset Disposition" and before the
definition of "Attributable Debt":
"Assumed Deferred Obligations" means, with respect to any
Person acquired by the Company or any Restricted Subsidiary, any
Indebtedness of such Person issued to the employees of, stockholders
of, or the holders of an equivalent equity interest in, any other
entity previously acquired by the entity being acquired by the Company
or Restricted Subsidiary, as the case may be.
1. Amendments to Section 4.03(b): Limitation on
Indebtedness. Section 4.03(b) of the Indenture shall be amended as set forth
below:
(a) Clause (i) of Section 4.03(b) of the Indenture shall
be amended by deleting the words "$25.0 million" in the first sentence thereof
and replacing them with the words "$85.0 million" so that clause (i) reads as
follows:
"(i) Bank Indebtedness or Indebtedness Incurred
pursuant to any other revolving credit, term loan or working
capital financings in an aggregate principal amount at any
time outstanding not in excess of the greater of $85.0
million and the Borrowing Base in effect from time to time
(in each case less the aggregate amount of all repayments of
principal actually made thereunder since the Closing Date
with Net Available Cash from Asset Dispositions pursuant to
Section 4.06(a)(iii)(A));"
(b) Clause (viii) of Section 4.03(b) of the Indenture
shall be amended by deleting the words "$2.0 million" and replacing them with
the words "$18.0 million" and by deleting the word "or" at the end of such
section so that clause (viii) reads as follows:
3
<PAGE> 4
"(viii) Purchase Money Indebtedness, Attributable
Debt and Capitalized Lease Obligations in an aggregate
principal amount not in excess of $18.0 million at any time
outstanding;"
(c) Clause (ix) of Section 4.03(b) of the Indenture
shall be amended by adding the words "Incurred prior to March 30, 2000" after
the word "Indebtedness" in the first line thereof and adding the words "March
30, 2000" after the words "other than Indebtedness Incurred" in the fifth line
thereof, and deleting the punctuation mark "." and adding the punctuation mark
";" so that clause (b)(ix) reads as follows:
"(ix) Indebtedness Incurred prior to March 30, 2000
(other than Indebtedness permitted to be Incurred pursuant to
Section 4.03(a) or any other clause of this Section 4.03(b))
in an aggregate principal amount on the date of Incurrence
that, when added to all other Indebtedness Incurred prior to
March 30, 2000 pursuant to this clause (ix) and then
outstanding, shall not exceed $15.0 million;"
(d) A new clause (x) shall be added to Section 4.03(b)
of the Indenture as set forth below:
"(x) Indebtedness Incurred on or after March 30,
2000 (other than Indebtedness permitted to be Incurred
pursuant to Section 4.03(a) or any other clause of this
Section 4.03(b)) in an aggregate principal amount on the date
of Incurrence that, when added to all other Indebtedness
Incurred on or after March 30, 2000 pursuant to this clause
(x) and then outstanding, shall not exceed $10.0 million; or"
(e) A new clause (xi) shall be added to Section 4.03(b)
of the Indenture as set forth below:
"(xi) Indebtedness Incurred in connection with the
purchase by the Company of all of the outstanding capital
stock of Sales Force Companies, Inc. pursuant to that certain
stock purchase agreement, dated as of March 2, 2000, by and
between Marketing Specialists Sales Company and Sales Force
Companies, Inc., as such may be amended, in an amount not to
exceed $20.0 million in the aggregate."
4
<PAGE> 5
3. Amendments to Section 4.03(c): Limitation on
Indebtedness. Section 4.03(c) of the Indenture shall be amended by adding the
following language at the end of such Section:
"Notwithstanding the foregoing, the Company shall
not, and shall not permit any Restricted Subsidiary to, Incur
any Assumed Deferred Obligations pursuant to Section 4.03(b)
(other than pursuant to clause (xi) of Section 4.03(b))
unless such Assumed Deferred Obligations are expressly
subordinated in right of payment to the Securities. The
Company or any Restricted Subsidiary shall not Incur any
Indebtedness after March 30, 2000 pursuant to Section 4.03(b)
(other than Indebtedness Incurred pursuant to clauses (viii)
or (xi) of Section 4.03(b)) in connection with the
acquisition of any Person by the Company or any Restricted
Subsidiary unless substantially concurrent with such
Incurrence, the Company receives cash capital contributions
or cash proceeds from the sale of Capital Stock (other than
Disqualified Stock) in an amount equal to such Indebtedness."
5. Amendments to Section 4.04(a)(C)(2): Limitation of
Restricted Payments. Section 4.04(a)(C)(2) shall be deleted in its entirety and
replaced with the following:
"(2) the aggregate Net Cash Proceeds received by the Company
from the issue or sale of its Capital Stock (other than
Disqualified Stock) subsequent to the Closing Date (other
than an issuance or sale to (i) a Subsidiary of the Company
or an employee stock ownership plan or other trust
established by the Company or any of its Subsidiaries, (ii)
MS Acquisition Limited of $10.0 million of common stock of
the Company pursuant to that certain Stock Purchase
Agreement, dated as of the date of the Credit Agreement, by
and between the Company and MS Acquisition Limited, and (iii)
any Person in connection with the sale of Capital Stock to
such Person pursuant to the last sentence of Section
4.03(c));"
6. Amendments to Section 4.05: Limitation on
Restrictions on Distributions from Restricted Subsidiaries. Clause (i) of
Section 4.05 shall be amended by inserting "(x)" before the words "an
agreement" in the first line thereof
5
<PAGE> 6
and inserting "or (y) the Senior Credit Documents" at the end of the clause so
that the clause reads as follows:
" (i) any encumbrance or restriction pursuant to (x) an
agreement in effect at or entered into on the Closing Date or
(y) the Senior Credit Documents;"
7. Effect of Supplement Indenture. Except as expressly
amended hereby, the Indenture is in all respects ratified and confirmed and all
the terms, conditions and provisions thereof shall remain in full force and
effect. This Third Supplemental Indenture shall form a part of the Indenture
for all purposes, and every holder of Securities heretofore or hereafter
authenticated and delivered shall be bound hereby.
8. Governing Law. THIS THIRD SUPPLEMENTAL INDENTURE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF
LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION
WOULD BE REQUIRED THEREBY.
9. Trustee Makes No Representation. The Trustee makes
no representation as to the validity or sufficiency of this Third Supplemental
Indenture.
10. Counterparts. The parties may sign any number of
copies of this Third Supplemental Indenture. Each signed copy shall be an
original, but all of them together represent the same agreement.
11. Effect of Headings. The Section headings herein are
for convenience only and shall not effect the construction thereof.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Third
Supplemental Indenture to be duly executed as of the date first above written.
MARKETING SPECIALISTS CORPORATION
By:
--------------------------------
Name:
Title:
THE GUARANTOR SUBSIDIARIES:
MARKETING SPECIALISTS SALES COMPANY
By:
--------------------------------
Name:
Title:
PAUL INMAN ASSOCIATES, INC.
By:
--------------------------------
Name:
Title:
BROMAR, INC.
By:
--------------------------------
Name:
Title:
7
<PAGE> 8
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, a Trustee
By:
--------------------------------
Name: Mauri J. Cowen
Title: Vice President and
Trust Officer
8
<PAGE> 1
EXHIBIT 10.1
================================================================================
MARKETING SPECIALISTS CORPORATION
-----------------------------------------------------
COMMON STOCK PURCHASE AGREEMENT
-----------------------------------------------------
DATED AS OF JANUARY 7, 2000
1,577,287 SHARES OF COMMON STOCK
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. PURCHASE AND SALE OF COMMON STOCK..................................................1
1.01. Authorization of Common Stock.............................................1
1.02. Purchase Price and Closing................................................1
1.03. Use of Proceeds...........................................................2
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................2
2.01. Organization, Standing and Power..........................................2
2.02. Authority; Enforceability; No Conflict....................................2
2.03. Enforceability............................................................2
2.04. The Company Common Stock..................................................2
2.05. Capitalization............................................................2
2.06. No Violation..............................................................3
2.07. Reports and Financial Statements..........................................3
2.08. Litigation................................................................3
2.09. Registration Rights Agreement.............................................4
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER....................................4
3.01. Authorization.............................................................4
3.02. Purchase for Own Account..................................................4
3.03. Disclosure of Information.................................................4
3.04. Investment Experience.....................................................4
3.05. Accredited Investor Status................................................4
3.06. Restricted Securities.....................................................4
3.07. Governmental Consents.....................................................5
3.08. Further Limitations on Disposition........................................5
3.09. Legends...................................................................5
4. DEFINITIONS........................................................................6
5. INDEMNIFICATION....................................................................6
5.01. General Indemnity.........................................................6
5.02. Indemnification Procedure.................................................7
5.03. Indemnification Limitations...............................................8
6. MISCELLANEOUS......................................................................8
6.01. No Waiver; Cumulative Remedies............................................8
6.02. Amendments, Waivers and Consents..........................................8
6.03. Notices...................................................................8
6.04. Binding Effect; Assignment................................................9
6.05. Survival of Representations and Warranties................................9
6.06. Severability..............................................................9
6.07. Governing Law............................................................10
6.08. Headings.................................................................10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
6.09. Counterparts.............................................................10
6.10. Closing Condition Waivers................................................10
</TABLE>
ii
<PAGE> 4
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated this
7th day of January, 2000, by and between Marketing Specialists Corporation, a
Delaware corporation (the "Company"), and MS Acquisition Limited, a Texas
limited partnership (the "Purchaser").
PRELIMINARY STATEMENTS
A. The Purchaser is a stockholder of the Company and desires to
purchase additional shares of the Company's common stock, $0.01 par value per
share (the "Common Stock"), directly from the Company, subject to the terms and
conditions set forth herein.
B. The Company desires to sell shares of Common Stock to the
Purchaser, subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
and agreements herein contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
STATEMENT OF AGREEMENT
1. PURCHASE AND SALE OF COMMON STOCK
1.01. Authorization of Common Stock. The Company has authorized the
issuance and sale of 1,577,287 shares (the "Shares") of its authorized but
unissued shares of Common Stock, having the rights set forth in the Certificate
of Incorporation of the Company.
1.02. Purchase Price and Closing. The Company agrees to issue and sell
to the Purchaser, and in consideration of, and in express reliance upon, the
representations, warranties, terms and conditions contained in, this Agreement,
the Purchaser agrees to purchase the Shares at a purchase price of $3.17 per
share, for an aggregate purchase price of $5,000,000. Subject to the terms and
conditions contained herein, the closing of the purchase and sale of the Shares
to be acquired by the Purchaser from the Company under this Agreement (the
"Closing") shall take place at 9:00 a.m. (Dallas, Texas time) on January 7,
2000, or at such other time and date as the Purchaser and the Company may agree
(the "Closing Date"), at the offices of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., 1700 Pacific Avenue, Suite 4100, Dallas, Texas 75201, or such other
location as the parties mutually agree. At the Closing, the Company will
deliver to the Purchaser a certificate of the Secretary or an Assistant
Secretary of the Company, dated the Closing Date, (a) attesting to corporate
action taken by the Company, including resolutions of the Board of Directors
authorizing (i) the execution, delivery and performance by the Company of this
Agreement and the Registration Rights Agreement and (ii) the issuance of the
Shares, and (b) verifying that the Certificate of Incorporation of the Company
and the Bylaws of the Company currently on file with the Commission are true,
correct and complete as of the Closing Date. As soon as practicable after the
closing, but in any event not later than seven business days, the Company will
deliver to the Purchaser certificates evidencing the Shares to be
<PAGE> 5
purchased by the Purchaser hereunder. At the Closing, Purchaser shall deliver
$5,000,000 to the Company by wire transfer of immediately available funds.
1.03. Use of Proceeds. The Company shall use the cash proceeds from
the sale of the Shares for general corporate purposes including, without
limitation, working capital and the financing of acquisitions.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as
follows:
2.01. Organization, Standing and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has the requisite power and authority to own or lease
its properties and to carry on its business as presently conducted. There is no
pending or, to the Company's knowledge, threatened proceeding for the
dissolution, liquidation, insolvency or rehabilitation of the Company. The
Company's operating subsidiaries are entities duly organized, validly existing
and in good standing under the laws of each such subsidiary's state of
organization, and each has the requisite power and authority to own or lease
its properties and to carry on its business as presently conducted. There is no
pending or, to the Company's knowledge, threatened proceeding for the
dissolution, liquidation, insolvency or rehabilitation of any of the Company's
operating subsidiaries.
2.02. Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and the Registration Rights Agreement,
to issue and sell the Shares and to carry out its obligations hereunder and
under the Registration Rights Agreement.
2.03. Enforceability. This Agreement and the Registration Rights
Agreement have been duly executed and delivered by the Company and each
constitutes its legal, valid and binding obligation enforceable against it in
accordance with its terms, except as the same may be limited by the terms of
this Agreement or by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and general equitable principles regardless of whether such
enforceability is considered in a proceeding at law or in equity.
2.04. Valid Issuance. Upon consummation of the transactions
contemplated hereby and the issuance and delivery of certificates representing
the Shares to the Purchaser, the Shares will be validly issued, fully paid,
non-assessable and free of preemptive rights or similar rights of stockholders
of the Company and free and clear of any liens or other encumbrance.
2.05. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 50,000,000 shares of Common Stock, 4,000,000
shares of Restricted Common Stock and 1,000,000 shares of preferred stock. As
of November 6, 1999, (i) 13,838,144 shares of Common Stock and 335,700 shares
of Restricted Common Stock were validly issued and outstanding, fully paid and
non-assessable, and (ii) no shares of preferred stock were issued or
outstanding.
2
<PAGE> 6
2.06. No Violation. The execution and delivery of this Agreement and
the Registration Rights Agreement by the Company, the performance by the
Company of its obligations hereunder and the consummation by the Company of the
transactions contemplated by this Agreement and the Registration Rights
Agreement will not (a) contravene any provision of the Certificate of
Incorporation or By-Laws of the Company, (b) violate or conflict with any
material law, statute, ordinance, rule, regulation, decree, writ, injunction,
judgment, ruling or order of any governmental authority or of any arbitration
award which is either applicable to, binding upon, or enforceable against the
Company, (c) conflict with, result in any breach of, or constitute a default
under, or give rise to a right to terminate, amend, modify, abandon or
accelerate, any material agreement which is applicable to, binding upon or
enforceable against the Company, (d) result in or require the creation or
imposition of any lien or other encumbrance upon or with respect to any of the
material property or assets of the Company, (e) give to any individual or
entity a right or claim against the Company, which would have a Material
Adverse Effect on the Company; or (f) require the consent, approval,
authorization or permit of, or filing with or notification to, any governmental
authority, any court or tribunal or any other person, except (i) consent under
the Amended and Restated Credit Facility dated August 18, 1999, as amended,
among the Company, the lenders set forth on Schedule 1 thereto and First Union
National Bank as agent for the lenders, which consent has been obtained, (ii)
pursuant to the Exchange Act and the Securities Act and applicable inclusion
requirements of any stock exchange on which the Common Stock is listed, (iii)
filings required under the securities or blue sky laws of the various states or
(iv) filings required under the HSR Act, if any (collectively, "Required
Consents").
2.07. Reports and Financial Statements. From January 1, 1997 to the
date hereof, except where failure to have done so did not and would not have a
Material Adverse Effect on the Company, the Company (including any predecessor
entities) has filed all reports, registrations and statements, together with
any required amendments thereto, that it was required to file with the
Commission, including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K
and proxy statements (collectively, the "Company Reports"), copies of all of
which have been delivered to the Purchaser. As of their respective dates (but
taking into account any amendments filed prior to the date of this Agreement),
the Company Reports complied in all material respects with all the rules and
regulations promulgated by the Commission and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
2.08. Litigation. There is no action, suit or other legal or
administrative proceeding or governmental investigation pending, or, to the
knowledge of the Company, threatened, anticipated or contemplated against, by
or affecting the Company which questions the validity or enforceability of this
Agreement or the Registration Rights Agreement or the transactions contemplated
hereby or thereby.
2.09. Registration Rights Agreement. The Company acknowledges and
agrees that the Shares will be eligible for registration pursuant to the terms
of the Registration Rights Agreement by and among the Purchaser, the Company
and certain other parties thereto.
3
<PAGE> 7
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as
follows:
3.01. Authorization. This Agreement constitutes the Purchaser's valid
and legally binding obligation, enforceable in accordance with its terms except
as may be limited by (a) applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the enforcement of
creditors' rights generally, and (b) the effect of rules of law governing the
availability of equitable remedies. The Purchaser represents that the Purchaser
has full power and authority to enter into this Agreement.
3.02. Purchase for Own Account. The Shares to be purchased by the
Purchaser hereunder shall be acquired for investment for the Purchaser's own
account, not as a nominee or agent, and not with a view to the public resale or
distribution thereof, and the Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same. The
Purchaser represents that the Purchaser has not been formed for the specific
purpose of acquiring the Shares.
3.03. Disclosure of Information. The Purchaser has received or has had
full access to all the information it considers necessary or appropriate to
make an informed investment decision with respect to the Shares to be purchased
under this Agreement. The Purchaser further has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and to obtain additional information
(to the extent the Company possessed such information or could acquire it
without unreasonable effort or expense) necessary to verify any information
furnished to the Purchaser or to which the Purchaser had access.
3.04. Investment Experience. The Purchaser understands that the
purchase of the Shares involves substantial risk. The Purchaser acknowledges
that the Purchaser is able to fend for itself, can bear the economic risk of
the Purchaser's investment in the Shares and has such knowledge and experience
in financial or business matters that the Purchaser is capable of evaluating
the merits and risks of this investment in the Shares and protecting its own
interests in connection with this investment.
3.05. Accredited Investor Status. The Purchaser is an "accredited
investor" within the meaning of Regulation D promulgated under the Securities
Act.
3.06. Restricted Securities. The Purchaser understands that the Shares
are characterized as "restricted securities" under the Securities Act inasmuch
as they are being acquired from the Company in a transaction not involving a
public offering and that under the Securities Act and applicable regulations
thereunder such securities may be resold without registration under the
Securities Act only in certain limited circumstances. Further, the Purchaser
represents that the Purchaser is familiar with Rule 144 of the Commission, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act. The Purchaser understands that the Company is under no
obligation to register any of the securities sold hereunder except as provided
in the Registration Rights Agreement.
4
<PAGE> 8
3.07. Governmental Consents. No filings are required to be made, or
consents to be obtained, from any governmental authority to consummate the
transactions contemplated hereby, including the filing of any notification
required under the HSR Act.
3.08. Further Limitations on Disposition. Without in any way limiting
the representations set forth above, the Purchaser further agrees not to make
any disposition of all or any portion of the Shares unless and until:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(b) the Purchaser shall have furnished the Company at the
expense of the Purchaser or its transferee, with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition
will not require registration of such securities under the Securities
Act or is in compliance with Rule 144 of the Securities Act.
Notwithstanding the provisions of subparagraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required for any transfer
of Shares to (A) a partner of the Purchaser, (B) a retired partner of the
Purchaser who retires after the date hereof, or (C) the estate of any such
partner; provided that in each of the foregoing cases the transferee agrees in
writing to be subject to the terms of this Section 3 to the same extent as if
the transferee were an original purchaser hereunder.
3.09. Legends. It is understood that the certificates evidencing the
Shares will bear the legends set forth below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED, OR
OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT, OR
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE,
SATISFACTORY TO IT AND ITS COUNSEL, THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
(b) Any legend imposed or required by the applicable state securities
laws, the Registration Rights Agreement or any other ancillary agreement.
4. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
"Agreement" means this Common Stock Purchase Agreement, including all
amendments, modifications and supplements thereto.
"Closing" shall have the meaning assigned to such term in Section
1.02.
"Closing Date" shall have the meaning assigned to such term in Section
1.02.
5
<PAGE> 9
"Commission" means the Securities and Exchange Commission.
"Common Stock" shall have the meaning assigned to such term in
Preliminary Statement A.
"Company" shall have the meaning assigned to such term in the
introductory paragraph hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"indemnified party" shall have the meaning assigned to such term in
Section 5.02.
"Material Adverse Effect" means any material adverse effect on (a) the
business, assets, operations or financial condition of the Company and its
subsidiaries, taken as a whole, (b) the ability of the Company to perform its
obligations under this Agreement or the Registration Rights Agreement or (c)
the binding nature, validity or enforceability of this Agreement or the
Registration Rights Agreement.
"Purchaser" shall have the meaning assigned to such term in the
introductory paragraph hereof.
"Registration Rights Agreement" means the Registration Rights
Agreement for the RMSI Stockholders, dated as of August 18, 1999, by and among
the Company, the Purchaser and the other parties thereto.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" shall have the meaning assigned to such term in Section 1.01.
5. INDEMNIFICATION
5.01. General Indemnity. The Company agrees to indemnify and save
harmless the Purchaser and its directors, officers, affiliates, successors and
assigns from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys'
fees, charges and disbursements) incurred by the Purchaser as a result of any
inaccuracy in or breach of the representations, warranties or covenants made by
the Company in this Agreement and in the Registration Rights Agreement. The
Purchaser agrees to indemnify and save harmless the Company and its directors,
officers, affiliates, successors and assigns from and against any and all
losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys' fees, charges and disbursements)
incurred by the Company as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Purchaser herein.
5.02. Indemnification Procedure. Any party entitled to indemnification
under this Section 5 (an "indemnified party") will give written notice to the
indemnifying party of any
6
<PAGE> 10
claim with respect to which it seeks indemnification promptly after the
discovery by such party of any matters giving rise to a claim for
indemnification; provided that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section 5 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist in respect of such action, proceeding or
claim, to assume the defense thereof, with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action, proceeding or claim. In any event, unless and until the
indemnifying party elects in writing to assume and does so assume the defense
of any such claim, proceeding or action, the indemnified party's costs and
expenses arising out of the defense, settlement or compromise of any such
action, proceeding, claim or proceeding shall be losses subject to
indemnification hereunder. The indemnified party shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action, proceeding or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the indemnified
party which relates to such action, proceeding or claim. The indemnifying party
shall keep the indemnified party fully informed at all times as to the status
of the defense or any settlement negotiations with respect thereto. If the
indemnifying party elects to defend any such action, proceeding or claim, then
the indemnified party shall be entitled to participate in such defense with
counsel of its choice at its sole cost and expense. The indemnifying party
shall not be liable for any settlement of any action, claim or proceeding
effected without its written consent, provided, however, that the indemnifying
party shall not unreasonably withhold, delay or condition its consent. Anything
in this Section 5 to the contrary notwithstanding, the indemnifying party shall
not, without the indemnified party's prior written consent, settle or
compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party, a release from all liability in respect of
such claim, proceeding or action. The indemnification required by this Section
5 shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred. The indemnity agreements contained herein
shall be in addition to (a) any cause of action or similar right of the
indemnified party against the indemnifying party or others, and (b) any
liabilities the indemnifying party may be subject to pursuant to the law.
5.03. Indemnification Limitations. Notwithstanding the foregoing, the
indemnified party shall be entitled to make claims under Section 5.01 hereof
only to the extent that the aggregate amount of losses arising from such claims
does not exceed $5,000,000. Nothing contained in this Section 5.03 shall be
construed to limit the indemnification obligations of the Company afforded to
any holder of Shares under the Registration Rights Agreement or afforded
7
<PAGE> 11
to any director or officer of the Company under its organizational documents,
state law or otherwise.
6. MISCELLANEOUS
6.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of any party to this Agreement or the Registration Rights Agreement in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy thereunder. The remedies therein provided are
cumulative and not exclusive of any remedies provided by law.
6.02. Amendments, Waivers and Consents. Any provisions in this
Agreement to the contrary notwithstanding, and except as hereinafter provided,
changes in, termination or amendments of or additions to this Agreement or the
Registration Rights Agreement may be made, and compliance with any provision
set forth herein may be omitted or waived, if the Company shall obtain consent
thereto in writing from the Purchaser. Any waiver or consent may be given
subject to satisfaction of conditions stated therein and any waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
6.03. Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission or
mailed by prepaid first class mail, return receipt requested, or mailed by
overnight courier prepaid to the parties at the following addresses or
facsimile numbers.
To the Company: Marketing Specialists Corporation
17855 N. Dallas Parkway, Suite 200
Dallas, Texas 75287
Attention: Nancy K. Jagielski
Facsimile Number: 972-349-6448
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
Attention: Alan M. Utay
Facsimile Number: 214-969-4343
To the Purchaser: MS Acquisition Limited
17855 North Dallas Parkway
Suite 200
Dallas, Texas 75287
Attention: Nick Bouras
Fax: (972) 860-7584
8
<PAGE> 12
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, New York 10036
Attention: Eileen T. Nugent
Fax: (212) 735-2000
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 6.03 be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number
as provided in this Section 6.03 be deemed given upon successful transmission,
(iii) if delivered by mail in the manner described above to the address as
provided in this Section 6.03 be deemed given upon the earlier of the third
business day following mailing or upon receipt and (iv) if delivered by
overnight courier to the address as provided in this Section 6.03 be deemed
given on the earlier of the first business day following the date sent by such
overnight courier or upon receipt. Any party from time to time may change its
address, facsimile number or other information for the purpose of notices to
that party by giving notice specifying such change to the other parties hereto.
6.04. Binding Effect; Assignment. Each of this Agreement and the
Registration Rights Agreement shall be binding upon and inure to the benefit of
each of the Company and the Purchaser and their respective heirs, successors
and assigns, except that the Company shall not have the right to delegate its
obligations hereunder.
6.05. Survival of Representations and Warranties. All representations
and warranties made in this Agreement, the Registration Rights Agreement, or
any other instrument or document delivered in connection herewith or therewith,
shall survive the execution and delivery hereof or thereof for a period of 12
months after the date hereof.
6.06. Severability. The provisions of this Agreement, the Registration
Rights Agreement and the terms of the Shares are severable and, in the event
that any court of competent jurisdiction shall determine that any one or more
of the provisions or part of a provision contained in this Agreement, the
Registration Rights Agreement or the terms of the Shares shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement or the Registration Rights Agreement
or the terms of the Shares, but this Agreement and the Registration Rights
Agreement and the terms of the Shares shall be reformed and construed as if
such invalid or illegal or unenforceable provision, or part of a provision, had
never been contained herein, and such provisions or part reformed so that it
would be valid, legal and enforceable to the maximum extent possible.
6.07. Governing Law. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF DELAWARE WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF
THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE
APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
9
<PAGE> 13
6.08. Headings. The headings used in this Agreement have been inserted
for convenience of reference only and do not define or limit the provisions
hereof.
6.09. Counterparts. This Agreement may be executed in any number of
counterparts, each or which will be deemed an original, but all of which
together will constitute one and the same instrument.
6.10. Closing Condition Waivers. At any time prior to the Closing
Date, any party hereto may (a) extend the time for the performance of any of
the obligations or other acts of any other party hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed by the party granting such waiver but such waiver
or failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or future failure.
[SIGNATURE PAGE FOLLOWS]
10
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date and year first above written.
MARKETING SPECIALISTS CORPORATION
By:
------------------------------------
Name:
----------------------------
Title:
----------------------------
MS ACQUISITION LIMITED
By: MS Acquisition Corp., its General Partner
By:
------------------------------------
Name:
----------------------------
Title:
----------------------------
[SIGNATURE PAGE TO COMMON STOCK PURCHASE AGREEMENT]
<PAGE> 1
EXHIBIT 10.2
================================================================================
MARKETING SPECIALISTS CORPORATION
COMMON STOCK PURCHASE
AGREEMENT
DATED AS OF MARCH 30, 2000
4,000,000 SHARES OF COMMON STOCK
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TABLE OF CONTENTS
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1. PURCHASE AND SALE OF COMMON STOCK........................................................................1
1.01. Authorization of Common Stock...................................................................1
1.02. Purchase Price and Closing......................................................................1
1.03. Use of Proceeds.................................................................................2
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................2
2.01. Organization, Standing and Power................................................................2
2.02. Authority.......................................................................................2
2.03. Enforceability..................................................................................2
2.04. Valid Issuance..................................................................................2
2.05. Capitalization..................................................................................3
2.06. No Violation....................................................................................3
2.07. Reports and Financial Statements................................................................3
2.08. Litigation......................................................................................3
2.09. Registration Rights Agreement...................................................................4
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..........................................................4
3.01. Authorization...................................................................................4
3.02. Purchase for Own Account........................................................................4
3.03. Disclosure of Information.......................................................................4
3.04. Investment Experience...........................................................................4
3.05. Accredited Investor Status......................................................................4
3.06. Restricted Securities...........................................................................5
3.07. Governmental Consents...........................................................................5
3.08. Further Limitations on Disposition..............................................................5
3.09. Legends.........................................................................................5
4. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS......................................................6
4.01. Representations and Warranties..................................................................6
4.02. Refinancing of Senior Credit Facility...........................................................6
4.03. Third Supplemental Indenture....................................................................6
5. DEFINITIONS..............................................................................................6
6. INDEMNIFICATION..........................................................................................8
6.01. General Indemnity...............................................................................8
6.02. Indemnification Procedure.......................................................................8
6.03. Indemnification Limitations.....................................................................9
7. MISCELLANEOUS............................................................................................9
7.01. No Waiver; Cumulative Remedies..................................................................9
7.02. Amendments, Waivers and Consents................................................................9
7.03. Notices.........................................................................................9
7.04. Binding Effect; Assignment.....................................................................10
7.05. Survival of Representations and Warranties.....................................................10
7.06. Severability...................................................................................11
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7.07. Governing Law..................................................................................11
7.08. Headings.......................................................................................11
7.09. Counterparts...................................................................................11
7.10. Closing Condition Waivers......................................................................11
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COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated this
30th day of March, 2000, by and between Marketing Specialists Corporation, a
Delaware corporation (the "Company"), and MS Acquisition Limited, a Texas
limited partnership (the "Purchaser").
PRELIMINARY STATEMENTS
A. The Purchaser is a stockholder of the Company and desires to
purchase additional shares of the Company's common stock, $0.01 par value per
share (the "Common Stock"), directly from the Company, subject to the terms and
conditions set forth herein.
B. The Company desires to sell shares of Common Stock to the Purchaser,
subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
and agreements herein contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
STATEMENT OF AGREEMENT
1. PURCHASE AND SALE OF COMMON STOCK
1.01. Authorization of Common Stock. The Company has authorized the
issuance and sale of 4,000,000 shares (the "Shares") of its authorized but
unissued shares of Common Stock, having the rights set forth in the Certificate
of Incorporation of the Company.
1.02. Purchase Price and Closing. The Company agrees to issue and sell to the
Purchaser, and in consideration of, and in express reliance upon, the
representations, warranties, terms and conditions contained in, this Agreement,
the Purchaser agrees to purchase the Shares at a purchase price of $2.50 per
share, for an aggregate purchase price of $10,000,000. Subject to the terms and
conditions contained herein, the closing of the purchase and sale of the Shares
to be acquired by the Purchaser from the Company under this Agreement (the
"Closing") shall take place at 9:00 a.m. (Dallas, Texas time) on the first
business day following the day on which all the conditions contained in Section
4 of this Agreement shall have been satisfied or waived, or at such other time
and date as the Purchaser and the Company may agree (the "Closing Date"), at the
offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1700 Pacific Avenue, Suite
4100, Dallas, Texas 75201, or such other location as the parties mutually agree.
At the Closing, the Company will deliver to the Purchaser a certificate of the
Secretary or an Assistant Secretary of the Company, dated the Closing Date, (a)
attesting to corporate action taken by the Company, including resolutions of the
Board of Directors authorizing (i) the execution, delivery and performance by
the Company of this Agreement and the Registration Rights Agreement and (ii) the
issuance of the Shares, and (b) verifying that the Certificate of Incorporation
of the Company and the Bylaws of the Company currently on file with the
Commission are true,
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correct and complete as of the Closing Date. As soon as practicable after the
closing, but in any event not later than seven business days, the Company will
deliver to the Purchaser certificates evidencing the Shares to be purchased by
the Purchaser hereunder. At the Closing, Purchaser shall deliver $10,000,000 to
the Company by wire transfer of immediately available funds.
1.03. Use of Proceeds. The Company shall use the cash proceeds from the
sale of the Shares for general corporate purposes including, without limitation,
working capital and the financing of acquisitions.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows:
2.01. Organization, Standing and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has the requisite power and authority to own or lease its
properties and to carry on its business as presently conducted. There is no
pending or, to the Company's knowledge, threatened proceeding for the
dissolution, liquidation, insolvency or rehabilitation of the Company. The
Company's operating subsidiaries are entities duly organized, validly existing
and in good standing under the laws of each such subsidiary's state of
organization, and each has the requisite power and authority to own or lease its
properties and to carry on its business as presently conducted. There is no
pending or, to the Company's knowledge, threatened proceeding for the
dissolution, liquidation, insolvency or rehabilitation of any of the Company's
operating subsidiaries.
2.02. Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and the Registration Rights Agreement, to
issue and sell the Shares and to carry out its obligations hereunder and under
the Registration Rights Agreement.
2.03. Enforceability. This Agreement and the Registration Rights
Agreement have been duly executed and delivered by the Company and each
constitutes its legal, valid and binding obligation enforceable against it in
accordance with its terms, except as the same may be limited by the terms of
this Agreement or by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and general equitable principles regardless of whether such
enforceability is considered in a proceeding at law or in equity.
2.04. Valid Issuance. Upon consummation of the transactions
contemplated hereby and the issuance and delivery of certificates representing
the Shares to the Purchaser, the Shares will be validly issued, fully paid,
non-assessable and free of preemptive rights or similar rights of stockholders
of the Company and free and clear of any liens or other encumbrance.
2.05. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 50,000,000 shares of Common Stock, 4,000,000
shares of Restricted Common Stock and 1,000,000 shares of preferred stock. As of
March 16, 2000, (i) 15,455,135 shares of Common Stock and 335,700 shares of
Restricted Common Stock were validly issued and outstanding, fully paid and
non-assessable, and (ii) no shares of preferred stock were issued or
outstanding.
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2.06. No Violation. The execution and delivery of this Agreement and
the Registration Rights Agreement by the Company, the performance by the Company
of its obligations hereunder and the consummation by the Company of the
transactions contemplated by this Agreement and the Registration Rights
Agreement will not (a) contravene any provision of the Certificate of
Incorporation or By-laws of the Company, (b) violate or conflict with any
material law, statute, ordinance, rule, regulation, decree, writ, injunction,
judgment, ruling or order of any governmental authority or of any arbitration
award which is either applicable to, binding upon, or enforceable against the
Company, (c) conflict with, result in any breach of, or constitute a default
under, or give rise to a right to terminate, amend, modify, abandon or
accelerate, any material agreement which is applicable to, binding upon or
enforceable against the Company, (d) result in or require the creation or
imposition of any lien or other encumbrance upon or with respect to any of the
material property or assets of the Company, (e) give to any individual or entity
a right or claim against the Company, which would have a Material Adverse Effect
on the Company; or (f) require the consent, approval, authorization or permit
of, or filing with or notification to, any governmental authority, any court or
tribunal or any other person, except (i) consent under the Amended and Restated
Credit Facility dated August 18, 1999, as amended, among the Company, the
lenders set forth on Schedule 1 thereto and First Union National Bank as agent
for the lenders, which consent has been obtained, (ii) pursuant to the Exchange
Act and the Securities Act and applicable inclusion requirements of any stock
exchange on which the Common Stock is listed, (iii) filings required under the
securities or blue sky laws of the various states or (iv) filings required under
the HSR Act, if any (collectively, "Required Consents").
2.07. Reports and Financial Statements. From January 1, 1997 to the
date hereof, except where failure to have done so did not and would not have a
Material Adverse Effect on the Company, the Company (including any predecessor
entities) has filed all reports, registrations and statements, together with any
required amendments thereto, that it was required to file with the Commission,
including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K and proxy
statements (collectively, the "Company Reports"), copies of all of which have
been delivered to the Purchaser. As of their respective dates (but taking into
account any amendments filed prior to the date of this Agreement), the Company
Reports complied in all material respects with all the rules and regulations
promulgated by the Commission and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
2.08. Litigation. There is no action, suit or other legal or
administrative proceeding or governmental investigation pending, or, to the
knowledge of the Company, threatened, anticipated or contemplated against, by or
affecting the Company which questions the validity or enforceability of this
Agreement or the Registration Rights Agreement or the transactions contemplated
hereby or thereby.
2.09. Registration Rights Agreement. The Company acknowledges and
agrees that the Shares will be eligible for registration pursuant to the terms
of the Registration Rights Agreement by and among the Purchaser, the Company and
certain other parties thereto.
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3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
3.01. Authorization. This Agreement constitutes the Purchaser's valid
and legally binding obligation, enforceable in accordance with its terms except
as may be limited by (a) applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the enforcement of
creditors' rights generally, and (b) the effect of rules of law governing the
availability of equitable remedies. The Purchaser represents that the Purchaser
has full power and authority to enter into this Agreement.
3.02. Purchase for Own Account. The Shares to be purchased by the
Purchaser hereunder shall be acquired for investment for the Purchaser's own
account, not as a nominee or agent, and not with a view to the public resale or
distribution thereof, and the Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same. The Purchaser
represents that the Purchaser has not been formed for the specific purpose of
acquiring the Shares.
3.03. Disclosure of Information. The Purchaser has received or has had
full access to all the information it considers necessary or appropriate to make
an informed investment decision with respect to the Shares to be purchased under
this Agreement. The Purchaser further has had an opportunity to ask questions
and receive answers from the Company regarding the terms and conditions of the
offering of the Shares and to obtain additional information (to the extent the
Company possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify any information furnished to the
Purchaser or to which the Purchaser had access.
3.04. Investment Experience. The Purchaser understands that the
purchase of the Shares involves substantial risk. The Purchaser acknowledges
that the Purchaser is able to fend for itself, can bear the economic risk of the
Purchaser's investment in the Shares and has such knowledge and experience in
financial or business matters that the Purchaser is capable of evaluating the
merits and risks of this investment in the Shares and protecting its own
interests in connection with this investment.
3.05. Accredited Investor Status. The Purchaser is an "accredited
investor" within the meaning of Regulation D promulgated under the Securities
Act.
3.06. Restricted Securities. The Purchaser understands that the Shares
are characterized as "restricted securities" under the Securities Act inasmuch
as they are being acquired from the Company in a transaction not involving a
public offering and that under the Securities Act and applicable regulations
thereunder such securities may be resold without registration under the
Securities Act only in certain limited circumstances. Further, the Purchaser
represents that the Purchaser is familiar with Rule 144 of the Commission, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act. The Purchaser understands that the Company is under no
obligation to register any of the securities sold hereunder except as provided
in the Registration Rights Agreement.
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3.07. Governmental Consents. No filings are required to be made, or
consents to be obtained, from any governmental authority to consummate the
transactions contemplated hereby, including the filing of any notification
required under the HSR Act.
3.08. Further Limitations on Disposition. Without in any way limiting
the representations set forth above, the Purchaser further agrees not to make
any disposition of all or any portion of the Shares unless and until:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(b) the Purchaser shall have furnished the Company at the
expense of the Purchaser or its transferee, with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not
require registration of such securities under the Securities Act or is
in compliance with Rule 144 of the Securities Act.
Notwithstanding the provisions of subparagraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required for any transfer
of Shares to (A) a partner of the Purchaser, (B) a retired partner of the
Purchaser who retires after the date hereof, or (C) the estate of any such
partner; provided that in each of the foregoing cases the transferee agrees in
writing to be subject to the terms of this Section 3 to the same extent as if
the transferee were an original purchaser hereunder.
3.09. Legends. It is understood that the certificates evidencing the
Shares will bear the legends set forth below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
THE SECURITIES ACT, OR THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO IT AND ITS COUNSEL,
THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
(b) Any legend imposed or required by the applicable state
securities laws, the Registration Rights Agreement or any
other ancillary agreement.
4. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
The obligation of the Purchaser to purchase the Shares is subject to
the satisfaction by the Company, or waiver by the Purchaser, on or prior to the
Closing Date, of the following conditions:
4.01. Representations and Warranties. Each of the representations and
warranties of the Company set forth in this Agreement that is qualified as to
Material Adverse Effect or materiality shall be true and correct, and each of
the representations and warranties of the
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Company set forth in this Agreement not so qualified shall be true and correct
in all material respects, in each case as of the date of this Agreement and as
of the Closing Date as though made on and as of the Closing Date (except to the
extent in either case that such representations and warranties speak as of
another date).
4.02. Refinancing of Senior Credit Facility. The Company shall have
completed the Refinancing of its senior credit facility on terms satisfactory to
the Purchaser in its sole discretion.
4.03. Third Supplemental Indenture. The Company and the Trustee shall
have executed and delivered the Third Supplemental Indenture, and the Amendments
contained therein shall have become effective.
5. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"Agreement" means this Common Stock Purchase Agreement, including all
amendments, modifications and supplements thereto.
"Amendments" shall mean the amendments to the Indenture described in
the Consent Solicitation Statement.
"Closing" shall have the meaning assigned to such term in Section 1.02.
"Closing Date" shall have the meaning assigned to such term in Section
1.02.
"Commission" means the Securities and Exchange Commission.
"Common Stock" shall have the meaning assigned to such term in
Preliminary Statement A.
"Company" shall have the meaning assigned to such term in the
introductory paragraph hereof.
"Consent Solicitation Statement" shall mean that Consent Solicitation
Statement, dated as of March 27, 2000, relating to the Company's 10 1/8% Senior
Subordinated Notes due 2007.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnified Party" shall have the meaning assigned to such term in
Section 5.02.
"Indenture" shall mean that certain Indenture, dated as of December 19,
1997, by and among Richmont Marketing Specialists Inc. (which merged with and
into the Company in August 1999), the guarantor subsidiaries named therein and
Chase Bank of Texas, National
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Association (f/k/a Texas Commerce Bank National Association), relating to the
Company's 10 1/8% Senior Subordinated Notes due 2007.
"Material Adverse Effect" means any material adverse effect on (a) the
business, assets, operations or financial condition of the Company and its
subsidiaries, taken as a whole, (b) the ability of the Company to perform its
obligations under this Agreement or the Registration Rights Agreement or (c) the
binding nature, validity or enforceability of this Agreement or the Registration
Rights Agreement.
"Purchaser" shall have the meaning assigned to such term in the
introductory paragraph hereof.
"Refinancing" shall mean the refinancing of the Company's existing
senior credit facility by entering into a Second Amended and Restated Credit
Agreement among the Company and First Union National Bank, as agent and entering
into a new revolving credit facility pursuant to a credit agreement among the
Company, certain of its subsidiaries and The Chase Manhattan Bank, as agent.
"Registration Rights Agreement" means the Registration Rights Agreement
for the RMSI Stockholders, dated as of August 18, 1999, by and among the
Company, the Purchaser and the other parties thereto.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" shall have the meaning assigned to such term in Section 1.01.
"Third Supplemental Indenture" shall mean the Third Supplemental
Indenture by and among the Company, its subsidiaries and the Trustee, effecting
the Amendments.
"Trustee" shall mean Chase Bank of Texas, National Association, the
trustee under the indenture governing the Company's 10 1/8% Senior Subordinated
Notes due 2007.
6. INDEMNIFICATION
6.01. General Indemnity. The Company agrees to indemnify and save
harmless the Purchaser and its directors, officers, affiliates, successors and
assigns from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys' fees,
charges and disbursements) incurred by the Purchaser as a result of any
inaccuracy in or breach of the representations, warranties or covenants made by
the Company in this Agreement and in the Registration Rights Agreement. The
Purchaser agrees to indemnify and save harmless the Company and its directors,
officers, affiliates, successors and assigns from and against any and all
losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys' fees, charges and disbursements)
incurred by the Company as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Purchaser herein.
6.02. Indemnification Procedure. Any party entitled to indemnification
under this Section 5 (an "Indemnified Party") will give written notice to the
indemnifying party of any
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claim with respect to which it seeks indemnification promptly after the
discovery by such party of any matters giving rise to a claim for
indemnification; provided that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section 5 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
Indemnified Party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the Indemnified Party a conflict of interest between it
and the indemnifying party may exist in respect of such action, proceeding or
claim, to assume the defense thereof, with counsel reasonably satisfactory to
the Indemnified Party. In the event that the indemnifying party advises an
Indemnified Party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
Indemnified Party may, at its option, defend, settle or otherwise compromise or
pay such action, proceeding or claim. In any event, unless and until the
indemnifying party elects in writing to assume and does so assume the defense of
any such claim, proceeding or action, the Indemnified Party's costs and expenses
arising out of the defense, settlement or compromise of any such action,
proceeding, claim or proceeding shall be losses subject to indemnification
hereunder. The Indemnified Party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action,
proceeding or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
which relates to such action, proceeding or claim. The indemnifying party shall
keep the Indemnified Party fully informed at all times as to the status of the
defense or any settlement negotiations with respect thereto. If the indemnifying
party elects to defend any such action, proceeding or claim, then the
Indemnified Party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its written consent, provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. Anything in this Section
5 to the contrary notwithstanding, the indemnifying party shall not, without the
Indemnified Party's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the Indemnified Party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
Indemnified Party, a release from all liability in respect of such claim,
proceeding or action. The indemnification required by this Section 5 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred. The indemnity agreements contained herein shall
be in addition to (a) any cause of action or similar right of the Indemnified
Party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
6.03. Indemnification Limitations. Notwithstanding the foregoing, the
Indemnified Party shall be entitled to make claims under Section 5.01 hereof
only to the extent that the aggregate amount of losses arising from such claims
does not exceed $5,000,000. Nothing contained in this Section 5.03 shall be
construed to limit the indemnification obligations of the Company afforded to
any holder of Shares under the Registration Rights Agreement or afforded
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to any director or officer of the Company under its organizational documents,
state law or otherwise.
7. MISCELLANEOUS
7.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of any party to this Agreement or the Registration Rights Agreement in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy thereunder. The remedies therein provided are
cumulative and not exclusive of any remedies provided by law.
7.02. Amendments, Waivers and Consents. Any provisions in this
Agreement to the contrary notwithstanding, and except as hereinafter provided,
changes in, termination or amendments of or additions to this Agreement or the
Registration Rights Agreement may be made, and compliance with any provision set
forth herein may be omitted or waived, if the Company shall obtain consent
thereto in writing from the Purchaser. Any waiver or consent may be given
subject to satisfaction of conditions stated therein and any waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
7.03. Notices. All notices, requests and other communications hereunder
must be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission or mailed by
prepaid first class mail, return receipt requested, or mailed by overnight
courier prepaid to the parties at the following addresses or facsimile numbers.
To the Company: Marketing Specialists Corporation
17855 N. Dallas Parkway, Suite 200
Dallas, Texas 75287
Attention: Nancy K. Jagielski
Facsimile Number: 972-349-6448
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
Attention: Alan M. Utay
Facsimile Number: 214-969-4343
To the Purchaser: MS Acquisition Limited
17855 North Dallas Parkway
Suite 200
Dallas, Texas 75287
Attention: Nick Bouras
Fax: (972) 860-7584
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With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, New York 10036
Attention: Eileen T. Nugent
Fax: (212) 735-2000
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 6.03 be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section 6.03 be deemed given upon successful transmission,
(iii) if delivered by mail in the manner described above to the address as
provided in this Section 6.03 be deemed given upon the earlier of the third
business day following mailing or upon receipt and (iv) if delivered by
overnight courier to the address as provided in this Section 6.03 be deemed
given on the earlier of the first business day following the date sent by such
overnight courier or upon receipt. Any party from time to time may change its
address, facsimile number or other information for the purpose of notices to
that party by giving notice specifying such change to the other parties hereto.
7.04. Binding Effect; Assignment. Each of this Agreement and the
Registration Rights Agreement shall be binding upon and inure to the benefit of
each of the Company and the Purchaser and their respective heirs, successors and
assigns, except that the Company shall not have the right to delegate its
obligations hereunder.
7.05. Survival of Representations and Warranties. All representations
and warranties made in this Agreement, the Registration Rights Agreement, or any
other instrument or document delivered in connection herewith or therewith,
shall survive the execution and delivery hereof or thereof for a period of 12
months after the date hereof.
7.06. Severability. The provisions of this Agreement, the Registration
Rights Agreement and the terms of the Shares are severable and, in the event
that any court of competent jurisdiction shall determine that any one or more of
the provisions or part of a provision contained in this Agreement, the
Registration Rights Agreement or the terms of the Shares shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision or part of a
provision of this Agreement or the Registration Rights Agreement or the terms of
the Shares, but this Agreement and the Registration Rights Agreement and the
terms of the Shares shall be reformed and construed as if such invalid or
illegal or unenforceable provision, or part of a provision, had never been
contained herein, and such provisions or part reformed so that it would be
valid, legal and enforceable to the maximum extent possible.
7.07. Governing Law. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT
TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE
OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
10
<PAGE> 14
7.08. Headings. The headings used in this Agreement have been inserted
for convenience of reference only and do not define or limit the provisions
hereof.
7.09. Counterparts. This Agreement may be executed in any number of
counterparts, each or which will be deemed an original, but all of which
together will constitute one and the same instrument.
7.10. Closing Condition Waivers. At any time prior to the Closing Date,
any party hereto may (a) extend the time for the performance of any of the
obligations or other acts of any other party hereto, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, and (c) waive compliance with any of the agreements
or conditions contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed by the party granting such waiver but such waiver or failure
to insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or future failure.
[SIGNATURE PAGE FOLLOWS]
11
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
MARKETING SPECIALISTS CORPORATION
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
MS ACQUISITION LIMITED
By: MS Acquisition Corp., its General
Partner
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
[SIGNATURE PAGE TO COMMON STOCK PURCHASE AGREEMENT]
<PAGE> 1
EXHIBIT 10.3
================================================================================
MARKETING SPECIALISTS CORPORATION
-----------------------
WARRANT AGREEMENT
-----------------------
DATED AS OF MARCH 30, 2000
WARRANTS TO PURCHASE 687,136 SHARES OF COMMON STOCK
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. FORM, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES......................................1
1.1. Form of Warrant Certificates.....................................................1
1.2. Execution of Warrant Certificates; Registration Books............................2
1.3. Transfer, Split Up, Combination and Exchange of Warrant Certificates; Lost or
Stolen Warrant Certificates......................................................2
1.4. Subsequent Issuance of Warrant Certificates......................................3
2. EXERCISE OF WARRANTS; PAYMENT OF PURCHASE PRICE...........................................3
2.1. Exercise of Warrants.............................................................3
2.2. Cashless Exercise of Warrants....................................................3
2.3. Issuance of Common Stock.........................................................4
2.4. Unexercised Warrants.............................................................4
2.5. Cancellation and Destruction of Warrant Certificates.............................4
2.6. Notice of Expiration; Extension of Expiration Date...............................5
2.7. Fractional Shares................................................................5
2.8. Legend...........................................................................5
3. COVENANTS OF MSC..........................................................................5
3.1. Reservation of Common Stock......................................................5
3.2. Common Stock To Be Duly Authorized and Issued, Fully Paid and Nonassessable......6
3.3. Transfer Taxes...................................................................6
3.4. Common Stock Record Date.........................................................6
3.5. Rights in Respect of Common Stock................................................6
3.6. CUSIP Number.....................................................................7
3.7. Right of Action..................................................................7
3.8. Notice of Dividend...............................................................7
4. ADJUSTMENTS OF PURCHASE PRICE AND NUMBER OF SHARES........................................7
4.1. Mechanical Adjustments...........................................................7
4.2. Stock Dividends, Subdivisions and Combinations...................................7
4.3. Repurchases of Common Stock or Rights............................................7
4.4. Issuances of Additional Common Stock or Rights...................................8
4.5. Expiration of Rights.............................................................9
4.6. Consolidation; Merger; Sale; Reclassification....................................9
4.7. De Minimis Changes in Purchase Price............................................10
4.8. Adjustment of Number of Shares Issuable Pursuant to Warrants....................10
4.9. Warrant Clawback................................................................11
4.10. Miscellaneous...................................................................11
4.11. Other Securities................................................................12
4.12. Additional Agreements of MSC....................................................12
4.13. Information Concerning Adjustments..............................................13
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5. PUT RIGHTS................................................................................14
5.1. Put..............................................................................14
6. INFORMATION ABOUT MSC.....................................................................14
6.1. Financial and Business Information...............................................14
6.2. Inspection Rights................................................................16
7. INTERPRETATION OF THIS AGREEMENT..........................................................16
7.1. Certain Defined Terms............................................................16
7.2. Descriptive Headings.............................................................26
8. MISCELLANEOUS.............................................................................27
8.1. Expenses.........................................................................27
8.2. Amendment and Waiver.............................................................27
8.3. No Rights or Liabilities as Shareholder..........................................28
8.4. Directly or Indirectly...........................................................28
8.5. Survival of Representations and Warranties; Entire Agreement.....................28
8.6. Successors and Assigns...........................................................28
8.7. Notices..........................................................................28
8.8. Satisfaction Requirement.........................................................29
8.9. Severability.....................................................................29
8.10. Counterparts.....................................................................29
8.11. Waiver of Jury Trial, Consent to Jurisdiction, Service of Process, Other Forums..29
8.12. Governing Law....................................................................31
8.13. Schedule of Shares...............................................................31
9. PURCHASE FOR INVESTMENT...................................................................31
</TABLE>
Exhibit 1 - Form of Warrant Certificate
Exhibit 2 - Form of Counterpart
Exhibit 3 - Schedule of Shares
- ii-
<PAGE> 4
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of March 30, 2000, among MARKETING
SPECIALISTS CORPORATION, a Delaware corporation (together with its successors
and assigns, "MSC"), and FIRST UNION INVESTORS, INC., a North Carolina
corporation (together with its successors and registered assigns, the
"PURCHASER").
RECITALS:
A. Certain capitalized terms used in this Agreement shall have the
meanings ascribed to them in Section 7 hereof.
B. First Union National Bank (the "Bank"), an Affiliate of the
Purchaser, and MSC have entered into that certain Second Amended and Restated
Credit Agreement (as may be amended or supplemented from time to time, the
"CREDIT AGREEMENT"), of even date herewith, pursuant to which, among other
things, the Bank agreed to lend MSC Thirty-Five Million Dollars ($35,000,000)
(the "Loan").
C. As a condition thereto and in consideration of the foregoing, MSC
agreed to issue to the Purchaser Six Hundred Eighty Seven Thousand One Hundred
Thirty Six (687,136) Warrants (the "WARRANTS") of MSC, each Warrant individually
representing the right to purchase one (1) share of Common Stock and the
Warrants collectively representing the right to purchase four percent (4%) of
the Common Stock of MSC on a Fully Diluted Basis, upon the terms and subject to
the conditions hereinafter set forth.
D. MSC has duly authorized the issuance to the Purchaser of the
Warrants.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties to this Agreement hereby agree as
follows:
1. FORM, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES.
1.1. Form of Warrant Certificates. The warrant certificates
(individually, a "Warrant Certificate" and, collectively, the "Warrant
Certificates") evidencing the Warrants, and the forms of assignment and of
election to purchase shares to be attached to such certificates, shall be
substantially in the form set forth in Exhibit 1 hereto and may have such
letters, numbers or other marks of identification or designation as may be
required to comply with any law or with any rule or regulation of any
governmental authority, stock exchange or self-regulatory organization made
pursuant thereto. Each Warrant Certificate shall be dated the date of issuance
thereof by MSC, either upon initial issuance or upon transfer or exchange, and
on its face shall initially entitle the holder thereof to purchase a number of
shares of Common Stock equal to the number
<PAGE> 5
of Warrants represented by such Warrant Certificate at a price per share equal
to the Purchase Price, but the number of such shares and the Purchase Price
shall be subject to adjustment as provided herein.
1.2. Execution of Warrant Certificates; Registration Books.
(a) Execution of Warrant Certificates. The Warrant
Certificates shall be executed on behalf of MSC by an officer of MSC authorized
by the Board of Directors. In case the officer of MSC who shall have signed any
Warrant Certificate shall cease to be such an officer of MSC before issuance and
delivery by MSC of such Warrant Certificate, such Warrant Certificate
nevertheless may be issued and delivered with the same force and effect as
though the individual who signed such Warrant Certificate had not ceased to be
such an officer of MSC, and any Warrant Certificate may be signed on behalf of
MSC by any individual who, at the actual date of the execution of such Warrant
Certificate, shall be a proper officer of MSC to sign such Warrant Certificate,
although at the date of the execution of this Agreement any such individual was
not such an officer.
(b) Registration Books. MSC will keep or cause to be kept at
its office maintained at the address of MSC set forth in Section 8.7 hereof, or
at such other office of MSC in the United States of America of which MSC shall
have given notice to each holder of Warrant Certificates, books for registration
and transfer of the Warrant Certificates issued hereunder. Such books shall show
the names and addresses of the respective holders of the Warrant Certificates,
the registration number and the number of Warrants evidenced on its face by each
of the Warrant Certificates and the date of each of the Warrant Certificates.
1.3. Transfer, Split Up, Combination and Exchange of Warrant
Certificates; Lost or Stolen Warrant Certificates.
(a) Transfer, Split Up, etc. Any Warrant Certificate, with or
without other Warrant Certificates, may be transferred, split up, combined or
exchanged for another Warrant Certificate or Warrant Certificates, entitling the
registered holder or Transferee thereof to purchase a like number of shares of
Common Stock as the Warrant Certificate or Warrant Certificates surrendered then
entitled such registered holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Warrant Certificate shall make such
request in writing delivered to MSC, and shall surrender the Warrant Certificate
or Warrant Certificates to be transferred, split up, combined or exchanged at
the office of MSC referred to in Section 1.2(b) hereof, whereupon MSC shall
deliver promptly to the Person entitled thereto a Warrant Certificate or Warrant
Certificates, as the case may be, as so requested.
(b) Loss, Theft, etc. Upon receipt by MSC of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate (which evidence shall be,
in the case of an Institutional Investor, notice from such Institutional
Investor of such ownership (or of ownership by such Institutional Investor's
nominee) and such loss, theft, destruction or mutilation), and:
(i) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to MSC; provided, however, that if the holder
of such Warrant Certificate is an
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<PAGE> 6
Institutional Investor or a nominee of an Institutional Investor, such
Institutional Investor's own unsecured agreement of indemnity shall be deemed to
be satisfactory; or
(ii) in the case of mutilation, upon surrender and
cancellation thereof;
MSC at its own expense will execute and deliver, in lieu thereof, a new Warrant
Certificate, dated the date of such lost, stolen, destroyed or mutilated Warrant
Certificate and of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant Certificate.
1.4. Subsequent Issuance of Warrant Certificates. Subsequent to the
original issuance, no Warrant Certificates shall be issued except:
(a) Warrant Certificates issued upon any transfer,
combination, split up or exchange of Warrants pursuant to Section 1.3(a) hereof;
(b) Warrant Certificates issued in replacement of mutilated,
destroyed, lost or stolen Warrant Certificates pursuant to Section 1.3(b)
hereof; and
(c) Warrant Certificates issued pursuant to Section 2.4 hereof
upon the partial exercise of any Warrant Certificate to evidence the unexercised
portion of such Warrant Certificate.
2. EXERCISE OF WARRANTS; PAYMENT OF PURCHASE PRICE.
2.1. Exercise of Warrants. At any time, and from time to time, on or
after March 31, 2002 through the Expiration Date, (a) a holder of all Warrant
Certificates may exercise all or a portion of the Warrants evidenced thereby or
(b) if more than one Person holds Warrant Certificates, each holder of any
Warrant Certificate may exercise all or a portion of the Warrants evidenced
thereby, in whole or in part (but not, in the case of any exercise in part, to
the extent that such exercise would result in the issuance of a fractional share
of Common Stock), by surrender of such Warrant Certificate, with an election to
purchase (a form of which is attached to each Warrant Certificate) duly
executed, to MSC at its office referred to in Section 1.2(b) hereof, together
with payment of the Purchase Price for each share of Common Stock with respect
to which the Warrants are then being exercised.
In addition, if a (i) Takeout Event occurs, (ii) Dividend is declared
or (iii) notice of either event listed in (i) or (ii) is delivered to holders of
Warrant Certificates prior to March 31, 2002, the Required Warrantholders may,
in connection with such event and by written notice to MSC, exercise all, but
not less than all, of their Warrants and all other holders of Warrant
Certificates agree to surrender all such Warrant Certificates and exercise all
of the Warrants evidenced thereby at such time as the Required Warrantholders
exercise their Warrants.
2.2. Cashless Exercise of Warrants. In the event that any holder of
Warrant Certificates delivers such Warrant Certificates to MSC and notifies MSC
in writing that such holder intends to exercise all, or any portion of, the
Warrants represented by such Warrant Certificates to satisfy its obligation to
pay the Purchase Price in respect thereof by virtue of the provisions of this
Section, such holder shall become entitled to receive, instead of the number of
- 3 -
<PAGE> 7
shares of Common Stock such holder would have received had the Purchase Price
been paid pursuant to Section 2.1, a number of shares of Common Stock in respect
of the exercise of such Warrants equal to the product of:
(a) the number of shares of Common Stock issuable upon such exercise of
such Warrant Certificate (or, if only a portion of such Warrant Certificate is
being exercised, issuable upon the exercise of such portion); multiplied by
(b) the quotient of:
(i) the difference of:
(A) the Market Price at the time of such exercise;
minus
(B) the Purchase Price at the time of such exercise;
divided by
(ii) the Market Price at the time of such exercise.
MSC shall not be required to issue fractional shares by virtue of this Section,
but shall pay the exercising holder cash in lieu of such fractional share in
accordance with Section 2.7. For purposes of Rule 144 under the Securities Act,
17 C.F.R. Section 230.144, MSC and the Purchaser agree that the exercise of any
Warrants in accordance with this Section shall be deemed to be a conversion of
such Warrants, pursuant to the terms of this Agreement and the Warrants, into
Common Stock.
2.3. Issuance of Common Stock. Upon timely receipt of a Warrant
Certificate, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for each of the shares of Common Stock to be
purchased in the manner provided in Section 2.1 or 2.2 hereof and an amount
equal to any applicable transfer tax (if not payable by MSC as provided in
Section 3.3 hereof), MSC shall thereupon promptly cause certificates
representing the number of shares of the Common Stock then being purchased to be
delivered to or upon the order of the registered holder of such Warrant
Certificate, registered in such name or names as may be designated by such
holder, and, promptly after such receipt deliver the cash, if any, to be paid in
lieu of fractional shares pursuant to Section 2.7 to or upon the order of the
registered holder of such Warrant Certificate.
2.4. Unexercised Warrants. In case the registered holder of any Warrant
Certificate shall exercise less than all the Warrants evidenced thereby, a new
Warrant Certificate evidencing Warrants equal in number to the number of
Warrants remaining unexercised shall be issued by MSC to the registered holder
of such Warrant Certificate or to its duly authorized assigns.
2.5. Cancellation and Destruction of Warrant Certificates. All Warrant
Certificates surrendered to MSC for the purpose of exercise, exchange,
substitution or transfer shall be canceled by it, and no Warrant Certificates
shall be issued in lieu thereof except as expressly
- 4 -
<PAGE> 8
permitted by the provisions of this Agreement. MSC shall cancel and retire any
other Warrant Certificates purchased or acquired by MSC otherwise than upon the
exercise thereof.
2.6. Notice of Expiration; Extension of Expiration Date.
(a) Notice of Expiration; Effect. All Warrants that have not
been exercised or purchased in accordance with the provisions of this Agreement
shall expire and all rights of holders of such Warrants shall terminate and
cease on the Expiration Date. MSC agrees to notify each holder of Warrants, not
less than thirty (30) days but not more than one hundred fifty (150) days, prior
to the Expiration Date in writing, of the Expiration Date and that, on the
Expiration Date, all Warrants remaining unexercised shall expire and all rights
of holders of such Warrants shall terminate and cease.
(b) Extension of Expiration Date. If notice of the Expiration
Date is not given within the time period specified in Section 2.6(a), then the
Expiration Date shall be extended to, and shall instead occur, on that date
which is thirty (30) days after such notice is actually given.
2.7. Fractional Shares. MSC shall not be required to issue fractional
shares of Common Stock upon the exercise of any Warrant. Upon the exercise of
any Warrant, there shall be paid to the holder thereof, in lieu of any
fractional share of Common Stock resulting therefrom, an amount of cash equal to
the product of:
(a) the fractional amount of such share; times
(b) the Market Price, as determined on the trading day
immediately prior to the date of exercise of such Warrant.
2.8. Legend. Each Warrant Certificate issued pursuant to this Agreement
shall be stamped or otherwise have endorsed or imprinted thereon a legend in
substantially the following form:
"THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND NEITHER THIS WARRANT NOR ANY SUCH SHARES OF COMMON STOCK MAY BE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SUCH ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAW, UNLESS, IN THE
OPINION (WHICH SHALL BE IN A FORM AND SUBSTANCE SATISFACTORY TO MSC) OF COUNSEL
SATISFACTORY TO MSC, SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, ANY
TRANSFER OF THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS WARRANT ARE SUBJECT TO THE CONDITIONS SPECIFIED IN THIS WARRANT."
3. COVENANTS OF MSC.
3.1. Reservation of Common Stock. MSC covenants and agrees that it will
at all times cause to be reserved and kept available out of its authorized and
unissued shares of Common
- 5 -
<PAGE> 9
Stock such number of shares of Common Stock as will be sufficient to permit the
exercise in full of all Warrants issued hereunder and all other Rights
exercisable or convertible into Common Stock.
3.2. Common Stock To Be Duly Authorized and Issued, Fully Paid and
Nonassessable. MSC covenants and agrees that it will take all such action as may
be necessary to ensure that all shares of Common Stock delivered upon the
exercise of any Warrants, at the time of delivery of the certificates
representing such shares, shall be duly and validly authorized and issued and
fully paid and nonassessable, free of any preemptive rights in favor of any
Person in respect of such issuance and free of any Lien other than a Lien for
the benefit of a Purchaser.
3.3. Transfer Taxes. MSC covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges that may be
payable in respect of the initial issuance or delivery of:
(a) each Warrant Certificate;
(b) each Warrant Certificate issued in exchange for any other
Warrant Certificate pursuant to Section 1.3(a) or 2.3 hereof; and
(c) each share of Common Stock issued upon the exercise of any
Warrant.
MSC shall not, however, be required to:
(i) pay any transfer tax that may be payable in
respect of the transfer or delivery of Warrant Certificates or the issuance or
delivery of certificates for shares of Common Stock in a name other than that of
the registered holder of the Warrant Certificate evidencing any Warrant
surrendered for exercise (any such tax being payable by the holder of such
Warrant Certificate at the time of surrender); or
(ii) issue or deliver any such certificates referred
to in the foregoing clause (i) for shares of Common Stock upon the exercise of
any Warrant until any such tax referred to in the foregoing clause (i) shall
have been paid.
3.4. Common Stock Record Date. Each Person in whose name any
certificate for shares of Common Stock is issued upon the exercise of Warrants
shall for all purposes be deemed to have become the holder of record of the
shares of Common Stock represented thereby on, and such certificate shall be
dated, the date upon which the originally executed Warrant Certificate
evidencing such Warrants was duly surrendered and delivered to MSC with an
election to purchase attached thereto duly executed and payment of the aggregate
Purchase Price (and any applicable transfer taxes, if payable by such Person)
was made.
3.5. Rights in Respect of Common Stock. Prior to the exercise of the
Warrants evidenced thereby, the holder of a Warrant Certificate shall not be
entitled to any rights of a Shareholder with respect to shares for which the
Warrants shall be exercisable, including, without limitation, the right to vote
or receive distributions.
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<PAGE> 10
3.6. CUSIP Number. MSC covenants and agrees to maintain a CUSIP Number
in respect of the Common Stock.
3.7. Right of Action. All rights of action in respect of the Warrants
are vested in the respective registered holders of the Warrant Certificates, and
any registered holder of any Warrant Certificate, without the consent of the
holder of any other Warrant Certificate, may, on its own behalf and for its own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against MSC to enforce, or otherwise act in respect of, its right to exercise
the Warrants evidenced by such Warrant Certificate in the manner provided in
such Warrant Certificate and in this Agreement.
3.8. Notice of Dividend. MSC convenants and agrees to deliver to all
holders of Warrant Certificates, at least ten (10) Business Days prior to the
applicable record date, a notice of its intent to declare any Dividend.
4. ADJUSTMENTS OF PURCHASE PRICE AND NUMBER OF SHARES
4.1. Mechanical Adjustments. The number of shares of Common Stock
purchasable upon the exercise of each Warrant, and the Purchase Price, shall be
subject to adjustment as set forth in this Section 4.
4.2. Stock Dividends, Subdivisions and Combinations. In the event that
MSC shall, on or after the date hereof:
(a) pay or make a Dividend in shares of Additional Common
Stock;
(b) reclassify by subdivision its outstanding shares of Common
Stock into a greater number of shares; or
(c) reclassify by combination its outstanding shares of Common
Stock into a smaller number of shares;
then, and in each such case, effective on the record date of such Dividend or
reclassification (or, in the event that no record date is fixed therefor, on the
date such Dividend is made or the effective date of such reclassification), the
Purchase Price in effect at such time shall be adjusted to that price determined
by multiplying the Purchase Price in effect immediately prior to such event by
the quotient of:
(i) the total number of outstanding shares of Common
Stock immediately prior to such event; divided by
(ii) the total number of outstanding shares of Common
Stock immediately after such event.
4.3. Repurchases of Common Stock or Rights. In the event that MSC shall
repurchase, redeem, retire or otherwise acquire shares of Common Stock or Rights
for a Consideration Per Share greater than the Market Price in effect on the
date of such repurchase, redemption, retirement or acquisition, then the
Purchase Price in effect immediately after such
- 7 -
<PAGE> 11
event shall be adjusted by multiplying the Purchase Price in effect immediately
prior to such event by the quotient of:
(a) the difference of:
(i) the product of:
(A) the number of shares of Common Stock
immediately prior to such event (calculated
on a Fully-Diluted Basis); multiplied by
(B) the Market Price in effect immediately
prior to such event;
minus
(ii) the Aggregate Consideration Paid;
divided by
(b) the product of:
(i) the Market Price in effect immediately prior to
such event; multiplied by
(ii) the number of shares of Common Stock (calculated
on a Fully-Diluted Basis) immediately after such event.
In the event that any of the Aggregate Consideration Paid consists of
Property other than cash, the value of such Property for purposes of computing
the Aggregate Consideration Paid shall be determined by the Valuation Agent as
of a date not more than thirty (30) days prior to the date of determination
thereof and shall be set forth in a written certificate of the Valuation Agent
which shall be delivered to the holders of the Warrants in the manner
contemplated by Section 8.7.
4.4. Issuances of Additional Common Stock or Rights. In the event that
MSC shall issue or sell shares of Additional Common Stock or Rights (excluding
Excluded Securities) for no consideration or at a Consideration Per Share lower
than the Reference Price in effect on the date of such issuance or sale, then
the Purchase Price in effect immediately after such event shall be adjusted by
multiplying the Purchase Price in effect immediately prior to such event by the
quotient of:
(a) the sum of:
(i) the number of shares of Common Stock outstanding
immediately prior to such event; plus
(ii) the quotient of:
(A) the Aggregate Consideration Receivable;
divided by
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<PAGE> 12
(B) the Reference Price;
in each case immediately prior to such event;
divided by
(b) the sum of:
(i) the number of shares of Common Stock outstanding
immediately prior to such event; plus
(ii) the number of shares of Additional Common Stock
so issued or sold (or initially issuable pursuant to such Rights).
In the event that any of the Aggregate Consideration Receivable
consists of Property other than cash, the value of such Property for purposes of
computing the Aggregate Consideration Receivable shall be determined by the
Valuation Agent as of a date not more than thirty (30) days prior to the date of
determination thereof and shall be set forth in a written certificate of the
Valuation Agent which shall be delivered to the holders of the Warrants in the
manner contemplated by Section 8.7.
4.5. Expiration of Rights. Upon the expiration of any Rights in respect
of the issuance of which adjustment was made pursuant to Section 4.4, without
the exercise thereof, the Purchase Price and the number of shares of Common
Stock purchasable upon the exercise of each Warrant shall, upon such expiration,
be readjusted and shall thereafter be such Purchase Price and such number of
shares of Common Stock as would have been had such Purchase Price and such
number of shares of Common Stock been originally adjusted (or had the original
adjustment not been required, as the case may be) as if:
(a) the only shares of Common Stock so issued were the shares
of Common Stock, if any, actually issued or sold upon the exercise of such
Rights; and
(b) such shares of Common Stock, if any, were issued or sold
for the consideration actually received by MSC upon such exercise plus the
aggregate consideration, if any, actually received by MSC for the issuance, sale
or grant of all of such Rights, whether or not exercised; provided that no such
readjustment shall have the effect of increasing the Purchase Price by an amount
in excess of the amount of the reduction initially made in respect of the
issuance, sale, or grant of such Rights.
4.6. Consolidation; Merger; Sale; Reclassification. In the event that
there shall be:
(a) any consolidation of MSC with, or merger of MSC with or
into, another Person (other than a merger in which MSC is the surviving
corporation and that does not result in any reclassification or change of shares
of Common Stock outstanding immediately prior to such merger);
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<PAGE> 13
(b) any sale or conveyance to another Person of the Property
of MSC substantially as an entirety; or
(c) any reclassification of the Common Stock that results in
the issuance of other Securities of MSC;
then, in each such case, lawful provision shall be made as a part of the terms
of such transaction so that the holders of Warrants shall thereafter have the
right to purchase the number and kind of shares of stock, other Securities,
cash, Property and Rights receivable upon such consolidation, merger, sale,
conveyance or reclassification by a holder of such number of shares of Common
Stock as the holder of a Warrant would have had the right to acquire upon the
exercise of such Warrant immediately prior to such consolidation, merger, sale,
conveyance or reclassification, at the Purchase Price then in effect, and,
without further action on the part of any Person, each Warrant will thereafter
represent the right to receive, upon payment of the Purchase Price, such shares
of stock, other Securities, cash, Property and Rights as are so receivable. At
the time of each such consolidation, merger or sale, the Person surviving such
merger or consolidation or the Person to whom such sale or conveyance is made,
as the case may be, shall expressly assume the due and punctual observance and
performance of each and every provision of this Agreement and all obligations
and liabilities of MSC hereunder (subject to the foregoing sentence), in each
case, pursuant to such agreements and instruments as are reasonably acceptable
to the Required Warrantholders.
Notwithstanding the foregoing, MSC shall not enter into any such
merger, consolidation, sale or conveyance of all or substantially all of the
Property of MSC or reclassification in which the operation of the foregoing
provision would otherwise result in the holder of a Warrant receiving, upon
exercise thereof, consideration other than cash, Common Stock or Freely Tradable
Securities, or some combination thereof.
4.7. De Minimis Changes in Purchase Price. No adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Purchase Price;
provided that any adjustments that, at the time of the calculation thereof, are
less than one percent (1%) of the Purchase Price at such time and by reason of
this Section 4.7 are not required to be made at such time shall be carried
forward and added to any subsequent adjustment or adjustments for purposes of
determining whether such subsequent adjustment or adjustments, as so
supplemented, exceed the one percent (1%) amount set forth in this Section 4.7
and, if any such subsequent adjustment, as so supplemented or otherwise, should
exceed such one percent (1%) amount, all adjustments deferred prior thereto and
not previously made shall then be made. In any case, all such adjustments being
carried forward pursuant to this Section 4.7 shall be given effect upon the
exercise of any Warrants by any holder thereof for purposes of determining the
Purchase Price thereof. All calculations shall be made to the nearest
ten-thousandth of a dollar ($0.0001).
4.8. Adjustment of Number of Shares Issuable Pursuant to Warrants. Upon
each adjustment of the Purchase Price as a result of any calculations made
pursuant to Section 4.2 through Section 4.4, each Warrant outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of shares of
Common Stock (calculated to the nearest one-hundredth (.0001)) obtained
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by multiplying the number of shares of Common Stock covered by such Warrant
immediately prior to such adjustment by the quotient of:
(a) the Purchase Price in effect immediately prior to such
adjustment, divided by
(b) the Purchase Price in effect immediately after such
adjustment, calculated, for this purpose, to ten (10) decimal places and applied
prior to giving effect to any rounding required by Section 4.7.
All Warrants originally issued by MSC hereunder shall, subsequent to any
adjustment made to the Purchase Price hereunder, evidence the right to purchase,
at the adjusted Purchase Price, the number of shares of Common Stock determined
to be purchasable from time to time hereunder upon exercise of such Warrants,
all subject to further adjustment as provided herein. Each such adjustment shall
be valid and binding upon MSC and the holders of Warrants irrespective of
whether the Warrant Certificates theretofore and thereafter issued express the
Purchase Price per share of Common Stock and the number of shares of Common
Stock that were expressed upon the initial Warrant Certificates issued
hereunder.
4.9. Warrant Clawback. In the event that, on or after the date hereof
and in accordance with the terms of the Credit Agreement, there is a reduction
in the Loan which payment shall reduce the Purchaser's Exposure by at least
$1,000,000, the number of shares of Common Stock purchasable upon the exercise
of each Warrant shall be adjusted such that each Warrant outstanding immediately
prior to the making of such payment shall thereafter evidence the right to
purchase that number of shares of Common Stock (calculated to the nearest
one-hundredth (.0001)) obtained by multiplying the number of shares of Common
Stock covered by such Warrant immediately prior to such adjustment by the
quotient of:
(a) the Warrant Percentage immediately prior to such
adjustment minus the Warrant Clawback resulting from such principal reduction;
divided by
(b) the Warrant Percentage immediately prior to such
adjustment.
4.10. Miscellaneous.
(a) Adjustments shall be made pursuant to this Section 4
successively whenever any of the events referred to in Section 4.2 through
Section 4.6, inclusive, or Section 3.10 shall occur.
(b) If any Warrant shall be exercised subsequent to the record
date for any of the events referred to in Section 4.2 through Section 4.6,
inclusive, but prior to the effective date thereof, appropriate adjustments
shall be made immediately after such effective date so that the holder of such
Warrant on such record date shall have received, in the aggregate, the kind and
number of shares of Common Stock or other Securities or Property that it would
have owned or been entitled to receive on such effective date had such Warrant
been exercised prior to such record date.
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(c) Shares of Common Stock owned by or held for the account of
MSC or any Subsidiary shall not, for purposes of the adjustments set forth in
this Section 4, be deemed outstanding.
4.11. Other Securities. In the event that at any time, as a result of
an adjustment made pursuant to this Section 4, each holder of Warrants shall
become entitled to purchase any Securities of MSC other than shares of Common
Stock, the number or amount of such other Securities so purchasable and the
Purchase Price of such Securities shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions contained in Section 4.2 through Section 4.6, inclusive, hereof, and
all other relevant provisions of this Section 4 that are applicable to shares of
Common Stock shall be applicable to such other Securities.
4.12. Additional Agreements of MSC. MSC covenants and agrees that:
(a) MSC shall not, by amendment to the Charter, or through any
reorganization, transfer of assets, consolidation, merger, dissolution,
liquidation, issuance or sale of Securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by MSC, or which would have the effect of
circumventing or avoiding the provisions of this Section 4, but shall at all
times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the holders of the Warrant
Certificates against dilution or other impairment.
(b) Before taking any action that would result in an
adjustment to the then current Purchase Price to a price that would be below the
then current par value of Common Stock issuable upon exercise of any Warrant,
MSC will take or cause to be taken any and all necessary corporate or other
action that may be necessary in order that MSC may validly and legally issue
fully paid and nonassessable shares of Common Stock upon payment of such
Purchase Price as so adjusted.
(c) If MSC shall amend the provisions of any Rights (other
than the Warrants) or make any adjustment thereto (pursuant to any antidilution
provision or otherwise) so as to reduce the Consideration Per Share applicable
thereto, increase the number of shares issuable upon exercise thereof or
otherwise change the economic terms (such as the purchase price, exercise price,
conversion price or conversion ratio thereof), then MSC shall make appropriate
adjustment, as nearly as practical to those that would be required by the
provisions of Section 4.2 through Section 4.4, inclusive, most nearly analogous
to the effect of such amendment, to the Purchase Price, and, pursuant to Section
4.8, to the number of shares of Common Stock issuable upon exercise of the
Warrants, as shall be fair and equitable, such adjustment to be determined by
the Valuation Agent.
(d) In the event that any of the events described in any of
Section 4.2 through Section 4.4, inclusive, give rise to an adjustment to the
purchase, exercise or conversion price or conversion ratio, or number of shares
of Common Stock issuable upon conversion or exercise, of any Rights (other than
the Warrants), then the adjustments provided for in Section 4.2 through Section
4.4, inclusive, in respect of such event shall give effect both to the event
giving rise to
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<PAGE> 16
such adjustment under this Agreement and to all such adjustments made in respect
of such other Rights; provided, however, that no such adjustment shall duplicate
any adjustment required to be made in respect thereof by virtue of the
provisions of Section 4.11(b).
4.13. Information Concerning Adjustments.
(a) Notice of Adjustment Whenever the number of shares of
Common Stock issuable upon the exercise of Warrants is adjusted or the Purchase
Price in respect thereof is adjusted, as herein provided, MSC shall promptly
give to each holder of Warrants notice of such adjustment or adjustments and
shall promptly deliver to each holder of Warrants a certificate of the chief
financial officer of MSC setting forth:
(i) the number of shares of Common Stock issuable
upon the exercise of each Warrant and the Purchase Price of such shares after
such adjustment;
(ii) a brief statement of the facts requiring such
adjustment; and
(iii) the computation by which such adjustment was
made.
(b) Annual Certificate. So long as any Warrant is outstanding,
within ninety (90) days of the end of each fiscal year of MSC, MSC shall deliver
to each holder of Warrants a certificate of the chief financial officer of MSC
setting forth:
(i) the number of shares of Common Stock issuable
upon the exercise of each Warrant and the Purchase Price of such shares as of
the end of such fiscal year;
(ii) a brief statement of the facts requiring each
adjustment, if any, required to be made in such fiscal year; and
(iii) the computation by which each such adjustment
was made.
(c) Confirmation by Accountants. At the request of a holder of
Warrants, a certificate of the chief financial officer pursuant to Section
4.13(a) or Section 4.13(b) shall be confirmed by a certificate from the
independent certified public accountants of MSC.
(d) Notices of Certain Events. Whenever MSC shall publicly
announce the authorization of any Notice Event, MSC shall, not less than fifteen
(15) days prior to the record date with respect to such event (or, if no record
date for the same shall be fixed, not less than fifteen (15) days prior to the
occurrence of such Notice Event), give to each holder of Warrants, written
notice of such event setting forth any change in the number of shares of Common
Stock MSC estimates will be issuable upon the exercise of each Warrant, the
estimated Purchase Price after any adjustment required to be made hereunder and
a brief statement of the facts requiring such adjustment and the computation by
which MSC expects such adjustment will be made. Notwithstanding the foregoing,
no failure of MSC to give any such notice shall affect the validity of the
action taken unless such failure was in bad faith.
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5. PUT RIGHTS
5.1. Put.
(a) Granting of Put; Price. At any time or from time to time
during the Put Period, each holder of MSC Securities, upon written notice to MSC
(a "PUT NOTICE"), shall be entitled to sell (a "PUT OPTION"), and MSC shall be
obligated to purchase from such holder, any or all of MSC Securities held by
such holder at a purchase price equal to the Repurchase Price.
(b) Put Notice. Each Put Notice delivered pursuant to Section
5.1(a) hereof shall specify (i) the name of the holder of MSC Securities
delivering such Put Notice, (ii) that such holder is exercising such holder's
Put Option, pursuant to this Section 5.1 to sell certain of MSC Securities held
by such holder, and (iii) the number of, and a description of, MSC Securities
being tendered.
(c) MSC Notice.
(i) Notice to Holders. MSC shall, within ten (10)
days of receipt of such Put Notice, deliver to the holder or holders exercising
its or their Put Option pursuant to this Section 5.1, a notice (1) specifying
the Repurchase Date, (2) providing the names and addresses of each of the other
holders of MSC Securities and the number of MSC Securities held by such holder
which are the subject of another Put Notice at such time, and (3) stating the
type and number of MSC Securities held by each such holder, which notice MSC
shall also simultaneously deliver to all other holders of a Put Option.
(ii) Calculation of Repurchase Price. MSC, not less
than ten (10) days prior to the Repurchase Date, shall deliver to the holder or
holders exercising its or their Put Option pursuant to this Section 5.1, a
notice containing a detailed calculation of the Repurchase Price with respect to
MSC Securities which are to be so repurchased from such holder.
(d) Obligation of MSC to Purchase MSC Securities. MSC shall be
obligated to purchase from each holder of MSC Securities exercising such
holder's Put Option rights pursuant to this Section 5.1 all MSC Securities
subject to each Put Notice, and shall pay the Repurchase Price payable to each
such holder in immediately available funds, on the Repurchase Date, against
delivery to MSC by such holder of any and all certificates or other instruments
evidencing MSC Securities subject to the Put Notice, together with appropriate
instruments of transfer or assignment duly endorsed in blank.
(e) Cancellation of Warrants. Any Warrants purchased by MSC
pursuant to this Section 5.1 shall be cancelled and shall not be reissued.
6. INFORMATION ABOUT MSC.
6.1. Financial and Business Information.
MSC shall deliver to each holder of MSC Securities:
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(a) Quarterly Financial Statements - as soon as practicable
after the end of each quarterly fiscal period in each fiscal year of MSC (other
than the last quarterly fiscal period of each such fiscal year), and in any
event within forty-five (45) days thereafter:
(i) a consolidated balance sheet as at the end of
such quarter; and
(ii) consolidated statements of income and retained
earnings and cash flows for such quarter and (in the case of the second and
third quarters) for the portion of the fiscal year ending with such quarter;
for MSC and the Subsidiaries, setting forth in each case, in
comparative form, the financial statements for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared
in accordance with GAAP applicable to quarterly financial statements
generally, and certified as complete and correct by the chief financial
officer of MSC, provided, that, should MSC become subject to or agree
with any Person to comply with the provisions of section 13 or section
15(d) of the Exchange Act, delivery of copies of MSC's Quarterly Report
on Form 10-Q filed with the SEC within the time period specified above
shall be deemed to satisfy the requirements of this Section 6.1(a) so
long as such Quarterly Report contains or is accompanied by the
information specified in this Section 6.1(a);
(b) Annual Financial Statements - as soon as practicable after
the end of each fiscal year of MSC, and in any event within ninety (90) days
thereafter:
(i) consolidated balance sheets as at the end of such
year; and
(ii) consolidated statements of income and retained
earnings and cash flows for such year;
for MSC and the Subsidiaries, setting forth in the case of each
consolidated financial statement, in comparative form, the financial
statement for the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP, and accompanied by an audit report
thereon of independent certified public accountants of recognized
national standing, which report shall state without qualification
(including, without limitation, qualifications related to the scope of
the audit, the compliance of the audit with generally accepted auditing
standards, or the ability of MSC or a material subsidiary thereof to
continue as a going concern), that such financial statements have been
prepared and are in conformity with GAAP and a certification by the
chief financial officer of MSC that such consolidated and consolidating
statements are complete and correct; provided, that, should MSC become
subject to or agree with any Person to comply with the provisions of
section 13 or section 15(d) of the Exchange Act, the delivery of MSC's
Annual Report on Form 10-K for such fiscal year filed with the SEC
within the time period specified above shall be deemed to satisfy the
requirements of this Section 6.1(b) so long as such Annual Report
contains or is accompanied by the reports and other information
otherwise specified in this Section 6.1(b);
(c) SEC and Other Reports - promptly upon their becoming
available:
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(i) each financial statement, report, notice or proxy
statement sent by MSC or any Subsidiary to Shareholders generally;
(ii) each regular or periodic report (including,
without limitation, each Form 10-K, Form 10-Q and Form 8-K), any registration
statement which shall have become effective, and each final prospectus and all
amendments thereto filed by MSC or any Subsidiary with the SEC; and
(iii) all press releases and other statements made
available by MSC or any Subsidiary to the public concerning material
developments in the business of MSC or the Subsidiaries; and
(d) Requested Information - with reasonable promptness, such
other data and information as from time to time may be reasonably requested by
any holder of MSC Securities.
6.2. Inspection Rights. At all times during which the Purchaser or any
Affiliate shall hold any MSC Securities, MSC shall permit the Purchaser, such
Affiliate or a representative thereof, upon written demand of the Purchaser,
such Affiliate, during the usual hours for business of MSC to inspect for any
Proper Purpose MSC's or any Subsidiary's stock ledger, a list of its
stockholders, and its other books and records, and to make copies of extracts
therefrom. As used in this Section 6.2. "Proper Purpose" shall mean a purpose
reasonably related to the Purchaser's interest as a holder of MSC Securities. In
every instance where an attorney or other agent shall be the person who seeks
the rights to inspection, the oath shall be accompanied by a power of attorney
or such other writing which authorizes the attorney or other agent to so act on
behalf of the Purchaser or such Affiliate.
7. INTERPRETATION OF THIS AGREEMENT.
7.1. Certain Defined Terms. For the purpose of this Agreement, the
following terms shall have the meanings specified with respect thereto below:
ADDITIONAL COMMON STOCK -- means Common Stock, including treasury
shares, issued after the date hereof, except Common Stock issued upon the
exercise of any one or more Warrants.
AFFILIATE -- means, at any time, a Person (other than a Subsidiary or
the Purchaser): (a) that directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
MSC; (b) that beneficially owns or holds five percent (5%) or more of any class
of Securities; (c) five percent (5%) or more of the Voting Stock (or in the case
of a Person that is not a corporation, five percent (5%) or more of the equity
interest) of which is beneficially owned or held by MSC or a Subsidiary; or (d)
that is an officer, member of the Board of Directors (or a member of the
immediate family of an officer or director or member of the Board of Directors)
of MSC or any Subsidiary, at such time. As used in this definition, "Control"
shall means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
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AGREEMENT, THIS -- and references thereto shall mean this Warrant
Agreement as it may from time to time be amended or supplemented.
AGGREGATE CONSIDERATION PAID - means, in the case of a repurchase,
redemption, retirement or acquisition of shares of Common Stock, the aggregate
amount paid by MSC in connection therewith and, in the case of a repurchase,
redemption, retirement or acquisition of Rights, the sum of:
(a) the aggregate amount paid by MSC for such Rights; plus
(b) the aggregate consideration or premiums stated in such
Rights to be payable for the shares of Common Stock covered thereby.
For purposes of clause (a) above, in the event of the repurchase,
redemption, retirement or acquisition of any Rights together with other
Securities or obligations of MSC or any other Person in which the purchase price
for the Rights and such other Securities or obligations is expressed as a single
purchase price (including, without limitation, upon the repurchase, redemption,
retirement or acquisition of Preferred Stock or debt Securities which are
convertible into Common Stock), the aggregate amount paid by MSC for such Rights
shall include only the portion of such single purchase price attributable to
such Rights, and not the portion attributable to such other Securities or
obligations. The portion of such purchase price attributable to such Rights in
such case shall be equal to the product of:
(i) such single purchase price; multiplied by
(ii) the quotient of:
(A) the fair market value (as determined by the
Valuation Agent) of such Right, independent of the value of
such other securities or obligations (computed using the
Black-Scholes option pricing model or such other pricing model
as the Valuation Agent determines is appropriate, and applying
such reasonable assumptions concerning price variances with
respect to the Common Stock and such other variables as the
Valuation Agent considers appropriate); divided by
(B) the fair market value (as determined by the
Valuation Agent) of such Right together with such other
securities or obligations (computed using such methodology and
making such assumptions as the Valuation Agent determines is
appropriate).
AGGREGATE CONSIDERATION RECEIVABLE - means, in the case of an issuance
or sale of shares of Additional Common Stock, the aggregate amount paid to MSC
in connection therewith and, in the case of an issuance or sale of Rights, or
any amendment thereto, the sum of:
(a) the aggregate amount paid to MSC for such Rights; plus
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<PAGE> 21
(b) the aggregate consideration or premiums stated in such
Rights to be payable for the shares of Additional Common Stock covered
thereby;
in each case without deduction for any fees, expenses or underwriters'
discounts.
For purposes of clause (a) above, in the event of the issuance or sale
of any Rights together with other Securities or obligations of MSC or any other
Person in which the purchase price for the Rights and such other Securities or
obligations is expressed as a single purchase price (including, without
limitation, upon the issuance or sale of Preferred Stock or debt Securities
which are convertible into Common Stock), the aggregate amount paid to MSC for
such Rights should include only the portion of such single purchase price
attributable to such Rights, and not the portion attributable to such other
Securities or obligations. The portion of such purchase price attributable to
such Rights in such case shall be equal to the product of:
(i) such single purchase price; multiplied by
(ii) the quotient of:
(A) the fair market value (as determined by the
Valuation Agent) of such Right, independent of the value of
such other securities or obligations (computed using the
Black-Scholes option pricing model or such other pricing model
as the Valuation Agent determines is appropriate, and applying
such reasonable assumptions concerning price variances with
respect to the Common Stock and such other variables as the
Valuation Agent considers appropriate); divided by
(B) the fair market value (as determined by the
Valuation Agent) of such Right together with such other
securities or obligations (computed using such methodology and
making such assumptions as the Valuation Agent determines is
appropriate).
BOARD OF DIRECTORS -- means the board of directors of MSC or any
committee thereof that, in the instance, shall have the lawful power to exercise
the power and authority of such board of directors.
BUSINESS ENTITY -- means a corporation, limited liability company,
general partnership, limited partnership, limited liability partnership or trust
created for any business purpose.
CAPITAL STOCK -- means any class of preferred, common or other capital
stock, share capital or similar equity interest of a Person, including, without
limitation, any partnership interest in any partnership or limited partnership
and any membership interest in any limited liability company.
CHANGE IN CONTROL -- means the occurrence of any of the following
events:
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(i) the Permitted Holders either (x) cease to be the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Securities Exchange
Act), directly or indirectly, of at least 51% of the aggregate of the
total voting power of the Voting Stock of MSC, whether as a result of
issuance of securities of MSC, any merger, consolidation, liquidation
or dissolution of MSC, any direct or indirect transfer of securities by
any Permitted Holder or otherwise, or (y) do not have the right or
ability by voting power, contract or otherwise to elect or designate
for election a majority of the Board of Directors (for purposes of this
clause (i), the Permitted Holders shall be deemed to own beneficially
any Voting Stock of an entity (the "specified entity") held by any
other entity (the "parent entity") so long as the Permitted Holders
beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the
parent entity); or
(ii) any Going Private Transaction.
CHARTER -- means the certificate of incorporation and bylaws of MSC, as
in effect immediately upon execution of this Agreement.
CLOSING PRICE -- means, on any date with respect to any share of Common
Stock:
(a) the last sale price, regular way, on such date or, if no
such sale takes place on such date, the average of the closing bid and
asked prices on such date, in each case as officially reported on the
principal national securities exchange on which any Common Stock is
then listed or admitted to trading; and
(b) if no Common Stock is then listed or admitted to trading
on any national securities exchange, but is listed on the NASDAQ
National Market or the NASDAQ SmallCap Market, as the case may be, the
last trading price of any Common Stock on such date as reported by
NASDAQ, or if there shall have been no trading on such date, the
average of the reported closing bid and asked prices on such date as
shown by NASDAQ.
COMMISSION -- means the Securities Exchange Commission.
COMMON EQUITY PERCENTAGE -- shall mean, as to any Shareholder, the
percentage that (i) the outstanding shares of Common Stock then owned by such
Shareholder and any shares of Common Stock issuable upon exercise of any
warrants or options, in each case which are fully vested and then owned by such
Shareholder, is of (ii) the aggregate outstanding number of shares of Common
Stock then owned by all of the Shareholders plus all shares of Common Stock
issuable upon exercise of any warrants or options, in each case which are fully
vested and then owned by any Shareholder.
COMMON STOCK -- means common stock, par value $0.01 per share, of MSC.
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CONSIDERATION PER SHARE -- means, with respect to shares of Common
Stock or Rights, the quotient of:
(a) the Aggregate Consideration Paid (in the case of a
repurchase, redemption, retirement or other acquisition for value of
Common Stock or Rights) or the Aggregate Consideration Receivable (in
the case of an issuance or sale of Common Stock or Rights by MSC), as
the case may be, in respect of such shares of Common Stock or such
Rights; divided by
(c) the total number of such shares of Common Stock or, in the
case of Rights, the total number of shares of Common Stock into which
such Rights are exercisable or convertible.
COUNTERPART -- shall mean a counterpart to this Agreement in the form
of Exhibit 2 hereto, pursuant to the execution of which a Person shall become
bound by all of the terms and conditions to this Agreement.
CREDIT AGREEMENT -- shall have the meaning specified in Recital B of
this Agreement.
DIVIDEND -- means and includes, with respect to any class of Capital
Stock of any Person, dividends and any other similar distributions or payments
made to the holders of such capital stock in respect of such Capital Stock.
EMPLOYEE STOCK AWARDS/OPTIONS -- means one or more equity options
granted to, and shares of Common Stock issued or awarded to directors, officers,
employees and consultants of MSC, as approved by the Board of Directors.
EXCLUDED SECURITIES -- means and includes:
(a) shares of Common Stock issuable upon exercise of the
Warrants;
(b) shares of Common Stock issued upon the exercise,
conversion or exchange of any warrant, option or other right to acquire
shares of Common Stock or any convertible or exchangeable Security in
respect of which an adjustment was made (or was not required to be
made) pursuant to Section 4.4 hereof; and
(c) shares of Common Stock issuable upon the exercise of share
options included therein.
EXPIRATION DATE -- means 5:00 p.m. Philadelphia, Pennsylvania time on
December 31, 2010.
FAIR VALUE -- means, with respect to any share of Common Stock, the
quotient of:
(a) the difference of:
(i) the sum of:
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(A) the fair salable value of MSC as a going
concern, giving effect to all Property thereof and
subject to all liabilities thereof, that would be
realized in an arm's length sale between an informed
and willing buyer and an informed and willing seller,
under no compulsion to buy or sell, respectively, as
of a date that is within fifteen (15) days of the
date as of which the determination is to be made by
the Valuation Agent, such determination in either
case to be made without regard to the absence of a
liquid or ready market for such Common Stock; plus
(B) the aggregate exercise or conversion
price of all Warrants and all other Valuable Rights
(including, without limitation, Valuable Rights in
respect of any shares of Preferred Stock convertible
at such time into shares of Common Stock) in
existence and remaining unexercised on such date;
minus
(ii) in the case of any outstanding shares of
Preferred Stock (other than Preferred Stock convertible at
such time into shares of Common Stock, which shares represent
Valuable Rights at such time), the aggregate liquidation
preference of (or, if less, the aggregate price, if any, at
which MSC could elect to redeem) such shares of Preferred
Stock (together with all accrued and unpaid Dividends
thereon);
divided by
(b) the sum of:
(i) the total number of shares of Common Stock then
outstanding; plus
(ii) the aggregate number of shares of Common Stock
issuable in respect of all Valuable Rights (including, without limitation,
Valuable Rights in respect of any shares of Preferred Stock convertible at such
time into shares of Common Stock) at such time.
FREELY TRADABLE SECURITIES -- means Securities:
(a) which are of a class:
(i) of Securities issued or fully guaranteed by the
United States of America or any agency thereof and entitled to
the full faith and credit of the United States of America, for
which price quotations are routinely quoted and for which, in
the opinion of the Required Warrantholders, there is a ready
liquid market; or
(ii) both (x) registered pursuant to either section
12(b) or section 12(g) of the Exchange Act and (y) either
listed on a national securities exchange or on the NASDAQ
National Market; and
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(b) which may be resold immediately in the public markets by
each and every holder thereof without requirement of further
registration under the Securities Act.
FULLY DILUTED BASIS -- means, with respect to any calculation of the
number of shares of Common Stock at any time, the sum of:
(a) the number of shares of Common Stock outstanding at such
time; plus
(b) the aggregate number of shares of Common Stock issuable
upon the exercise, conversion or exchange, as the case may be, of all
Rights outstanding at such time, regardless of whether such Rights are
then exercisable, convertible or exchangeable and regardless of whether
the consideration given up by the holder of such Right in connection
with the exercise, conversion or exchange thereof would exceed the
value of the Common Stock received upon such exercise, conversion or
exchange.
GOING PRIVATE TRANSACTION -- means any transaction or series of
transactions as a result of which MSC will cease to be (i) required to register
under the Securities Exchange Act or (ii) listed either on a national securities
exchange or on the NASDAQ National Market or NASDAQ SmallCap Market; provided,
however, that the failure to be so listed shall not be a Going Private
Transaction if such failure is not the result of a transaction or series of
transactions.
INITIAL PURCHASE PRICE -- means $0.01 per share.
INSTITUTIONAL INVESTOR -- means the Purchaser, any Related Party of the
Purchaser, and any holder of Warrants that is an "accredited investor" as
defined in Section 2(15) of the Securities Act.
LIEN -- means any mortgage, pledge, security interest, encumbrance,
lien (statutory or otherwise) or charge of any kind (including any agreement to
give any of the foregoing), any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction or any other type of preferential arrangement for the purpose, or
having the effect, of protecting a creditor against loss or securing the payment
or performance of an obligation.
MARKET PRICE -- means, per share of Common Stock, as of any date of
determination, the arithmetic mean of the daily Closing Prices for the twenty
(20) consecutive trading days before such date of determination; provided that
if the Common Stock is then neither listed or admitted to trading on any
national securities exchange, the NASDAQ National Market or the NASDAQ SmallCap
Market, then "Market Price" means the Fair Value of one share of Common Stock,
as determined by the Valuation Agent as of the date of determination.
MSC -- shall have the meaning specified in the introductory paragraph
hereof.
MSC SECURITIES -- means (without duplication) (a) each of the Warrant
Interests; and (b) the Rights to acquire shares existing under the Warrants.
NASD -- means the National Association of Securities Dealers, Inc.
- 22 -
<PAGE> 26
NASDAQ -- means the NASDAQ Stock Market, Inc., a subsidiary of the
NASD.
NASDAQ NATIONAL MARKET -- has the meaning ascribed thereto in Rule
4200(r) of the NASDAQ.
NASDAQ SMALLCAP MARKET -- has the meaning ascribed thereto in Rule
4200(t) of the NASDAQ.
NOTICE EVENT -- means any event that would require an adjustment in the
Purchase Price pursuant to Section 4.
PERMITTED HOLDERS -- means MS Acquisition Limited, a Delaware limited
partnership, MSSC Acquisition Corporation, a Delaware corporation, Richmont
Capital Partners I, L.P., a Delaware limited partnership, J.R. Investments
Corp., a Delaware corporation, John P. Rochon, Nick G. Bouras, Timothy M. Byrd,
Ronald D. Pedersen, Jeffery A. Watt, Gary R. Guffey and Bruce A. Butler.
PERSON -- means an individual, partnership, corporation, limited
liability company, joint venture, trust, unincorporated organization or a
government or agency or political subdivision thereof.
PREFERRED STOCK -- means and includes any Capital Stock of MSC of any
class which is preferred, as to payment of Dividends, payment upon a liquidation
or dissolution of MSC or both, over the Common Stock.
PROPERTY -- means any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.
PRINCIPAL REDUCTION INCREMENT - means, as to any payment of principal
owing under the Loan, the amount of such payment divided by $1,000,000, rounded
down to the next whole integer.
PUBLIC OFFERING -- means any offering for sale by MSC of equity
securities of MSC pursuant to a registration statement filed under the
Securities Act, other than a registration relating solely to (x) employee
benefit plans, or (y) a Commission Rule 145 transaction.
PURCHASE PRICE -- means, prior to any adjustment pursuant to Section
4.1 of this Agreement, the Initial Purchase Price and thereafter, the Initial
Purchase Price as adjusted and readjusted from time to time. Notwithstanding any
adjustement to the Purchase Price pursuant to the provisions of this Agreement,
a holder of any Warrants may in its sole discretion elect to pay as the Purchase
Price upon any exercise of its Warrants an amount equal to the the par value per
share of the Company Common Stock, provided that such election shall not affect
any adjustement to the number of shares of Common Stock purchasable upon the
exercise of such Warrants.
PURCHASER'S EXPOSURE -- means, at any time, the sum of the amount of
principal outstanding under the Loan.
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<PAGE> 27
PUT PERIOD -- means the period of time beginning on December 16, 2008
and ending on the Expiration Date.
REFERENCE PRICE -- means, per share of Common Stock, as of any date of
determination, the greater of the Market Price as of such date and the Purchase
Price on such date.
RELATED PARTY -- means, as to any Person, (i) the partners, directors
and officers, as the case may be, of such Person, (ii) the partners of any of
the parties referred to in the foregoing clause of this definition, (iii) the
spouse or lineal descendants, and siblings of such Person or any of the parties
referred to in the foregoing clauses of this definition, (iv) a trust for the
benefit of such Person or any of the parties referred to in the foregoing
clauses of this definition, (v) any corporation or pass-through entity
controlled by such Person or by any of the parties referred to in the foregoing
clauses of this definition, and (vi) any other party that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, such Person.
REPURCHASE DATE -- means a date selected by MSC, which shall be not
more than 30 days after the date of the related Put Notice.
REPURCHASE PRICE -- means the product of (A) the difference of (1) the
Put Price minus (2) the Purchase Price multiplied by (B) the Warrants being
redeemed. The "Put Price" shall mean an amount equal to the higher of the (i)
Market Price and (ii) the book value per share of outstanding Common Stock,
determined in accordance with GAAP.
REQUIRED WARRANTHOLDERS -- means, at any time, the holders of at least
fifty-one percent (51%) of all Warrants outstanding (excluding any Warrants
directly or indirectly held by MSC, any Subsidiary or any Affiliate) at such
time.
RIGHT -- means and includes:
(a) any warrant (including, without limitation, any Warrant)
or any option (including, without limitation, Employee Stock
Awards/Options) to acquire Common Stock;
(b) any right issued to holders of the Common Stock, or any
class thereof, permitting the holders thereof to subscribe to shares of
Additional Common Stock (pursuant to a rights offering or otherwise);
(c) any right to acquire Common Stock pursuant to the
provisions any Security convertible or exchangeable into Common Stock;
and
(d) any similar right permitting the holder thereof to
subscribe for or purchase shares of Common Stock.
SALE OF MATERIAL ASSETS - means any transfer, sale or other disposition
of Property of MSC or its Subsidiaries (including the stock of any Subsidiary)
in one or more related transactions, which represented, or with respect to which
the proceeds from such transaction(s)
- 24 -
<PAGE> 28
comprised, either (i) constituted 35% or more of the of Property of MSC or its
Subsidiaries as of the most recent date for which a balance sheet has been
delivered hereunder, or (ii) contributed 35% or more of the EBITDA (as such term
in defined in the Credit Agreement) of MSC or its Subsidiaries for the most
recent period of four consecutive fiscal quarters; provided, however, that no
such transaction shall constitute a Sale of Material Assets to the extent that
within ninety (90) days after receipt of the proceeds thereof by MSC or its
Subsidiaries such proceeds have been used to acquire assets of a similar
character for use in the business of MSC and its Subsidiaries.
SECURITIES ACT -- means the Securities Act of 1933, as amended, or any
successor federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
SECURITIES EXCHANGE ACT -- means the Securities Exchange Act of 1934,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
SECURITY -- shall have the meaning specified in Section 2(1) of the
Securities Act.
SENIOR CREDIT FACILITIES -- means (i) the Credit Agreement and (ii)
that certain Credit Agreement dated the date hereof between MSC and its
subsidiaries, the lenders described therein, and The Chase Manhattan Bank, as
agent for such lenders, each as may be amended, restated or refinanced from time
to time.
SHAREHOLDER -- means a holder of shares of Common Stock.
STOCK -- shall mean and include (i) all shares of Capital Stock of MSC,
including without limitation, shares of Capital Stock issued, issuable or
transferable (A) on the exercise of rights to acquire shares of Capital Stock or
(B) on the conversion or exchange or exercise of securities convertible into or
exchangeable or exercisable for Capital Stock, and (ii) all other securities of
MSC which may be issued in exchange for or in respect of shares of Capital Stock
(whether by way of stock split, stock dividend, combination, reclassification,
reorganization or any other means).
SUBSIDIARY -- means, at any time, a Person of which MSC owns, directly
or indirectly, at least fifty percent (50%) (by number of votes) of each class
of Voting Stock (or other shares of beneficial interest entitled to vote
generally), or at least a majority of the partnership, joint venture or similar
interests, or in which MSC is, directly or indirectly, a general partner or
joint venturer without limited liability.
TAKEOUT EVENT -- shall mean any one of the following: (i) Public
Offering, (ii) a Change in Control, (iii) a Sale of Material Assets, (iv) an
acceleration of the Loan or (v) a payoff of the Loan.
TRANSFEREE -- means any registered Transferee of all or any part of any
one or more Warrant Certificates acquired by the Purchaser under this Agreement.
- 25 -
<PAGE> 29
VALUABLE RIGHT -- means, at any time, a Right, the effective
conversion, exercise or purchase price of which on the date of determination is
less than the Market Price in respect of the shares of Common Stock issuable
upon conversion, exercise or purchase pursuant to such Right on such date.
VALUATION AGENT -- means the Board of Directors, acting in good faith;
provided, however, that in the event that the Required Warrantholders shall not
agree with any determination made by the Board of Directors as Valuation Agent,
the "Valuation Agent" shall mean, and such determination shall instead be made
by, a firm of independent certified public accountants, an investment banking
firm or appraisal firm (which firm shall own no Securities of, and shall not be
an Affiliate, Subsidiary or a related Person of, MSC) of recognized national
standing retained by MSC and reasonably acceptable to the Required
Warrantholders.
VOTING STOCK -- of a Person means all classes of Capital Stock of such
Person then outstanding that normally entitle the holders of such interests to
participate in the management or to elect those participating in the management
of such Person.
WARRANT -- shall have the meaning specified in Recital C hereof.
WARRANT CERTIFICATE -- shall have the meaning specified in Section 1.1
hereof.
WARRANT CLAWBACK - means the product of (i) the Principal Reduction
Increment and (ii) the percentage listed in the right hand column below which
corresponds to the then applicable elapsed time period listed in the left hand
column below.
<TABLE>
<CAPTION>
Time Period Percentage
----------- ----------
<S> <C>
Closing through 6/30/2000 0.0750%
7/1/2000 through 9/30/2000 0.0643%
10/1/2000 through 12/31/2000 0.0536%
1/1/2001 through 3/31/2001 0.0429%
4/1/2001 through 6/30/2001 0.0321%
7/1/2001 through 9/30/2001 0.0214%
10/1/2001 through 12/31/2001 0.0107%
1/1/2002 and thereafter 0.0000%
</TABLE>
WARRANT INTERESTS -- means shares of Stock issued or issuable upon
exercise of the Warrants, together with any interests issued as a distribution
thereon or with respect thereto in connection with a recapitalization.
WARRANT PERCENTAGE -- means the percentage equal to the quotient of:
(a) the value of shares of Common Stock which can be purchased under all
outstanding Warrants, divided by (b) the amount of shares of Common Stock on a
Fully Diluted Basis.
7.2. Descriptive Headings. The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
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<PAGE> 30
8. MISCELLANEOUS.
8.1. Expenses. MSC agrees to pay, and save and hold harmless the
Purchaser and any other holder of a Warrant Certificate against liability for
the payment of all out-of-pocket expenses (including, without limitation,
reasonable attorney's fees and disbursements) arising in connection with the
transactions contemplated by this Agreement (provided that MSC shall not be
responsible for the fees and expenses of more than one counsel for all the
holders together), including, without limitation:
(a) the cost, if any, of complying with Section 3.3 hereof;
(b) any subsequent proposed modification of, or proposed
consent requested or initiated by or on behalf of MSC under, this Agreement or
the Warrants, whether or not such proposed modification shall be effected or
proposed consent granted (including, without limitation, all document production
and duplication charges and the reasonable fees and expenses of any special
counsel engaged by the Purchaser or any holder of a Warrant Certificate in
connection therewith); and
(c) the enforcement of (or determination of whether or how to
enforce) any rights under this Agreement or the Warrant Certificates or in
responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement or the transactions contemplated
hereby or by reason of a Purchaser or other holder having acquired any Warrant
Certificate, including, without limitation, reasonable attorney's fees incurred
by a Purchaser or such other holder and the costs and expenses incurred in any
bankruptcy case involving MSC or any Subsidiary.
The obligations of MSC under this Section 8.1 shall survive the transfer of any
Warrant Certificate or interest therein by the Purchaser or any other holder of
a Warrant Certificate and the exercise or expiration of any Warrant.
Notwithstanding the foregoing, MSC shall not be required to pay any costs or
expenses of any holder of a Warrant Certificate which cost or expense arises
solely from such holder's gross negligence or willful misconduct.
8.2. Amendment and Waiver. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with and only with the
written consent of MSC and:
(a) in the case of Section 1 through Section 8, inclusive,
hereof (other than this Section 9.2), the written consent of the Required
Warrantholders; or
(b) in the case of this Section 8.2, the written consent of
all holders of Warrant Certificates;
provided that no such amendment or waiver of any of the provisions of this
Agreement pertaining to the Purchase Price or the number of Shares of Common
Stock that may be purchased upon exercise of each Warrant shall be effective as
to the holder of any Warrant unless consented to in writing by such holder.
- 27 -
<PAGE> 31
8.3. No Rights or Liabilities as Shareholder. This Agreement shall not
be construed as conferring upon the holder of any Warrant any rights of a
Shareholder of MSC. Nothing in this Agreement shall be construed as imposing any
obligation on any holder of any Warrant to purchase any securities or as
imposing any liabilities on such holder as a Shareholder of MSC, whether such
obligation or liabilities are asserted by MSC or by creditors of MSC.
8.4. Directly or Indirectly. Where any provision in this Agreement
refers to any action to be taken by any Person, or that such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person, including actions taken by or on
behalf of any partnership in which such Person is a general partner.
8.5. Survival of Representations and Warranties; Entire Agreement. All
representations and warranties contained herein and in the Credit Agreement in
connection herewith shall survive the execution and delivery of this Agreement
and the Warrant Certificates, the transfer by the Purchaser of any Warrant
Certificate or portion thereof or interest therein and the exercise or
expiration of any Warrant, and may be relied upon by the Purchaser or other
holder of a Warrant Certificate, regardless of any investigation made at any
time by or on behalf of the Purchaser or such other holder. Subject to the
preceding sentence, this Agreement and the Warrant Certificates embody the
entire agreement and understanding between the Purchaser and MSC, and supersede
all prior agreements and understandings, relating to the subject matter hereof.
8.6. Successors and Assigns. All covenants and other agreements in this
Agreement contained by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any holder of a Warrant Certificate)
whether so expressed or not.
8.7. Notices. All communications hereunder or under the Warrants shall
be in writing, shall be delivered by United States mail (postage prepaid),
nationwide overnight courier, or facsimile transmission (confirmed by delivery
by nationwide overnight courier sent on the day of the sending of such facsimile
transmission), and
(a) if to the Purchaser, addressed to it at:
FIRST UNION INVESTORS, INC.
301 S. College Street
Charlotte, NC 28202
Attn: Tracey Chaffin
Telephone: 704-374-4791
Facsimile: 704-374-6711
and
FIRST UNION NATIONAL BANK
12th Floor, Widener Building
PA 4843
One South Penn Square
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<PAGE> 32
Philadelphia, PA 19107
Attention: Robert Brown
Telephone: 215-973-1259
Facsimile: 215-786-2877
or at such other address as the Purchaser shall have specified to MSC in
writing;
(b) if to any other holder of a Warrant Certificate, addressed
to such other holder at such address as such holder shall have specified to MSC
in writing or, if any such other holder shall not have so specified an address
to MSC, then addressed to such other holder in care of the last holder of such
Warrant Certificate that shall have so specified an address to MSC; and
(c) if to MSC, addressed to it at:
MARKETING SPECIALISTS CORPORATION
17885 Dallas Parkway
Suite 200
Dallas, TX 75287
Attention: President and General Counsel
Telephone: 972-349-6200
Facsimile: 972-349-6400
or at such other address as MSC shall have specified to the holders of the
Warrant Certificates in writing.
Any communication addressed and delivered as herein provided shall be
deemed to be received when actually delivered to the address of the addressee
(whether or not delivery is accepted) or received by the facsimile machine of
the recipient. Any communication not so addressed and delivered shall be
ineffective.
8.8. Satisfaction Requirement. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to the Purchaser or to any other holder of a Warrant
Certificate, the determination of such satisfaction shall be made by the
Purchaser or such other holder, as the case may be, in the sole and exclusive
judgment (exercised in good faith) of the Person or Persons making such
determination.
8.9. Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
8.11. Waiver of Jury Trial, Consent to Jurisdiction, Service of
Process, Other Forums.
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<PAGE> 33
(a) WAIVER OF JURY TRIAL. THE PARTIES HERETO VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR
ANY OF THE DOCUMENTS, AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY.
(b) CONSENT TO JURISDICTION. ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OF THE DOCUMENTS,
AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING TO
EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER THIS
AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY MAY BE BROUGHT BY
SUCH PARTY IN THE FEDERAL DISTRICT COURT LOCATED IN DELAWARE OR ANY DELAWARE
STATE COURT AS SUCH PARTY MAY IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION
AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY SUBMIT TO THE NON-EXCLUSIVE IN PERSONAM JURISDICTION OF EACH
SUCH COURT, AND EACH OF THE PARTIES HERETO IRREVOCABLY WAIVE AND AGREE NOT TO
ASSERT IN ANY PROCEEDING BEFORE ANY TRIBUNAL, BY WAY OF MOTION, AS A DEFENSE OR
OTHERWISE, ANY CLAIM THAT IT IS NOT SUBJECT TO THE IN PERSONAM JURISDICTION OF
ANY SUCH COURT. IN ADDITION, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY DOCUMENT, AGREEMENT OR TRANSACTION
CONTEMPLATED HEREBY BROUGHT IN ANY SUCH COURT, AND HEREBY IRREVOCABLY WAIVES ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) Service of Process. EACH PARTY HERETO IRREVOCABLY AGREES
THAT PROCESS PERSONALLY SERVED OR SERVED BY U.S. REGISTERED MAIL OR SERVED IN
THE MANNER PROVIDED FOR COMMUNICATIONS IN THIS AGREEMENT SHALL CONSTITUTE, TO
THE EXTENT PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT,
AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING TO
EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER OR
UNDER ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY. RECEIPT OF PROCESS SO
SERVED SHALL BE CONCLUSIVELY PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT
FURNISHED BY THE UNITED STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY
SERVICE.
- 30 -
<PAGE> 34
(d) Other Forums. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO
LIMIT THE ABILITY OF ANY PARTY HERETO TO SERVE ANY WRITS, PROCESS OR SUMMONSES
IN ANY MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER ANY
OTHER PARTY HERETO IN SUCH OTHER JURISDICTION, AND IN SUCH OTHER MANNER, AS MAY
BE PERMITTED BY APPLICABLE LAW.
8.12. Governing Law. (a) THIS AGREEMENT AND THE WARRANT CERTIFICATES
SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF TEXAS (OTHER THAN ITS CONFLICTS OF LAW PRINCIPLES).
8.13. Schedule of Shares. The attached Exhibit C is a schedule listing
all of the outstanding shares of Stock and options, warrants, Rights, and other
interests in Stock.
9. PURCHASE FOR INVESTMENT.
(a) Each Purchaser represents to MSC that it is an "accredited
investor" (as such term is defined in Section 2(15) of the Securities Act) and
that it is purchasing the Warrants for its own account, with no intention of
distributing the Warrants or any part thereof, but without prejudice to the
Purchaser's right at all times to
(i) sell or otherwise dispose of all or any part of
the Warrants under a registration statement filed under the Securities Act, or
in a transaction exempt from the registration requirements of such Act, and
(ii) have control over the disposition of all of its
assets to the fullest extent required by any applicable law.
(b) The Purchaser further represents that:
(i) it realizes that the purchase of the Warrants is
a highly speculative investment;
(ii) it is able, without impairing its financial
condition, to bear the economic risk of the purchase of the Warrants pursuant to
the terms of this Agreement, to hold the Warrants for an indefinite period of
time and to suffer a complete loss of its investment;
(iii) prior to executing and delivering this
Agreement, it has received and reviewed carefully a copy of this Agreement and
each exhibit to this Agreement;
(iv) it has such knowledge and experience in
financial and business matters that it is capable of (1) evaluating the merits
and risks of the purchase of the Warrants pursuant to the terms of this
Agreement and (2) protecting its interests in connection therewith;
(v) it has been solely responsible for its own
analysis of the merits and risks of this investment, and for its own analysis of
the fairness and desirability of the terms of
- 31 -
<PAGE> 35
the investment; in taking any action or performing any role relative to the
arranging of the proposed investment, it has acted solely in its own interest;
(vi) it has been afforded access to corporate books, financial
statements, records, contracts, documents, other information concerning MSC and
MSC and their offices and facilities, have been afforded an opportunity to ask
such questions of MSC and MSC's officers, employees, agents, accountants and
representatives concerning MSC and MSC's business, operations, financial
condition, assets, liabilities and other relevant matters as they have deemed
necessary or desirable; and
(vii) it understands that the Warrants have not been
registered under the Securities Act by reason of their issuance in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act that, subject to and without prejudice to its rights under the
Registration Rights Agreement between the Purchaser and MSC dated as of the date
hereof. The Purchaser understands that the Warrants are securities within the
meaning of Rule 144 under the Securities Act, which allows limited resale of
such securities under certain conditions.
- 32 -
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed and delivered, all as of the date and year first
above written.
MARKETING SPECIALISTS CORPORATION
By:
--------------------------------
Name:
Title:
ACCEPTED:
FIRST UNION INVESTORS, INC.
By:
---------------------------
Name:
Title:
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<PAGE> 37
EXHIBIT 1
[FORM OF WARRANT CERTIFICATE]
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND NEITHER THIS WARRANT NOR ANY SUCH SHARES OF COMMON STOCK MAY BE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SUCH ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAW, UNLESS, IN THE
OPINION (WHICH SHALL BE IN A FORM AND SUBSTANCE SATISFACTORY TO MSC) OF COUNSEL
SATISFACTORY TO MSC, SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, ANY
TRANSFER OF THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS WARRANT ARE SUBJECT TO THE CONDITIONS SPECIFIED IN THIS WARRANT.
WARRANT CERTIFICATE
MARKETING SPECIALISTS CORPORATION
No. WR-___ ______________ Warrants
Date: March ___, 2000
This Warrant Certificate certifies that ________, or registered
assigns, is the registered holder of _________________________ (________)
Warrants. Each Warrant entitles the owner thereof to purchase at any time
(subject to the restrictions set forth in the Warrant Agreement described below)
one (1) Common Share of MARKETING SPECIALISTS CORPORATION ("MSC"), a Delaware
corporation, at a Purchase Price of one one-hundredth of one cent ($.01) upon
(i) presentation and surrender of this Warrant Certificate with a form of
election to purchase duly executed and (ii) delivery to MSC of the payment of
the Purchase Price in the manner set forth in the Warrant Agreement referred to
below, subject to vesting as described in the Warrant Agreement.
The Warrants are issued pursuant to the Warrant Agreement, dated as of
March __, 2000 (as it may from time to time be amended or supplemented, the
"WARRANT AGREEMENT"), between MSC and FIRST UNION INVESTORS, INC., and are
subject to all of the terms, provisions and conditions thereof, which Warrant
Agreement is hereby incorporated herein by reference and made a part hereof and
to which Warrant Agreement reference is hereby made for a full description of
the rights, obligations, duties and immunities of MSC and the holders of the
Warrant Certificates. Capitalized terms used, but not defined, herein have the
respective meanings ascribed to them in the Warrant Agreement.
<PAGE> 38
As set forth in, and subject to, the Warrant Agreement, the expiration
date of this Warrant Certificate is 5:00 p.m. Philadelphia, Pennsylvania time on
December 31, 2010.
This Warrant Certificate shall be exercisable, at the election of the
holder, either as an entirety or in part from time to time. If this Warrant
Certificate shall be exercised in part, the holder shall be entitled to receive,
upon surrender hereof, another Warrant Certificate or Warrant Certificates for
the number of Warrants not exercised. This Warrant Certificate, with or without
other Warrant Certificates, upon surrender in the manner set forth in the
Warrant Agreement, may be exchanged for another Warrant Certificate or Warrant
Certificates of like tenor evidencing Warrants entitling the holder to purchase
a like aggregate number of Shares of Common Stock as the Warrants evidenced by
the Warrant Certificate or Warrant Certificates surrendered shall have entitled
such holder to purchase.
Except as expressly set forth in the Warrant Agreement, no holder of
this Warrant Certificate shall be entitled to vote or receive distributions or
be deemed for any purpose the holder of Shares of Common Stock or of any other
Securities of MSC that may at any time be issued upon the exercise hereof, nor
shall anything contained in the Warrant Agreement or herein be construed to
confer upon the holder hereof, as such, any of the rights of a holder of a
Common Share in MSC or any right to vote upon any matter submitted to
Shareholders at any meeting thereof, or to give or withhold consent to any
entity action (whether upon any recapitalization, issuance of Shares of Common
Stock, reclassification of Securities, consolidation, merger, conveyance, or
otherwise) or, except as provided in the Warrant Agreement, to receive notice of
meetings, or to receive distributions or otherwise, until the Warrant or
Warrants evidenced by this Warrant Certificate shall have been exercised as
provided in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE (OTHER THAN ITS
CONFLICTS OF LAW PRINCIPLES).
WITNESS the signature of a proper officer of MSC as of the date first
above written.
MARKETING SPECIALISTS CORPORATION
By:
-------------------------------------
Name:
Title:
ATTEST:
- ------------------------------
- 2 -
<PAGE> 39
[FORM OF ASSIGNMENT]
(TO BE EXECUTED BY THE REGISTERED HOLDER IF
SUCH HOLDER DESIRES TO TRANSFER THE WARRANT CERTIFICATE)
FOR VALUE RECEIVED, _______________________________ hereby sells,
assigns and transfers unto
- -------------------------------------------------------------------------
(Please print name, address and taxpayer identification number or social
security number of Transferee.)
the accompanying Warrant Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint:
- -------------------------------------------------------------------------
attorney, to transfer the accompanying Warrant Certificate on the books of MSC,
with full power of substitution.
Dated: _________________, ______.
[HOLDER]
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the accompanying Warrant Certificate or any prior
assignment thereof in every particular, without alteration or enlargement or any
change whatsoever.
<PAGE> 40
[FORM OF ELECTION TO PURCHASE]
(TO BE EXECUTED BY THE REGISTERED HOLDER IF
SUCH HOLDER DESIRES TO EXERCISE THE WARRANT CERTIFICATE)
To: ___________:
The undersigned hereby irrevocably elects to exercise _________________________
Warrants represented by the accompanying Warrant Certificate to purchase the
Shares of Common Stock issuable upon the exercise of such Warrants and requests
that certificates for such shares be issued in the name of:
- -------------------------------------------------------------------------
(Please print name and address.)
- -------------------------------------------------------------------------
(Please insert social security or other identifying number.)
If such number of Warrants shall not be all the Warrants evidenced by the
accompanying Warrant Certificate, a new Warrant Certificate for the balance
remaining of such Warrants shall be registered in the name of and delivered to:
- -------------------------------------------------------------------------
(Please print name and address.)
- -------------------------------------------------------------------------
(Please insert social security or other identifying number.)
Dated: ______________, ______.
[HOLDER]
NOTICE
The signature to the foregoing Election to Purchase must correspond to
the name as written upon the face of the accompanying Warrant Certificate or any
prior assignment thereof in every particular, without alteration or enlargement
or any change whatsoever.
<PAGE> 41
EXHIBIT 2
COUNTERPART
THIS INSTRUMENT forms part of the Warrant Agreement (the "Agreement")
dated as of March __, 2000, among MARKETING SPECIALISTS CORPORATION, a Delaware
corporation (together with its successors and assigns, "MSC"), and FIRST UNION
INVESTORS, INC., a North Carolina corporation, and ____________________________
and any additional Shareholders of MSC (as defined in the Agreement), from time
to time, which Agreement permits execution (including by facsimile) by
counterpart. The undersigned hereby acknowledges having received a copy of the
said Agreement (which is annexed hereto as Schedule I) and having read the said
Agreement in its entirety, and for good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, hereby agrees that the terms and
conditions of the said Agreement shall be binding upon the undersigned as a
Shareholder and such terms and conditions shall inure to the benefit of and be
binding upon the undersigned and its successors and permitted assigns.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
____ day of ___________,
--------------------------------------
(SIGNATURE OF SHAREHOLDER)
--------------------------------------
(NAME IN BLOCK LETTERS)
<PAGE> 42
EXHIBIT 3
SCHEDULE OF SHARES
<TABLE>
<S> <C>
Common Stock........................ 15,790,835
Warrants............................ 0
Preferred Stock..................... 0
Options to Purchaser
Common Stock*..................... 1,387,575
----------
17,178,410
==========
</TABLE>
* Does not include 4,000,000 share of Common Stock to be issued
immediately after the issuance of the Warrant.
<PAGE> 1
EXHIBIT 10.4
================================================================================
MARKETING SPECIALISTS CORPORATION
-----------------------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
DATED AS OF MARCH 30, 2000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <S> <C>
1. DEFINITIONS...............................................................................................2
2. REQUESTED REGISTRATION....................................................................................4
2.1. Request for Registration...........................................................................4
2.2. Underwriting.......................................................................................5
3. MSC REGISTRATION..........................................................................................6
3.1. Notice of Registration.............................................................................6
3.2. Underwriting.......................................................................................6
3.3. Expenses of Registration...........................................................................7
3.4. Registration Procedures............................................................................7
4. INDEMNIFICATION AND CONTRIBUTION.........................................................................10
4.1. Indemnities.......................................................................................10
4.2. Procedures........................................................................................11
4.3. Contribution......................................................................................12
4.4. Indemnification Payments..........................................................................12
5. INFORMATION; LIMITATIONS; REPORTING, ETC.................................................................12
5.1. Information by Holder.............................................................................12
5.2. Rule 144 Reporting................................................................................13
5.3. Transfer of Registration Rights...................................................................13
6. MISCELLANEOUS............................................................................................13
6.1. Assignment of Rights..............................................................................13
6.2. Enforcement.......................................................................................13
6.3. Severability of Provisions........................................................................14
6.4. Amendments........................................................................................14
6.5. Notices...........................................................................................14
6.6. Entire Agreement..................................................................................15
6.7. Governing Law.....................................................................................15
6.8. Waiver of Jury Trial, Consent to Jurisdiction, Service of Process, Other Forums...................15
6.9. Counterparts......................................................................................16
6.10. Descriptive Headings..............................................................................17
</TABLE>
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of March 30, 2000 (the
"AGREEMENT") is entered into by and between MARKETING SPECIALISTS CORPORATION, a
Delaware corporation ("MSC") and FIRST UNION INVESTORS, INC., a North Carolina
corporation, (together with its successors and registered assigns, the
"PURCHASER").
RECITALS:
MSC and the Purchaser or its Affiliates have entered into a Credit
Agreement dated as of the date hereof (as may be amended, modified or
supplemented from time to time, the "CREDIT AGREEMENT"). In satisfaction of one
of the conditions to closing set forth in the Credit Agreement, MSC and the
Purchaser desire to provide hereunder for the registration of certain equity
securities of MSC under the Securities Act upon the terms and conditions set
forth herein.
As a condition thereto and in consideration of the foregoing, MSC
agreed to issue to the Purchaser Six Hundred Eighty Seven Thousand One Hundred
Thirty Six (687,136) Warrants (the "WARRANTS") of MSC, and to enter into certain
agreements in connection with the Warrants, including the Warrant Agreement (as
defined herein) under which the Warrants are issued, and this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties to this Agreement hereby agree as
follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
respective meanings:
COMMISSION -- shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act or the
Exchange Act.
EXCHANGE ACT -- shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Exchange Act shall include a reference to the
comparable section, if any, of any such successor federal statute.
HOLDER -- shall mean each Purchaser and any person holding Registrable
Securities to which the rights under this Agreement have been transferred by a
Purchaser or any subsequent Holder in accordance with Section 5.2.
<PAGE> 4
INITIATING HOLDERS -- shall mean any Holders (or their assignees under
Section 5.2 hereof) who in the aggregate hold not less than fifty-one percent
(51%) of the Registrable Securities, and, after any other Holder or Holders have
joined in a request by Initiating Holders in accordance with Section 3.1(b)
hereof, shall include such other Holder or Holders.
MERKERT AGREEMENT -- shall mean the Registration Rights Agreement dated
as of December 18, 1998 by and among MSC and the former stockholders of Merkert
Enterprises, Inc., a Massachusetts corporation.
MONROE AGREEMENT -- shall mean the Registration Rights Agreement dated
as of August 18, 1999 by and among MSC, Monroe & Company, LLC, Gerald R. Leonard
and the other stockholders of MSC named therein.
OTHER SHAREHOLDERS -- shall mean officers and members of the board of
directors of MSC holding securities of MSC and holders of securities of MSC who
are entitled, by contract with MSC, to have securities included in a
registration.
PERSON -- means an individual, partnership, corporation, limited
liability company, joint venture, trust, unincorporated organization or a
government or agency or political subdivision thereof.
PURCHASER'S INTEREST -- shall mean all of such Purchaser's stock (other
than the Warrant) in MSC issued or issuable to the Purchaser pursuant to the
Warrant Agreement.
The terms REGISTER, REGISTERED and REGISTRATION shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
REGISTRABLE SECURITIES -- shall mean each Purchaser's Interest and any
other security or securities distributable on, with respect to, or in
substitution of each Purchaser's Interest, including, but not limited to, any
security issued as a result of the conversion of either Purchaser's Interest
into equity of a corporation.
REGISTRATION EXPENSES -- shall mean all expenses incurred by MSC in
compliance with Sections 2 and 3 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for MSC and one special counsel for all holders chosen by the holders of
a majority of the securities included in such registration, blue sky fees and
expenses, and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of MSC,
which shall be paid in any event by MSC).
RMSI AGREEMENT -- shall mean the Registration Rights Agreement dated as
of August 18, 1999 by and among MSC and the former stockholders of Richmont
Marketing Specialists Inc., a Delaware Corporation.
SECURITIES ACT -- shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall
<PAGE> 5
be in effect at the time. Reference to a particular section of the Securities
Act shall include a reference to the comparable section, if any, of any such
successor federal statute.
SELLING EXPENSES -- shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
WARRANT AGREEMENT -- shall mean the Warrant Agreement between the
Purchaser and MSC dated as of the date hereof, as may be amended, modified or
supplemented from time to time.
2. REQUESTED REGISTRATION
2.1. REQUEST FOR REGISTRATION. If at any time, MSC shall receive from
Initiating Holders a written request that MSC effect a registration with respect
to all of the unregistered Registrable Securities, MSC will, without limiting
any other rights under this Agreement:
(a) Promptly give written notice of the proposed registration
to all other Holders; and
(b) As soon as practicable, use its commercially reasonable
efforts to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act) as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request given by such Holder or Holders within twenty (20) days after
receipt of such written notice from MSC; provided that MSC shall be entitled to
delay any such requested registration for one period of not more than ninety
(90) days in any twelve (12) month period if MSC is advised in writing by the
lead underwriter (if any) of the proposed registered offering that the timing of
the proposed registration is likely to have material adverse effect on the
market for MSC's existing registered securities or if MSC's Board of determines
in good faith that the proposed registration would require disclosure of
material developments in MSC's business which have not yet been publicly
disclosed and the disclosure of which could have a materially adverse effect on
such pending developments or on MSC's business as a whole; and, provided
further, that MSC shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to Section 2.1(a):
(i) After MSC has effected one (1) such registration
pursuant to Section 2.1 and such registration has been declared or ordered
effective and the sales of such Registrable Securities shall have closed;
provided, however, that any such registration shall not be counted as a
registration for purposes of Section 2.1 if any Registrable Securities remain
unregistered following such registration as a result of Section 2.2 hereof; or
(ii) If MSC delivers written notice to the Initiating
Holders, within thirty (30) days after receipt of their request under this
Section 2.1, that MSC intends to file a registration statement within ninety
(90) days after the date of such notice, and if such intended
<PAGE> 6
registration includes the Registrable Securities requested to be registered by
the Initiating Holders and is thereafter filed by MSC within such 90-day period,
is declared or ordered effective and the sale of securities (including the
securities of the Initiating Holders) by MSC thereunder is closed; provided,
however, that nothing in this clause (ii) shall prevent the Initiating Holders
from filing a further request under this Section 2.1 following the closing of
MSC's registered offering or following the expiration of such 90-day period
without MSC's proposed registered offering having closed, unless (and then only
to the extent that) such further request is otherwise prohibited by any other
provision of this Section 2.1; and
(c) Subject to Section 2.1(b), file a registration statement
covering the Registrable Securities so requested to be registered as soon as
practicable after receipt of the request or requests of the Initiating Holders.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 2.2 below, include other
securities of MSC which are held by Other Shareholders.
2.2. UNDERWRITING.
(a) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise MSC as a part of their request made pursuant to Section 2.1
and MSC shall include such information in the written notice referred to in
Section 2.1(a) above. The right of any Holder to registration pursuant to
Section 2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
other Initiating Holders and such Holder) to the extent provided herein.
(b) If Other Shareholders request inclusion of securities in
the registration, the Initiating Holders shall, on behalf of all Holders, offer
to include the securities of such Other Shareholders in the underwriting and may
condition such offer on their acceptance of all applicable provisions of this
Agreement. MSC shall (together with all Holders and Other Shareholders proposing
to distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders and reasonably acceptable to MSC.
(c) Notwithstanding any other provision of Section 2 hereof,
if the representative of the underwriter or underwriters advises the Initiating
Holders in writing that marketing factors make it advisable to impose a
limitation on the number of securities to be underwritten by the Initiating
Holders and persons other than the Initiating Holders (collectively, "Selling
Stockholders"), MSC may reduce the number of securities to be included in the
registration to a number deemed satisfactory by the managing underwriter;
provided, however that the securities to be excluded shall be determined in the
following order of priority: first, securities held by any Selling Stockholder
not having contractual, incidental registration rights, securities held by any
Selling Stockholder (not including the Holders) participating in such offering
pursuant to the exercise of contractual piggyback registration, as determined on
a pro rata basis (based upon the aggregate number of securities held by such
Selling Stockholders), and securities MSC proposed to sell and other securities
of MSC included in such registration, in
<PAGE> 7
accordance with their respective rights; and second, securities held by any
Holder participating in such registration pursuant hereto, as determined on a
pro rata basis (based upon the aggregate number of securities held by such
Selling Stockholders).
(d) If any Holder of Registrable Securities or Other
Shareholder disapproves of the terms of the underwriting, such party may elect
to withdraw therefrom by written notice to MSC, the underwriter and the
Initiating Holders. The securities so withdrawn shall also be withdrawn from
registration.
(e) If the underwriter has not limited the number of
Registrable Securities or other securities to be underwritten, MSC may include
its securities for its own account in such registration if the underwriter so
agrees and if the number of Registrable Securities and other securities which
would otherwise have been included in such registration and underwriting will
not thereby be limited.
3. MSC REGISTRATION.
3.1. NOTICE OF REGISTRATION. If MSC shall determine to register any of
its securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales, MSC will:
(a) Promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which MSC intends to attempt to
qualify such securities under the applicable blue sky or other state securities
laws); and
(b) Include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made by any Holder within twenty (20) days after receipt of the
written notice from MSC described in Section 3.1(a) above, except as set forth
in Section 3.2 below.
3.2. UNDERWRITING. If the registration of which MSC gives notice is for
a registered public offering involving an underwriting, MSC shall so advise the
Holders as part of the written notice given pursuant to Section 3.1(a). In such
event, the right of any Holder to registration pursuant to Section 3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with MSC and the Other Shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for underwriting by MSC.
(a) Notwithstanding any other provision of Section 3 hereof,
if the underwriter determines that marketing factors require a limitation on the
number of securities to be underwritten, the underwriter may (subject to the
allocation priority set forth below) exclude from such registration and
underwriting some or all of the Registrable Securities which would
<PAGE> 8
otherwise be underwritten pursuant hereto; provided, however, that the
securities to be excluded shall be determined in the following order of
priority, (1) if such registration is demanded under the Monroe Agreement or the
RMSI Agreement, first, securities held by any Selling Stockholder not having
contractual, incidental registration rights; second, securities held by any
Selling Stockholder (including the Holders, but excluding the "Holders"
referenced in the Merkert Agreement, the Monroe Agreement and the RMSI
Agreement) participating in such offering pursuant to the exercise of
contractual piggyback rights; third, securities MSC proposed to sell and other
securities of MSC included in a registration initiated pursuant to the demand
registration rights of a Selling Stockholder other than MSC; fourth, securities
held by the "Holders" referenced in the Merkert Agreement, the Monroe Agreement
and the RMSI Agreement participating in such offering pursuant to the exercise
of contractual piggyback rights and, as applicable, in the case of the Monroe
Agreement and the RMSI Agreement, pursuant to the exercise of demand
registration rights, as determined on a pro rata basis (based upon the aggregate
number of securities held by such Selling Stockholders), and (2) for any other
such registration, first, securities held by any Selling Stockholder not having
contractual, incidental registration rights; second, securities held by any
Selling Stockholder participating in such offering pursuant to the exercise of
contractual piggyback rights.
(b) If any Holder or Other Shareholder disapproves of the
terms of any such underwriting, such party may elect to withdraw therefrom by
written notice to MSC and the underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn from
such registration.
3.3. EXPENSES OF REGISTRATION. MSC shall bear all Registration Expenses
incurred in connection with any registration, qualification and compliance by
MSC pursuant to Sections 2 and 3 hereof. All Selling Expenses shall be borne by
the holders of the securities so registered pro rata on the basis of the number
of their securities so registered.
3.4. REGISTRATION PROCEDURES. In the case of each registration effected
by MSC pursuant to this Agreement or otherwise, MSC will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, MSC will:
(a) Prepare and file with the Commission the requisite
registration statement to effect such registration and thereafter use
commercially reasonable efforts to cause each such registration statement to
become and remain effective until the earlier of (1) the date on which all of
the Registrable Securities covered by such registration statement have been
disposed of by the Holder or Holders thereof in accordance with the intended
methods of disposition thereof described in the registration statement (each
Holder or Holders thereof hereby agreeing to inform MSC upon the completion of
the disposition of their respective Registrable Securities); or (2) the
expiration of One Hundred eighty (180) days after the effective date of such
registration statement (as the period may be extended pursuant to the last
paragraph of this Section 3.4);
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the applicable period specified in Section 4.6(a) hereof and to comply during
such period with the obligations of a registrant under the Securities Act
(including, without limitation, provisions relating to the disposition of all
<PAGE> 9
securities covered by such registration statement in accordance with the
intended methods of disposition by the Holders set forth in such registration
statement);
(c) Furnish to each Holder of Registrable Securities covered
by such registration statement and each underwriter thereof, if any, such number
of conformed copies of such registration statement and of each such amendment
and supplement thereto (in each case including all exhibits), such number of
copies of the prospectus contained in such registration statement (including
each preliminary prospectus and any supplemental prospectus) and of any other
prospectus filed under Rule 424 under the Securities Act, and such other
documents, as such Holder and underwriter may reasonably request in order to
facilitate the public sale or other disposition of such Registrable Securities;
(d) Use commercially reasonable efforts to register or qualify
all Registrable Securities covered by such registration statement under such
other securities laws or blue sky laws of such jurisdictions as any Holder
thereof and any underwriter thereof shall reasonably request, and to keep such
registrations or qualifications in effect for so long as such registration
statement remains in effect, and take any other action which may be reasonably
necessary or advisable to enable such Holder and underwriter to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
Holder, except that MSC shall not for any such purpose be required to qualify
generally to do business as a foreign business entity in any jurisdiction
wherein it would not but for the requirements of Section 3.4(d) be obligated to
be so qualified or to consent to general service of process in any such
jurisdiction (unless MSC is subject to service in such jurisdiction and except
as may be required by the Securities Act);
(e) Upon request, furnish each Holder of Registrable
Securities covered by such registration statement a signed counterpart,
addressed to such Holder, of an opinion of counsel for MSC, dated the effective
date of such registration statement (or, if such registration statement includes
an underwritten public offering, dated the date of closing under the
underwriting agreement), with opinions of issuer's counsel as customarily
delivered in connection with public offerings;
(f) Promptly notify each Holder of Registrable Securities
covered by such registration statement and each underwriter thereof, if any, at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, upon MSC's discovery that, or upon the happening of any
event of which MSC has knowledge as a result of which, the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing, and at the request of any such Holder or
underwriter promptly prepare, file and furnish to such Holder or underwriter, if
any, a reasonable number of copies of a prospectus supplemented or amended so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(g) Otherwise use commercially reasonable efforts to comply
with all applicable rules and regulations of the Commission, and make generally
available (within the
<PAGE> 10
meaning of Section 11(a) of the Securities Act and the regulations thereunder)
to its securityholders, as soon as reasonably practicable, an earnings statement
covering a period of at least twelve months, beginning with the first month of
the first fiscal quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and the regulations thereunder;
(h) Provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration statement
from and after a date not later than the effective date of such registration
statement;
(i) Use commercially reasonable efforts to list all securities
covered by such registration statement on each securities exchange on which any
of MSC's securities are then listed or, if they are not then listed on any
national securities exchange but included in NASDAQ, the NASDAQ Small Cap Market
or the NASDAQ National Market, use diligent efforts to have such securities
included in NASDAQ, the NASDAQ Small Cap Market or the NASDAQ National Market,
as the case may be;
(j) In connection with each such registration, give the
Holders of Registrable Securities to be registered therein, their underwriters,
if any, and up to one designated counsel and one designated accounting firm to
represent the interests of such Holders, at the expense of such Holders, the
reasonable opportunity to participate in the preparation prior to filing of the
related registration statement, each prospectus included therein or filed with
the Commission, and each amendment thereof or supplement thereto;
(k) Make available for inspection by any underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such underwriter, all
financial and other records, pertinent corporate documents and properties of
MSC, and cause MSC's officers, directors, employees and independent accountants
to be available on a reasonable basis and cooperate with such parties' "due
diligence" and to supply all information reasonably requested by any such
underwriter, attorney, accountant or agent in connection with such registration
statement, provided that MSC may refrain from disclosing any proprietary or
other information that is not material to MSC's financial condition or results
of operations;
(l) In the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any MSC securities included in such registration statement for sale in any
jurisdiction, MSC will use commercially reasonable efforts promptly to obtain
the withdrawal of such order; and
(m) Furnish (or cause to be furnished) to each Holder of
Registrable Securities covered by such registration statement, all undertakings,
agreements, certificates, opinions and "comfort letters" of the sort customarily
provided to the managing underwriters of an underwritten public offering.
The Holder(s) agree that, upon receipt of any notice from MSC of the
occurrence of any event of the kind described in Section 3.4(f) hereof, the
Holders will forthwith discontinue their
<PAGE> 11
disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until the Holders' receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3.4(f) hereof
and, if so directed by MSC, will deliver to MSC (at MSC's expense) all copies,
other than permanent file copies, then in the Holders' possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice. In the event MSC shall give any such notice, the 180-day
period referred to in Section 3.4(a) hereof shall be extended by the length of
the period from and including the date when each Holder of any Registrable
Securities covered by such registration statement shall have received such
notice to the date on which each such Holder has received the copies of the
supplemented or amended prospectus contemplated by Section 3.4(f) hereof.
4. INDEMNIFICATION AND CONTRIBUTION.
4.1. INDEMNITIES.
(a) MSC will indemnify, defend and hold harmless each Holder
of Registrable Securities included in any registration, qualification and/or
compliance contemplated by this Agreement (whether or not the same is
consummated), each director, officer, employee, agent, advisor and affiliate of
any such Holder, each underwriter of such securities, and each person, if any,
who controls each such Holder and underwriter within the meaning of the
Securities Act (each, an "INDEMNIFIED PERSON"), to the fullest extent
enforceable under applicable law against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any registration statement, prospectus, supplement, amendment, offering circular
or other document related to any registration, qualification or compliance or
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, or
any violation (or alleged violation) of the Securities Act or other securities
laws in connection with any such registration, qualification or compliance, and
will reimburse each such Indemnified Person for any legal or any other expenses
reasonably incurred in connection with investigating and/or defending (and/or
preparing for any investigation or defense of) any such claim, loss, damage,
liability, action or violation, provided that MSC will not be liable in any such
case to any such Indemnified Person if, but only to the extent that, any such
claim, loss, damage, liability, action, violation or expense arises out of or
results from any untrue statement in or omission from written information
furnished to MSC by such Holder or any director, officer, employee, agent,
advisor or affiliate thereof expressly for use.
(b) Each Holder will, if securities held by such Holder are
included in a registration effected pursuant to this Agreement, severally (and
not jointly) indemnify, defend and hold harmless MSC, each of its directors and
officers who signs the related registration statement, and each person, if any,
who controls MSC within the meaning of the Securities Act, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, supplement,
amendment, offering circular or other document or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse MSC
and such directors, officers or controlling persons for any legal or any other
expenses
<PAGE> 12
reasonably incurred in connection with investigating or defending (and/or
preparing for any investigation or defense of) any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) was made in (or omitted from) such registration statement, prospectus,
supplement, amendment, offering circular or other document in reliance upon and
in conformity with written information furnished to MSC by such Holder or any
director, officer, employee, agent, advisor or affiliate thereof expressly for
use therein, provided that the liability of any such Holder under Section 4
hereof shall be limited to the net sales proceeds actually received by such
Holder as a result of the sale by it of securities in such registration. The
covenants contained in Section 4 hereof shall survive the date upon which none
of the Registrable Securities shall be held by a Purchaser or be outstanding and
the termination of this Agreement.
4.2. PROCEDURES. Each party entitled to indemnification under Section 4
hereof (the "INDEMNIFIED PARTY") shall give notice to the party required to
provide indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such Indemnified Party's expense (unless the
Indemnified Party shall have been advised by counsel that actual or potential
differing interests or defenses exist or may exist between the Indemnifying
Party and the Indemnified Party, in which case such expense shall be paid by the
Indemnifying Party), and provided further that the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under Section 4 hereof unless such failure to give notice is
materially prejudicial to the Indemnifying Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
4.3. CONTRIBUTION. If the indemnification provided for in this Section
4 is for any reason, other than pursuant to the terms thereof, held to be
unavailable or insufficient to an Indemnified Party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred to
therein, then each Indemnifying Party shall, in lieu of indemnifying such
Indemnified Party, contribute to the amount paid or payable by such Indemnified
Party as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party such Indemnified Party in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
Indemnified Party in such proportion as is appropriate to reflect not only such
relative fault but also the relative benefits received by the Indemnifying Party
and such Indemnified Party from the offering of Registrable Securities. The
relative benefits received by
<PAGE> 13
a party shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by such party bears to
the total net proceeds from the offering received by all parties. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact relates to information
supplied by MSC or a Holder and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
MSC and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 4.3 were determined by pro rata allocation
or by any other method of allocation taking into account the equitable
considerations referred to above in this Section 4.3. The amount paid or payable
by an Indemnified Party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section
4.3 shall be deemed to include any legal or other expenses reasonably incurred
by such Indemnified Party in connection with investigating or defending any such
action or claim. No Person guilty of fraudulent misrepresentation within the
meaning of Section 11(f) of the Exchange Act shall be entitled to contribution
from any Person who was not guilty of such fraudulent misrepresentation.
4.4. INDEMNIFICATION PAYMENTS. The indemnification required by Section
4 hereof shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
5. INFORMATION; LIMITATIONS; REPORTING, ETC.
5.1. INFORMATION BY HOLDER. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to MSC such information regarding such Holder or Other Shareholder as
MSC may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Agreement.
5.2. RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
the Registrable Securities to the public without registration, MSC agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
from and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by MSC for an offering of its
securities to the general public;
(b) Use its commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of MSC
under the Securities Act and the Exchange Act at any time after it has become
subject to such reporting requirements; and
(c) Furnish to the Holder(s) promptly upon request a written
statement by MSC as to its compliance with the reporting requirements of Rule
144 (at any time from and after ninety (90) days following the effective date of
the first registration statement in connection with an offering of its
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of MSC, and such other
reports and documents so filed
<PAGE> 14
as a Holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing such Holder to sell any such securities without
registration.
5.3. TRANSFER OF REGISTRATION RIGHTS. The rights to cause MSC to
register securities granted by MSC under this Agreement may be assigned by any
Holder to a transferee or assignee, of all or part of such Purchaser's Interest
provided that MSC is given prior written notice, stating the name and address of
said transferee or assignee and identifying the securities with respect to which
such registration rights are being assigned, and provided further that such
transfer is effected in compliance with the provisions of the Warrant Agreement
related to transfer of the warrants described therein; and provided further that
the transferee or assignee of such rights agrees in writing to be bound by the
provisions of this Agreement as a Holder hereunder.
6. MISCELLANEOUS.
6.1. ASSIGNMENT OF RIGHTS. The provisions of this Agreement shall be
binding upon and inure to the benefit of any permitted successor or assign.
6.2. ENFORCEMENT. The parties hereto agree that the remedy at law for
any breach of this Agreement is inadequate and that should any dispute arise
concerning any matter hereunder, this Agreement shall be enforceable in a court
of equity by an injunction or a decree of specific performance. Such remedies
shall, however, be cumulative and not exclusive, and shall be in addition to any
other remedies which the parties hereto may have.
6.3. SEVERABILITY OF PROVISIONS. If any one or more provisions of this
Agreement shall be declared invalid or unenforceable, the same shall not affect
the validity or enforceability of any other provisions of this Agreement.
6.4. AMENDMENTS. Neither this Agreement nor any term hereof may be
amended, waived, discharged, or terminated, except by written instrument signed
by MSC and the Holders of greater than fifty percent (50%) of the Registrable
Securities, provided that supplements to this Agreement which solely add a
transferee of a Holder as a party to this Agreement as contemplated by Section
5.2 shall not require such a consent of the Holders.
6.5. NOTICES. All communications hereunder shall be in writing, shall
be delivered by United States mail (postage prepaid), nationwide overnight
courier, or facsimile transmission (confirmed by delivery by nationwide
overnight courier sent on the day of the sending of such facsimile
transmission), and
(i) if to MSC, at
MARKETING SPECIALISTS CORPORATION
17885 Dallas Parkway
Suite 200
Dallas, TX 75287
Attention: President and General Counsel
Telephone: 972-349-6200
Facsimile: 972-349-6400
<PAGE> 15
or such other address as MSC shall designate to the Purchaser
and each other party to this Agreement in writing; and
(ii) if to the Purchaser, at
First Union Investors, Inc.
301 S. College Street
Charlotte, NC 28202
Attention: Tracey Chaffin
Telephone: 704-374-4791
Facsimile: 704-374-6711
and
First Union National Bank
12th Floor, Widener Building
PA 4843
One South Penn Square
Philadelphia, PA 19107
Attention: Robert Brown
Telephone: 215-973-1259
Facsimile: 215-786-2877
or such other address as the Purchaser shall designate to MSC
and each other party to this Agreement in writing.
Any communication addressed and delivered as herein provided shall be
deemed to be received when actually delivered to the address of the addressee
(whether or not delivery is accepted) or received by the facsimile machine of
the recipient. Any communication not so addressed and delivered shall be
ineffective.
6.6. ENTIRE AGREEMENT. All prior understandings and agreements between
the parties hereto with respect to the transactions contemplated hereby are
merged in this Agreement, and this Agreement reflects all the understandings
with respect to such transactions.
6.7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS (OTHER THAN
ITS CONFLICTS OF LAW PRINCIPLES).
6.8. WAIVER OF JURY TRIAL, CONSENT TO JURISDICTION, SERVICE OF PROCESS,
OTHER FORUMS
<PAGE> 16
(a) Waiver of Jury Trial. THE PARTIES HERETO VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN
CONNECTION WITH ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OF THE DOCUMENTS, AGREEMENTS OR TRANSACTIONS CONTEMPLATED
HEREBY.
(b) Consent to Jurisdiction. ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OF THE DOCUMENTS,
AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING TO
EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER THIS
AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY MAY BE BROUGHT BY
SUCH PARTY IN ANY FEDERAL DISTRICT COURT LOCATED IN DELAWARE OR ANY DELAWARE
STATE COURT AS SUCH PARTY MAY IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION
AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY SUBMIT TO THE NON-EXCLUSIVE IN PERSONAM JURISDICTION OF EACH
SUCH COURT, AND EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES AND AGREES NOT TO
ASSERT IN ANY PROCEEDING BEFORE ANY SUCH COURT, BY WAY OF MOTION, AS A DEFENSE
OR OTHERWISE, ANY CLAIM THAT IT IS NOT SUBJECT TO THE IN PERSONAM JURISDICTION
OF ANY SUCH COURT. IN ADDITION, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT, AGREEMENT OR TRANSACTION
CONTEMPLATED HEREBY BROUGHT IN ANY SUCH COURT, AND HEREBY IRREVOCABLY WAIVES ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN ANY INCONVENIENT FORUM.
(c) Service of Process. EACH PARTY HERETO IRREVOCABLY AGREES
THAT PROCESS PERSONALLY SERVED OR SERVED BY U.S. REGISTERED MAIL OR SERVED IN
THE MANNER PROVIDED FOR COMMUNICATIONS IN THIS AGREEMENT SHALL CONSTITUTE, TO
THE EXTENT PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT,
AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING TO
EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER OR
UNDER ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY. RECEIPT OF PROCESS SO
SERVED SHALL BE CONCLUSIVELY PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT
FURNISHED BY THE UNITED STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY
SERVICE.
(d) Other Forums. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO
LIMIT THE ABILITY OF ANY PARTY HERETO TO SERVE ANY WRITS, PROCESS OR SUMMONSES
IN ANY MANNER PERMITTED BY APPLICABLE LAW OR
<PAGE> 17
TO OBTAIN JURISDICTION OVER ANY OTHER PARTY HERETO IN SUCH OTHER JURISDICTION,
AND IN SUCH OTHER MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW.
6.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
6.10. DESCRIPTIVE HEADINGS. Descriptive headings of the several
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed and delivered, all as of the
date and year first above written.
MARKETING SPECIALISTS CORPORATION
By:
--------------------------------------
Name:
Title:
ACCEPTED:
FIRST UNION INVESTORS, INC.
By:
---------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.5
================================================================================
MARKETING SPECIALISTS CORPORATION
-------------------
STOCKHOLDERS AGREEMENT
-------------------
DATED AS OF MARCH 30, 2000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. TAG-ALONG RIGHTS IN RESPECT OF SALE OF STOCK BY OTHER STOCKHOLDERS.......................................1
1.1 Right to Sell Proportionate Number of Shares....................................................1
1.2 Notice of Proposed Sale.........................................................................2
1.3 Election by Holders.............................................................................2
1.4 Pro Rata Cutback of Number of Shares Sold.......................................................2
1.5 Exercise........................................................................................2
1.6 Closing of Sale.................................................................................3
1.7 Expense of Sale.................................................................................3
2. RESTRICTIONS ON TRANSFER AND OTHER AGREEMENTS............................................................3
2.2 Cooperation by the Company......................................................................3
2.3 Termination of Restrictions.....................................................................3
3. INTERPRETATION OF THIS AGREEMENT.........................................................................4
3.1 Certain Defined Terms...........................................................................4
3.2 Directly or Indirectly..........................................................................8
3.3 Section Headings and Table of Contents and Construction.........................................8
3.4 Satisfaction Requirement........................................................................8
3.5 Governing Law...................................................................................9
4. MISCELLANEOUS............................................................................................9
4.1 Communications.................................................................................9
4.2 Reproduction of Documents.......................................................................9
4.3 Survival.......................................................................................10
4.4 Successors and Assigns.........................................................................10
4.5 Amendments and Waivers.........................................................................10
4.6 Waiver of Jury Trial; Consent to Jurisdiction; Etc.............................................10
4.7 Indemnification of Each Holder.................................................................12
4.8 Entire Agreement...............................................................................12
4.9 Counterparts...................................................................................12
4.10 Descriptive Headings...........................................................................12
4.11 Severability...................................................................................12
Annex 1 - Name and Address of Purchaser
Annex 2 - Name and Address of MSC
Annex 3 - Name and Address of the Continuing Investor
</TABLE>
<PAGE> 3
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (as the same may hereafter be amended,
supplemented or modified, this "Agreement"), dated as of March 30, 2000 among
MARKETING SPECIALISTS CORPORATION (together with its successors and assigns,
"MSC"), a Delaware corporation, First Union Investors, Inc., a North Carolina
corporation (the "PURCHASER"), MS Acquisition Limited, a Delaware limited
partnership (the "CONTINUING INVESTOR") and Richmont Capital Partners I, L.P., a
Delaware limited partnership ("RICHMONT").
RECITALS
WHEREAS, pursuant to the Warrant Agreement, MSC has issued to the
Purchaser, Six Hundred Eighty Seven Thousand One Hundred Thirty Six (687,136)
Warrants to purchase shares of the Common Stock 9,600,617 immediately following
the effectivness hereof); and
WHEREAS, the Continuing Investor is the holder of Five Million Six
Hundred Thousand Six Hundred Seventeen (5,600,617) shares of the Common Stock;
and
WHEREAS, MSC, the Purchaser, the Continuing Investor and Richmont wish
to define certain rights as among them relating to the Common Stock, Warrants
and other Stock held by them;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises herein contained, MSC, the Continuing Investor and the Purchaser
mutually agree as follows:
1. TAG-ALONG RIGHTS IN RESPECT OF SALE OF STOCK BY OTHER STOCKHOLDERS.
1.1 Right to Sell Proportionate Number of Shares. The Continuing
Investor hereby agrees that it will not sell to any party or parties in any
twelve month period more than ten percent (10%) all or any portion of the
Issuable Shares owned by it pursuant to a Covered Transaction unless, as part of
such transaction, each holder of Purchaser Shares shall have the right (but not
the obligation) to sell a proportionate amount of the Purchaser Shares then held
by such holder at the same Imputed Price and on the same terms (or terms as
similar as reasonably possible), and to the same purchaser or purchasers.
For purposes of this Section 1, the "proportionate amount" which a
holder of Purchaser Shares shall be entitled to sell with respect to any
proposed transaction shall be equal to the product (calculated as of the date of
such proposed transaction) of:
(a) the total number of Purchaser Shares then owned by such
holder; times
(b) the quotient of:
(i) the aggregate number of Issuable Shares proposed
to be sold in such transaction by the Other Stockholders;
divided by
<PAGE> 4
(ii) the aggregate number of Issuable Shares owned by
the Other Stockholders.
1.2 Notice of Proposed Sale. The Continuing Investor shall promptly
provide to each of the holders of the Purchaser Shares written notice of its
intention to engage in a Covered Transaction. Such written notice (the "Notice
of Sale") shall:
(a) specify in detail the terms of such proposed sale
(including the type of Issuable Shares proposed to be sold, the Imputed
Price and, in the event that any Rights are being sold, the Valuation
Agent's calculation of the Imputed Price from the actual purchase price
for such Rights);
(b) state the date on which such proposed sale is to be
consummated; and
(c) designate one (1) party to whom notice of the
determination to participate in such proposed sale should be delivered.
1.3 Election by Holders. Upon receipt of a Notice of Sale, each holder
of Purchaser Shares shall have twenty (20) days to deliver written notice (the
"Tag-Along Notice") of its election to participate in such sale and the number
of Issuable Shares which it elects to sell, which number shall not exceed its
proportionate amount. Subject to Section 1.4, upon delivery of a Tag-Along
Notice, each holder of Purchaser Shares shall be obligated to sell on the terms
set forth in the Notice of Sale the number of Issuable Shares specified in its
Tag-Along Notice.
1.4 Pro Rata Cutback of Number of Shares Sold. In the event that the
Other Stockholders intending to sell the Issuable Shares shall be unable to sell
the aggregate number of shares to be sold by the Other Stockholders and which
the holders of the Purchaser Shares have elected to sell pursuant to Section 1.1
at the price specified in the Notice of Sale, then the number of Issuable Shares
to be sold by the Other Stockholders and such holders of Purchaser Shares
electing to sell such Issuable Shares shall be reduced ratably (as between such
groups and, with respect to the holders of the Purchaser Shares, as among the
members of such group) to the extent necessary to reduce the total number of
Issuable Shares to be included in such offering to the maximum number which the
selling Continuing Investor can sell at such price. Whether or not any such
adjustment in the number of Issuable Shares to be sold is required to be made,
the Continuing Investor shall give each such holder which has elected to sell
Issuable Shares, written notice of the number of shares it is permitted to sell
pursuant to this Section 1 (after giving effect to the provisions of this
Section 1.4) not less than ten days prior to the date of such sale.
1.5 Exercise. Unless the Continuing Investor otherwise agree, all
Issuable Shares to be sold by the holders of Purchaser Shares pursuant to this
Section 1 shall be shares of Stock. MSC shall, if necessary, permit the holders
of Purchaser Shares to exercise or convert their respective Purchaser Shares
into shares of Stock in contemplation of such holders' delivery of Stock at the
closing of any such sale, whether or not at such time such Purchaser Shares are
exercisable or convertible to Stock in accordance with their respective terms or
the terms of any agreements governing such Purchaser Shares at such time.
-2-
<PAGE> 5
1.6 Closing of Sale. Each holder of Purchaser Shares electing to
participate in a sale described in any Notice of Sale shall deliver to the
purchaser specified in such Notice of Sale, against payment of the total
purchase price for the Issuable Shares to be purchased (at the price per share
specified in such Notice of Sale), on the closing date specified in such Notice
of Sale, a certificate or certificates representing the number of Issuable
Shares which it has elected to sell (net of any reduction pursuant to Section
1.4) pursuant to this Section 1, together with appropriate instruments of
transfer duly endorsed in blank.
1.7 Expense of Sale. All expenses and costs of any sale of Issuable
Shares pursuant to this Section 1 shall be for the account of and paid
by the party selling such Issuable Shares.
2. OTHER AGREEMENTS.
2.1 Cooperation by Continuing Investor and Richmont. Continuing
Investor shall not, and Richmont shall not directly or indirectly, including
through any other Person which is a partner or affiliate of, controls, is
controlled by or is under common control with Richmont or the Continuing
Investor: (a) enter into any shareholder agreement, voting agreement or similar
arrangement with any other Person (other than a Person which is a partner or
affiliate of, controls, is controlled by or is under common control with
Richmont is the Continuing Investor) in connection with the acquisition or
holding of Common Stock by such other Person or (b) acquire any shares of Common
Stock, the direct or indirect result of which would be that MSC would either (i)
cease to be required to register under the Exchange Act or (ii) cease to be
listed either on a national securities exchange, the NASDAQ National Market or
the NASDAQ SmallCap Market, unless, as a condition to such agreement,
arrangement or acquisition, such acquiring or holding Person shall be required
to purchase all the Issuable Shares of the Purchaser for an amount, per share,
equal to the higher of (1) the average price per share of Common Stock paid by
such acquiring or holding Person in connection with such transaction, or (2) the
Market Price, provided that the date of determination of "Market Price" shall be
the last trading date before the date on which such transaction was announced.
2.2 Termination of Restrictions.
(a) With Respect to Shares Sold. Each and all of the
provisions of this Agreement shall terminate immediately as to any
Issuable Shares (but this Agreement shall remain in force with respect
to any remaining Issuable Shares):
(i) when such Issuable Shares have been effectively
registered under the Securities Act and disposed of in
accordance with the registration statement covering such
Issuable Shares; or
(ii) when such Issuable Shares shall have been
distributed to the public pursuant to Rule 144 (or any
successor provision) under the Securities Act when such
Issuable Shares shall have been otherwise transferred and
subsequent disposition of them shall not require registration
or qualification under the Securities Act or any similar state
law then in force; or when such Issuable Shares have been sold
or disposed of by the Continuing Investor in any Covered
Transaction, provided the Continuing Investor shall have
complied with the provisions of Section 1 of the Agreement.
-3-
<PAGE> 6
(b) Upon a Tag-Along Sale. The provisions of this Agreement
shall terminate immediately with respect to Purchaser Shares sold in
any sale pursuant to Section 1 or Section 2.1 of this Agreement.
(c) Ownership Level. The provisions of this Agreement shall
terminate with respect to any Issuable Shares held by the Continuing
Investor if the total number of Issuable Shares owned by the
Continuing Investors represents less than ten percent of the total
number of shares of Common Stock then [ILLEGIBLE]
3. INTERPRETATION OF THIS AGREEMENT.
3.1 Certain Defined Terms. As used herein, the following terms have the
respective meanings set forth below or set forth in the Section hereof following
such term:
AFFILIATE -- means, at any time, a Person (other than a Subsidiary or
the Purchaser): (a) that directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
MSC; (b) that beneficially owns or holds ten percent (10%) or more of any class
of Stock; (c) ten percent (10%) or more of the voting stock (or in the case of a
Person that is not a corporation, ten percent (10%) or more of the equity
interest) of which is beneficially owned or held by MSC or a Subsidiary; (d)
that is an officer, member of the Board of Directors (or a member of the
immediate family of an officer or director or member of the Board of Directors)
of MSC or any Subsidiary, at such time. As used in this definition, "Control"
shall means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
AGREEMENT - the introductory paragraph hereof.
CAPITAL STOCK -means any class of preferred, common or other capital
stock, share capital or similar equity interest of a Person including, without
limitation, any partnership interest in any partnership or limited partnership
and any membership interest in any limited liability company.
CHARTER - means the Second Amended and Restated Certification of
Incorporation of MSC dated December 14, 1998, as amended by Certificate of
Amendment to Second Amended or Restated Certificate of Incorporation dated
August 18, 1998.
COMMON STOCK - means, collectively, the Common Stock, par value $.0001
per share, of MSC.
CONTINUING INVESTOR. The introductory paragraph hereof.
COVERED TRANSACTION - means any sale of Issuable Shares by the
Continuing Investor other than (i) a sale pursuant to a registered underwritten
public offering; (ii) open market sales pursuant to Rule 144 under the
Securities Act, or (iii) a sale to an Affiliate, provided such Affiliate agrees
in writing with Purchaser to be bound by the terms and provisions of this
Agreement as fully as though such Affiliate were a Continuing Investor
hereunder.
EXCHANGE ACT - means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
-4-
<PAGE> 7
GAAP - means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board and in such
statements, opinions and pronouncements of such other entities with respect to
financial accounting of for-profit entities as shall be accepted by a
substantial segment of the accounting profession in the United States.
INDEMNIFIED PARTY - Section 4.7.
ISSUABLE SHARE - means and includes at any time,
(a) a share of issued and outstanding Stock; and
(b) a Right (including, without limitation, a Warrant), and
(without duplication) all shares of Stock issuable upon exercise of
such Right, in each case at such time.
For purposes of this definition of "Issuable Share", a Right to acquire one
share of Stock shall constitute one Issuable Share, and a Person shall be deemed
to own an Issuable Share if such Person has a Right to acquire such share
whether or not such Right is exercisable at such time. For purposes of this
Agreement a share of Stock or a Right shall cease to be an "Issuable Share" when
the restrictions on such share or Right terminate pursuant to Section 2.2.
IMPUTED PRICE - means:
(a) in the case of a sale of Stock, the price per share paid
for such Stock;
and
-5-
<PAGE> 8
(b) in the case of a sale of any other Rights, the assumed
price per underlying share of Common Stock, as determined by a
Valuation Agent in accordance with generally accepted financial
practice, which would yield the actual purchase price to be paid for
such Rights.
MARKET PRICE -- means, per share of Common Stock, as of any date of
determination, the arithmetic mean of the daily Closing Prices for the twenty
(20) consecutive trading days before such date of determination; provided that
if the Common Stock is then neither listed or admitted to trading on any
national securities exchange, the NASDAQ National Market or the NASDAQ SmallCap
Market, then "Market Price" means the Fair Value of one share of Common Stock,
as determined by the Valuation Agent as of the date of determination.
MSC - the introductory paragraph.
NOTICE OF SALE - Section 1.2.
OTHER STOCKHOLDERS - means and includes, at any time, all holders of
Issuable Shares at such time (other than the holders of Purchaser Shares),
including, without limitation, the Sponsor Investor.
PERSON - means an individual, partnership, corporation, limited
liability company, joint venture, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
PURCHASER - the introductory paragraph.
PURCHASER SHARES - means the following, without duplication:
(a) shares of Common Stock that have been issued upon the
exercise of any Warrant and all other shares of Stock issued to the
Purchaser from time to time;
(b) any shares of Stock into which any such shares of Stock
shall have been converted at any time; and
(c) any shares of Common Stock that are issuable upon the
exercise of the Warrants or the conversion of Stock referred to in
clause (a) or clause (b) above.
Holders of Warrants at any time shall be deemed to be holders of Purchaser
Shares described in clauses (b) and (c) of this definition that are at such time
issuable upon exercise in full of such Warrants, whether or not such holders are
then entitled so to exercise such Warrants pursuant to the terms thereof.
REGISTRATION RIGHTS AGREEMENT - means the Registration Rights
Agreement, of even date herewith, among MSC, the Purchaser and the other parties
thereto.
-6-
<PAGE> 9
RIGHT - means and includes any warrant (including, without limitation,
any Warrant), option or other right, to acquire Stock and including, without
limitation, any right pursuant to the provisions of any security convertible or
exchangeable into Stock.
SEC - means, at any time, the Securities and Exchange Commission or any
other federal agency at such time administering the Securities Act.
SECURITIES ACT - means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
STOCK - -- shall mean and include (i) all shares of Capital Stock of
MSC, including without limitation, shares of Capital Stock issued, issuable or
transferable (A) on the exercise of rights to acquire shares of Capital Stock or
(B) on the conversion or exchange or exercise of securities convertible into or
exchangeable or exercisable for Capital Stock, and (ii) all other securities of
MSC which may be issued in exchange for or in respect of shares of Capital Stock
(whether by way of stock split, stock dividend, combination, reclassification,
reorganization or any other means).
SUBSIDIARY - means, as to any Person, any corporation in which such
Person or one or more Subsidiaries of such Person or such Person and one or more
Subsidiaries of such Person owns sufficient voting securities to enable it or
them (as a group) ordinarily, in the absence of contingencies, to elect a
majority of the directors (or Persons performing similar functions) of such
corporation. The term "Subsidiary," as used herein without reference to any
Person, shall mean a Subsidiary of MSC.
VALUATION AGENT - means a firm of independent certified public
accountants, an investment banking firm or a securities rating service (which
firm or service shall own no Securities of, and shall not be an Affiliate,
Subsidiary or a related Person of, MSC) of recognized national standing retained
by MSC and reasonably acceptable to the Required Holders.
VOTING STOCK - means, with respect to any corporation, any shares of
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
-7-
<PAGE> 10
WARRANT - means and includes each warrant to purchase Common Stock
issued pursuant to the Warrant Agreement.
WARRANT AGREEMENT - means the Warrant Agreement, of even date herewith,
between MSC and the Purchaser, as amended, modified or supplemented from time to
time.
3.2 Directly or Indirectly. Where any provision herein refers to action
to be taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person, including actions taken by or on behalf of any
partnership in which such Person is a general partner.
3.3 Section Headings and Table of Contents and Construction.
(a) Section Headings and Table of Contents, etc. The titles of
the Sections of this Agreement and the Table of Contents of this
Agreement appear as a matter of convenience only, do not constitute a
part hereof and shall not affect the construction hereof. The words
"herein," "hereof," "hereunder" and "hereto" refer to this Agreement as
a whole and not to any particular Section or other subdivision.
References to Sections are, unless otherwise specified, references to
Sections of this Agreement. References to Annexes and Exhibits are,
unless otherwise specified, references to Annexes and Exhibits attached
to this Agreement.
(b) Construction. Each covenant contained herein shall be
construed (absent an express contrary provision herein) as being
independent of each other covenant contained herein, and compliance
with any one covenant shall not (absent such an express contrary
provision) be deemed to excuse compliance with one or more other
covenants.
3.4 Satisfaction Requirement. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
or the Purchaser Shares required to be satisfactory to any holder or holders of
Purchaser Shares, the determination of such satisfaction shall, unless
specifically required herein in any instance to be "reasonable" or words to
similar effect, be made by such holder or holders, as the case may be, in the
sole and exclusive judgment (exercised in good faith) of the Person or Persons
making such determination.
3.5 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF DELAWARE.
4. MISCELLANEOUS.
4.1 Communications.
(a) Method; Address. All communications hereunder or under the
Purchaser Shares shall be in writing and shall be delivered either by
nationwide overnight courier or by facsimile transmission (confirmed by
delivery by nationwide overnight courier sent on
-8-
<PAGE> 11
the day of the sending of such facsimile transmission). Communications
to the Continuing Investor shall be addressed as set forth on Annex 3,
or at such other address of which the Continuing Investor shall have
notified each holder of Purchaser Shares and MSC. Communications to MSC
shall be addressed as set forth on Annex 2, or at such other address of
which MSC shall have notified each holder of Purchaser Shares and the
Continuing Investor. Communications to the holders of Purchaser Shares
shall be addressed as set forth on Annex 1 for such holder or at such
other or further address of which such holder shall have notified MSC
and the Continuing Investor.
(b) When Given. Any communication addressed and delivered as
herein provided shall be deemed to be received when actually delivered
to the address of the addressee (whether or not delivery is accepted)
or received by the telecopy machine of the recipient. Any communication
not so addressed and delivered shall be ineffective.
(c) Service of Process. Notwithstanding the foregoing
provisions of this Section 4.1, service of process in any suit, action
or proceeding arising out of or relating to this agreement or any
document, agreement or transaction contemplated hereby, or any action
or proceeding to execute or otherwise enforce any judgment in respect
of any breach hereunder or under any document or agreement contemplated
hereby, shall be delivered in the manner provided in Section 4.6(c).
4.2 Reproduction of Documents. This Agreement and all documents
relating hereto, including, without limitation, consents, waivers and
modifications that may hereafter be executed, documents received by any holder
of Purchaser Shares at the closing of its purchase of such Purchaser Shares
(except any certificate evidencing Purchaser Shares themselves), and financial
statements, certificates and other information previously or hereafter furnished
to any holder of Purchaser shares, may be reproduced by MSC or any holder of
Purchaser Shares by any photographic, photostatic, microfilm, micro-card,
miniature photographic, digital or other similar process and each holder of
Purchaser Shares may destroy any original document so reproduced. Any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by MSC or any such
holder of Purchaser Shares in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence. Nothing in this Section 4.2 shall prohibit
MSC or any holder of Purchaser Shares from contesting the accuracy or validity
of any such reproduction.
4.3 Survival. All warranties, representations, certifications and
covenants made by MSC in the Warrant Agreement or herein or in any certificate
or other instrument delivered by MSC or on behalf of MSC thereunder or hereunder
shall be considered to have been relied upon by each holder of Purchaser Shares
and shall survive the delivery to such holder of the certificate or certificates
evidencing such Purchaser Shares regardless of any investigation made by or on
behalf of any such holder. All statements in any certificate or other instrument
delivered by or on behalf of MSC pursuant to the terms thereof or hereof shall
constitute warranties and representations by MSC, as the case may be, hereunder.
All payment obligations of MSC hereunder shall survive the termination hereof.
-9-
<PAGE> 12
4.4 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon all the holders, from time to time, of the Purchaser
Shares and their successors and assigns. The provisions hereof are intended to
be for the benefit of the holders of the Purchaser Shares and their successors
and assigns and shall be enforceable by any such holder, successor or assignee,
whether or not an express assignment of rights hereunder shall have been made by
any such holder or its successor or assign. Anything contained in this Section
4.4 notwithstanding, MSC may not assign any of its respective rights, duties or
obligations hereunder or under any of the other Financing Documents without the
prior written consent of all holders of the Purchaser Shares.
4.5 Amendments and Waivers. The provisions of this Agreement may be
amended, modified or supplemented, and compliance with any provision hereof
waived, only by a writing duly executed by or on behalf of the Required Holders,
the Continuing Investor and MSC.
4.6 Waiver of Jury Trial; Consent to Jurisdiction; Etc.
(a) Waiver of Jury Trial. THE PARTIES HERETO VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT, THE PURCHASER SHARES, THE CERTIFICATES EVIDENCING
THE PURCHASER SHARES OR ANY OF THE DOCUMENTS, AGREEMENTS OR
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
(b) Consent to Jurisdiction. ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE PURCHASER SHARES, THE
CERTIFICATES EVIDENCING THE PURCHASER SHARES OR ANY OF THE DOCUMENTS,
AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, OR ANY
ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN
RESPECT OF ANY BREACH HEREUNDER OR THEREUNDER MAY BE BROUGHT BY SUCH
PARTY IN ANY FEDERAL DISTRICT COURT LOCATED IN THE STATE OF DELAWARE,
OR ANY DELAWARE STATE COURT LOCATED IN WILMINGTON, DELAWARE AS SUCH
PARTY MAY IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY SUBMIT TO THE NON-EXCLUSIVE IN PERSONAM JURISDICTION OF
EACH SUCH COURT, AND EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES AND
AGREES NOT TO ASSERT IN ANY PROCEEDING BEFORE ANY TRIBUNAL, BY WAY OF
MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT IT IS NOT SUBJECT TO
THE IN PERSONAM JURISDICTION OF ANY SUCH COURT. IN ADDITION, EACH OF
THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
-10-
<PAGE> 13
OR RELATING TO THIS AGREEMENT, THE PURCHASER SHARES, THE CERTIFICATES
EVIDENCING THE PURCHASER SHARES OR ANY DOCUMENT, AGREEMENT OR
TRANSACTION CONTEMPLATED HEREBY OR THEREBY BROUGHT IN ANY SUCH COURT,
AND HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(c) Service of Process. EACH PARTY HERETO IRREVOCABLY AGREES
THAT PROCESS PERSONALLY SERVED OR SERVED BY U.S. REGISTERED MAIL AT THE
ADDRESSES PROVIDED HEREIN FOR NOTICES SHALL CONSTITUTE, TO THE EXTENT
PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE PURCHASER
SHARES, THE CERTIFICATES EVIDENCING THE PURCHASER SHARES OR ANY
DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY OR THEREBY, OR
ANY ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT
IN RESPECT OF ANY BREACH HEREUNDER OR UNDER ANY DOCUMENT OR AGREEMENT
CONTEMPLATED HEREBY. RECEIPT OF PROCESS SO SERVED SHALL BE CONCLUSIVELY
PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT FURNISHED BY THE UNITED
STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY SERVICE.
(d) Other Forums. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO
LIMIT THE ABILITY OF ANY HOLDER OF PURCHASER SHARES TO SERVE ANY WRITS,
PROCESS OR SUMMONSES IN ANY MANNER PERMITTED BY APPLICABLE LAW OR TO
OBTAIN JURISDICTION OVER MSC IN SUCH OTHER JURISDICTION, AND IN SUCH
OTHER MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW.
4.7 Indemnification of Each Holder.
From and at all times after the date of this Agreement, and in addition
to all other rights and remedies of each holder of Purchaser Shares against MSC,
MSC agrees to indemnify and hold harmless each holder of Purchaser Shares and
each director, trustee, officer, employee, agent, investment advisor and
affiliate of each such holder (each, an "Indemnified Party") against any and all
claims (whether valid or not), losses, damages, liabilities, costs and expenses
of any kind or nature whatsoever (including, without limitation, reasonable
attorneys' fees, costs and expenses), incurred by or asserted against any
Indemnified Party, from and after the date hereof, whether direct, indirect or
consequential, as a result of or arising from or in any way relating to any
suit, action or proceeding (including any inquiry or investigation) by any
Person, whether threatened or initiated, asserting a claim for any legal or
equitable remedy against any Person under any statute or regulation, including,
but not limited to, any federal or state securities laws, or under any common
law or equitable cause or otherwise, arising from or in connection with the
negotiation, preparation, execution, performance or enforcement of this
Agreement, the Warrants, the Purchaser Shares, the certificates evidencing the
Purchaser Shares or the other documents and
-11-
<PAGE> 14
transactions contemplated herein or therein, or any of the transactions
contemplated hereunder or thereunder, whether or not such Indemnified Party is a
party to any such action, proceeding, suit or the target of any such inquiry or
investigation; provided, however, that no Indemnified Party shall have the right
to be indemnified hereunder for any liability resulting from the willful
misconduct or gross negligence of such Indemnified Party or breach by such
Indemnified Party of its own obligations under this Agreement. All of the
foregoing losses, damages, costs and expenses of any Indemnified Party shall be
payable as and when incurred upon demand by such Indemnified Party and shall be
additional obligations hereunder. The obligations of MSC and the rights of the
Indemnified Parties under this Section 4.7 shall survive the termination of this
Agreement.
4.8 Entire Agreement.
This Agreement, together with the certificates evidencing Purchaser
Shares, the Warrant Agreement, the Registration Rights Agreement and the other
documents contemplated herein and therein, constitutes the final written
expression of all of the terms hereof and is a complete and exclusive statement
of those terms.
4.9 Execution in Counterpart. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
4.10 Descriptive Headings. Descriptive headings of the several sections
of this Agreement are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
4.11 Severability. The fact that any given provision of this Agreement
is found to be unenforceable, void or voidable under the laws of any
jurisdiction shall not effect the validity of the remaining provisions of this
Agreement in such jurisdiction, and shall not effect the enforceability of the
entire Agreement under the laws of any other jurisdiction.
[Remainder of page left blank intentionally; next page is signature page]
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Stockholders
Agreement to be duly executed and delivered, all as of the date and year first
above written.
MARKETING SPECIALISTS CORPORATION
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
MS ACQUISITION LIMITED, by its General
Partner MS Acquisition Corp.
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
Richmont Capital Partners I, L.P., by its
General Partner
-----------------------
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
First Union Investors, Inc.
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
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<PAGE> 16
ANNEX 1
Name and Address of Purchaser
First Union Investors, Inc.
301 S. College Street
Charlotte, NC 28202
Attn: Tracey Chaffin
Annex 1-1
<PAGE> 17
ANNEX 2
Name and Address of MSC
MARKETING SPECIALISTS CORPORATION
17885 Dallas Parkway
Suite 200
Dallas, TX 75287
Annex 1-1
<PAGE> 18
ANNEX 3
Name and Address of the Sponsor Investor
MS Acquisition Limited
17855 Dallas Parkway
- ---------------------
Suite 200
- ---------------------
Dallas, Texas 75287
- ---------------------
Annex 1-1
<PAGE> 1
EXHIBIT 10.6
================================================================================
CREDIT AGREEMENT
among
MARKETING SPECIALISTS CORPORATION
and certain of its subsidiaries,
as Borrowers,
THE CHASE MANHATTAN BANK,
as Agent,
and
the banks named herein
30 March 2000
================================================================================
[CHASE LOGO]
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE 1 Definitions.............................................................................................1
Section 1.1 Definitions............................................................................1
Section 1.2 Other Definitional Provisions.........................................................16
Section 1.3 Accounting Terms and Determinations...................................................16
Section 1.4 Time of Day...........................................................................16
ARTICLE 2 Revolving Credit Facility..............................................................................17
Section 2.1 Commitments...........................................................................17
Section 2.2 Notes.................................................................................17
Section 2.3 Repayment of Loans....................................................................17
Section 2.4 Use of Proceeds.......................................................................17
Section 2.5 Commitment Fee........................................................................17
Section 2.6 Termination or Reduction of Commitments...............................................17
Section 2.7 Letters of Credit.....................................................................18
ARTICLE 3 Interest and Fees......................................................................................20
Section 3.1 Interest Rate.........................................................................20
Section 3.2 Determinations of Margins and Fees....................................................20
Section 3.3 Payment Dates.........................................................................21
Section 3.4 Default Interest......................................................................21
Section 3.5 Conversions and Continuations of Accounts.............................................21
Section 3.6 Computations..........................................................................22
ARTICLE 4 Administrative Matters.................................................................................22
Section 4.1 Borrowing Procedure...................................................................22
Section 4.2 Minimum Amounts.......................................................................22
Section 4.3 Certain Notices.......................................................................23
Section 4.4 Prepayments...........................................................................23
Section 4.5 Method of Payment.....................................................................24
Section 4.6 Weekly Settlement Among Banks; Pro Rata Treatment.....................................25
Section 4.7 Sharing of Payments...................................................................26
Section 4.8 Non-Receipt of Funds by the Agent.....................................................26
Section 4.9 Withholding Taxes.....................................................................26
Section 4.10 Withholding Tax Exemption.............................................................27
Section 4.11 Participation and Settlement Obligations Absolute; Failure to Fund Participation or
Settlement ...........................................................................27
Section 4.12 Borrowers' Acknowledgment of Benefit and Liability....................................28
Section 4.13 Limitation of Borrower Liability......................................................28
Section 4.14 Contribution; Subrogation.............................................................28
Section 4.15 Joint and Several Obligations Absolute................................................29
Section 4.16 Subordination.........................................................................29
ARTICLE 5 Yield Protection and Illegality........................................................................30
Section 5.1 Additional Costs......................................................................31
Section 5.2 Limitation on Libor Accounts..........................................................32
Section 5.3 Illegality............................................................................32
Section 5.4 Treatment of Affected Loans...........................................................32
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
Section 5.5 Compensation..........................................................................33
Section 5.6 Capital Adequacy......................................................................33
Section 5.7 Replacement of a Bank.................................................................34
ARTICLE 6 Conditions Precedent...................................................................................34
Section 6.1 Initial Loan and Letter of Credit.....................................................34
Section 6.2 All Loans and Letters of Credit.......................................................36
ARTICLE 7 Representations and Warranties.........................................................................37
Section 7.1 Corporate Existence...................................................................37
Section 7.2 Financial Statements..................................................................37
Section 7.3 Corporate Action; No Breach...........................................................37
Section 7.4 Operation of Business.................................................................38
Section 7.5 Litigation and Judgments..............................................................38
Section 7.6 Rights in Properties; Liens...........................................................38
Section 7.7 Enforceability........................................................................38
Section 7.8 Approvals.............................................................................38
Section 7.9 Debt..................................................................................38
Section 7.10 Taxes.................................................................................39
Section 7.11 Margin Securities.....................................................................39
Section 7.12 ERISA.................................................................................39
Section 7.13 Disclosure............................................................................39
Section 7.14 Subsidiaries; Borrower Capitalization.................................................39
Section 7.15 Agreements............................................................................40
Section 7.16 Compliance with Laws..................................................................40
Section 7.17 Investment Company Act................................................................40
Section 7.18 Public Utility Holding Company Act....................................................40
Section 7.19 Environmental Matters.................................................................40
Section 7.20 Solvency..............................................................................41
Section 7.21 Perishable Agricultural Commodities Act...............................................41
Section 7.22 Packers and Stockyards Act............................................................41
Section 7.23 Common Enterprise; Benefit Received...................................................41
Section 7.24 Year 2000.............................................................................41
Section 7.25 Indenture.............................................................................42
ARTICLE 8 Positive Covenants.....................................................................................42
Section 8.1 Reporting Requirements................................................................42
Section 8.2 Maintenance of Existence; Conduct of Business.........................................44
Section 8.3 Maintenance of Properties.............................................................44
Section 8.4 Taxes and Claims......................................................................44
Section 8.5 Insurance.............................................................................44
Section 8.6 Inspection Rights; Receivable Verification............................................44
Section 8.7 Keeping Books and Records.............................................................45
Section 8.8 Compliance with Laws..................................................................45
Section 8.9 Compliance with Agreements............................................................45
Section 8.10 Further Assurance.....................................................................45
Section 8.11 ERISA.................................................................................46
ARTICLE 9 Negative Covenants.....................................................................................46
Section 9.1 Debt..................................................................................46
Section 9.2 Limitation on Liens and Restrictions on Subsidiaries..................................47
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
Section 9.3 Mergers, Etc..........................................................................48
Section 9.4 Restricted Junior Payments............................................................49
Section 9.5 Investments...........................................................................49
Section 9.6 Limitation on Issuance of Capital Stock...............................................50
Section 9.7 Transactions With Affiliates..........................................................50
Section 9.8 Disposition of Assets.................................................................50
Section 9.9 Sale and Leaseback....................................................................51
Section 9.10 Lines of Business.....................................................................51
Section 9.11 Prepayment of Debt....................................................................51
Section 9.12 First Union Loan Agreement............................................................51
Section 9.13 Modifications to Senior Note Documents................................................51
Section 9.14 Designation of Senior Debt............................................................51
ARTICLE 10 Financial Covenants...................................................................................52
Section 10.1 Minimum Fixed Charges Coverage Ratio..................................................52
Section 10.2 Maximum Debt to EBITDA Ratio..........................................................52
Section 10.3 Deleted...............................................................................52
Section 10.4 Minimum Interest Coverage Ratio.......................................................52
Section 10.5 Minimum EBITDA........................................................................52
Section 10.6 Capital Expenditure Limits............................................................53
ARTICLE 11 Default...............................................................................................53
Section 11.1 Events of Default.....................................................................53
Section 11.2 Remedies..............................................................................57
Section 11.3 Cash Collateral.......................................................................58
Section 11.4 Performance by the Agent..............................................................58
Section 11.5 Setoff................................................................................58
Section 11.6 Continuance of Default................................................................59
ARTICLE 12 The Agent.............................................................................................59
Section 12.1 Appointment, Powers and Immunities....................................................59
Section 12.2 Rights of Agent as a Bank.............................................................59
Section 12.3 Defaults..............................................................................60
Section 12.4 Indemnification.......................................................................60
Section 12.5 Independent Credit Decisions..........................................................60
Section 12.6 Several Commitments...................................................................61
Section 12.7 Successor Agent.......................................................................61
Section 12.8 Administrative Fee....................................................................61
ARTICLE 13 Miscellaneous.........................................................................................61
Section 13.1 Expenses..............................................................................61
Section 13.2 Indemnification.......................................................................62
Section 13.3 Limitation of Liability...............................................................62
Section 13.4 No Duty...............................................................................63
Section 13.5 No Fiduciary Relationship.............................................................63
Section 13.6 Equitable Relief......................................................................63
Section 13.7 No Waiver; Cumulative Remedies........................................................63
Section 13.8 Successors and Assigns................................................................63
Section 13.9 Survival..............................................................................65
Section 13.10 ENTIRE AGREEMENT......................................................................65
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
Section 13.11 Amendments............................................................................65
Section 13.12 Maximum Interest Rate.................................................................66
Section 13.13 Notices...............................................................................66
Section 13.14 Governing Law, Etc....................................................................66
Section 13.15 Counterparts..........................................................................67
Section 13.16 Severability..........................................................................67
Section 13.17 Headings..............................................................................67
Section 13.18 Non-Application of Chapter 346 of Texas Finance Code..................................67
Section 13.19 Construction..........................................................................67
Section 13.20 Independence of Covenants.............................................................67
Section 13.21 WAIVER OF JURY TRIAL..................................................................67
Section 13.22 Confidentiality.......................................................................68
</TABLE>
<PAGE> 6
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<S> <C>
"A" Note
"B" Compliance Certificate
"C" Borrowing Base Report
"D" Security Agreement
"E" Assignment and Acceptance
"F" Guaranty Agreement
"G" Receivables Report
</TABLE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Schedule Description of Schedule
-------- -----------------------
<S> <C>
1.1(a) Previous Senior Debt
1.1(b) Monroe Litigation
7.9 Debt Levels
7.14 List of Subsidiaries; List of Parent's Shareholders
9.1 Debt
9.2 Existing Liens
9.5 Existing Investments
9.7 Permitted Affiliate Transactions
</TABLE>
INDEX TO EXHIBITS AND SCHEDULES, Solo Page
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement"), dated as of March 30, 2000, is
among MARKETING SPECIALISTS CORPORATION, a corporation duly organized and
validly existing under the laws of the State of Delaware (the "Parent"), PAUL
INMAN ASSOCIATES, INC. ("PIA"), a corporation duly organized and validly
existing under the laws of the State of Michigan, MARKETING SPECIALISTS SALES
COMPANY ("MSSC"), a corporation duly organized and validly existing under the
laws of the State of Texas, BROMAR, INC. ("Bromar"), a corporation duly
organized and validly existing under the laws of the State of California,
(Parent, PIA, MSSC, and Bromar, collectively, the "Borrowers"), each of the
banks or other lending institutions which is or which may from time to time
become a signatory hereto or any successor or assignee thereof pursuant to
Section 13.8 hereof (individually, a "Bank" and, collectively, the "Banks"), and
THE CHASE MANHATTAN BANK, individually as a Bank and as agent for itself and the
other Banks (in its capacity as agent, together with its successors in such
capacity, the "Agent").
R E C I T A L S:
The Borrowers have requested that the Banks extend credit to the
Borrowers in the form of a revolving credit facility. The Banks are willing to
extend such credit to the Borrowers upon the terms and conditions hereinafter
set forth.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
have the following meanings:
"Account" means either a Base Rate Account or a Libor Account.
"Additional Costs" has the meaning specified in Section 5.1 hereof.
"Additional Debt" has the meaning specified in Section 9.1 hereof.
"Adjusted EBITDA" has the meaning specified in Section 10.2 hereof.
"Adjusted Libor Rate" means, for any Libor Account for any Interest
Period therefor, the rate per annum determined by the Agent to be equal to the
Libor Rate for such Libor Account for such Interest Period divided by 1 minus
the Reserve Requirement for such Libor Account for such Interest Period.
"Adjusted Maximum Amount" has the meaning specified in Section 4.14
hereof.
"Adjustment Date" has the meaning specified in Section 3.2 hereof.
"Affiliate" means, as to any Person, any other Person (a) that directly
or indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with, such Person; (b) that directly or indirectly
beneficially owns or holds ten percent (10%) or more of any class of voting
stock of
CREDIT AGREEMENT - Page 1
<PAGE> 8
such Person; or (c) ten percent (10%) or more of the voting stock of which is
directly or indirectly beneficially owned or held by the Person in question. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract, or otherwise; provided,
however, in no event shall the Agent or any Bank be deemed an Affiliate of any
Borrower.
"Agent" has the meaning set forth in the introductory paragraph of this
Agreement.
"Aggregate Borrowing Availability" means the sum of all the Borrowers'
Borrowing Availability.
"Aggregate Payments" has the meaning specified in Section 4.14 hereof.
"Agreement" has the meaning set forth in the introductory paragraph of
this Agreement.
"Applicable Lending Office" means for each Bank and each Type of
Account, the lending office of such Bank (or of an Affiliate of such Bank)
designated for such Account below its name on the signature pages hereof or such
other office of such Bank (or of an Affiliate of such Bank) as such Bank may
from time to time specify to the Borrower and the Agent as the office by which
its Loans subject to Accounts of such Type are to be made and maintained.
"Applicable Rate" has the meaning specified in Section 3.1 hereof.
"Assignee" has the meaning specified in Section 13.8 hereof.
"Assigning Bank" has the meaning specified in Section 13.8 hereof.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Bank and its assignee and accepted by the Agent pursuant to Section
13.8 hereof, in substantially the form of Exhibit "E" hereto.
"Available Cash" has the meaning specified in Section 4.4(b).
"Bank" has the meaning set forth in the introductory paragraph of this
Agreement.
"Bankruptcy Code " has the meaning specified in Section 11.1 hereof.
"Base Margin" has the meaning specified in Section 3.2 hereof.
"Base Rate" means, for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate
(computed on the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be) in effect on such day, (b) the Federal Funds
Effective Rate (computed on the basis of the actual number of days elapsed over
a 360-day year) in effect for such day plus one-half of one percent (0.5%), or
(c) the Base CD Rate in effect for such day plus one percent (1%). For purposes
of this Agreement, any change in the Base Rate due to a change in the Prime
Rate, Federal Funds Effective Rate or the Base CD Rate shall be effective on the
effective date of such change in the Prime Rate, Federal Funds Effective Rate or
the Base CD Rate, respectively. If for any reason the Agent shall have
determined (which determination shall be conclusive and binding, absent manifest
error) that it is unable to ascertain the Federal Funds Effective Rate or Base
CD Rate, or both, for any reason, including the inability or failure of the
Agent to obtain sufficient quotations in accordance with the terms hereof, the
Base Rate shall be determined without regard to clause (b) or (c), or both, as
CREDIT AGREEMENT - Page 2
<PAGE> 9
appropriate, until the circumstances giving rise to such inability no longer
exist. As used in this definition, the following terms shall have the following
meanings:
"Assessment Rate" shall mean the annual assessment rate (net
of refunds and rounded upwards, if necessary, to the next 1/16 of 1%)
estimated by the Agent (in good faith, but in no event in excess of
statutory or regulatory maximums) to be payable by the Agent to the
Federal Deposit Insurance Corporation (or any successor) for insurance
by such Corporation (or such successor) of time deposits made in
Dollars at the Agent's domestic offices during the current calendar
year.
"Base CD Rate" shall mean the sum of (a) the product of (i)
the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b)
the Assessment Rate.
"Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by The Chase Manhattan Bank, or
its successor financial institution, at the Principal Office as its
prime rate in effect at such time. Without notice to any Borrower or
any other Person, the Prime Rate shall change automatically from time
to time as and in the amount by which said prime rate shall fluctuate,
with each such change to be effective as of the date of each change in
such prime rate. THE PRIME RATE IS A REFERENCE RATE AND DOES NOT
NECESSARILY REPRESENT THE LOWEST OR BEST RATE ACTUALLY CHARGED BY THE
CHASE MANHATTAN BANK OR SUCH SUCCESSOR FINANCIAL INSTITUTION TO ANY OF
ITS CUSTOMERS. THE CHASE MANHATTAN BANK OR SUCH SUCCESSOR FINANCIAL
INSTITUTION MAY MAKE COMMERCIAL LOANS OR OTHER LOANS AT RATES OF
INTEREST AT, ABOVE AND BELOW THE PRIME RATE.
"Statutory Reserves" shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator
of which is the number one minus the aggregate of the maximum reserve
percentage (including without limitation, any marginal, special,
emergency or supplemental reserves) expressed as a decimal, established
by the Board of Governors of the Federal Reserve System of the United
States or any banking authority to which The Chase Manhattan Bank is
subject with respect to the Base CD Rate for new negotiable
non-personal time deposits in Dollars of over One Hundred Thousand
Dollars ($100,000) with maturities approximately equal to three months.
Statutory Reserves shall be adjusted automatically on and as of the
effective date of any change in any applicable reserve percentage.
"Three-Month Secondary CD Rate" shall mean, for any day, the
secondary market rate for three-month certificates of deposit reported
as being in effect on such day (or, if such day shall not be a Business
Day, the next preceding Business Day) by the Board of Governors of the
Federal Reserve System of the United States through the public
information telephone line of the Federal Reserve Bank of New York
(which rate will, under the current practices of such Board of
Governors, be published in Federal Reserve Statistical Release
H.15(519) during the week following such day), or, if such rate shall
not be so reported on such day or such next preceding Business Day, the
average of the secondary market quotations for three-month certificates
of deposit of major money center banks in New York City received at
approximately 10:00 a.m. on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by the Agent from
three New York City negotiable certificate of deposit dealers of
recognized standing selected by the Agent.
CREDIT AGREEMENT - Page 3
<PAGE> 10
"Base Rate Account" means a portion of a Loan that bears interest at a
rate based upon the Base Rate.
"Borrowers" has the meaning set forth in the introductory paragraph of
this Agreement.
"Bromar" has the meaning set forth in the introductory paragraph of
this Agreement.
"Borrowing Availability" means, at any date of determination, the
amount by which the lesser of the Commitments or the Borrowing Base exceed the
Outstanding Revolving Credit or, when determined with respect to a Borrower, the
amount that such Borrower's Borrowing Base exceeds the Outstanding Revolving
Credit applicable to such Borrower.
"Borrowing Base" means, with respect to a Borrower, at any time and
calculated without duplication based on the Borrowing Base Report most recently
delivered at such time pursuant to Section 8.1(d) (or pursuant to Section
6.1(k)), an amount equal to the sum of the following (calculated separately for
each Borrower):
(a) the sum of (i) aggregate amount of Eligible Accounts minus
(ii) the aggregate amount of all of such Borrower's cash collections on
Receivables which have not been applied to the Receivables as of the
date of the preparation of the Borrowing Base Report; multiplied by the
Advance Percent; plus
(b) the amount of cash or cash equivalents that are, in the
Agent's sole judgment, pledged to the Agent as collateral for the
Obligations; minus
(c) the aggregate amount of the reserves established by the
Agent at any time and from time to time after the Closing Date, that
the Agent determines are necessary to protect the Banks' interests,
such determination to be made in the Agent's sole judgment, in good
faith and based on information which, in its judgment, supports such
determination; provided, that, at any time after the Agent has
established a reserve, such reserve may only be released in an amount
greater than $2,000,000 upon the consent of the Required Banks.
As used in this definition, the term "Advance Percent" means eighty-two
percent (82%) or such other percent as the Agent may, at any time hereafter,
determine is necessary to protect its interests, such determination to be made
in the Agent's sole judgment, in good faith and based on information which, in
its judgment, supports such determination. Any change in the Advance Percent and
any establishment of reserves shall be effective on the date Parent receives
Agent's written notice of such. The Eligible Accounts attributable to any
Subsidiary acquired in the Pending Acquisition shall not be included in any
calculation of the Borrowing Base until such time as such Subsidiary is included
as a "Borrower" under this Agreement pursuant to the terms of Section 13.11.
"Borrowing Base Report" means a report in substantially the form of
Exhibit "C" hereto properly completed and executed by the chief executive
officer, treasurer or chief financial officer of Parent.
"Business Day" means (a) any day excluding Saturday, Sunday and any day
which either is a legal holiday under the laws of the States of New York or
Texas or is a day on which banking institutions located in any such States are
closed, and (b) with respect to all borrowings, payments, Conversions,
Continuations, Interest Periods, and notices in connection with Loans subject to
Libor Accounts, any day which is a Business Day described in clause (a) above
and which is also a day on which dealings in Dollar deposits are carried out in
the London interbank market.
CREDIT AGREEMENT - Page 4
<PAGE> 11
"Calculation Period" has the meaning specified in Section 3.2 hereof.
"Capital Expenditures" means, for any period, all expenditures which
are classified as capital expenditures in accordance with GAAP including all
such expenditures associated with Capital Lease Obligations.
"Capital Expenditure Limits" has the meaning specified in Section 10.6
hereof.
"Capital Lease Obligations" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property, which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP. For purposes of this Agreement, the amount of
such Capital Lease Obligations shall be the capitalized amount thereof,
determined in accordance with GAAP.
"Closing Date" means March 30, 2000.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Collateral" means the property in which Liens have been granted
pursuant to the Security Agreement, whether such Liens are now existing or
hereafter arise.
"Commitment" means, as to each Bank, the obligation of such Bank to
make advances of funds and purchase participation interests in (or with respect
to the Agent as a Bank, hold other interests in) Letters of Credit in an
aggregate principal amount at any one time outstanding up to but not exceeding
the amount set forth opposite the name of such Bank on the signature pages
hereto under the heading "Commitment" or, if applicable, in its most recent
Assignment and Acceptance. The Commitment of a Bank and the Commitments of all
the Banks may be reduced or terminated pursuant to Section 2.6 or Section 11.2
hereof. The aggregate amount of the Commitments of all Banks is Fifty Million
Dollars ($50,000,000).
"Commitment Percentage" means, as to any Bank, the percentage
equivalent of a fraction the numerator of which is the amount of such Bank's
Commitment and the denominator of which is the aggregate amount of the
Commitments for all of the Banks.
"Compliance Certificate" means a certificate in substantially the form
of Exhibit "B" hereto, properly completed and executed by the chief executive
officer, treasurer or chief financial officer of Parent.
"Concentration Account" shall mean a deposit account established at the
Agent by the Borrowers and controlled by the Agent for the benefit of the Banks
in which all funds received through the Lockbox Accounts shall be deposited.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 3.5 or Article 5 hereof of a Libor Account as a
Libor Account from one Interest Period to the next Interest Period.
"Contract Rate" has the meaning specified in Section 13.12 hereof.
"Contributing Obligors" has the meaning specified in Section 4.14
hereof.
CREDIT AGREEMENT - Page 5
<PAGE> 12
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Section 3.5 or Article 5 hereof of one Type of Account into the
other Type of Account.
"Debt" means as to any Person at any time (without duplication): (a)
all obligations of such Person for borrowed money, including, without
limitation, any notes payable to the seller in connection with any acquisition
and the Loans; (b) all obligations of such Person evidenced by bonds, notes,
debentures, or other similar instruments; (c) all obligations of such Person to
pay the deferred purchase price of property or services, except trade accounts
payable of such Person arising in the ordinary course of business that are not
past due by more than ninety (90) days or that are being contested in good faith
by appropriate proceedings diligently pursued and for which adequate reserves
have been established; (d) all Capital Lease Obligations of such Person; (e) all
Debt or other obligations of others Guaranteed by such Person; (f) all
obligations secured by a Lien existing on property owned by such Person, whether
or not the obligations secured thereby have been assumed by such Person or are
non-recourse to the credit of such Person; (g) all reimbursement obligations of
such Person (whether contingent or otherwise) in respect of letters of credit,
bankers' acceptances, surety or other bonds and similar instruments (including
those outstanding with respect to Letters of Credit); (h) all liabilities of
such Person in respect of unfunded vested benefits under any Plan; (i) all
liabilities of such Person under Hedging Agreements; (j) all obligations of such
Person, contingent or otherwise, for the payment of money under any noncompete,
consulting or any other similar arrangements providing for the deferred payment
of the purchase price for an acquisition; and (k) all other amounts which are,
in accordance with GAAP, required to be reflected as liabilities on a
consolidated balance sheet of such Person other than accruals and deferred
taxes.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Rate" means, with respect to a Loan subject to a Libor
Account, a per annum rate equal to the sum of two percent (2%) plus the interest
rate for such Loan as provided in Section 3.1 hereof and, for all other
purposes, a per annum rate equal to the sum of two percent (2%) plus the
Applicable Rate for Base Rate Accounts under the Loans as in effect from time to
time.
"Designated Information" has the meaning specified in Section 13.22
hereof.
"DG" has the meaning set forth in the introductory paragraph of this
Agreement.
"Disbursement Accounts" means the controlled disbursement accounts of
any Borrower which are designated by the Agent in writing as "Disbursement
Accounts".
"Dollars" and "$" mean lawful money of the United States of America.
"EBITDA" means, for any period and any Person, the total of the
following, each calculated without duplication for such Person on a consolidated
basis for such period: (a) Net Income; plus (b) any provision for (or less any
benefit from) income or franchise taxes included in determining Net Income; plus
(c) interest expense deducted in determining Net Income; plus (d) amortization
and depreciation expense deducted in determining Net Income; plus (e) other
noncash charges deducted in determining consolidated net income and not already
deducted in accordance with clauses (b) and (c) of the definition of Net Income.
CREDIT AGREEMENT - Page 6
<PAGE> 13
"Eligible Account" means an account of a Borrower created from the
performance of services or the sale of goods by such Borrower in the ordinary
course of business (herein a "Receivable") which at all times comply with all of
the following requirements:
(i) The Receivable and the transaction giving rise thereto
each comply with all applicable laws, rules, and regulations,
including, without limitation, usury laws;
(ii) The Receivable has been billed and invoiced in a timely
fashion and in the normal course of business, has not been outstanding
for more than one hundred and twenty (120) days past the original date
of invoice and is not more than ninety (90) days past due;
(iii) The Receivable arises from an enforceable contract and
the applicable Borrower is not in default of the terms thereof;
(iv) The services reflected on the applicable invoice have
been completely performed by the applicable Borrower or, if arising
from the sale of goods, the goods reflected on the applicable invoice
have been delivered to the account debtor and, in each case, the
applicable account debtor has not objected to such account debtor's
liability thereon;
(v) The applicable Borrower has good and indefeasible title to
the Receivable and the Receivable is not subject to any Lien except
Liens in favor of the Agent;
(vi) The Receivable is subject to a first priority, perfected
Lien in favor of the Agent and is payable to a Lockbox Account covered
by an agreement of the type described in Section 6.1(g)(iii) of this
Agreement;
(vii) The account debtor or other obligor thereunder is not
insolvent or the subject of any bankruptcy or insolvency proceeding and
has not made an assignment for the benefit of creditors, suspended
normal business operations, dissolved, liquidated, terminated its
existence, ceased to pay its debts as they become due, or suffered a
receiver or trustee to be appointed for any of its assets or affairs;
(viii) The Receivable is not evidenced by chattel paper or an
instrument;
(ix) The applicable Borrower's performance of the contract to
which the Receivable relates is not assured by a performance,
completion, or other bond;
(x) The Receivable is not owed by an Affiliate of the
applicable Borrower or a director, officer, agent, stockholder or
employee of such Borrower or by such Borrower to another Borrower;
(xi) The Receivable is payable in Dollars by the account
debtor or other obligor thereunder;
(xii) The account debtor or other Person obligated on such
Receivable is domiciled in the United States of America or, if not so
domiciled, the Receivable is backed by a satisfactory letter of credit
that is issued or confirmed by a bank located in the United States of
America that has been delivered to the agent as Collateral and is
CREDIT AGREEMENT - Page 7
<PAGE> 14
otherwise acceptable to the Agent or insured by credit insurance
acceptable to the Agent in which the Agent has been named as a loss
payee;
(xiii) Not more than fifty percent (50%) of the aggregate
amount of the Receivables owed by the account debtor or other Person
obligated thereon and its Affiliates to any Borrower, on an aggregate
basis, are more than ninety (90) days past due or have been outstanding
for more than one-hundred twenty (120) days past the original invoice
date;
(xiv) The account debtor or other Person obligated thereon is
not a Government Authority unless the Federal Assignment of Claims Act
of 1940, as amended, or any similar statute shall have been complied
with to the satisfaction of the Agent;
(xv) The Receivable has not been and is not required to be
charged or written off as uncollectible in accordance with GAAP;
(xvi) If the Receivable is owing by an account debtor for
which the applicable Borrower must have filed a "Notice of Business
Activities Report" or similar report in a state or states where failure
to comply with such filing of notice precludes bringing suit against
the applicable account debtor, the applicable Borrower must have filed
such requisite activities report or other similar report and otherwise
be in full compliance with such legal requirement;
(xvii) The Receivable does not arise from the sale of
perishable agricultural commodities (as that term is defined in the
Perishable Agricultural Commodities Act, as amended (7 U.S.C. Section
499e(c)) and the regulations promulgated thereunder) purchased and
owned by the Borrower or livestock (as that term is defined in the
Packers and Stockyards Act, as amended (7 U.S.C. Section 181-229) and
the regulations thereunder) purchased and owned by the Borrower;
(xviii) The goods of sale which gave rise to such Receivable
(a) were owned solely by the Borrower free and clear of all Liens other
than the Liens of the Agent and First Union National Bank therein, (b)
were delivered to the account debtor on an absolute sale basis and not
on consignment, a sale or return basis, a guaranteed sale basis, a bill
and hold basis, or on the basis of any similar understanding and (c)
have not been returned, rejected, repossessed, lost or damaged; and
(xix) The Receivable is not an Excluded Account. The term
"Excluded Account" means a Receivable that has been identified by the
Agent (by a notice to Parent) as being unacceptable for inclusion in
the Borrowing Base because the Agent has determined that the credit
standing of the applicable account debtor in relation to the amount of
credit extended has become unsatisfactory, the account debtor or other
Person obligated on such Receivable is not otherwise creditworthy or
the Agent might not otherwise be able to receive the full amount of the
Receivable within a reasonable period of time and at a reasonable cost
of collection if it sought to realize on its security interest therein,
such determination to be made in the Agent's judgment, in good faith
and based on information which, in its judgment, supports such
determination.
The aggregate amount of the Eligible Accounts owed by an account debtor or other
Person to any Borrower shall be reduced by the amount of all "contra accounts"
and other obligations owed by such
CREDIT AGREEMENT - Page 8
<PAGE> 15
Borrower to such account debtor or other Person. The amount of the Eligible
Accounts owed by an account debtor or other Person shall be reduced by the
amount thereof which is subject to any setoff, counterclaim, defense, dispute,
recoupment, chargeback or other adjustment. The portion of any Receivable
constituting retainage that has been withheld by the account debtor or other
obligor shall not constitute an Eligible Account. If the aggregate amount of the
Receivables due from a single account debtor or other Person obligated thereon
exceeds an aggregate amount equal to ten percent (10%) of the aggregate of all
Receivables of a Borrower at the time of determination, the amount of the excess
shall be subtracted from all Eligible Accounts of such Borrower unless such
excess is backed by a letter of credit acceptable to the Agent or secured by
credit insurance under which the Agent has been named as loss payee and which is
issued on terms acceptable to the Agent. Notwithstanding anything to the
contrary contained in this Agreement or any other Loan Document, no Receivables
of any Borrower who has been sold or substantially all of whose assets have been
sold after the Closing Date shall be included within Eligible Accounts, unless
and until the Agent shall have conducted a field examination (at the Borrowers'
cost and expense) of such Borrower's books, records and operations in order to
reasonably satisfy the Agent that the Receivables of such Borrower generally
satisfy the above-described standards of eligibility.
"Eligible Assignee" has the meaning specified in Section 13.8 hereof.
"Environmental Laws" means any and all federal, state, and local laws,
regulations, and requirements pertaining to health, safety, or the environment,
as such laws, regulations, and requirements may be amended or supplemented from
time to time.
"Environmental Liabilities" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs, and expenses (including,
without limitation, all fees, disbursements and expenses of counsel, expert and
consulting fees and costs of investigation and feasibility studies), fines,
penalties, sanctions, and interest incurred as a result of any claim or demand,
by any Person, whether based in contract, tort, implied or express warranty,
strict liability, criminal or civil statute, including any Environmental Law,
permit, order or agreement with any Governmental Authority or other Person,
arising from environmental, health or safety conditions or the Release or
threatened Release of a Hazardous Material into the environment.
"Equity Interests" means shares of capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a Person and any
option, warrant or other right relating thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as any Borrower or is under common control (within
the meaning of Section 414(c) of the Code) with any Borrower.
"Event of Default" has the meaning specified in Section 11.1 hereof.
"Fair Share" has the meaning specified in Section 4.14 hereof.
"Fair Share Shortfall" has the meaning specified in Section 4.14
hereof.
"Federal Funds Effective Rate" shall mean, for any day, a rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System
CREDIT AGREEMENT - Page 9
<PAGE> 16
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Agent from three Federal funds
brokers of recognized standing selected by it.
"First Union Loan" means the term loan in the original principal amount
of $35,000,000 outstanding under the First Union Loan Agreement.
"First Union Loan Agreement" means that certain Second Amended and
Restated Credit Agreement dated the Closing Date, among the Parent certain
lenders and First Union National Bank, as agent for the lenders as the same
exists on the Closing Date, without giving effect to any modification thereto
unless modified in a transaction that does not violate Section 9.12.
"Fiscal Quarters" means the three (3) month periods falling in each
Fiscal Year ending March 31, June 30, September 30, and December 31.
"Fiscal Year" means a twelve (12) month period ending December 31.
"Fixed Charges" has the meaning specified in Section 10.1 hereof.
"Fraudulent Transfer Laws" has the meaning specified in Section 4.13
hereof.
"Funding Obligor" has the meaning specified in Section 4.14 hereof.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective successors and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
applied in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state or
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or pertaining to
government.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person or indemnifying such other Person from a
liability or other obligation and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect the obligee against loss in respect thereof (in whole or in part),
provided that the term Guarantee shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"Hazardous Material" means any substance, product, waste, pollutant,
material, chemical, contaminant, constituent, or other material which is or
becomes listed, regulated, or addressed under any Environmental Law.
CREDIT AGREEMENT - Page 10
<PAGE> 17
"Hedging Agreement" means any interest rate swap, interest rate caps,
interest rate collars or other similar agreements, or any foreign exchange,
currency hedging, commodity hedging or other similar agreement, including
without limitation or in addition, any Synthetic Purchase Agreement.
"Indenture" means the Indenture dated December 19, 1997 among Richmont
Marketing Specialists, Inc. (who has merged with and into Parent), certain of
its subsidiaries and Texas Commerce Bank National Association (now known as
Chase Bank of Texas, National Association), as trustee, as the same exists on
the Closing Date, without giving effect to any modification thereto unless
modified in a transaction that does not violate Section 9.13.
"Intercreditor Agreement" means that certain Intercreditor Agreement
dated as of March 30, 2000 among the Borrowers, the Agent and First Union
National Bank, as agent, as the same may be amended or otherwise modified from
time to time.
"Interest Coverage Ratio" means the ratio calculated in accordance with
Section 10.2 hereof.
"Interest Period" means with respect to any Libor Accounts, each period
commencing on the date such Account is established or Converted from a Base Rate
Account or the last day of the next preceding Interest Period with respect to
such Libor Account, and ending on the numerically corresponding day in the
first, second, third or sixth calendar month thereafter, as Parent may select as
provided in Section 3.5 or 4.1 hereof, except that each such Interest Period
which commences on the last Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate subsequent
calendar month. Notwithstanding the foregoing: (a) each Interest Period which
would otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or if such succeeding Business Day falls in the next
succeeding calendar month, on the next preceding Business Day); (b) any Interest
Period which would otherwise extend beyond the Termination Date shall end on the
Termination Date; (c) no more than five (5) Interest Periods shall be in effect
at the same time; and (d) no Interest Period for any Libor Account shall have a
duration of less than one (1) month and, if the Interest Period would otherwise
be a shorter period, the related Libor Account shall not be available hereunder.
"Lending Party" has the meaning specified in Section 13.22 hereof.
"Letter of Credit Liabilities" means, at any time, the aggregate amount
available for drawing under all outstanding Letters of Credit and all
unreimbursed drawings under Letters of Credit.
"Letters of Credit" has the meaning specified in Section 2.7(a) hereof.
"Leverage Ratio" means, as of the end of any Fiscal Quarter, the ratio
of (a) the principal amount of all Debt of the Parent and the Subsidiaries
outstanding as of such date determined on a consolidated basis which is not
subordinated in right of payment to any other Debt of the Parent and the
Subsidiaries to (b) the consolidated Adjusted EBITDA of the Parent and the
Subsidiaries calculated for the four (4) Fiscal Quarter period ending on the
last day of such Fiscal Quarter.
"Libor Account" means a portion of a Loan that bears interest at a rate
based upon the Adjusted Libor Rate.
"Libor Rate" means, for any Libor Account for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) offered to the Agent at approximately 11:00 a.m. London time (or as soon
thereafter as practicable) two Business Days prior to the first day of
CREDIT AGREEMENT - Page 11
<PAGE> 18
such Interest Period by leading banks in the London interbank market of Dollar
deposits in immediately available funds having a term comparable to such
Interest Period.
"Libor Rate Margin" has the meaning specified in Section 3.2 hereof.
"Lien" means any lien, mortgage, security interest, tax lien, financing
statement, pledge, charge, hypothecation, assignment, preference, priority, or
other encumbrance of any kind or nature whatsoever (including, without
limitation, any conditional sale or title retention agreement), whether arising
by contract, operation of law, or otherwise.
"Loans" means, as to any Bank, the advances made by such Bank pursuant
to Section 2.1 hereof.
"Loan Documents" means this Agreement, the Notes, the Security
Agreement, the Intercreditor Agreement and all other promissory notes, security
agreements, deeds of trust, assignments, guaranties, letters of credit, and
other instruments, agreements and other documentation executed and delivered
pursuant to or in connection with this Agreement, as such instruments,
agreements and other documentation may be amended or otherwise modified.
"Lockbox Accounts" shall mean the lockbox accounts described in the
Security Agreement and any other accounts established pursuant to the Lockbox
Agreements in which all funds received pursuant to the Lockbox Agreements shall
be deposited.
"Lockbox Agreements" shall mean the lockbox or other agreements
described in the Security Agreement and any lockbox or other agreement entered
into by a Borrower with the Agent, any Bank or any other depository institution
acceptable to the Agent, pursuant to which a lockbox and deposit account shall
be established for such Borrower into which payments on such Borrower's accounts
or other Collateral shall be sent and deposited, each in form and substance
satisfactory to the Agent, as the same may be amended or otherwise modified.
"MSSC" has the meaning set forth in the introductory paragraph of this
Agreement.
"Material Adverse Effect" means (a) a material adverse effect on the
business, condition (financial or otherwise), operations or properties of the
Borrowers taken as a whole; or (b) a material adverse effect on the ability of
the Borrowers and the Obligated Parties, taken as a whole, to perform the
obligations arising under the Loan Documents; or (c) a material adverse effect
on the validity, perfection, or priority of the Agent's Lien on the Collateral
or the ability of the Agent to enforce the Agent's Lien on the Collateral (other
than from a circumstance arising as a result of the fault of the Agent or the
release of any such Lien in accordance with the Loan Documents) or of the
ability of the Agent or any Bank to enforce a material provision of the Loan
Documents (other than from a circumstance arising as a result of the fault of
the Agent or any Bank). In determining whether any individual event could
reasonably be expected to result in a Material Adverse Effect, notwithstanding
that such event does not itself have such effect, a Material Adverse Effect
shall be deemed to have occurred if the cumulative effect of such event and all
other then existing events could reasonably be expected to result in a Material
Adverse Effect.
"Maximum Rate" means, at any time and with respect to any Bank, the
maximum rate of nonusurious interest under applicable law that such Bank may
charge the Borrowers. The Maximum Rate shall be calculated in a manner that
takes into account any and all fees, payments, and other charges contracted for,
charged or received in connection with the Loan Documents that constitute
interest under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the Maximum Rate
shall take effect without notice to any Borrower at the time of such change in
the Maximum Rate. For purposes of determining the Maximum Rate under Texas law,
CREDIT AGREEMENT - Page 12
<PAGE> 19
if applicable, the applicable rate ceiling shall be the indicated rate ceiling
described in, and computed in accordance with, Section 303 of the Texas Finance
Code.
"Modified EBITDA" has the meaning set forth in Section 10.1 hereof.
"Monroe Litigation" means the litigation identified on Schedule 1.1(b).
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by any Borrower or
any ERISA Affiliate and which is covered by Title IV of ERISA.
"Net Income" means, for any period and any Person, such Person's
consolidated net income (or loss), but excluding: (a) the income of any other
Person (other than its subsidiaries) in which such Person or any of it
subsidiaries has an ownership interest, unless received by such Person or its
subsidiary in a cash distribution; (b) any after-tax gains or losses
attributable to asset disposition; (c) to the extent not included in clauses (a)
and (b) above, any after-tax extraordinary, non-cash or nonrecurring gains or
losses; and (d) non-cash or nonrecurring charges due to changes in accounting
principles required by GAAP.
"Notes" means the promissory notes provided for by Section 2.2 hereof
and all amendments or other modifications thereof.
"Obligated Party" means any Person (exclusive of the Borrowers) who is
or becomes party to any agreement that guarantees or secures payment and
performance of the Obligations or any part thereof.
"Obligated Party Obligations" has the meaning specified in Section 4.16
hereof.
"Obligation" means all obligations, indebtedness, and liabilities of
the Borrowers or any of them to the Agent and the Banks arising pursuant to any
of the Loan Documents, pursuant to any Hedging Agreement entered into with any
Borrower for the purpose of enabling such Borrower to fix or limit its actual
interest expense or the market risk of holding currency or a commodity in either
the cash or futures market, or pursuant to any deposit, lockbox, cash management
or similar agreement entered into with any Borrower, whether now existing or
hereafter arising, whether direct, indirect, related, unrelated, fixed,
contingent, liquidated, unliquidated, joint, several, or joint and several,
including, without limitation, the obligation of the Borrowers to repay the
Loans, the Reimbursement Obligations, interest on the Loans and Reimbursement
Obligations, and all fees, costs, and expenses (including attorneys' fees)
provided for in the Loan Documents, such Hedging Agreements or such deposit and
similar agreements.
"Outstanding Revolving Credit" means, at any time of determination, the
sum of (a) the aggregate amount of Loans then outstanding; plus (b) the
aggregate amount of Letter of Credit Liabilities (or when calculated with
respect to a Bank, including the Agent as a Bank, such Bank's participation or
other interest in such Letter of Credit Liabilities); plus (c) all interest,
expenses, fees or other amounts accrued and owed to the Agent or the other Banks
under any Loan Document.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"PH" has the meaning set forth in the introductory paragraph of this
Agreement.
"PIA" has the meaning set forth in the introductory paragraph of this
Agreement.
CREDIT AGREEMENT - Page 13
<PAGE> 20
"Parent" has the meaning set forth in the introductory paragraph of
this Agreement.
"Pending Acquisition" means the acquisition by MSSC of SFC pursuant to
such documentation as are satisfactory to the Agent.
"Person" means any individual, corporation, business trust,
association, company, partnership, joint venture, Governmental Authority, or
other entity.
"Plan" means any employee benefit plan established or maintained by any
Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA.
"Previous Senior Debt" means all the obligations, indebtedness and
liability of any Borrower arising under or pursuant to Debt described in
Schedule 1.1(a).
"Principal Office" means the principal office of the Agent, located at
633 Third Avenue New York, New York 10017-6764.
"Prohibited Transaction" means any transaction set forth in Section 406
or 407 of ERISA or Section 4975(c)(1) of the Code for which there does not exist
a statutory or administrative exemption.
"Receivable" has the meaning specified in the definition of Eligible
Accounts.
"Register" has the meaning specified in Section 13.8 hereof.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Bank, any change after
the date of this Agreement in United States federal, state, or foreign laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives, or requests applying to a class of banks
including such Bank of or under any United States federal or state, or any
foreign, laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Reimbursement Obligation" means the obligation of the Borrowers to
reimburse the Agent for any demand for payment or drawing under a Letter of
Credit.
"Release" means, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, disposal, disbursement, leaching, or
migration of Hazardous Materials into the indoor or outdoor environment or into
or out of property owned by such Person, including, without limitation, the
movement of Hazardous Materials through or in the air, soil, surface water,
ground water, or property in violation of Environmental Laws.
"Remedial Action" means all actions required to (a) cleanup, remove,
treat, or otherwise address Hazardous Materials in the indoor or outdoor
environment, (b) prevent the Release or threat of Release or minimize the
further Release of Hazardous Materials so that they do not migrate or endanger
or threaten to endanger public health or welfare or the indoor or outdoor
environment, or (c) perform pre-remedial studies and investigations and
post-remedial monitoring and care.
"Report Date" has the meaning specified in Section 8.1 hereof.
CREDIT AGREEMENT - Page 14
<PAGE> 21
"Required Banks" means Banks having (a) sixty-six and two-thirds
percent (66 2/3%) or more of the Commitments or (b) if all Commitments have
terminated, sixty-six and two-thirds percent (66 2/3%) or more of the
outstanding principal amount of the Loans and participations in the Letters of
Credit.
"Reportable Event" means any of the events set forth in Section 4043 of
ERISA for which the 30-day notice requirement has not been waived by the PBGC.
"Reserve Requirement" means, for any Libor Account for any Interest
Period therefor, the aggregate of the maximum reserve percentage (including
without limitation, any marginal, special, emergency or supplemental reserves)
expressed as a decimal, established by the Board of Governors of the Federal
Reserve System of the United States and any other banking authority to which any
Bank is subject with respect to the Adjusted Libor Rate for Eurocurrency
Liabilities (as defined in Regulation D), including without limitation, those
reserve percentages imposed under Regulation D. Reserve Requirement shall be
adjusted automatically on and as of the effective date of any change in any
applicable reserve percentage. For purposes hereof, Libor Accounts shall be
deemed to constitute Eurocurrency Liabilities (as defined in Regulation D) and
as such, shall be deemed to be subject to such reserve requirements of
Regulation D without benefit of or credit for proration, exceptions or offsets
which may be available from time to time to any Bank under Regulation D. Without
limiting the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason of any
Regulatory Change against any category of liabilities which includes deposits by
reference to which the Adjusted Libor Rate is to be determined or any category
of extensions of credit or other assets which include Libor Accounts.
"SFC" has the meaning set forth in the introductory paragraph of this
Agreement.
"SPC" has the meaning specified in Section 13.8(a).
"Security Agreement" means the security agreement among the Borrowers
and the Agent for the benefit of itself and the Banks, in substantially the form
of Exhibit "D" hereto, as the same may be amended or otherwise modified.
"Senior Note Documents" means the Indenture, the Senior Subordinated
Notes and all note purchase agreements, exchange and registration agreements,
guaranties and other documentation executed and delivered pursuant to or in
connection with the Senior Subordinated Notes as the same exists on the Closing
Date without giving effect to any amendment or other modification thereto unless
modified in a transaction that does not violate Section 9.13; excluding,
however, the Loan Documents.
"Senior Subordinated Notes" means the senior subordinated notes due
2007 issued by Richmont Marketing Specialist, Inc. (and assumed by Parent in
connection with the merger of Richmont Marketing Specialist, Inc. with and into
Parent) pursuant to the Indenture in an aggregate original principal amount
equal to One Hundred Million Dollars ($100,000,000), including all such notes
issued on substantially the same terms in exchange for the notes issued on
October 14, 1997 pursuant to the exchange and registration provisions of the
Senior Note Documents.
"Subsidiary" means any corporation (or other entity) of which at least
a majority of the outstanding shares of stock (or other ownership interests)
having by the terms thereof ordinary voting power to elect a majority of the
board of directors (or similar governing body) of such corporation (or other
entity) (irrespective of whether or not at the time stock (or other ownership
interests) of any other class or classes of such corporation (or other entity)
shall have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled by Parent
or one or more of the Subsidiaries or by Parent and one or more of the
Subsidiaries.
CREDIT AGREEMENT - Page 15
<PAGE> 22
"Subordinated Indebtedness" has the meaning specified in Section 4.16
hereof.
"Subordination Party" has the meaning specified in Section 4.16 hereof.
"Synthetic Purchase Agreement" means any agreement pursuant to which a
Person is or may become obligated to make any payment (i) in connection with the
purchase by any third party of any Equity Interest or Indebtedness that is
subordinated to the Obligations or other senior obligations or (ii) the amount
of which is determined by reference to the price or value at any time of any
Equity Interest or Indebtedness that is subordinated to the Obligations or other
senior obligations; provided that no phantom stock or similar plan providing for
payments only to current or former directors, officers or employees of Parent or
any Subsidiaries shall be deemed to be a Synthetic Purchase Agreement.
"Termination Date" means March 30, 2002 or such earlier date on which
the Commitments terminate as provided in this Agreement.
"Type" means either type of Account (i.e., either a Base Rate Account
or Libor Account).
"UCC" means the Uniform Commercial Code as in effect in the State of
New York.
Section 1.2 Other Definitional Provisions. All definitions contained in
this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein", and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement. Unless otherwise
specified, all Article and Section references pertain to this Agreement. Terms
used herein that are defined in the UCC, unless otherwise defined herein, shall
have the meanings specified in the UCC.
Section 1.3 Accounting Terms and Determinations. Except as otherwise
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Agent and the Banks hereunder
shall be prepared, in accordance with GAAP, on a basis consistent with those
used in the preparation of the financial statements referred to in Section 7.2
hereof. All calculations made for the purposes of determining compliance with
the provisions of this Agreement shall be made by application of GAAP, on a
basis consistent with those used in the preparation of the financial statements
referred to in Section 7.2 hereof. To enable the ready and consistent
determination of compliance by the Borrowers with their obligations under this
Agreement, no Borrower will change the manner in which either the last day of
its Fiscal Year or the last days of the first three Fiscal Quarters of its
Fiscal Years is calculated. In the event any changes in accounting principles
required by GAAP or recommended by Parent's certified public accountants and
implemented by the Borrowers occur and such changes result in a change in the
method of the calculation of financial covenants, standards or terms under this
Agreement, then each Borrower, the Agent and the Banks agree to enter into
negotiations in order to amend such provisions of this Agreement so as to
equitably reflect such changes with the desired result that the criteria for
evaluating such covenants, standards or terms shall be the same after such
changes as if such changes had not been made. Until such time as such an
amendment shall have been executed and delivered by the Agent, the Borrowers and
the Required Banks, all financial covenants, standards and terms in this
Agreement shall continue to be calculated or construed as if such changes had
not occurred.
Section 1.4 Time of Day. Unless otherwise indicated, all references in
this Agreement to times of day shall be references to New York, New York time.
CREDIT AGREEMENT - Page 16
<PAGE> 23
ARTICLE 2
Revolving Credit Facility
Section 2.1 Commitments. Subject to the terms and conditions of this
Agreement, each Bank severally agrees to make advances to the Borrowers from
time to time from and including the Closing Date to but excluding the
Termination Date in an aggregate principal amount at any time outstanding up to
but not exceeding the amount of such Bank's Commitment as then in effect;
provided, however, (a) the Outstanding Revolving Credit applicable to a Bank
(except, with respect to the Agent as a Bank, as may otherwise result from the
operation of Section 4.6) shall not at any time exceed such Bank's Commitment;
(b) the aggregate Outstanding Revolving Credit shall not at any time exceed the
lesser of (i) the aggregate Commitments or (ii) the aggregate Borrowing Base;
and (c) the Outstanding Revolving Credit applicable to a Borrower shall at no
time exceed such Borrower's Borrowing Base. Subject to the foregoing
limitations, and the other terms and provisions of this Agreement, the Borrowers
may borrow, prepay, and reborrow hereunder the amount of the Commitments and may
establish Base Rate Accounts and Libor Accounts thereunder and, until the
Termination Date, the Borrowers may Continue Libor Accounts established under
the Loans or Convert Accounts established under the Loans of one Type into
Accounts of the other Type. Accounts of each Type under the Loans made by each
Bank shall be established and maintained at such Bank's Applicable Lending
Office for Loans of such Type.
Section 2.2 Notes. The Loans made by a Bank shall be evidenced by a
single promissory note of the Borrowers in substantially the form of Exhibit "A"
hereto, payable to the order of such Bank in a principal amount equal to its
Commitment and otherwise duly completed.
Section 2.3 Repayment of Loans. The Borrowers agree, jointly and
severally, to pay to the Agent, for the account of the Banks, the outstanding
principal amount of all of the Loans on the Termination Date.
Section 2.4 Use of Proceeds. The proceeds of the Loans shall be used by
the Borrowers to repay the Previous Senior Debt, to finance the Pending
Acquisition, and to finance Borrowers' working capital and capital expenditure
requirements in the ordinary course of business, including, without limitation,
the satisfaction of Reimbursement Obligations in accordance with subsection
2.7(b) hereof, the payment of fees and expenses relating to the closing of the
Loan Documents and the payment of principal and interest on the First Union Loan
in accordance with the terms of the First Union Loan Agreement.
Section 2.5 Commitment Fee. The Borrowers agree, jointly and severally,
to pay to the Agent for the account of each Bank a commitment fee on the daily
average unused amount of such Bank's Commitment for the period from and
including the Closing Date to and including the Termination Date, at a per annum
rate equal to one-half of one percent (0.50%). Accrued commitment fees under
this Section 2.5 shall be payable in arrears on the first day of each month
beginning April 1, 2000, and on the Termination Date.
Section 2.6 Termination or Reduction of Commitments. Parent shall have
the right to terminate fully or to reduce in part the unused portion of the
Commitments at any time and from time to time, provided that: (a) Parent shall
give the Agent at least three (3) Business Days notice of each such termination
or reduction as provided in Section 4.3 hereof; and (b) each partial reduction
shall be in an aggregate amount at least equal to One Million Dollars
($1,000,000) or a greater multiple of One Hundred Thousand Dollars ($100,000),
and (c) each termination in full shall be accompanied by all amounts due under
Section 4.4(c). The Commitments may not be reinstated after they have been
terminated or reduced.
CREDIT AGREEMENT - Page 17
<PAGE> 24
Section 2.7 Letters of Credit.
(a) Commitment to Issue. The Borrowers may utilize the
Commitments by requesting that the Agent issue, and the Agent, subject to the
terms and conditions of this Agreement, shall issue, letters of credit for a
Borrower's account (such letters of credit being hereinafter referred to as the
"Letters of Credit"); provided, however, (i) the aggregate amount of outstanding
Letter of Credit Liabilities shall not at any time exceed Two Million Five
Hundred Thousand Dollars ($2,500,000); (ii) the Outstanding Revolving Credit
shall not at any time exceed the lesser of (A) the aggregate Commitments or (B)
the Borrowing Base; (iii) the Outstanding Revolving Credit applicable to a Bank
shall not at any time exceed such Bank's Commitment (except with respect to the
Agent as a Bank, as may otherwise result from the operation of Section 4.6); and
(iv) the Outstanding Revolving Credit applicable to a Borrower shall at no time
exceed such Borrower's Borrowing Base. Upon the date of issue of a Letter of
Credit, the Agent shall be deemed, without further action by any party hereto,
to have sold to each other Bank, and each other Bank shall be deemed, without
further action by any party hereto, to have purchased from the Agent a
participation to the extent of such Bank's Commitment Percentage in such Letter
of Credit and the related Letter of Credit Liabilities.
(b) Letter of Credit Request Procedure. Parent shall give the
Agent at least three (3) Business Days irrevocable prior notice (effective upon
receipt) specifying the date of each Letter of Credit, the Borrower for whose
account such Letter of Credit is to be issued and the nature of the transactions
to be supported thereby. The Agent shall notify each other Bank of the contents
of the Letter of Credit and of such Bank's Commitment Percentage of the amount
of the proposed Letter of Credit in accordance with Section 4.6. Each Letter of
Credit shall have an expiration date that does not extend beyond the earlier of
(i) one (1) year from the date of its issuance, provided that any Letter of
Credit may provide for the renewal of the expiration date thereof for additional
one-year periods (which shall in no event extend the expiration date thereof
beyond the date provided for in the next clause (ii)) or (ii) a date which is
thirty (30) days prior to the Termination Date. Each Letter of Credit shall be
payable in Dollars, must support a transaction entered into in the ordinary
course of a Borrower's business, must be satisfactory in form and substance to
the Agent, and shall be issued pursuant to such documentation as the Agent may
require, including, without limitation, the Agent's standard form letter of
credit request and reimbursement agreement; provided, that, in the event of any
conflict between the terms of such agreement and the other Loan Documents, the
terms of the other Loan Documents shall control.
(c) Letter of Credit Fees. The Borrowers agree, jointly and
severally, to pay to the Agent for the account of each Bank a letter of credit
fee on such Bank's Commitment Percentage of the amount available for drawings
under each Letter of Credit, such letter of credit fee (i) to be paid monthly in
arrears on the last day of each month following the date of the issuance of the
Letter of Credit and on last day of each month thereafter until the date of
expiration or termination thereof (each such date herein a "Payment Date") and
(ii) to be calculated for the period from and including one Payment Date (or
with respect to the first such payment, from and including the date of issuance
of the Letter of Credit) to and excluding the earlier of the next Payment Date
or the date of expiration or termination of the Letter of Credit at a rate equal
to the Libor Rate Margin per annum. After receiving any payment of any letter of
credit fees under this clause (c), the Agent will promptly pay to each Bank the
letter of credit fees then due such Bank. With respect to each Letter of Credit,
the Borrowers also agree, jointly and severally, to pay to the Agent for its
account only and on the date of issuance of such Letter of Credit, a fronting
fee equal to one-eighth of one percent (0.125%) of the maximum amount available
to be drawn under the Letter of Credit, plus the Agent's reasonable expenses
incurred in issuing the Letter of Credit.
(d) Funding of Drawings. Upon receipt from the beneficiary of
any Letter of Credit of any demand for payment or other drawing under such
Letter of Credit, the Agent shall promptly notify
CREDIT AGREEMENT - Page 18
<PAGE> 25
Parent and, except as may otherwise be required as a result of the operation of
Section 4.6, each Bank as to the amount to be paid as a result of such demand or
drawing and the respective payment date. Except as may otherwise be required as
a result of the operation of Section 4.6, not later than 11:00 a.m. on the
applicable payment date, each Bank will make available to the Agent, at the
Principal Office, in immediately available funds, an amount equal to such Bank's
Commitment Percentage of the amount to be paid as a result of such demand or
drawing even if the conditions to a Loan under Article 6 hereof have not been
satisfied.
(e) Reimbursements. The Borrowers shall be irrevocably and
unconditionally obligated, jointly and severally, to immediately reimburse the
Agent for any amounts paid by the Agent upon any demand for payment or drawing
under any Letter of Credit, without (except as specifically set forth in this
clause (e)) presentment, demand, protest, or other formalities of any kind. All
payments on the Reimbursement Obligations shall be made: (i) if no Default has
occurred or the Agent otherwise elects, by Loans in the amount of such
Reimbursement Obligations being made automatically as Base Rate Accounts or (ii)
if a Default has occurred and the Agent has not made the election under clause
(i), to the Agent at the Principal Office for the account of the Agent in
Dollars and in immediately available funds, without setoff, deduction or
counterclaim not later than 3:00 p.m. on the date of the corresponding payment
under the Letter of Credit; provided, that in the case of this clause (ii) only,
Agent has provided notice to Parent prior to 12:00 noon on such day that such
payment is due. In the event such notice is received after 12:00 noon on a
Business Day, such payment shall be due not later than 3:00 p.m. on the next
succeeding Business Day. The Agent will pay to each Bank such Bank's Commitment
Percentage of all amounts received from any Borrower for application in payment,
in whole or in part, to the Reimbursement Obligation in respect of any Letter of
Credit, but only to the extent such Bank has made payment to the Agent in
respect of such Letter of Credit pursuant to clause (d) of this Section 2.7 and
subject to the operation of Section 4.6.
(f) Reimbursement Obligations Absolute. The Reimbursement
Obligations of the Borrowers under this Agreement shall be absolute,
unconditional, and irrevocable, and shall be performed strictly in accordance
with the terms of the Loan Documents under all circumstances whatsoever and each
Borrower hereby waives any defense to the payment of the Reimbursement
Obligations based on any circumstance whatsoever, including without limitation,
in either case, the following circumstances: (i) any lack of validity or
enforceability of any Letter of Credit or any other Loan Document; (ii) any
amendment or waiver of or any consent to departure from any Loan Document; (iii)
the existence of any claim, set-off, counterclaim, defense or other rights which
any Borrower, any Obligated Party, or any other Person may have at any time
against any beneficiary of any Letter of Credit, the Agent, any Bank, or any
other Person, whether in connection with any Loan Document or any unrelated
transaction; (iv) any statement, draft, or other documentation presented under
any Letter of Credit proving to be forged, fraudulent, invalid, or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect whatsoever; (v) payment by the Agent under any Letter of Credit against
presentation of a draft or other document that does not comply with the terms of
such Letter of Credit; or (vi) any other circumstance whatsoever, whether or not
similar to any of the foregoing; provided that Reimbursement Obligations with
respect to a Letter of Credit may be subject to avoidance by a Borrower if the
Borrower proves in a final non-appealable judgment that it was damaged and that
such damage arose directly from the Agent's willful misconduct or gross
negligence.
(g) Issuer Responsibility. Each Borrower assumes all risks of
the acts or omissions of any beneficiary of any Letter of Credit with respect to
its use of such Letter of Credit. Neither the Agent, any Bank nor any of their
respective officers or directors shall have any responsibility or liability to
any Borrower or any other Person for: (a) the failure of any draft to bear any
reference or adequate reference to any Letter of Credit, or the failure of any
documents to accompany any draft at negotiation, or the failure of any Person to
surrender or to take up any Letter of Credit or to send documents apart
CREDIT AGREEMENT - Page 19
<PAGE> 26
from drafts as required by the terms of any Letter of Credit, or the failure of
any Person to note the amount of any instrument on any Letter of Credit, each of
which requirements, if contained in any Letter of Credit itself, it is agreed
may be waived by the Agent; (b) errors, omissions, interruptions, or delays in
transmission or delivery of any messages; (c) the validity, sufficiency, or
genuineness of any draft or other document, or any endorsement(s) thereon, even
if any such draft, document or endorsement should in fact prove to be in any and
all respects invalid, insufficient, fraudulent, or forged or any statement
therein is untrue or inaccurate in any respect; (d) the payment by the Agent to
the beneficiary of any Letter of Credit against presentation of any draft or
other document that does not comply with the terms of the Letter of Credit; or
(e) any other circumstance whatsoever in making or failing to make any payment
under a Letter of Credit. Notwithstanding the forgoing, a Borrower shall have a
claim against the Agent, and the Agent shall be liable to such Borrower, to the
extent of any direct, but not indirect, consequential or punitive, damages
suffered by such Borrower which such Borrower proves in a final non-appealable
judgment were caused by the Agent's willful misconduct or gross negligence. The
Agent may 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.
ARTICLE 3
Interest and Fees
Section 3.1 Interest Rate. The Borrowers agree, jointly and severally,
to pay to the Agent for the account of each Bank interest on the unpaid
principal amount of each Loan made by such Bank for the period commencing on the
date of such Loan to but excluding the date such Loan is due, at a fluctuating
rate per annum equal to the Applicable Rate. The term "Applicable Rate" means
(i) during the period that Loans or portions thereof are subject to a Base Rate
Account, the Base Rate plus the Base Margin and (ii) during the period that
Loans or portions thereof are subject to a Libor Account, the Adjusted Libor
Rate plus the Libor Rate Margin.
Section 3.2 Determinations of Margins and Fees. The margins identified
in Section 3.1 hereof shall be defined and determined as follows:
(a) "Base Margin" shall mean (i) during the period commencing on
the Closing Date and ending on but not including the first Adjustment Date (as
defined below), two percent (2.0%) per annum and (ii) during each period, from
and including one Adjustment Date to but excluding the next Adjustment Date
(herein a "Calculation Period"), the percent per annum set forth in the table
below in this Section 3.2 under the heading "Base Margin", and opposite the
Leverage Ratio calculated as of the most recent Fiscal Quarter end which
immediately preceded the beginning of the applicable Calculation Period.
(b) "Libor Rate Margin" shall mean (i) during the period
commencing on the Closing Date and ending on but not including the first
Adjustment Date (as defined below), three and one-fourth of one percent (3.25%)
per annum, and (ii) during each Calculation Period, the percent per annum set
forth in the table below in this Section 3.2 under the heading "Libor Margin",
and opposite the Leverage Ratio calculated as of the most recent Fiscal Quarter
end which immediately preceded the beginning of the applicable Calculation
Period.
The following is the table referred to in clauses (a) and (b) of this
Section 3.2:
CREDIT AGREEMENT - Page 20
<PAGE> 27
<TABLE>
<CAPTION>
======================================================
Leverage Ratio Base Margin Libor Margin
--------------------------- ----------- ------------
<S> <C> <C>
>6.5 to 1.0 2.25% 3.50%
--------------------------- ----------- ------------
<=6.5 to 1.0 but>5.0 to 1.0 2.00% 3.25%
--------------------------- ----------- ------------
<=5.0 to 1.0 but>3.5 to 1.0 1.75% 3.00%
--------------------------- ----------- ------------
<=3.5 to 1.0 1.50% 2.75%
======================================================
</TABLE>
Upon delivery of the Compliance Certificate pursuant to subsection
8.1(c) hereof in connection with the financial statements of Parent and the
Subsidiaries required to be delivered pursuant to subsection 8.1(b) hereof
commencing with such Compliance Certificate delivered at the end of the Fiscal
Quarter ending on March 31, 2001, the Base Margin and the Libor Rate Margin (for
Interest Periods commencing after the applicable Adjustment Date, as defined
below) shall automatically be adjusted in accordance with the Leverage Ratio set
forth therein and the tables set forth above, such automatic adjustment to take
effect as of the first Business Day after the receipt by the Agent of the
related Compliance Certificate pursuant to subsection 8.1(c) hereof. The term
"Adjustment Date" shall mean each such Business Day when such margins or fees
change pursuant to the immediately prior sentence or the next following
sentence. If Parent fails to deliver such Compliance Certificate which so sets
forth the Leverage Ratio within the period of time required by subsection 8.1(c)
hereof or if any Event of Default occurs and the Agent provides Parent written
notice: (i) the Base Margin shall automatically be adjusted to two and one
quarter percent (2.25%) per annum; and (ii) the Libor Rate Margin (for Interest
Periods commencing after the applicable Adjustment Date) shall automatically be
adjusted to three and one half percent (3.50%) per annum, such automatic
adjustments (a) to take effect as of the first Business Day after the last day
on which Parent was required to deliver the applicable Compliance Certificate in
accordance with subsection 8.1(c) hereof or in the case of an Event of Default,
on the date the written notice is given to Borrower and (b) to remain in effect
until subsequently adjusted in accordance herewith upon the delivery of such
Compliance Certificate or, in the case of an Event of Default, when such Event
of Default has been cured to the satisfaction of the Agent or waived by the
Required Banks.
Section 3.3 Payment Dates. Accrued interest on the Loans shall be due
and payable as follows: (i) on the first day of each month beginning April 1,
2000, and on the Termination Date; and (ii) in the case of Loans subject to
Libor Accounts and with respect to each such Account, in addition to the
payments required by clause (i) of this Section 3.3, on the last day of the
Interest Period with respect thereto.
Section 3.4 Default Interest. Notwithstanding the foregoing, the
Borrowers agree, jointly and severally, to pay to the Agent for the account of
the party entitled thereto interest at the applicable Default Rate: (i) on the
principal amount of the Loans whenever an Event of Default exists and the Agent
provides notice to Parent that the Loans will accrue interest at the Default
Rate for the period from and including the date of such notice until such Event
of Default no longer exists, and (ii) on any principal of any Loan made by such
Bank, any Reimbursement Obligation, and (to the fullest extent permitted by law)
any other amount payable by any Borrower under any Loan Document to or for the
account of the Agent or such Bank, that is not paid in full when due (whether at
stated maturity, by acceleration, or otherwise), for the period from and
including the due date thereof to but excluding the date the same is paid in
full. Interest payable at the Default Rate shall be payable from time to time on
demand.
Section 3.5 Conversions and Continuations of Accounts. Subject to
Section 4.2 hereof, Parent shall have the right from time to time to Convert all
or part of any Base Rate Account into a Libor Account or to Continue Libor
Accounts as Libor Accounts, provided that: (a) Parent shall give the Agent
notice of each such Conversion or Continuation as provided in Section 4.3
hereof; (b) a Libor Account may only be Converted on the last day of the
Interest Period therefore; and (c) except for Conversions
CREDIT AGREEMENT - Page 21
<PAGE> 28
into Base Rate Accounts, no Conversions or Continuations shall be made while a
Default has occurred and is continuing.
Section 3.6 Computations. All interest and fees (including the
Commitment Fee) will be computed on the basis of a year of 360 days and actual
days elapsed (including the first day but excluding the last day) occurring in
the period for which payable, unless in the case of interest such calculation
would result in a usurious rate, in which case interest shall be calculated on
the basis of a year of 365 or 366 days, as the case may be.
ARTICLE 4
Administrative Matters
Section 4.1 Borrowing Procedure.
(a) Formal Borrowing Request. Parent shall give the Agent, and
the Agent will give the Banks, notice of each borrowing under the Commitments in
accordance with Section 4.3, but subject to Section 4.6 and subsections 2.7 (e)
and 4.1(b). Subject to the operation of Section 4.6, not later than 1:00 p.m. on
the date specified for each borrowing under the Commitment, each Bank will make
available the amount of the Loan to be made by it on such date to the Agent, at
the Principal Office, in immediately available funds, for the account of the
applicable Borrower. The amounts received by the Agent shall, subject to the
terms and conditions of this Agreement, be made available to such Borrower at
Parent's direction by transferring the same, in immediately available funds by
wire transfer, automated clearinghouse debit or interbank transfer, to (a) one
of the Disbursement Accounts as directed by Parent or (b) any of the other bank
accounts described on Schedule 1.1(a) hereto or hereafter established in
accordance with the restrictions set forth in the Security Agreement or (c) a
Person or Persons designated by Parent in writing.
(b) Automatic Borrowing. No notice of a request for Loan in
accordance with subsection 4.1(a) or Section 4.3 hereof shall be required to be
presented by Parent to the Agent if no Default exists and a check, checks or
other debit shall be presented for payment against a Disbursement Account on a
Business Day when funds are not otherwise available therein to honor such
debits. In such event, the Agent shall, subject to Section 4.6 and provided no
Default exists, promptly advise the Banks of the amount of the Loans necessary
to be credited to such Disbursement Account on such day to permit such debits to
be honored. Except as otherwise provided in Section 4.6 hereof and subject in
all cases to Section 2.1, not later than 3:00 p.m. on such day each Bank will
make available the amount of the Loan to be made by it on such date to the
Agent, at the Principal Office, in immediately available funds, for the account
of the applicable Borrower. The amounts so received by Agent, shall, subject to
the terms and conditions of this Agreement, be made available to such Borrower
by crediting the same to such Borrower's Disbursement Account. Loans made under
this subsection 4.1(b) shall be made as Base Rate Accounts.
Section 4.2 Minimum Amounts. Except for prepayments pursuant to Article
5 hereof and Loans made pursuant to subsections 2.7 (e) and 4.1(b), each Base
Rate Account and each prepayment of principal of a Loan shall be in an amount at
least equal to One Dollar ($1.00). Except for Conversions pursuant to Article 5
hereof, each Libor Account shall be in a minimum principal amount of Five
Hundred Thousand Dollars ($500,000) per Bank or any larger amount in increments
of One Hundred Thousand Dollars ($100,000) per Bank.
CREDIT AGREEMENT - Page 22
<PAGE> 29
Section 4.3 Certain Notices. Notices by Parent to the Agent of
terminations or reductions of Commitments, of borrowings and prepayments of
Loans and of Conversion and Continuations of Accounts shall be irrevocable and
shall be effective only if received by the Agent not later than (a) 1:00 p.m. on
the Business Day of any repayment of Loans, (b) 12:00 noon on the Business Day
of the requested borrowing under the Loans subject to Base Rate Accounts, or (c)
1:00 p.m. on the Business Day prior to the date of the relevant termination,
reduction, borrowing, Conversion, Continuation or other prepayment specified
below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------- -----------------------------
Notice Number of Business Days Prior
- ---------------------------------------------------------------------- -----------------------------
<S> <C>
Termination or reduction of Commitments 3
- ---------------------------------------------------------------------- -----------------------------
Prepayment or repayment of Loans subject to Base Rate Accounts, or
Conversions into Base Rate Accounts 1
- ---------------------------------------------------------------------- -----------------------------
Borrowing, prepayment or repayment of Loans subject to Libor Accounts,
Conversions into or Continuations as Libor Accounts 3
- ---------------------------------------------------------------------- -----------------------------
</TABLE>
Any notices of the type described in this Section 4.3 which are received by the
Agent after the applicable time set forth above on a Business Day shall be
deemed to be received and shall be effective on the next Business Day. Each such
notice of termination or reduction shall specify the amount of the Commitments
to be terminated or reduced. Each such notice of borrowing, Conversion,
Continuation, or prepayment shall specify (a) the Accounts to be Converted or
Continued; (b) the amount (subject to Section 4.2 hereof) to be borrowed,
Converted, Continued or prepaid; (c) in the case of a Conversion, the Type of
Account to result from such Conversion; (d) in the case of a borrowing, the Type
of Account or Accounts to be applicable to such borrowing and the amounts
thereof; (e) in the event a Libor Account is selected, the duration of the
Interest Period therefor; and (f) the date of borrowing, Conversion,
Continuation, or prepayment (which shall be a Business Day). Except as may
otherwise be provided by Section 4.6, the Agent shall notify the Banks of the
contents of each such notice on the date of its receipt of the same or, if
received on or after the applicable time set forth above on a Business Day, on
the next Business Day. In the event Parent fails to select the Type of Account
or the duration of any Interest Period for any Libor Account, within the time
period and otherwise as provided in this Section 4.3, such Account (if
outstanding as a Libor Account) will be automatically Converted into a Base Rate
Account on the last day of the preceding Interest Period for such Account or (if
outstanding as a Base Rate Account) will remain as, or (if not then outstanding)
will be made as, a Base Rate Account. The Borrowers may not borrow any Loans
subject to a Libor Account, Convert any Base Rate Accounts into Libor Accounts,
or Continue any Libor Account as a Libor Account if the Applicable Rate for such
Libor Accounts would exceed the Maximum Rate or if a Default exists.
Section 4.4 Prepayments.
(a) Mandatory. If on any date (i) the aggregate Outstanding
Revolving Credit exceeds the aggregate Borrowing Base or (ii) the Outstanding
Revolving Credit applicable to a Borrower exceeds the Borrowing Base for such
Borrower, then the Borrowers shall, jointly and severally, on or before 1:00
p.m. on such date, prepay the outstanding Loans by the amount of the excess or
if no Loans are outstanding and the applicable Outstanding Revolving Credit
exceeds the applicable Borrowing Base, immediately pledge to the Agent cash or
cash equivalents in an amount equal to the excess as security for the
Obligations.
(b) Control of Cash and Application to Obligations. Under the
terms of the Security Agreement, the Borrowers have instructed all customers and
other Persons making payment on Receivables and other Collateral to make all
payments thereon to a post office box or boxes established in accordance with
the Lockbox Agreements. The funds on deposit in the Lockbox Accounts are
required
CREDIT AGREEMENT - Page 23
<PAGE> 30
under the terms of the Security Agreement to be paid to the Agent on a daily
basis by automated clearinghouse debit for credit to the Concentration Account
or by wire transfer. The funds deposited into the Concentration Account (over
which no Borrower shall have any control) or wire transferred to Agent from the
Lockbox Accounts (the "Available Cash") shall, be applied by the Agent for the
benefit of the Banks as follows:
(1) if no Event of Default exists, first, as a payment of the
outstanding principal amount of the Loans, second, as a payment of
accrued and unpaid interest on the Loans, and third, to the repayment
of any other Obligations which are due and outstanding in connection
with the Loans, and if after the foregoing applications, Available Cash
remains available to be disbursed, the Agent shall deposit such
remaining amount to one of the Borrowers' Disbursement Accounts or
transfer such funds as Parent shall otherwise direct; or
(2) if an Event of Default exists, the Available Cash shall be
applied by the Agent for the benefit of the Banks to the Obligations in
accordance with Section 4.5 hereof.
(c) Optional Prepayment; Prepayment Penalty. Subject to Section 4.2
hereof and the provisions of this clause (c), the Borrowers may, at any time and
from time to time without premium or penalty upon prior notice to the Agent as
specified in Section 4.3 hereof, prepay or repay any Loan in full or in part.
Loans subject to a Libor Account may be prepaid or repaid only on the last day
of the Interest Period applicable thereto unless (i) the Borrowers pay to the
Agent for the account of the applicable Banks any amounts due under Section 5.5
hereof as a result of such prepayment or repayment or (ii) after giving effect
to such prepayment or repayment the aggregate principal amount of the Libor
Accounts applicable to the Loan being prepaid or repaid having Interest Periods
that end after such payment date shall be equal to or less than the principal
amount of such Loan after such prepayment or repayment. In the event the
Borrowers prepay the Loans in full and all the Commitments are terminated on or
before the first anniversary of the Closing Date (whether voluntarily or as a
result of the occurrence of an Event of Default), the Borrowers agree, jointly
and severally, to pay to the Agent for the benefit of each Bank a prepayment fee
for each Bank equal to one-half of one percent (0.5%) of the sum of the
Commitments held by such Bank as calculated immediately prior to giving effect
to such prepayment and termination. Such prepayment fee shall be due and payable
on the first date after the Loans have been prepaid in full and the Commitments
have been terminated.
Section 4.5 Method of Payment. Except as otherwise expressly provided
herein, all payments of principal, interest, and other amounts to be made by any
Borrower or any Obligated Party under the Loan Documents shall be made to the
Agent at the Principal Office for the account of each Bank's Applicable Lending
Office in Dollars and in immediately available funds, without setoff, deduction,
or counterclaim, not later than 1:00 p.m. on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). Each Borrower and
each Obligated Party shall, at the time of making each such payment, specify to
the Agent the sums payable under the Loan Documents to which such payment is to
be applied (and in the event that a Borrower fails to so specify, or if an Event
of Default has occurred and is continuing, the Agent may apply such payment and
any proceeds of any Collateral to the Obligations in such order and manner as it
may elect in its sole discretion, subject to Section 4.6 hereof). Except as
otherwise provided in Section 4.6, each payment received by the Agent under any
Loan Document for the account of a Bank shall be paid to such Bank by 3:00 p.m.
on the date the payment is deemed made to the Agent in immediately available
funds, for the account of such Bank's Applicable Lending Office. Whenever any
payment under any Loan Document shall be stated to be due on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such
CREDIT AGREEMENT - Page 24
<PAGE> 31
extension of time shall in such case be included in the computation of the
payment of interest and commitment fee, as the case may be.
Section 4.6 Weekly Settlement Among Banks; Pro Rata Treatment.
Notwithstanding anything herein to the contrary, the arrangements between the
Agent and the Banks with respect to making and advancing the Loans and making
payments under Letters of Credit may, in the Agent's discretion, be handled on
the following basis: no less than once a week (but otherwise as frequently as
the Agent may determine is necessary in its discretion), the Agent will provide
each Bank on or before 11:00 a.m. on a Business Day with a statement showing,
for the period of time since the date of the most recent of such statements
previously provided, the aggregate principal amount of new Loans made to any
Borrower by the Agent as a Bank, the aggregate amount of drawings on Letters of
Credit which have not been reimbursed, the aggregate face amount of new Letters
of Credit issued for the account of any Borrower, the amount of remittances and
payments actually collected and applied by the Agent to reduce the outstanding
principal balance of the Loans and to reimburse Letter of Credit Liabilities
during such period and the outstanding principal balances of the Loans and the
aggregate Letter of Credit Liabilities outstanding at the end of such period. If
as of the date of the delivery of such statement, the Agent in its capacity as a
Bank holds an interest in the Loans and the unreimbursed Reimbursement
Obligations outstanding as of such statement date in excess of its pro rata
share based on its Commitment Percentage, each Bank shall be obligated to
advance to the Agent its pro-rata (based on such Bank's Commitment Percentage)
or other share of such excess so that after giving effect to all such advances,
the Banks shall hold the Loans and the unreimbursed Reimbursement Obligations
outstanding as of such statement date pro rata in accordance with their
respective Commitment Percentages. If as of the date of the delivery of such
statement, the Agent in its capacity as a Bank holds an interest in the Loans
and the unreimbursed Reimbursement Obligations outstanding as of such statement
date in an amount less than its pro rata share based on its Commitment
Percentage, then the Agent in its capacity as a Bank shall be obligated to
advance to the other Banks such amounts as will be necessary so that after
giving effect thereto the Banks shall hold the Loans and the unreimbursed
Reimbursement Obligations outstanding as of such statement date pro rata in
accordance with their respective Commitment Percentages. Advances made pursuant
to this weekly settlement procedure by the Agent or any Bank must be made on or
before 3:00 p.m. on the date of the Bank's receipt of such statement to the
Agent at the Principal Office, in immediately available funds. Until funded by
the Banks in accordance with the forgoing, the Agent as a Bank shall be entitled
to any interest on amounts it advanced to or on behalf of any Borrower as a
result of the forgoing weekly settlement procedures and interest and commitment
fees shall be calculated and paid to give effect to the actual amounts
outstanding to each Bank. In between dates when the statement by the Agent is
delivered under this Section 4.6, repayments received shall be applied to the
Loans made by the Agent as a Bank. If as a result of the foregoing such Loans
are repaid in full, then to the extent any further amounts are available for
repayment on such day hereunder, Agent shall, on such day, settle with the Banks
in accordance with this Section 4.6. Except as a result of the forgoing or to
the extent otherwise provided herein: (a) each Loan shall be made by the Banks,
each payment of commitment fees under Section 2.5 and letter of credit fees
under subsection 2.7(c) hereof shall be made for the account of the Banks, and
each termination or reduction of the Commitments shall be applied to the
Commitments of the Banks, pro rata according to their respective Commitment
Percentages; (b) the making, Conversion, and Continuation of Accounts of a
particular Type (other than Conversions provided for by Section 5.4 hereof)
shall be made pro rata among the Banks holding Accounts of such Type according
to their respective Commitment Percentages; (c) each payment and prepayment of
principal of or interest on Loans or Reimbursement Obligations by any Borrower
shall be made to the Agent for the account of the Agent or the Banks holding
such Loans or Reimbursement Obligations (or participation interests therein) pro
rata in accordance with the respective unpaid principal amounts of such Loans or
participation interests held by the Agent or such Banks; provided that as long
as no default in the payment of interest exists, payments of interest made when
the Banks are holding different Types of Accounts applicable to the same Loan as
a result of the application of Section 5.4, shall be made to the Banks in
accordance with
CREDIT AGREEMENT - Page 25
<PAGE> 32
the amount of interest actually owed to each; (d) proceeds of Collateral shall
be shared by the Agent and the Banks pro rata in accordance with the respective
unpaid principal amounts of and interest on the Obligations then due the Agent
and the Banks; and (e) the Banks (other than the Agent) shall purchase from the
Agent participations in the Letters of Credit to the extent of their respective
Commitment Percentages. If at any time payment, in whole or in part, of any
amount distributed by the Agent hereunder is rescinded or must otherwise be
restored or returned by Agent as a preference, fraudulent conveyance or
otherwise under any bankruptcy, insolvency or similar law, then each Person
receiving any portion of such amount agrees, upon demand, to return the portion
of such amount it has received to the Agent.
Section 4.7 Sharing of Payments. If a Bank shall obtain payment of any
principal of or interest on any of the Obligations due to such Bank hereunder
directly (and not through the Agent) through the exercise of any right of
set-off, banker's lien, counterclaim or similar right, or otherwise, it shall
promptly purchase from the other Banks participations in the Obligations held by
the other Banks in such amounts, and make such other adjustments from time to
time as shall be equitable to the end that all the Banks shall share the benefit
of such payment pro rata in accordance with the unpaid principal of and interest
on the Obligations then due to each of them. To such end, all of the Banks shall
make appropriate adjustments among themselves (by the resale of participations
sold or otherwise) if all or any portion of such excess payment is thereafter
rescinded or must otherwise be restored. Each Borrower agrees, to the fullest
extent it may effectively do so under applicable law, that any Bank so
purchasing a participation in the Obligations held by the other Banks may
exercise all rights of set-off, banker's lien, counterclaim, or similar rights
with respect to such participation as fully as if such Bank were a direct holder
of Obligations in the amount of such participation. Nothing contained herein
shall require any Bank to exercise any such right or shall affect the right of
any Bank to exercise, and retain the benefits of exercising, any such right with
respect to any other indebtedness or obligation of the any Borrower.
Section 4.8 Non-Receipt of Funds by the Agent. Unless the Agent shall
have been notified by a Bank or Parent (the "Payor") prior to the date on which
such Bank is to make payment to the Agent hereunder or the Borrowers are to make
a payment to the Agent for the account of one or more of the Banks, as the case
may be (such payment being herein called the "Required Payment"), which notice
shall be effective upon receipt, that the Payor does not intend to make the
Required Payment to the Agent, the Agent may assume that the Required Payment
has been made and may, in reliance upon such assumption (but shall not be
required to), make the amount thereof available to the intended recipient on
such date and, if the Payor has not in fact made the Required Payment to the
Agent, (a) the recipient of such payment shall, on demand, pay to the Agent the
amount made available to it together with interest thereon in respect of the
period commencing on the date such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to the
Federal Funds Effective Rate for such period and (b) Agent shall be entitled to
offset against any and all sums to be paid to such recipient, the amount
calculated in accordance with the foregoing clause (a).
Section 4.9 Withholding Taxes. To the extent permitted by applicable
law, all payments by any Borrower of amounts payable under any Loan Document
shall be payable without deduction for or on account of any present or future
taxes, duties or other charges levied or imposed by the United States of America
or by the government of any jurisdiction outside the United States of America or
by any political subdivision or taxing authority of or in any of the foregoing
through withholding or deduction with respect to any such payments (but
excluding franchise taxes and any tax or other charge imposed on or measured by
the income or profit of a Bank pursuant to the laws of the jurisdiction in which
it is organized or in which the principal office or Applicable Lending Office of
such Bank is located or any subdivision thereof or therein). If any such taxes,
duties or other charges are so levied or imposed, the Borrowers agree, jointly
and severally, to make additional payments in such amounts so that every net
payment of amounts payable by it under any Loan Document, after withholding or
deduction for or on
CREDIT AGREEMENT - Page 26
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account of any such present or future taxes, duties or other charges, will not
be less than the amount provided for herein or therein, provided that the
Borrowers may withhold to the extent required by law and shall have no
obligation to pay such additional amounts to any Bank to the extent that such
taxes, duties, or other charges are levied or imposed by reason of the failure
or inability of such Bank to comply with the provisions of Section 4.10 hereof.
Parent shall furnish promptly to the Agent for distribution to each affected
Bank, as the case may be, official receipts evidencing any such withholding or
reduction.
Section 4.10 Withholding Tax Exemption. Each Bank that is not
incorporated under the laws of the United States of America or a state thereof
agrees that it will deliver to Parent and the Agent two duly completed copies of
United States Internal Revenue Service Form 1001 or 4224 (or any substitute or
replacement thereof), certifying in either case that such Bank is entitled to
receive payments from any Borrower under any Loan Document without deduction or
withholding of any United States federal income taxes. Each Bank which so
delivers such a form further undertakes to deliver to Parent and the Agent two
(2) additional copies of such form (or a successor form) on or before the date
such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by Parent or the Agent, in each case certifying that such Bank is
entitled to receive payments from any Borrower under any Loan Document without
deduction or withholding of any United States federal income taxes, unless an
event (including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Bank from duly completing and delivering any such form with respect to it and
such Bank advises Parent and the Agent that it is not capable of receiving such
payments without any deduction or withholding of United States federal income
tax.
Section 4.11 Participation and Settlement Obligations Absolute; Failure
to Fund Participation or Settlement. The obligations of a Bank to fund its
participation in the Letters of Credit in accordance with the terms hereof and
settle with the Agent in accordance with Section 4.6 is absolute, unconditional
and irrevocable and shall be performed strictly in accordance with the terms of
the Loan Documents under all circumstances whatsoever, including without
limitation, the following circumstances: (a) any lack of validity of any Loan
Document; (b) the occurrence of any Default; (c) the existence of any claim,
set-off, counterclaim, defenses or other rights which such Bank, any Borrower,
any Obligated Party, or any other Person may have; (d) the occurrence of any
event that has or could reasonably be expected to have a Material Adverse
Effect; (e) the failure of any condition to a Loan or the issuance of a Letter
of Credit under Article 6 hereof to be satisfied; (f) the fact that after giving
effect to the funding of the participation or settlement the Outstanding
Revolving Credit may exceed the Borrowing Base in the aggregate or individually
with respect to any one Borrower; or (g) any other circumstance whatsoever,
whether or not similar to any of the foregoing; provided that, the obligations
of a Bank to fund its participation in a Letter of Credit or fund a settlement
under Section 4.6 may be subject to avoidance by a Bank if such Bank proves in a
final non-appealable judgment that it was damaged and that such damage arose
directly from the Agent's willful misconduct or gross negligence in determining
whether (i) the conditions set forth in Article 6 hereof to the issuance of the
Letter of Credit or the making of the Loan in question were satisfied at the
time of such issuance or Loan or (ii) with respect to a Letter of Credit, the
documentation presented under the Letter of Credit in question complied with the
terms thereof. If a Bank fails to fund its participation in a Letter of Credit
or fund a settlement under Section 4.6 as required hereby, such Bank shall,
subject to the foregoing proviso, remain obligated to pay to the Agent the
amount it failed to fund on demand together with interest thereon in respect of
the period commencing on the date such amount should have been funded until the
date the amount was actually funded to the Agent at a rate per annum equal to
the Federal Funds Effective Rate for such period and the Agent shall be entitled
to offset against any and all sums to be paid to such Bank hereunder the amount
due the Agent under this sentence.
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Section 4.12 Borrowers' Acknowledgment of Benefit and Liability. Each
Borrower expressly acknowledges that it has benefited and will benefit, directly
and indirectly, from each and every Loan and Letter of Credit, whether or not
such Borrower is or was the actual borrower in respect of such Loan or account
party with respect to such Letter of Credit, and hereby acknowledges and
undertakes, together with each other Borrower, joint and several liability for
the punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all Obligations. Each Borrower hereby acknowledges that this
Agreement is the independent and several obligation of each Borrower and may be
enforced against each Borrower separately, whether or not enforcement of any
right or remedy hereunder has been sought against any other Borrower. Each
Borrower further agrees that its liability hereunder and under any other Loan
Document shall be absolute, unconditional, continuing and irrevocable. Each
Borrower expressly waives any requirement that the Agent or any Bank exhaust any
right, power or remedy and proceeds against any other Borrower under this
Agreement, or any other Loan Document, or against any other Person under any
guaranty of, or security for, any of the Obligations.
Section 4.13 Limitation of Borrower Liability. Anything contained in
this Agreement to the contrary notwithstanding, if any Fraudulent Transfer Law
(as hereinafter defined) is determined by a court of competent jurisdiction to
be applicable to the obligations of any Borrower under this Agreement, such
obligations of such Borrower hereunder shall be limited to a maximum aggregate
amount equal to the largest amount that would not render its obligations
hereunder subject to avoidance as a fraudulent transfer or conveyance under
Section 544 of the United States Bankruptcy Code or any applicable provisions of
comparable state law (collectively, the "Fraudulent Transfer Laws"), in each
case after giving effect to all other liabilities of such Borrower, contingent
or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically
excluding, however, any liabilities of such Borrower in respect of intercompany
indebtedness to any other Borrower or other Affiliates of the Borrowers to the
extent that such indebtedness would be discharged in an amount equal to the
amount paid by such Borrower hereunder) and after giving effect, as assets, to
the value (as determined under the applicable provisions of the Fraudulent
Transfer Laws) of any rights to subrogation, reimbursement, indemnification or
contribution of such Borrower pursuant to applicable law or pursuant to the
terms of any agreement (including without limitation any such rights of
contribution under Section 4.14).
Section 4.14 Contribution; Subrogation. The Borrowers together desire
to allocate among themselves (the "Contributing Obligors"), in a fair and
equitable manner, their obligations arising under this Agreement. Accordingly,
in the event any payment or distribution is made by a Borrower under this
Agreement (a "Funding Obligor") that exceeds its Fair Share (as defined below),
that Funding Obligor shall be entitled to a contribution from each of the other
Contributing Obligors in the amount of such other Contributing Obligor's Fair
Share Shortfall (as defined below), with the result that all such contributions
will cause each Contributing Obligor's Aggregate Payments (as defined below) to
equal its Fair Share. "Fair Share" means, with respect to a Contributing Obligor
as of any date of determination, an amount equal to (i) the ratio of (x) the
Adjusted Maximum Amount (as defined below) with respect to such Contributing
Obligor to (y) the aggregate of the Adjusted Maximum Amounts with respect to all
Contributing Obligors, multiplied by (ii) the aggregate amount paid or
distributed on or before such date by all Funding Obligors under this Agreement
in respect of the Obligations. "Fair Share Shortfall" means, with respect to a
Contributing Obligor as of any date of determination, the excess, if any, of the
Fair Share of such Contributing Obligor over the Aggregate Payments of such
Contributing Obligor. "Adjusted Maximum Amount" means, with respect to a
Contributing Obligor as of any date of determination, the maximum aggregate
amount of the obligations of such Contributing Obligor under this Agreement
determined in accordance with the provisions hereof; provided that, solely for
purposes of calculating the "Adjusted Maximum Amount" with respect to any
Contributing Obligor for purposes of this Section 4.14, the assets or
liabilities arising by virtue of any rights to or obligations of contribution
hereunder shall not be considered as assets or liabilities of such Contributing
Obligor. "Aggregate
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Payments" means, with respect to a Contributing Obligor as of any date of
determination, the aggregate amount of all payments and distributions made on or
before such date by such Contributing Obligor in respect of this Agreement
(including, without limitation, in respect of this Section 4.14). The amounts
payable as contributions hereunder shall be determined as of the date on which
the related payment or distribution is made by the applicable Funding Obligor.
The allocation among Contributing Obligors of their obligations as set forth in
this Section 4.14 shall not be construed in any way to limit the liability of
any Contributing Obligor hereunder. In the event a payment is made by a Borrower
in excess of its Fair Share, then such Borrower shall be subrogated to the
rights then held by Agent and any Bank with respect to the Obligations to the
extent to which the Obligations was discharged by such Borrower and, in
addition, upon payment by such Borrower of any sums to Agent and any Bank
hereunder in excess of its Fair Share, all rights of such Borrower against the
other Borrowers or against any Collateral arising as a result therefrom by way
of right of subrogation, reimbursement, or otherwise shall in all respects be
subordinate and junior in right of payment to the prior indefeasible payment in
full of the Obligations.
Section 4.15 Joint and Several Obligations Absolute. If acceleration of
the time for payment of any amount payable by a Borrower under the Obligations
is stayed upon the insolvency, bankruptcy, or reorganization of another
Borrower, all such amounts otherwise subject to acceleration under the terms of
this Agreement shall nonetheless be payable by the other Borrowers hereunder
forthwith on demand by Agent or any Bank. Each Borrower hereby agrees that its
joint and several liability for the Obligations of the other Borrowers (the
"Other Obligations") under this Agreement shall not be released, discharged,
diminished, impaired, reduced, or affected for any reason or by the occurrence
of any event, including, without limitation, one or more of the following
events, whether or not with notice to or the consent of any Borrower: (a) the
taking or accepting of collateral as security for any or all of the Other
Obligations or the release, surrender, exchange, or subordination of any
collateral now or hereafter securing any or all of the Other Obligations; (b)
any partial release of the liability of any other Borrower hereunder; (c) any
disability of any other Borrower, or the dissolution, insolvency, or bankruptcy
of any other Borrower or any other party at any time liable for the payment of
any or all of the Other Obligations; (d) any renewal, extension, modification,
waiver, amendment, or rearrangement of any or all of the Other Obligations or
any instrument, document, or agreement evidencing, securing, or otherwise
relating to any or all of the Other Obligations; (e) any adjustment, indulgence,
forbearance, waiver, or compromise that may be granted or given by Agent or any
Bank to any other Borrower or any other party ever liable for any or all of the
Other Obligations; (f) any neglect, delay, omission, failure, or refusal of
Agent or any Bank to take or prosecute any action for the collection of any of
the Other Obligations or to foreclose or take or prosecute any action in
connection with any instrument, document, or agreement evidencing, securing, or
otherwise relating to any or all of the Other Obligations; (g) the
unenforceability or invalidity of any or all of the Other Obligations or of any
instrument, document, or agreement evidencing, securing, or otherwise relating
to any or all of the Other Obligations; (h) any payment by any other Borrower or
any other party to Agent or any Bank is held to constitute a preference under
applicable bankruptcy or insolvency law or if for any other reason Agent or any
Bank is required to refund any payment or pay the amount thereof to someone
else; (i) the settlement or compromise of any of the Other Obligations; (j) the
non-perfection of any security interest or lien securing any or all of the Other
Obligations; (k) any impairment of any collateral securing any or all of the
Other Obligations; (l) the failure of Agent or any Bank to sell any collateral
securing any or all of the Other Obligations in a commercially reasonable manner
or as otherwise required by law; (m) any change in the corporate existence,
structure, or ownership of any other Borrower; or (n) any other circumstance
which might otherwise constitute a defense available to, or discharge of, any
other Borrower (other than payment of the Other Obligations).
Section 4.16 Subordination. Each Borrower hereby agrees that the
Subordinated Indebtedness (as defined below) shall be subordinate and junior in
right of payment to the prior payment in full of all Obligated Party Obligations
as herein provided. The Subordinated Indebtedness shall not be payable, and no
payment of principal, interest or other amounts on account thereof, and no
property or guarantee of
CREDIT AGREEMENT - Page 29
<PAGE> 36
any nature to secure or pay the Subordinated Indebtedness shall be made or
given, directly or indirectly by or on behalf of any Subordination Party
(hereafter defined) or received, accepted, retained or applied by any Borrower
unless and until the Obligated Party Obligations shall have been paid in full in
cash; except that prior to the occurrence and continuance of a Default, a
Borrower shall have the right to receive, accept, retain and apply payments on
the Subordinated Indebtedness made in the ordinary course of business. After the
occurrence and during the continuance of a Default, no payments of principal or
interest may be made or given, directly or indirectly, by or on behalf of any
Subordination Party or received, accepted, retained or applied by any Borrower
unless and until the Obligated Party Obligations shall have been paid in full in
cash. If any sums shall be paid to a Borrower by any Subordination Party or any
other Person on account of the Subordinated Indebtedness when such payment is
not permitted hereunder, such sums shall be held in trust by such Borrower for
the benefit of Agent and the Banks and shall forthwith be paid to Agent without
affecting the liability of any Borrower under this Agreement and may be applied
by Agent against the Obligated Party Obligations in accordance with this
Agreement as if such payments were Collateral. Upon the request of Agent, a
Borrower shall execute, deliver, and endorse to Agent such documentation as
Agent may request to perfect, preserve, and enforce its rights hereunder. For
purposes of this Agreement and with respect to a Borrower, the term
"Subordinated Indebtedness" means all indebtedness, liabilities, and obligations
of any other Borrower or any Obligated Party (herein a "Subordination Party") to
such Borrower, whether such indebtedness, liabilities, and obligations now exist
or are hereafter incurred or arise, or are direct, indirect, contingent,
primary, secondary, several, joint and several, or otherwise, and irrespective
of whether such indebtedness, liabilities, or obligations are evidenced by a
note, contract, open account, or otherwise, and irrespective of the Person or
Persons in whose favor such indebtedness, obligations, or liabilities may, at
their inception, have been, or may hereafter be created, or the manner in which
they have been or may hereafter be acquired by such Borrower. The term
"Obligated Party Obligations" means, with respect to any Subordination Party,
all obligations, indebtedness and liability of such Subordination Party to the
Agent and the Banks under the Loan Documents (including, without limitation, any
and all post-petition interest and expenses whether or not allowed under any
bankruptcy, insolvency or other similar law). Each Borrower agrees that any and
all Liens (including any judgment liens) upon any Subordination Party's assets
securing payment of any Subordinated Indebtedness shall be and remain inferior
and subordinate to any and all Liens upon any Subordination Party's assets
securing payment of the Obligated Party Obligations or any part thereof,
regardless of whether such Liens in favor of a Borrower, Agent or any Bank
presently exist or are hereafter created or attached. Without the prior written
consent of Agent, no Borrower shall (i) file suit against any Subordination
Party or exercise or enforce any other creditor's right it may have against any
Subordination Party, or (ii) foreclose, repossess, sequester, or otherwise take
steps or institute any action or proceedings (judicial or otherwise, including
without limitation the commencement of, or joinder in, any liquidation,
bankruptcy, rearrangement, debtor's relief or insolvency proceeding) to enforce
any obligations of any Subordination Party to such Borrower or any Liens held by
such Borrower on assets of any Subordination Party. In the event of any
receivership, bankruptcy, reorganization, rearrangement, debtor's relief, or
other insolvency proceeding involving any Subordination Party as debtor, Agent
shall have the right to prove and vote any claim under the Subordinated
Indebtedness and to receive directly from the receiver, trustee or other court
custodian all dividends, distributions, and payments made in respect of the
Subordinated Indebtedness until the Obligated Party Obligations have been paid
in full in cash. Agent may apply any such dividends, distributions, and other
payments against the Obligated Party Obligations in accordance with this
Agreement as if such payments were Collateral.
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ARTICLE 5
Yield Protection and Illegality
Section 5.1 Additional Costs.
(a) The Borrowers agree, jointly and severally, to pay directly
to each Bank from time to time such amounts as such Bank may reasonably
determine to be necessary to compensate it for any costs incurred by such Bank
which such Bank determines are attributable to its making or maintaining of any
Loans subject to Libor Accounts or Letters of Credit hereunder or its obligation
to make any of such Loans hereunder or issue or participate in any Letter of
Credit, or any reduction in any amount receivable by such Bank hereunder in
respect of any such Loans or Letters of Credit or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"Additional Costs"), resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to
such Bank under this Agreement or its Notes in respect of any of
such Loans (other than franchise taxes and other taxes or
charges imposed on the overall income or profit of such Bank or
its Applicable Lending Office for any of such Loans by the
United States of America or the jurisdiction in which such Bank
has its Principal Office or such Applicable Lending Office);
(ii) imposes or modifies any reserve, special deposit,
minimum capital, capital ratio, or similar requirement relating
to any extensions of credit or other assets of, or any deposits
with or other liabilities or commitments of, such Bank
(including any of such Loans or any deposits referred to in the
definition of "Libor Rate" in Section 1.1 hereof but excluding
any Reserve Requirement already taken into account in
calculating the Adjusted Libor Rate); or
(iii) imposes any other condition affecting this Agreement
or the Notes or any of such extensions of credit or liabilities
or commitments.
Each Bank will notify Parent (with a copy to the Agent) of any event occurring
after the date of this Agreement which will entitle such Bank to compensation
pursuant to this subsection 5.1(a) as promptly as practicable after it obtains
knowledge thereof and determines to request such compensation, and will
designate a different Applicable Lending Office for the Loans affected by such
event if such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Bank, violate any law,
rule, or regulation or be in any way disadvantageous to such Bank. Each Bank
will furnish Parent with a certificate setting forth the basis and the amount of
each request of such Bank for compensation under this subsection 5.1(a). If any
Bank requests compensation from the Borrowers under this subsection 5.1(a),
Parent may, by notice to such Bank (with a copy to the Agent) suspend the
obligation of such Bank to issue or participate in Letters of Credit or to make
Loans subject to Libor Accounts or Continue Libor Accounts as Libor Accounts or
Convert Base Rate Accounts into Libor Accounts until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the provisions
of Section 5.4 hereof shall be applicable with respect to such Libor Accounts).
A Bank may only request compensation under this subsection 5.1(a) for Additional
Costs which it incurred at any time after the date six (6) months prior to the
date the Bank requests such compensation.
(b) Without limiting the effect of the foregoing provisions of
this Section 5.1, in the event that, by reason of any Regulatory Change, any
Bank either (i) incurs Additional Costs based on or measured by the excess above
a specified level of the amount of a category of deposits or other liabilities
of such Bank which includes deposits by reference to which the interest rate on
the Loans subject to Libor Accounts is determined as provided in this Agreement
or a category of extensions of credit or other assets of such Bank which
includes Loans subject to Libor Accounts or (ii) becomes subject to restrictions
on the amount of such a category of liabilities or assets which it may hold,
then, if such Bank so elects by
CREDIT AGREEMENT - Page 31
<PAGE> 38
notice to Parent (with a copy to the Agent), the obligation of such Bank to make
Loans subject to Libor Accounts or Continue Libor Accounts as Libor Accounts or
Convert Base Rate Accounts into Libor Accounts hereunder shall be suspended
until the Regulatory Change giving rise to such request ceases to be in effect
(in which case the provisions of Section 5.4 hereof shall be applicable).
(c) Determinations and allocations by any Bank for purposes of
this Section 5.1 of the effect of any Regulatory Change on its costs of
maintaining its obligation to make Loans or issue or participate in Letters of
Credit or of making or maintaining Loans or issuing or participating in Letters
of Credit or on amounts receivable by it in respect of Loans or Letters of
Credit, and of the additional amounts required to compensate such Bank in
respect of any Additional Costs, shall, absent manifest error, constitute prima
facie evidence of the accuracy thereof, provided that such determinations and
allocations are made on a reasonable basis. Additionally, each Bank shall, upon
request by Parent, take requested measures to mitigate the Additional Costs
which the Borrowers are required to pay to any Bank if such measures can, in the
sole and absolute opinion of such Bank be taken without such Bank suffering any
economic, legal, regulatory or other disadvantage (provided, however, that no
such Bank shall be required to designate a funding office that is not located in
the United States of America).
Section 5.2 Limitation on Libor Accounts. Anything herein to the
contrary notwithstanding, if with respect to any Libor Accounts under a Loan for
any Interest Period therefor:
(a) The Agent determines (which determination shall be
conclusive) that quotations of interest rates for the relevant deposits referred
to in the definition of "Libor Rate" in Section 1.1 hereof are not being
provided in the relative amounts or for the relative maturities for purposes of
determining the rate of interest for the Loans subject to such Libor Accounts as
provided in this Agreement; or
(b) Required Banks determine (which determination shall be
conclusive) and notify the Agent that the relevant rates of interest referred to
in the definition of "Adjusted Libor Rate" in Section 1.1 hereof on the basis of
which the rate of interest for such Loans for such Interest Period is to be
determined do not accurately reflect the cost to the Banks of making or
maintaining such Loans for such Interest Period;
then the Agent shall give Parent prompt notice thereof specifying the relevant
Libor Account and the relevant amounts or periods, and so long as such condition
remains in effect, the Banks shall be under no obligation to make additional
Loans subject to a Libor Account or to Convert Base Rate Accounts into Libor
Accounts and the Borrowers shall, on the last day(s) of the then current
Interest Period(s) for the outstanding Libor Accounts, either prepay the Loans
subject to such Libor Accounts or Convert such Libor Accounts into Base Rate
Accounts in accordance with the terms of this Agreement. Determinations made
under this Section 5.2 shall be made on a reasonable basis.
Section 5.3 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to (a) honor its obligation to make Loans subject to a Libor
Account hereunder or (b) maintain Loans subject to a Libor Account hereunder,
then such Bank shall promptly notify Parent (with a copy to the Agent) thereof
and such Bank's obligation to make or maintain Loans subject to a Libor Account
and to Convert Base Rate Accounts into Libor Accounts hereunder shall be
suspended until such time as such Bank may again make and maintain Loans subject
to a Libor Account (in which case the provisions of Section 5.4 hereof shall be
applicable).
Section 5.4 Treatment of Affected Loans. If the Accounts applicable to
a Loan of any Bank (hereinafter called "Affected Accounts") are affected by
Section 5.1 or Section 5.3 hereof, the Bank's Affected Accounts shall be
automatically Converted into Base Rate Accounts on the last day(s) of the then
current Interest Period(s) (or, in the case of a Conversion required by
subsection 5.1(b) or Section 5.3
CREDIT AGREEMENT - Page 32
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hereof, on such earlier date as such Bank may specify to Parent with a copy to
the Agent) and, unless and until such Bank gives notice as provided below that
the circumstances specified in Section 5.1 or 5.3 hereof which gave rise to such
Conversion no longer exist: (a) to the extent that such Bank's Affected Accounts
have been so Converted, all payments and prepayments of principal which would
otherwise be applied to such Bank's Affected Accounts shall be applied instead
to its Base Rate Accounts; and (b) all Accounts which would otherwise be
established or Continued by such Bank as Libor Accounts shall be made as or
Converted into Base Rate Accounts and all Accounts of such Bank which would
otherwise be Converted into Libor Accounts shall be Converted instead into (or
shall remain as) Base Rate Accounts. If such Bank gives notice to Parent (with a
copy to the Agent) that the circumstances specified in Section 5.1 or 5.3 hereof
which gave rise to the Conversion of such Bank's Affected Accounts pursuant to
this Section 5.4 no longer exist (which such Bank agrees to do promptly upon
such circumstances ceasing to exist) at a time when Libor Accounts are
outstanding, such Bank's Base Rate Accounts shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Libor Accounts to the extent necessary so that, after giving effect thereto, all
Accounts held by the Banks holding Libor Accounts and by such Bank are held pro
rata (as to principal amounts, Types, and Interest Periods) in accordance with
their respective Commitment Percentages.
Section 5.5 Compensation. The Borrowers agree, jointly and severally,
to pay to the Agent for the account of each Bank, upon the request of such Bank,
such amount or amounts as shall be sufficient (in the reasonable opinion of such
Bank) to compensate it for any loss, cost, or expense incurred by it as a result
of:
(a) Any payment or prepayment of a Loan subject to a Libor
Account or Conversion of a Libor Account for any reason (including, without
limitation, the repayment of such a Loan held by the Agent as a Bank resulting
from the operation of Section 4.6 or the repayment of such a Loan resulting from
the acceleration of the outstanding Loans pursuant to subsection 11.2(a) hereof)
on a date other than the last day of an Interest Period for the applicable Libor
Account; or
(b) Any failure by any Borrower for any reason (including,
without limitation, the failure of any conditions precedent specified in Article
6 to be satisfied but excluding any failure by a Bank to honor its obligations
hereunder) to borrow or prepay a Loan subject to a Libor Account, or Convert a
Base Rate Account to a Libor Account on the date for such borrowing, Conversion,
or prepayment specified in the relevant notice of borrowing, prepayment, or
Conversion under this Agreement.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so paid or Converted
or not borrowed for the period from the date of such payment, Conversion, or
failure to borrow to the last day of the Interest Period for such Libor Account
(or, in the case of a failure to borrow, the Interest Period for such Libor
Account which would have commenced on the date specified for such borrowing) at
the applicable rate of interest for such Libor Account provided for herein over
(ii) the interest component of the amount such Bank would have bid in the London
interbank market for Dollar deposits of leading banks and amounts comparable to
such principal amount and with maturities comparable to such period.
Section 5.6 Capital Adequacy. If after the date hereof, any Bank shall
have determined that any Regulatory Change or any change in the compliance by
such Bank (or its parent) with any guideline, request, or directive regarding
capital adequacy (whether or not having the force of law) of any central bank or
other Governmental Authority has or would have the effect of reducing the rate
of return on such Bank's (or its parent's) capital as a consequence of its
obligations hereunder or the transactions contemplated hereby to a level below
that which such Bank (or its parent) could have achieved but for
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such Regulatory Change or change in compliance by an amount deemed by such Bank
to be material, then from time to time, within ten (10) Business Days after
demand by such Bank (with a copy to the Agent), the Borrowers agree, jointly and
severally, to pay to such Bank such additional amount or amounts as will
compensate such Bank (or its parent) for such reduction. A certificate of such
Bank claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder shall constitute prima facie
evidence of the accuracy thereof, provided that the determination thereof is
made on a reasonable basis. In determining such amount or amounts, such Bank may
use any reasonable averaging and attribution methods. With respect to each
demand by a Bank under this Section 5.6, no Bank shall have the right to demand
compensation for amounts attributable to any reduction in such Bank's rate of
return occurring at any time before the date which is six (6) months prior to
the date the Bank gives such demand for compensation to Parent.
Section 5.7 Replacement of a Bank. If (i) the obligation of a Bank
(other than the Agent as a Bank) to make or Continue Loans subject to Libor
Accounts has been suspended pursuant to Sections 5.2 or 5.3 or (ii) a Bank
(other than the Agent as a Bank) has demanded compensation under Sections 5.1 or
5.6, Parent shall have the right to require such Bank to assign to a Person
selected by Parent and reasonably satisfactory to the Agent (which may be one or
more of the Banks) the Notes and participation interests in the Letter of Credit
Liabilities held by such Bank pursuant to the terms of an appropriately
completed Assignment and Acceptance in accordance with subsection 13.8(b);
provided that, neither the Agent nor any Bank shall have any obligation to any
Borrower to find any such Person and in order for Parent to replace a Bank,
Parent must require such replacement within three (3) months of the date such
obligations of the Bank were suspended or the date the Bank demanded such
compensation. Each Bank (other than the Agent as a Bank) agrees to its
replacement at the option of Parent pursuant to this Section 5.7; provided that
the Person selected by Parent shall purchase such Bank's interest in the
Obligations of the Borrowers to such Bank for immediately available funds in an
aggregate amount equal to the aggregate unpaid principal thereof, all unpaid
interest accrued thereon, all unpaid commitment and letter of credit fees
accrued for the account of such Bank, any breakage costs incurred by the selling
Bank because of the prepayment of any Libor Accounts, all other fees (if any)
applicable thereto and all other amounts (including any amounts due under
Sections 5.1 or 5.6) then owing to such Bank hereunder or under any other Loan
Document.
ARTICLE 6
Conditions Precedent
Section 6.1 Initial Loan and Letter of Credit. The obligation of each
Bank to make its initial Loan and the obligation of the Agent to issue the
initial Letter of Credit are subject to the condition precedent that the Agent
shall have received on or before, or shall receive simultaneously with, the day
of any such Loan or Letter of Credit all of the following, each dated (unless
otherwise indicated) the date hereof, in form and substance satisfactory to the
Agent:
(a) Resolutions; Authority. Resolutions of the Board of
Directors of each Borrower and each Obligated Party certified by its Secretary
or an Assistant Secretary which authorize its execution, delivery, and
performance of the Loan Documents to which it is or is to be a party.
(b) Incumbency Certificate. A certificate of incumbency
certified by the Secretary or an Assistant Secretary of each Borrower and each
Obligated Party certifying the names of its officers (i) who are authorized to
sign the Loan Documents to which it is or is to be a party (including the
certificates contemplated herein) together with specimen signatures of each such
officer and (ii) who will, until replaced by other officers duly authorized for
that purpose, act as its representative for the purposes
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of signing documentation and giving notices and other communications in
connection with this Agreement and the transactions contemplated hereby.
(c) Organizational Documents. The articles of incorporation of
each Borrower and each Obligated Party certified by the Secretary of State of
the state of its incorporation and dated a current date.
(d) Bylaws. The bylaws of each Borrower and each Obligated Party
certified by its Secretary or an Assistant Secretary.
(e) Governmental Certificates. Certificates of the appropriate
government officials of the state of incorporation of each Borrower and each
Obligated Party as to its existence and, to the extent applicable, good standing
and certificates of the appropriate government officials of each state in which
each Borrower and each Obligated Party is required to qualify to do business and
where failure to so qualify could reasonably be expected to have a Material
Adverse Effect, as to such Person's qualification to do business and good
standing in such state, all dated a current date.
(f) Notes. The Notes executed by each Borrower.
(g) Collateral Documents and Collateral. The Security Agreement
executed by each of the Borrowers; UCC, tax and judgment Lien search reports
listing all documentation on file against each Borrower in each jurisdiction in
which such Borrower is organized and has its chief executive office and each
jurisdiction in which any of its inventory is located; and such executed
documentation as the Agent may deem necessary to perfect or protect its Liens,
including, without limitation: (i) financing statements under the UCC and other
applicable documentation under the laws of any jurisdiction with respect to the
perfection of Liens; (ii) a lien subordination from the landlord of Parent's
office located at 17855 Dallas Parkway, Suite 200, Dallas, Texas 75287,
containing such access agreements and subordinations as the Agent may require;
(iii) agreements from each institution where any Borrower maintains a deposit
account in form and substance satisfactory to the Agent, pursuant to which such
institutions recognize the Agent's Lien in such account and agree to transfer
the collected balances in all Lockbox Accounts to the Concentration Account on a
daily basis; and (iv) waivers, subordinations or acknowledgments from all other
third parties who have possession or control of any Collateral; provided,
however, that Agent shall not require that any Borrower deliver lien
acknowledgements and related UCC financing statements from third-parties in
possession of any Borrower's inventory, except as set forth in Section 8.10.
(h) Termination of Liens. Duly executed UCC-3 termination
statements, mortgage releases and such other documentation as shall be necessary
to terminate or release all Liens other than those permitted by Section 9.2
hereof.
(i) Insurance Policies. Certificates of insurance summarizing
the insurance policies of the Borrowers required by this Agreement and
reflecting the Agent as additional insured under all liability policies and as
loss payee with respect to all policies covering Collateral.
(j) Opinion of Counsel. A favorable opinion of legal counsel to
the Borrowers and the Obligated Parties as to such matters as the Agent may
reasonably request.
(k) Borrowing Base Report. An initial Borrowing Base Report
dated as of the Closing Date, together with the receivable reports and
information required thereby, verifying that the initial, Aggregate Borrowing
Availability calculated as of March 17, 2000, is equal to or greater than
Eighteen Million Dollars ($18,000,000).
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(l) First Union Loan Agreement. A fully executed copy of the
First Union Loan Agreement and such other documents relating thereto as Agent
may request, and evidence, satisfactory to the Agent, that the First Union Loan
has been (or will be simultaneously with the first Loan funded hereunder) funded
by the lenders thereto.
(m) Intercreditor Agreement. The Intercreditor Agreement,
executed by each of the parties thereto.
(n) Lockbox Agreements. The Lockbox Agreements.
(o) Equity Capital. Evidence that Parent has received capital
contributions in an amount equal to or greater than Ten Million Dollars
($10,000,000) on the Closing Date.
(p) Projections. A forecasted consolidated balance sheet and
statements of income and cash flow of Parent and the Subsidiaries on a quarter
by quarter basis, including the assumptions utilized in the preparation of such
projections (in narrative form) for the Fiscal Year ending on December 31, 2000,
a pro forma projection of Parent's compliance with the financial covenants in
this Agreement for the same period and a forecasted consolidated balance sheet
and statements of income and cash flow of Parent and the Subsidiaries for the
Fiscal Years ending December 31, 2000 and December 31, 2001.
(q) Indenture. Evidence satisfactory to the Agent that (i) the
holders of the Senior Subordinated Notes shall have consented to the departure
from Section 4.03 of the Indenture to permit the incurrence of the Obligations
and the First Union Loan and (ii) the Obligations are "Senior Indebtedness" and
are "Designated Senior Indebtedness" under the Indenture.
(r) Fees. Evidence that the arrangement fee payable to The Chase
Manhattan Bank in the amount of $625,000 and the initial installment of the
administrative fee payable to the Agent in the amount of $10,000 have been, or
will be with the proceeds of the initial Loan, paid in full.
(s) Attorneys' Fees and Expenses. Evidence that the costs and
expenses (including attorneys' fees) referred to in Section 13.1 hereof, to the
extent incurred and invoiced, have been, or will be with the proceeds of the
initial Loan, paid in full.
(t) Guaranty. A limited guaranty agreement executed by Richmont
Capital Partners I, Ltd. in the form of Exhibit "F."
Section 6.2 All Loans and Letters of Credit. The obligation of each
Bank to make any Loan (including the initial Loan) and the obligation of the
Agent to issue any Letter of Credit (including the initial Letter of Credit) are
subject to the following additional conditions precedent:
(a) No Default. No Default shall have occurred and be
continuing, or would result from such Loan or Letter of Credit;
(b) Representations and Warranties. All of the representations
and warranties contained in Article 7 hereof and in the other Loan Documents
shall be true and correct on and as of the date of such Loan or Letter of Credit
with the same force and effect as if such representations and warranties had
been made on and as of such date except to the extent that such representations
and warranties relate specifically to another date; and
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(c) Additional Documentation. The Agent shall have received such
additional approvals, opinions, or documents as the Agent may reasonably
request.
Each notice of borrowing by any Borrower hereunder, each request for a borrowing
under subsections 2.7(e) and 4.1(b), and each request for the issuance of a
Letter of Credit, shall constitute a representation and warranty by each
Borrower that the conditions precedent set forth in subsections 6.2(a) and (b)
hereof have been satisfied (both as of the date of such notice and, unless
Parent otherwise notifies the Agent prior to the date of such borrowing or
Letter of Credit, as of the date of such borrowing or Letter of Credit).
ARTICLE 7
Representations and Warranties
To induce the Agent and the Banks to enter into this Agreement, each
Borrower represents and warrants to the Agent and the Banks that:
Section 7.1 Corporate Existence. Parent and each Subsidiary (a) is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation; (b) has all requisite power and
authority to own its assets and carry on its business as now being or as
proposed to be conducted; and (c) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a Material Adverse Effect.
Each Borrower and each Obligated Party has the power and authority to execute,
deliver, and perform their respective obligations under the Loan Documents to
which it is or may become a party.
Section 7.2 Financial Statements. Parent has delivered to the Agent and
the Banks (i) audited consolidated financial statements of Parent and the
Subsidiaries for the Fiscal Year ended December 31, 1998, (ii) unaudited
consolidated financial statements of Parent and the Subsidiaries for the one (1)
month period ended January 31, 2000, and (iii) unaudited consolidated financial
statements of Parent and the Subsidiaries for the four (4) Fiscal Quarters ended
December 31, 1999. Such financial statements have been prepared in accordance
with GAAP (subject in the case of the unaudited financial statements to audit
adjustments and the fact that such financial statements do not contain
footnotes), and present fairly, on a consolidated and consolidating basis, the
financial condition of Parent and the Subsidiaries as of the respective dates
indicated therein and the results of operations for the respective periods
indicated therein. None of Parent nor any Subsidiary has any material contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments, or
unrealized or anticipated losses from any unfavorable commitments except as
referred to or reflected in such financial statements. There has been no
Material Adverse Effect since the effective date of the audited consolidated
financial statements of Parent for the Fiscal Year ended December 31, 1998.
Section 7.3 Corporate Action; No Breach. The execution, delivery, and
performance by each Borrower and each Obligated Party of the Loan Documents to
which each is or may become a party and compliance with the terms and provisions
hereof and thereof have been duly authorized by all requisite action on the part
of each Borrower and each Obligated Party and do not and will not (a) violate or
conflict with, or result in a breach of, or require any consent under (i) the
articles of incorporation or bylaws of any Borrower or any Obligated Party, (ii)
any applicable law, rule, or regulation or any order, writ, injunction, or
decree of any Governmental Authority or arbitrator, or (iii) any agreement or
instrument to which any Borrower or any Obligated Party is a party or by which
any of them or any of their property is bound or subject (including without
limitation, the Indenture and the First Union Loan Agreement) or (b) constitute
a material default under any such agreement or instrument, or result in the
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creation or imposition of any Lien (except as provided herein or Liens in favor
of Agent) upon any of the revenues or assets of any Borrower or any Obligated
Party.
Section 7.4 Operation of Business. Parent and each Subsidiary possesses
all licenses, permits, franchises, patents, copyrights, trademarks, and trade
names, or rights thereto, necessary to conduct its businesses substantially as
now conducted and as presently proposed to be conducted, and neither Parent nor
any Subsidiary is in violation, in any material respect, of any valid rights of
others with respect to any of the foregoing.
Section 7.5 Litigation and Judgments. Other than the Monroe Litigation,
there is no action, suit, investigation, or proceeding before or by any
Governmental Authority or arbitrator pending, or to the knowledge of any
Borrower, threatened against or affecting Parent or any Subsidiary that could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. There are no outstanding judgments against Parent or
any Subsidiary.
Section 7.6 Rights in Properties; Liens. Parent and each Subsidiary has
good title to or valid leasehold interests in their respective properties and
assets, real and personal, including the properties, assets, and leasehold
interests reflected in the financial statements described in Section 7.2 hereto,
and none of the properties, assets, or leasehold interests of Parent or any
Subsidiary is subject to any Lien, except as permitted by Section 9.2 hereto.
Section 7.7 Enforceability. The Loan Documents to which any Borrower or
any Obligated Party is party, when delivered, shall constitute the legal, valid,
and binding obligations of the applicable Borrower or Obligated Party,
enforceable against the applicable Borrower or Obligated Party in accordance
with their respective terms, except as limited by bankruptcy, insolvency, or
other laws of general application relating to the enforcement of creditors'
rights and general principles of equity.
Section 7.8 Approvals. No authorization, approval, or consent of, and
no filing or registration with, any Governmental Authority or third party is or
will be necessary for the execution, delivery, or performance by any Borrower or
any Obligated Party of the Loan Documents to which each is or may become a party
or for the validity or enforceability thereof except for such authorizations,
approvals, consents, filings and registrations which have been made or obtained.
Without limiting the generality of the forgoing, all approvals and consents
required under the terms of the Indenture necessary for the execution, delivery,
or performance by any Borrower or any Obligated Party of the Loan Documents to
which each is or may become a party or for the validity or enforceability
thereof have been obtained.
Section 7.9 Debt. Neither Parent nor each Subsidiary has any Debt,
except as of the Closing Date, the Debt outstanding under the Indenture and the
other Debt as disclosed on Schedule 9.1 and, at all times after the Closing
Date, as permitted by Section 9.1 hereto. As of the Closing Date, the aggregate
amount of the Debt which is equal in right of payment to any unsecured portion
of the Obligations is as set forth on Schedule 7.9 hereto. None of the Debt
disclosed on Schedule 9.1 is senior in right of payment to the Obligations nor
is any such Debt secured by any Lien (except as reflected on Schedule 9.2) or
otherwise entitled to any administrative or other priority in any liquidation or
bankruptcy proceedings of Parent and each Subsidiary; provided that certain
employees of Parent and each Subsidiary who hold such Debt may be entitled to
the priority distribution under Section 507(a)(3) or 507(a)(4) of the United
States Bankruptcy Code (11 U.S.C. Section 507) to the extent, and only to the
extent as set forth in such Sections, as a result of their claims relating to
such Debt being characterized either as claims for wages, salaries or
contributions to employee benefit plans. The amount of such Debt, as of the
Closing Date, is $1,375,795.
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Section 7.10 Taxes. Parent and each Subsidiary has filed all material
tax returns (federal, state, and local) required to be filed, including all
income, franchise, employment, property, and sales tax returns, and have paid
all of their respective liabilities for taxes, assessments, governmental
charges, and other levies that are due and payable other than those being
contested in good faith by appropriate proceedings diligently pursued for which
adequate reserves have been established. Except as disclosed in writing to
Agent, no Borrower know of any pending investigation of Parent or any Subsidiary
by any taxing authority or of any pending but unassessed tax liability of Parent
or any Subsidiary.
Section 7.11 Margin Securities. Neither Parent nor any Subsidiary is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations T, U, or X of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Loan will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying margin stock.
Section 7.12 ERISA. Parent and each Subsidiary is in compliance in all
material respects with all applicable provisions of ERISA. Neither a Reportable
Event nor a Prohibited Transaction has occurred and is continuing with respect
to any Plan. No notice of intent to terminate a Plan has been filed, nor has any
Plan been terminated. No circumstances exist which constitute grounds entitling
the PBGC to institute proceedings to terminate, or appoint a trustee to
administer, a Plan, nor has the PBGC instituted any such proceedings. Neither
Parent nor any Subsidiary nor any ERISA Affiliate has completely or partially
withdrawn from a Multiemployer Plan. Parent and each Subsidiary and each ERISA
Affiliate has met its minimum funding requirements under ERISA with respect to
all of their Plans. The present value of all vested benefits under each Plan do
not exceed the fair market value of all Plan assets allocable to such benefits,
as determined on the most recent valuation date of the Plan and in accordance
with ERISA. Neither Parent nor any Subsidiary nor any ERISA Affiliate has
incurred any liability to the PBGC under ERISA in an amount that will have a
Material Adverse Effect.
Section 7.13 Disclosure. All factual information furnished by or on
behalf of Parent and each Subsidiary in writing to the Agent or any Bank
(including, without limitation, all information contained in the Loan Documents)
for purposes of or in connection with this Agreement, the other Loan Documents
or any transaction contemplated herein or therein is, and all other such factual
information hereafter furnished by or on behalf of Parent and each Subsidiary to
the Agent or any Bank, will be true and accurate in all material respects taken
as a whole on the date as of which such information is dated or certified and
not incomplete by omitting to state any fact necessary to make such information
not misleading in any material respect at such time.
Section 7.14 Subsidiaries; Borrower Capitalization. As of the Closing
Date, Parent has no Subsidiaries other than those listed on Schedule 7.14
hereto. As of the Closing Date, Schedule 7.14 sets forth the jurisdiction of
incorporation or organization of each such Subsidiary, the percentage of
Parent's ownership of the outstanding Equity Interests of each Subsidiary
directly owned by Parent, the percentage of each Subsidiary's ownership of the
outstanding Equity Interests of each other Subsidiary and the authorized, issued
and outstanding Equity Interests of Parent and each Subsidiary. All of the
outstanding capital stock of Parent and each Subsidiary has been validly issued,
is fully paid, and is nonassessable. Except as permitted to be issued or created
pursuant to the terms hereof or as reflected on Schedule 7.14, there are no
outstanding subscriptions, options, warrants, calls, or rights (including
preemptive rights) to acquire, and no outstanding securities or instruments
convertible into any Equity Interests of Parent or any Subsidiary. Each
Subsidiary that is not a Borrower is either (i) inactive without any assets or
(ii) has total assets that do not exceed two percent (2%) of the total assets of
Parent determined on a consolidated
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basis. The combined value of the total assets of all Subsidiaries that are not
Borrowers does not exceed an amount equal to two percent (2%) of the total
assets of Parent determined on a consolidated basis.
Section 7.15 Agreements. Neither Parent nor any Subsidiary is a party
to any indenture, loan, or credit agreement, or to any lease or other agreement
or instrument, or subject to any charter or corporate restriction that could
reasonably be expected to have a Material Adverse Effect. Neither Parent nor any
Subsidiary is in default in any respect in the performance, observance, or
fulfillment of any of the obligations, covenants, or conditions contained in any
agreement or instrument to which it is a party other than defaults which will
not have a Material Adverse Effect.
Section 7.16 Compliance with Laws. Neither Parent nor any Subsidiary
are in violation of any law, rule, regulation, order, or decree of any
Governmental Authority or arbitrator other than violations which will not have a
Material Adverse Effect.
Section 7.17 Investment Company Act. Neither Parent nor any Subsidiary
is an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
Section 7.18 Public Utility Holding Company Act. Neither Parent nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" or a "public utility" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 7.19 Environmental Matters.
(a) Parent and each Subsidiary and all of their respective
properties, assets, and operations are in compliance in all material respects
with all Environmental Laws. No Borrower is aware of, nor has any Borrower
received notice of, any past, present, or future conditions, events, activities,
practices, or incidents which may interfere with or prevent the material
compliance or continued material compliance of Parent and each Subsidiary with
all Environmental Laws;
(b) Parent and each Subsidiary has obtained all permits,
licenses, and authorizations that are required under applicable Environmental
Laws the failure of which to obtain would result in a Material Adverse Effect.
All such permits are in good standing and Parent and each Subsidiary are in
compliance in all material respects with all of the terms and conditions of such
permits;
(c) No Hazardous Materials exist on, about, or within or have
been used, generated, stored, transported, disposed of on, or Released from any
of the properties or assets of Parent or any Subsidiary except in compliance in
all material respects with Environmental Laws. The use which Parent and each
Subsidiary make and intend to make of their respective properties and assets
will not result in the use, generation, storage, transportation, accumulation,
disposal, or Release of any Hazardous Material on, in, or from any of their
properties or assets except in compliance in all material respects with
Environmental Laws;
(d) Neither Parent nor any Subsidiary nor any of their
respective currently or previously owned or leased properties or operations is
subject to any outstanding or, to the best of its knowledge, threatened order
from or agreement with any Governmental Authority or subject to any judicial or
administrative proceeding with respect to (i) failure to comply with
Environmental Laws, (ii) Remedial Action, or (iii) any Environmental Liabilities
arising from a Release or threatened Release;
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(e) There are no conditions or circumstances associated with the
currently or previously owned or leased properties or operations of Parent or
any Subsidiary that could reasonably be expected to give rise to any material
Environmental Liabilities;
(f) Neither Parent nor any Subsidiary are a treatment, storage,
or disposal facility requiring a permit under the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., regulations thereunder or any
comparable provision of state law. Parent and each Subsidiary are in compliance
with all applicable financial responsibility requirements of all Environmental
Laws in all material respects;
(g) Neither Parent nor any Subsidiary have filed or failed to
file any notice required under applicable Environmental Law reporting a Release;
and
(h) No Lien arising under any Environmental Law has attached to
any property or revenues of Parent or any Subsidiary.
Section 7.20 Solvency. As of and from and after the date of this
Agreement and after giving effect to the consummation of the Pending
Acquisition, each Borrower and each Obligated Party individually and on a
consolidated basis: (a) owns and will own assets (including contribution rights,
if any) the fair saleable value of which are (i) greater than the total amount
of liabilities (including contingent liabilities) and (ii) greater than the
amount that will be required to pay the probable liabilities of its then
existing debts as they become absolute and matured considering all financing
alternatives and potential asset sales reasonably available to it; (b) has
capital that is not unreasonably small in relation to its business as presently
conducted or any contemplated or undertaken transaction; and (c) does not intend
to incur and does not believe that it will incur debts beyond its ability to pay
such debts as they become due.
Section 7.21 Perishable Agricultural Commodities Act. In the ordinary
course of its business, neither Parent nor any Subsidiary purchases or sells for
its own account perishable agricultural commodities (as that term is defined in
the Perishable Agricultural Commodities Act, as amended (7 U.S.C. Section
499e(c)) and the regulations promulgated thereunder) nor does any such party
directly receive any proceeds from the sale of such commodities. As a result,
the statutory trust arising under such act for the benefit of unpaid cash
sellers does not attach to any property of Parent or any Subsidiary.
Section 7.22 Packers and Stockyards Act. In the ordinary course of its
business, neither Parent nor any Subsidiary purchases, sells for its own account
or receives the proceeds from the sale of livestock as that term is defined in
the Packers and Stockyards Act, as amended (7 U.S.C. Section 181-229) and the
regulations thereunder. As a result, the statutory trust arising under such act
for the benefit of unpaid cash sellers does not attach to any property of Parent
or any Subsidiary.
Section 7.23 Common Enterprise; Benefit Received. The Borrowers are
each a member of an affiliated group and are collectively engaged in a common
enterprise with one another. Each Borrower will receive reasonably equivalent
value in exchange for the obligations incurred under the Loan Documents to which
it is a party. Each Borrower will derive substantial benefit from the credit
extended pursuant hereto in an amount at least equal to its obligations under
the Loan Documents to which it is a party.
Section 7.24 Year 2000. Any reprogramming required to permit the proper
functioning, in and following the year 2000, of (i) Parent's and the
Subsidiaries' computer systems and (ii) equipment containing embedded microchips
(including systems and equipment supplied by others or with which
CREDIT AGREEMENT - Page 41
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Parent's or the Subsidiaries' systems interface) and the testing of all such
systems and equipment, as so reprogrammed, has been completed. The computer and
management information systems of Parent and the Subsidiaries are and, with
ordinary course upgrading and maintenance, will continue for the term of this
Agreement to be, sufficient to permit Parent and the Subsidiaries to conduct
their respective businesses without a Material Adverse Effect.
Section 7.25 Indenture. The Obligations have been (and hereby are)
designated as "Designated Senior Indebtedness" (as defined in the Indenture) for
all purposes under the Indenture.
ARTICLE 8
Positive Covenants
Parent covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Agent or any Bank has any commitment hereunder,
it will perform and observe the following positive covenants:
Section 8.1 Reporting Requirements. Parent will furnish to the Agent
and each Bank:
(a) Annual Financial Statements. As soon as available, and in
any event within ninety (90) days after the end of each Fiscal Year of Parent,
beginning with the Fiscal Year ending December 31, 1999, a copy of the annual
audit report of Parent and the Subsidiaries for such Fiscal Year containing, on
a consolidated and consolidating basis, balance sheets and statements of income,
retained earnings, and cash flow as at the end of such Fiscal Year and for the
Fiscal Year then ended, in each case setting forth in comparative form the
figures for the preceding Fiscal Year, all in reasonable detail and audited and
certified on an unqualified basis by independent certified public accountants of
recognized standing acceptable to the Agent, to the effect that such report has
been prepared in accordance with GAAP;
(b) Monthly Financial Statements. As soon as available, and in
any event within forty-five (45) days after the end of each Fiscal Quarter that
is not the Fiscal Year end and within thirty-five (35) days after the end of
each month that is not a Fiscal Year end or a Fiscal Quarter end, (i) a copy of
an unaudited financial report of Parent and the Subsidiaries as of the end of
such period and for the portion of the Fiscal Year then ended containing, on a
consolidated and consolidating basis, balance sheets and statements of income,
retained earnings, and cash flow, in each case setting forth in comparative form
the figures submitted in the most recent projections delivered to Agent pursuant
to either Section 6.1(o) or Section 8.1(f), all in reasonable detail certified
by the chief executive officer, treasurer or chief financial officer of Parent
to have been prepared in accordance with GAAP (but excluding footnotes) and to
fairly present (subject to year-end audit adjustments) the financial condition
and results of operations of Parent and the Subsidiaries, on a consolidated and
consolidating basis, at the date and for the periods indicated therein, and (ii)
trade accounts payable aging reports.
(c) Compliance Certificate. Within forty-five (45) days after
the end of each Fiscal Quarter of each Fiscal Year and accompanying the annual
financial statements delivered in accordance with Section 8.1(a), a Compliance
Certificate, together with the schedules thereto setting forth the calculations
supporting the computations therein as well as the list of assets disposed, as
set forth in Section 9.8;
(d) Borrowing Base Report. Within twenty (20) days after the
last day of each month, or within one (1) Business Day of any other date the
Agent may select in its discretion by written
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notice to Parent (each such day or date a "Report Date"), a Borrowing Base
Report together with a Receivable aging report, sales report summary,
collections report (including lockbox activity statements) and customer credit
report (reflecting all journal entries and adjustments) for each Borrower as of
the applicable Report Date;
(e) Receivable Reporting. On each Monday (unless Monday is not a
Business Day, then on the following Tuesday) or, if the Agent requests, within
one (1) Business Day of any other date the Agent may select in its discretion by
written notice to Parent, Parent shall furnish to the Agent, a Receivable Report
in the form of Exhibit "G." For purposes of preparing the Receivables Reports
under this clause (e), it shall be assumed that each Business Day ends at 2:00
p.m., with any other activity occurring on such Business Day after such 2:00
p.m. deadline to be deemed to have occurred on the next succeeding Business Day;
(f) Projections. As soon as available and in any event within
forty-five (45) days after the beginning of each Fiscal Year of Parent, Parent
will deliver (i) a forecasted consolidated balance sheet and statements of
income and cash flow of Parent and the Subsidiaries on a quarter by quarter
basis, including the assumptions utilized in the preparation of such projections
(in narrative form) for the forthcoming Fiscal Year and a pro forma projection
of Parent's compliance with the financial covenants in this Agreement for the
same period and (ii) a forecasted consolidated balance sheet and statements of
income and cash flow of Parent and the Subsidiaries for the next succeeding
Fiscal Year;
(g) Management Letters. Promptly upon receipt thereof, a copy of
any management letter or written report submitted to Parent or any Subsidiary by
independent certified public accountants with respect to the business, condition
(financial or otherwise), operations, prospects, or properties of Parent or any
Subsidiary;
(h) Notice of Litigation. Promptly after the commencement
thereof, notice of all actions, suits, and proceedings before any Governmental
Authority or arbitrator affecting Parent or any Subsidiary which, if determined
adversely to Parent or such Subsidiary, could reasonably be expected to have a
Material Adverse Effect;
(i) Notice of Default. As soon as possible and in any event
within five (5) Business Days after an officer of Parent has knowledge of the
occurrence of each Default, a written notice setting forth the details of such
Default and the action that Parent have taken and proposes to take with respect
thereto;
(j) ERISA Reports. If requested by the Agent, promptly after the
filing or receipt thereof, copies of all reports, including annual reports, and
notices which Parent or any Subsidiary files with or receives from the PBGC or
the U.S. Department of Labor under ERISA; and as soon as possible and in any
event within five (5) Business Days after Parent knows or has reason to know
that any Reportable Event or Prohibited Transaction has occurred with respect to
any Plan or that the PBGC or Parent or any Subsidiary has instituted or will
institute proceedings under Title IV of ERISA to terminate any Plan, a
certificate of the chief financial officer of Parent setting forth the details
as to such Reportable Event or Prohibited Transaction or Plan termination and
the action that Parent proposes to take with respect thereto;
(k) Notice of Material Adverse Effect. As soon as possible and
in any event within five (5) Business Days of the occurrence thereof, written
notice of any matter that could reasonably be expected to have a Material
Adverse Effect;
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(l) Proxy Statements, Etc. As soon as available, one copy of
each financial statement, report, notice or proxy statement sent by Parent or
any Subsidiary to its stockholders generally and one copy of each regular,
periodic or special report, registration statement, or prospectus filed by
Parent or any Subsidiary with any securities exchange or the Securities and
Exchange Commission or any successor agency; and
(m) General Information. Promptly, such other information
concerning Parent or any Subsidiary as the Agent or any Bank may from time to
time reasonably request.
Section 8.2 Maintenance of Existence; Conduct of Business. Except as
otherwise permitted by Section 9.3, Parent will, and will cause each Subsidiary
to, preserve and maintain its corporate existence and all of its leases,
privileges, licenses, permits, franchises, qualifications, and rights that are
necessary or desirable in the ordinary conduct of its business. Parent will, and
will cause each Subsidiary to, conduct its business in an orderly and efficient
manner in accordance with good business practices.
Section 8.3 Maintenance of Properties. Parent will, and will cause each
Subsidiary to, maintain, keep, and preserve all of its material properties
necessary in the conduct of its business in good working order and condition
ordinary wear and tear excepted.
Section 8.4 Taxes and Claims. Parent will, and will cause each
Subsidiary to, pay or discharge at or before maturity or before becoming
delinquent (a) all taxes, levies, assessments, and governmental charges imposed
on it or its income or profits or any of its property, and (b) all lawful claims
for labor, material, and supplies, which, if unpaid, might become a Lien upon
any of its property; provided, however, that neither Parent nor any Subsidiary
shall be required to pay or discharge any tax, levy, assessment, or governmental
charge which is being contested in good faith by appropriate proceedings
diligently pursued, and for which adequate reserves have been established in
accordance with GAAP.
Section 8.5 Insurance. Parent will, and will cause each Subsidiary to,
maintain insurance with financially sound and reputable insurance companies in
such amounts and covering such risks as are usually carried by corporations
engaged in similar businesses and owning similar properties in the same general
areas in which it operates, provided that in any event Parent and each
Subsidiary will maintain workmen's compensation insurance, property insurance
and comprehensive general liability insurance reasonably satisfactory to the
Agent. Each general liability insurance policy shall name the Agent as
additional insured. Each insurance policy covering Collateral shall name the
Agent as loss payee and shall provide that such policy will not be canceled or
materially changed without thirty (30) days prior written notice to the Agent.
Section 8.6 Inspection Rights; Receivable Verification. Parent will,
and will cause each Subsidiary to, permit any authorized representative
designated by the Agent to (a) visit and inspect its Receivables records on the
eleventh (11th) Business Day of each month, (b) make extracts from such records
and (c) discuss such records with Parent's and any Subsidiary's officers and
employees. In addition, upon reasonable notice (which may be telephonic notice),
at any other reasonable time and as often as the Agent may request, Parent will
and will cause each Subsidiary to, permit any authorized representative
designated by the Agent, together with any authorized representatives of any
Bank desiring to accompany the Agent, to (a) visit and inspect its properties
and financial records (including those records relating to the existence and
condition of the Receivables), (b) make extracts from such financial records,
and (c) discuss the affairs, finances and condition of Parent and any Subsidiary
with its officers and employees and its independent public accountants. The
Agent agrees that it shall schedule any meeting with any such independent public
accountant through Parent and a financial officer of Parent
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shall have the right to be present at any such meeting. The Agent shall also
have the right to verify with any and all customers of Parent or any Subsidiary
the existence and condition of the Receivables, as often as the Agent may
require, without prior notice to or consent of Parent or any Subsidiary and
whether or not a Default exists.
Section 8.7 Keeping Books and Records. Parent will, and will cause each
Subsidiary to, maintain proper books of record and account in which full, true,
and correct entries in conformity with GAAP shall be made of all dealings and
transactions in relation to its business and activities.
Section 8.8 Compliance with Laws. Parent will, and will cause each
Subsidiary to, comply with all applicable laws (including, without limitation,
all Environmental Laws), rules, regulations, orders, and decrees of any
Governmental Authority or arbitrator other than for such noncompliance that will
not have a Material Adverse Effect.
Section 8.9 Compliance with Agreements. Parent will, and will cause
each Subsidiary to, comply in all material respects with all agreements,
contracts, and instruments binding on it or affecting its properties or
business.
Section 8.10 Further Assurance.
(a) Parent will, and will cause each Subsidiary to, execute and
deliver such further documentation and take such further action as may be
requested by the Agent to carry out the provisions and purposes of the Loan
Documents and to create, preserve, protect and perfect the Liens of the Agent
for the benefit of itself and the Banks in the Collateral; provided that prior
to the occurrence of a Perfection Event (as defined below):
(i) No Borrower shall be required to obtain any landlord or
mortgagee waivers or subordinations except as specifically required by
Section 6.1(g)(ii) with respect to Parent's chief executive office; and
(ii) No Borrower shall be required to obtain lien
acknowledgements from any third-party in possession of any inventory
nor shall any Borrower be required to show evidence that it has
perfected and protected its interest in its inventory held by third
parties (by the filing of financing statements under the UCC, by
sending notices to such third parties secured creditors or otherwise).
For purposes of this Section 8.10, the term "Perfection Event" means either (i)
the occurrence of a Default or (ii) if as of the end of any month, the aggregate
book value of the Borrowers' inventory equals or exceeds Two Million Dollars
($2,000,000). If a Perfection Event occurs then Parent will, and will cause each
Subsidiary to, take such action as the Agent may request to perfect and protect
the Liens of the Agent in all Collateral, including any or all of the actions
described in clauses (a) and (b) of this Section 8.10.
(b) Within thirty (30) days after the Pending Acquisition is
consummated, Parent shall cause any Subsidiary acquired in such acquisition (and
existing as of such date) to execute and deliver such documents, certificates
and other instruments as requested by Agent, to evidence each such Subsidiary's
either being added as a Borrower hereunder or guaranteeing of the Obligations,
upon terms and conditions satisfactory to Agent.
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(c) Within thirty (30) days after the Closing Date, Parent and
the Subsidiaries shall enter into such Lockbox Agreements or other agreements
with Agent, as secured party, and depository banks upon such terms and
conditions as will, in Agent's sole discretion, evidence and effect Agent's
perfected, first-priority lien in the lockbox accounts maintained by Parent or
any Subsidiary.
Section 8.11 ERISA. Parent will, and will cause each Subsidiary to,
comply with all minimum funding requirements and all other requirements of
ERISA, if applicable, so as not to give rise to any liability which will have a
Material Adverse Effect.
ARTICLE 9
Negative Covenants
Parent covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Agent or any Bank has any commitment hereunder,
Parent will perform and observe the following negative covenants:
Section 9.1 Debt. Parent will not, and will not permit any Subsidiary
to, incur, create, assume, or permit to exist any Debt, except:
(a) Debt to the Banks pursuant to the Loan Documents;
(b) Debt described on Schedule 9.1 hereto (but excluding the
Previous Senior Debt after the Closing Date), and any extensions, renewals or
refinancings of such existing Debt so long as (i) the principal amount of such
Debt after such renewal, extension or refinancing shall not exceed the principal
amount of such Debt which was outstanding immediately prior to such renewal,
extension or refinancing, (ii) such Debt shall not be secured by any assets
other than assets securing such Debt, if any, prior to such renewal, extension
or refinancing; and (iii) to the extent any such Debt is subordinated to the
Previous Senior Debt, such Debt must be subordinated to the Obligations on
substantially the same terms;
(c) Guaranties incurred in the ordinary course of business with
respect to surety and appeal bonds, performance and return-of-money bonds and
other similar obligations;
(d) Debt (including Capital Lease Obligations) incurred after
the Closing Date not to exceed Three Million Dollars ($3,000,000) in the
aggregate at any time outstanding secured by purchase money Liens permitted by
Section 9.2(g); provided that such Debt is permitted by the Indenture;
(e) Debt constituting obligations to reimburse worker's
compensation insurance companies for claims paid by such companies on a Parent
or a Subsidiary's behalf in accordance with the policies issued to Parent and
the Subsidiaries;
(f) Debt of a Borrower under Hedging Agreements entered into to
enable such Borrower to fix or limit its interest expense or to limit the market
risk of holding currency or a commodity in either the cash or futures markets;
provided that, in the case of any Synthetic Purchase Agreement related to any
subordinated Indebtedness, the obligations of the Borrower thereunder must be
subordinated to the Obligations to at least the same extent as the subordinated
Indebtedness to which such Synthetic Purchase Agreement relates (the Borrower
shall promptly deliver to the Agent a copy of any Synthetic Purchase Agreement
to which it becomes party);
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(g) Guarantees by Parent or any Subsidiary of Debt of another
Subsidiary, provided that such Debt is permitted hereby;
(h) indemnifications entered into by a Borrower in connection
with asset dispositions and acquisitions and in connection with other
transactions entered into in the ordinary course of business;
(i) Debt evidenced by the Senior Subordinated Notes and any
refinancings or replacements of all or a portion of such Debt so long as (i) the
maturity of such refinancing or replacement Debt is after the Termination Date,
(ii) such refinancing or replacement Debt is subordinated to the Obligations to
the same or greater extent as the Senior Subordinated Notes are so subordinated,
(iii) the covenants contained in any agreement evidencing such refinancing or
replacement Debt are not materially more restrictive, taken as a whole, to
Parent and each Subsidiary than the covenants relating to the Senior
Subordinated Notes, (iv) the principal amount of such refinancing or replacement
Debt shall not exceed the principal amount of the Senior Subordinated Notes
outstanding immediately prior to such refinancing or replacement and (v) any
such refinancing or replacement Debt shall not be secured by any Liens; and
(j) Debt (the "Additional Debt"), in addition to the Debt
described in the forgoing clauses (a) through (i), which may be incurred if no
Default exists or would result therefrom; provided that: (i) the aggregate
amount of the Additional Debt at any one time outstanding shall never exceeding
Two Million Dollars ($2,000,000) and (ii) on the date of its incurrence, such
Debt shall be permitted by the Indenture and the First Union Loan Agreement
(with Parent providing Agent evidence thereof).
Section 9.2 Limitation on Liens and Restrictions on Subsidiaries.
Parent will not, and will not permit any Subsidiary to, incur, create, assume,
or permit to exist any Lien upon any of its property, whether now owned or
hereafter acquired, except the following, none of which shall encumber the
Collateral other than those Liens described in clauses (a), (b), (d), (e) and
(h):
(a) Liens disclosed on Schedule 9.2 hereto, provided any Liens
securing the Previous Senior Debt will not be permitted after the Closing Date,
except that the Liens securing the First Union Loan encumbering the Collateral
shall only be permitted in accordance with the terms of the Intercreditor
Agreement;
(b) Liens in favor of the Agent for the benefit of itself and
the Banks pursuant to the Loan Documents;
(c) Encumbrances consisting of minor easements, zoning
restrictions, or other restrictions on the use of real property that do not
(individually or in the aggregate) materially affect the value of the assets
encumbered thereby or materially impair the ability of Parent and each
Subsidiary to use such assets in their respective businesses, and none of which
is violated in any material respect by existing or proposed structures or land
use;
(d) Liens (other than Liens relating to Environmental
Liabilities or ERISA) for taxes, assessments, or other governmental charges that
are not delinquent or which are being contested in good faith and for which
adequate reserves have been established in accordance with GAAP;
(e) Liens of mechanics, materialmen, warehousemen, carriers,
landlords (whether contractual or statutory) or other similar statutory Liens
securing obligations that are not yet due or are being contested in good faith
by appropriate proceedings diligently pursued and for which adequate reserves
have been established in accordance with GAAP and are incurred in the ordinary
course of business;
CREDIT AGREEMENT - Page 47
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(f) Liens resulting from good faith deposits to secure payments
of workmen's compensation or other social security programs or to secure the
performance of tenders, statutory obligations, surety and appeal bonds, bids,
contracts (other than for payment of Debt);
(g) Liens for purchase money obligations (including the rights
of lessors under capitalized leases, and all additions, accessions and proceeds)
provided that: (i) the purchase of the asset subject to any such Lien is not
otherwise prohibited by Section 10.6 hereto; (ii) the Debt secured by any such
Lien is permitted under Section 9.1 hereto; (iii) any such Lien encumbers only
the asset so purchased; (iv) the principal amount secured by such Lien does not
exceed one hundred percent (100%) of the purchase price of the asset so
purchased; and (v) no Default exists at the time the asset is so purchased;
(h) Any attachment or judgment Lien not constituting an Event of
Default;
(i) Liens against equipment arising from precautionary UCC
financing statement filings regarding operating leases entered into by Parent or
a Subsidiary in the ordinary course of business; and
(j) Liens in favor of the trustee in its individual capacity
under the Indenture.
Parent will not, and will not permit any Subsidiary to, enter into or assume any
agreement (other than the Loan Documents, the Senior Note Documents and the
First Union Loan Agreement) prohibiting the creation or assumption of any Lien
upon its properties or assets, whether now owned or hereafter acquired unless
such agreement permits the granting of Liens to secure the Obligations; provided
that, in connection with any Debt permitted to be existing or incurred under
Section 9.1 which is used to finance the acquisition of an asset and any Lien
securing the payment thereof permitted by this Section 9.2, the acquiring Parent
or Subsidiary may agree that it will not permit any other Liens to encumber the
asset so acquired and additions and accessions thereto and proceeds thereof.
Except as provided herein, in the Senior Note Documents and in the First Union
Loan Agreement, Parent will not permit any Subsidiary to, directly or indirectly
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of such Subsidiary to: (1)
pay dividends or make any other distribution on any of its capital stock; (2)
subject to subordination provisions, pay any Debt owed to Parent or any other
Subsidiary; (3) make loans or advances to Parent or any Subsidiary; or (4)
transfer any of its property or assets to Parent or any Subsidiary; provided,
however, that any Subsidiary may permit such restrictions to exist within a
lease of property (and only with regard to such leased property), restrictions
within agreements to sell assets in a disposition permitted under this Agreement
(and only during the time pending the disposition and with respect to only the
assets being disposed), and restrictions on assets in connection with consensual
Liens that are permitted under this Section 9.2.
Section 9.3 Mergers, Etc. Parent will not, and will not permit any
Subsidiary to, become a party to a merger or consolidation, or purchase or
otherwise acquire all or a substantial part of the business or assets of any
Person or all or a substantial part of the assets of a division or branch of a
Person or any shares or other evidence of beneficial ownership of any Person, or
wind-up, dissolve, or liquidate itself; provided that the Pending Acquisition
may be consummated on terms acceptable to the Agent; and provided, further that,
if no Default exists or would result therefrom, any Subsidiary other than MSSC
may merge with and into MSSC and any Subsidiary other than MSSC may dissolve or
liquidate if all of its assets have been transferred to MSSC; provided further
that Parent may consummate the repurchases of stock, options and warrants in
accordance with subsection 9.4(c).
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Section 9.4 Restricted Junior Payments. Parent will not, and will not
permit any Subsidiary to, directly or indirectly declare, order, pay, make or
set apart any sum for (i) any dividend or other distribution, direct or
indirect, on account of any shares of any class of its Equity Interests now or
hereafter outstanding; (ii) any redemption, conversion, exchange, retirement,
sinking fund or similar payment, purchase or other acquisition for value, direct
or indirect, of any of its Equity Interests now or hereafter outstanding; or
(iii) any payment made to retire, or to obtain the surrender of, any of its
Equity Interests now or hereafter outstanding except:
(a) Any Subsidiary may make, declare and pay dividends and make
other distributions with respect to their Equity Interests to the extent
necessary to permit each Borrower to pay the Obligations and to pay expenses and
taxes incurred in the ordinary course of business;
(b) Parent and any Subsidiary may declare and pay dividends on
their common stock payable solely in shares of common stock;
(c) Parent and each Subsidiary may repurchase its common stock
or any warrants or options to purchase its common stock from its officers and
employees who received such stock or options from an employee stock option or
ownership plan established by Parent and each Subsidiary (including repurchases
arising as a result of the death, disability or termination of any such officers
and employees); provided that (a) the aggregate amount paid for such repurchases
by the Parent and all Subsidiaries in any Fiscal Year does not exceed Five
Hundred Thousand Dollars ($500,000), (b) no Default exists or would result
therefrom, (c) the average daily balances of the sum of the Borrower's cash,
cash equivalents and the Aggregate Borrowing Availability for the thirty (30)
day period prior to the date of the repurchase and calculated as if the
repurchase had occurred on the first (1st) day of such period, shall equal or
exceed Two Million Dollars ($2,000,000), (d) the repurchase is permitted by the
Indenture and the First Union Loan Agreement, and (e) Parent shall have provided
Agent evidence of its compliance with clause (c) preceding on the date of the
proposed repurchase.
Section 9.5 Investments. Parent will not, and will not permit any
Subsidiary to, make or permit to remain outstanding any advance, loan, extension
of credit, or capital contribution to or investment in any Person, or purchase
or own any stocks, bonds, notes, debentures, or other securities of any Person,
or be or become a joint venturer with or partner of any Person, except:
(a) Parent and each Subsidiary may own stock of the Subsidiaries
that it owns on the Closing Date and stock to be acquired in connection with the
Pending Acquisition, and Parent and each Subsidiary may repurchase its own stock
in accordance with the restrictions set forth in Section 9.4;
(b) Parent and each Subsidiary may make loans and enter into
Guarantees, in each case, as permitted by subsection 9.1(c);
(c) readily marketable direct obligations of the United States
of America or any agency thereof with maturities of one year or less from the
date of acquisition;
(d) fully insured certificates of deposit with maturities of one
year or less from the date of acquisition issued by any commercial bank
operating in the United States of America having capital and surplus in excess
of Fifty Million Dollars ($50,000,000);
(e) commercial paper maturing not more than 90 days after the
date of acquisition, issued by a corporation (other than an Affiliate of the
Parent) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with a
rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's
CREDIT AGREEMENT - Page 49
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Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's
Rating Service or securities with maturities of six months or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by Standard and Poor's Rating
Service or "A" by Moody's Investors Service, Inc.;
(f) loans and advances to employees for business expenses
incurred in the ordinary course of business not to exceed Three Hundred Thousand
Dollars ($300,000) in the aggregate for the Parent and all Subsidiaries at any
time outstanding;
(g) existing investments described on Schedule 9.5 hereto;
(h) Parent and the Subsidiaries may acquire and own any notes,
stocks, bonds, or other equity securities of any Person received in connection
with (i) the sale of assets permitted by subsection 9.8 (e), (ii) the bankruptcy
or reorganization of suppliers and customers and (iii) the settlement of
delinquent obligations of, and disputes with, customers and suppliers arising in
the ordinary course of business;
(i) Parent and the Subsidiaries may make extensions of trade
credit in the ordinary course of business; and
(j) any advance, loan or extension of credit by a Borrower which
may arise in connection with the performance under Hedging Agreements entered
into to enable to fix or limit its interest expense or to limit its market risk
of holding currency or a commodity in either the cash or futures markets.
Section 9.6 Limitation on Issuance of Capital Stock. Parent will not
permit any Subsidiary to at any time issue, sell, assign, or otherwise dispose
of (a) any of its Equity Interests, (b) any securities exchangeable for or
convertible into or carrying any rights to acquire any of its Equity Interests,
or (c) any option, warrant, or other right to acquire any of its Equity
Interests.
Section 9.7 Transactions With Affiliates. Parent will not, and will not
permit any Subsidiary to, enter into any transaction, including, without
limitation, the purchase, sale, or exchange of property or the rendering of any
service, with any Affiliate of Parent or any Subsidiary, except in the ordinary
course of and pursuant to the reasonable requirements of its business and upon
fair and reasonable terms no less favorable to it than would be obtained in a
comparable arms-length transaction with a Person not one of its Affiliates,
except that (a) Parent and each Subsidiary may enter into transactions with each
other to the extent not otherwise prohibited hereby, (b) Parent and the
Subsidiaries may enter into the transactions described on Schedule 9.7, and (c)
Parent may pay management fees to Richmont Capital Partners I, L.P. in an amount
not to exceed Five Hundred Thousand Dollars ($500,000) per Fiscal Year if (i) no
Default exists or would result therefrom, (ii) the average daily balances of the
sum of Borrowers' cash, cash equivalents and the Aggregate Borrowing
Availability for the thirty (30) day period prior to the payment of any portion
of such fee and calculated as if the actual amount of such fee so paid had been
paid on the first (1st) day of such period, shall equal or exceed One Dollars
($1.00), (iii) such fees are permitted to be paid under the Indenture, and (iv)
Parent shall have provided Agent evidence of its compliance with the preceding
clause (ii) on the date of each such payment.
Section 9.8 Disposition of Assets. Parent will not, and will not permit
any Subsidiary to, sell, lease, assign, transfer, or otherwise dispose of any of
its assets, except (a) dispositions of inventory in the ordinary course of
business; (b) dispositions of assets reasonably and in good faith determined by
Parent and each Subsidiary to be obsolete or no longer necessary to its
business; (c) licenses, sublicenses, leases
CREDIT AGREEMENT - Page 50
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and subleases of intellectual property, general intangibles, or other property
(other than Receivables), in each case in the ordinary course of business, that
do not materially interfere with the business of Parent or any Subsidiary; (d)
the sale, lease or other disposition of assets of a Subsidiary (other than MSSC)
to another Subsidiary; and (e) the disposition of assets (other than
Receivables, inventory and the stock of Subsidiaries), in addition to those set
forth in clauses (a) through (d) above, if all the following conditions are
satisfied: (i) the aggregate sale price of the assets of the Parent and all
Subsidiaries disposed of in any Fiscal Year does not exceed Five Hundred
Thousand Dollars ($500,000); (ii) no Default exists or would result therefrom;
and (iii) the consideration received is at least equal to the fair market value
of such assets and is not required to be utilized to purchase the Senior
Subordinated Notes in accordance with the Indenture. Parent agrees to deliver to
Agent, simultaneously with the Compliance Certificate delivered pursuant to
Section 8.1(c) as of the end of each Fiscal Quarter, a listing of all assets
disposed of during such Fiscal Quarter if the aggregate amount of the assets
disposed of during such Fiscal Quarter equaled or exceeded One Hundred Thousand
Dollars ($100,000).
Section 9.9 Sale and Leaseback. Parent will not, and will not permit
any Subsidiary to, enter into any arrangement with any Person pursuant to which
it leases from such Person real or personal property that has been or is to be
sold or transferred, directly or indirectly, by it to such Person; provided that
Parent or any Subsidiary may lease the real properties that are located in
California and Arizona and being leased as of the Closing Date and the real
properties owned as of the Closing Date and located in Canton, Massachusetts and
Charlotte, North Carolina, which Parent contemplates selling and leasing back.
Section 9.10 Lines of Business. Parent will not, and will not permit
any Subsidiary to, engage in any line or lines of business activity other than
the businesses in which they are engaged on the date hereof and any business
related, ancillary or complementary to such businesses.
Section 9.11 Prepayment of Debt. Parent will not, and will not permit
any Subsidiary to prepay, optionally redeem or repurchase any Debt other than
the Obligations.
Section 9.12 First Union Loan Agreement. Except as permitted under the
Intercreditor Agreement, Parent will not amend or modify the terms of the First
Union Loan Agreement.
Section 9.13 Modifications to Senior Note Documents. Parent will not
change or amend the terms of the Senior Note Documents if the effect of such
amendment is to: (a) increase the interest rate on the Senior Subordinated
Notes; (b) shorten the time of payments of principal or interest due under the
Senior Note Documents; (c) change any event of default or any covenant to a
materially more onerous or restrictive provision; (d) change the subordination
provisions thereof (or the subordination terms of any guaranty thereof) in a
manner adverse to Agent or any Bank as senior creditors or the interests of the
Banks under this Agreement or any other Loan Document in any respect; or (e)
change or amend any other term of any Senior Note Document in a manner
materially adverse to Agent or any Bank as senior creditors or the interests of
the Banks under this Agreement or any other Loan Document in any respect; or (f)
in any manner amend any term of any Senior Note Document relating to the
prohibition of the creation or assumption of any Lien upon the properties or
assets of Parent or any Subsidiary or relating to the prohibition of creation,
existence or effectiveness of any consensual encumbrance or restriction of any
kind on the ability of any Subsidiary to (i) pay dividends or make any other
distribution; (ii) subject to subordination provisions, pay any Debt owed to
Parent or any Subsidiary, (iii) make loans or advances to Parent or any
Subsidiary, or (iv) transfer any of its property or assets to Parent or any
Subsidiary.
Section 9.14 Designation of Senior Debt. Parent will not designate any
Debt as "Designated Senior Indebtedness" (as defined in the Indenture).
CREDIT AGREEMENT - Page 51
<PAGE> 58
ARTICLE 10
Financial Covenants
Parent covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Agent or any Bank has any commitment hereunder,
Parent will perform and observe the following financial covenants:
Section 10.1 Minimum Fixed Charges Coverage Ratio. Parent shall not
permit the ratio of its Modified EBITDA to its Fixed Charges calculated as of
the last day of each Fiscal Quarter, beginning with the Fiscal Quarter ended
March 31, 2001, for the four (4) Fiscal Quarters then ended to be less than 1.00
to 1.00. As used in this Section 10.1 the following terms have the following
meanings:
"Modified EBITDA" means, for any period, the total of the
following for Parent calculated on a consolidated basis without
duplication: (a) EBITDA MINUS (b) Capital Expenditures.
"Fixed Charges" means, for any period, the total of the
following for Parent calculated on a consolidated basis without
duplication: (a) scheduled amortization of Debt plus (b) CASH interest
expense plus (c) cash taxes.
Section 10.2 Maximum Debt to EBITDA Ratio. As of the last day of each
Fiscal Quarter, Parent shall not permit the ratio of (a) the principal amount of
all Debt of the Parent and the Subsidiaries outstanding as of such date
determined on a consolidated basis to (b) the Adjusted EBITDA calculated for the
four (4) Fiscal Quarter period ending on the last day of such Fiscal Quarter to
be more than: (i) 7.75 to 1.00 as of the Fiscal Quarter ending on June 30, 2000;
(ii) 6.50 to 1.00 as of the Fiscal Quarter ending on September 30, 2000; (iv)
6.00 to 1.00 as of the Fiscal Quarter ending December 31, 2000 and for each
Fiscal Quarter thereafter. As used in this Section 10.2, the following terms
have the following meanings:
"Adjusted EBITDA" means, for any period, (a) Parent's
consolidated EBITDA plus (b) for calculations including the Fiscal
Quarter ending September 30, 1999, $10,452,000, plus (c) for
calculations including the Fiscal Quarter ending December 31, 1999,
$11,420,000, plus (d) at any time after the Pending Acquisition is
consummated, an amount equal to the lesser of (i) the actual
consolidated EBITDA for companies acquired in the Pending Acquisition
or (ii) $1,000,000, in each case under this clause (d) for each Fiscal
Quarter (or a pro-rated portion thereof for partial Fiscal Quarters)
that is included in the measurement period for Adjusted EBITDA but that
is before the Pending Acquisition is consummated.
Section 10.3 Deleted
Section 10.4 Minimum Interest Coverage Ratio. As of the last day of
each Fiscal Quarter during the periods set forth below, Parent shall not permit
the ratio of its EBITDA to its consolidated cash interest expense both
calculated for the period since January 1, 2000, then ended or, if 4 Fiscal
Quarters or more have elapsed since January 1, 2000, then for the four (4)
Fiscal Quarters then ended, to be less than the ratio set forth below for such
period:
CREDIT AGREEMENT - Page 52
<PAGE> 59
<TABLE>
<CAPTION>
==================================================== ======================================
Period Ending Ratio
---------------------------------------------------- --------------------------------------
<S> <C>
April 1, 2000, through June 30, 2000 1.00 to 1.00
---------------------------------------------------- --------------------------------------
July 1, 2000, through September 30, 2000 1.50 to 1.00
---------------------------------------------------- --------------------------------------
October 1, 2000, through December 31, 2000 1.60 to 1.00
---------------------------------------------------- --------------------------------------
Each quarter end beginning January 1, 2001, and
through Termination Date 1.75 to 1.00
==================================================== ======================================
</TABLE>
Section 10.5 Minimum EBITDA. As of the last day of each Fiscal Quarter
during the periods set forth below, Parent shall cause its EBITDA calculated for
the period since January 1, 2000, then ended or, if 4 Fiscal Quarters or more
have elapsed since January 1, 2000, then for the four (4) Fiscal Quarters then
ended, to be not less than the amount set forth below opposite the applicable
period:
<TABLE>
<CAPTION>
==================================================== ======================================
Period Ending Amount
---------------------------------------------------- --------------------------------------
<S> <C>
January 1, 2000, through March 31, 2000 $5,400,000
---------------------------------------------------- --------------------------------------
April 1, 2000, through June 30, 2000 $14,400,000
---------------------------------------------------- --------------------------------------
July 1, 2000, through September 30, 2000 $29,700,000
---------------------------------------------------- --------------------------------------
October 1, 2000, through December 31, 2000 $45,000,000
---------------------------------------------------- --------------------------------------
January 1, 2001, through March 31, 2001 $46,000,000
---------------------------------------------------- --------------------------------------
April 1, 2001 through Termination Date $47,000,000
---------------------------------------------------- --------------------------------------
</TABLE>
Section 10.6 Capital Expenditure Limits. Parent shall not, and shall
not permit any Subsidiary to, make or incur Capital Expenditures during each
period set forth in the table below in excess of an aggregate amount for Parent
and all Subsidiaries equal to the applicable Capital Expenditure Limit for such
period. The term "Capital Expenditure Limit" means, for each period set forth in
the table below, the sum of (a) the Dollar amount set forth in the table below
opposite the applicable period (such Dollar amount as set forth for each such
period herein the "Yearly Limit") plus (b) One Hundred percent (100%) of the
portion of the Yearly Limit from the immediately preceding period which was not
expended by Parent and the Subsidiaries in such preceding period (the amount
calculated for any period under this clause (b), herein the "Carryover Amount").
In calculating compliance with this Section 10.6, (a) Capital Expenditures made
in a period shall first be debited against the Yearly Limit for such period then
debited against the Carryover Amount carried into such period, if any, from the
preceding period pursuant to this Section 10.6, and (b) the aggregate amount of
all payments due under a Capital Lease Obligation for the entire term thereof
(excluding, however, the interest portion of capitalized lease payments) shall
be considered expended in full on the date that the Capital Lease Obligation is
entered into.
<TABLE>
<CAPTION>
=================================================== ===============================
Period Amount
- --------------------------------------------------- -------------------------------
<S> <C>
Calendar year ending December 31 2000 $7,000,000
- --------------------------------------------------- -------------------------------
Each Fiscal Year thereafter $7,500,000
=================================================== ===============================
</TABLE>
CREDIT AGREEMENT - Page 53
<PAGE> 60
ARTICLE 11
Default
Section 11.1 Events of Default. Each of the following shall be deemed
an "Event of Default":
(a) The Borrowers shall fail to pay (i) when due any principal,
Reimbursement Obligation, interest or fees payable under any Loan Document or
any part thereof; and (ii) within five (5) Business Days after the date Parent
receives written notice of the failure to pay when due any other Obligation or
any part thereof.
(b) Any representation, warranty or certification made or deemed
made by any Borrower or any Obligated Party (or any of their respective
officers) in any Loan Document or in any certificate, report, notice, or
financial statement furnished at any time in connection with any Loan Document
shall be false, misleading, or erroneous in any material respect when made or
deemed to have been made.
(c) Any Borrower shall fail to perform, observe, or comply with
any covenant, agreement, or term contained in Article 9 or Article 10 of this
Agreement or Article IV of the Security Agreement or of any section of the
Lockbox Agreements.
(d) Any Borrower shall fail to perform, observe or comply with
any covenant, agreement or term contained in clauses (a) through (f), (i), (j)
and (l) of Section 8.1 of this Agreement. Any Borrower shall fail to perform,
observe or comply with any covenant, agreement or term contained in clauses (g)
(h), (k), and (m) of Section 8.1 of this Agreement and such failure shall
continue for five (5) Business Days.
(e) Any Borrower or any Obligated Party shall fail to perform,
observe, or comply with any other covenant, agreement, or term contained in any
Loan Document (other than covenants to pay the Obligations and the covenants
described in subsections 11.1(c) and (d)) and such failure shall continue for a
period of ten (10) Business Days after the earlier of (i) the date the Agent or
any Bank provides Parent with notice thereof or (ii) the date Parent should have
notified the Agent thereof in accordance with subsection 8.1(i) hereof.
(f) Any Borrower, any Subsidiary or any Obligated Party shall
(i) apply for or consent to the appointment of, or the taking of possession by,
a receiver, custodian, trustee, examiner, liquidator or the like of itself or of
all or a substantial part of its property, (ii) make a general assignment for
the benefit of its creditors, (iii) commence a voluntary case under the United
States Bankruptcy Code (as now or hereafter in effect, the "Bankruptcy Code"),
(iv) institute any proceeding or file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, winding-up, or composition or readjustment of debts, (v) fail to
controvert in a timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the Bankruptcy Code, (vi)
admit in writing its inability to, or be generally unable to pay its debts as
such debts become due, or (vii) take any corporate action for the purpose of
effecting any of the foregoing.
(g) A proceeding or case shall be commenced, without the
application, approval or consent of any Borrower, any Subsidiary or any
Obligated Party, in any court of competent jurisdiction, seeking (i) its
reorganization, liquidation, dissolution, arrangement or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a receiver,
custodian, trustee, examiner, liquidator or the like of such Borrower,
Subsidiary or Obligated Party or of all or any substantial part of its property,
or (iii) similar relief in respect of such Borrower, Subsidiary or Obligated
Party under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of sixty (60) or more days; or an order for relief against
any Borrower, any Subsidiary or any Obligated Party shall be entered in an
involuntary case under the Bankruptcy Code.
CREDIT AGREEMENT - Page 54
<PAGE> 61
(h) Any Borrower, any Subsidiary or any Obligated Party shall
fail to discharge (or obtain a stay of execution of) within a period of thirty
(30) days after the commencement thereof any attachment (other than the
attachment existing as of the Closing Date and related to the Monroe
Litigation), sequestration, forfeiture, or similar proceeding or proceedings
involving an aggregate amount in excess of Five Hundred Thousand Dollars
($500,000) against any of its assets or properties.
(i) A final judgment with respect to the Monroe Litigation that
is materially different from the negotiating range set forth in Schedule 1.1(b)
or any other final judgment or judgments for the payment of money in excess of
Five Hundred Thousand Dollars ($500,000) in the aggregate shall be rendered by a
court or courts against any Borrower, any Subsidiary or any Obligated Party and
the same shall not be discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be procured, within thirty
(30) days from the date of entry thereof and the relevant Borrower, Subsidiary
or Obligated Party shall not, within said period of thirty (30) days, or such
longer period during which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal.
(j) Any Borrower, any Subsidiary or any Obligated Party shall
fail to pay when due any principal of or interest on any Debt if the aggregate
principal amount of the affected Debt equals or exceeds One Million Dollars
($1,000,000) (other than the Obligations), or the maturity of any such Debt
shall have been accelerated, or any such Debt shall have been required to be
prepaid prior to the stated maturity thereof or any event shall have occurred
with respect to any such Debt that permits any holder or holders of such Debt or
any Person acting on behalf of such holder or holders to accelerate the maturity
thereof or require any such prepayment. Without limiting the generality of the
foregoing, the occurrence of an event of default under the terms of the Senior
Note Documents or the First Union Loan Agreement.
(k) This Agreement shall cease to be in full force and effect or
shall be declared null and void or the validity or enforceability thereof shall
be contested or challenged by any Borrower, any Subsidiary or any Obligated
Party or any Borrower, any Subsidiary or any Obligated Party shall deny that it
has any further liability or obligation under any of the Loan Documents, or any
lien or security interest created by the Loan Documents shall for any reason
(other than the negligence of the Agent or the release thereof in accordance
with the Loan Documents) cease to be a valid, first priority (other than as a
result of the Liens permitted to have priority under Section 9.2) perfected
(other than as may result because of the provisions of Section 8.10) security
interest in and lien upon any of the Collateral purported to be covered thereby.
(l) Any of the following events shall occur or exist with
respect to any Borrower or any ERISA Affiliate: (i) any Prohibited Transaction
involving any Plan; (ii) any Reportable Event with respect to any Plan; (iii)
the filing under Section 4041 of ERISA of a notice of intent to terminate any
Plan or the termination of any Plan; (iv) any event or circumstance that might
constitute grounds entitling the PBGC to institute proceedings under Section
4042 of ERISA for the termination of, or for the appointment of a trustee to
administer, any Plan, or the institution by the PBGC of any such proceedings; or
(v) complete or partial withdrawal under Section 4201 or 4204 of ERISA from a
Multiemployer Plan or the reorganization, insolvency, or termination of any
Multiemployer Plan; and in each case above, such event or condition, together
with all other events or conditions, if any, have subjected or could in the
reasonable opinion of Required Banks subject any Borrower to any tax, penalty,
or other liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise (or
any combination thereof) which in the aggregate exceed or could reasonably be
expected to exceed Five Hundred Thousand Dollars ($500,000).
(m) A Change of Control shall occur. As used in this clause (m),
the following terms have the following meanings:
CREDIT AGREEMENT - Page 55
<PAGE> 62
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"Change of Control" means the occurrence of any of the following
events:
(i) the Permitted Holders either (x) cease to be the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, of at least 35% of
the aggregate of the total voting power of the Voting Stock of
the Parent, whether as a result of issuance of securities of the
Parent, any merger, consolidation, liquidation or dissolution of
the parent, any direct or indirect transfer of securities by any
Permitted Holder or otherwise, or (y) do not have the right or
ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors (for
purposes of this clause (i), the Permitted Holders shall be
deemed to own beneficially any Voting Stock of an entity (the
"specified entity") held by any other entity (the "parent
entity") so long as the Permitted Holders beneficially own (as
so defined), directly or indirectly, in the aggregate a majority
of the voting power of the Voting Stock of the parent entity);
(ii) (x) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than one or more
Permitted Holders, is or becomes the beneficial owner (as
defined in clause (i) above, except that such person shall be
deemed to have "beneficial ownership" of all shares that any
such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time),
directly or indirectly, of more than 35% of the total voting
power of the Voting Stock of the Parent and (y) the Permitted
Holders "beneficially own" (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser percentage of
the total voting power of the Voting Stock of the Parent than
such other Person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election
a majority of the Board of Directors (for the purposes of this
clause ii), such other Person shall be deemed to own
beneficially any Voting Stock of a specified corporation held by
a parent corporation, if such other person "beneficially owns"
(as defined in this clause (ii)), directly or indirectly, more
than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders "beneficially own" (as
defined in clause (i) above), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting
Stock of such parent corporation and do not have the right or
ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of
such parent corporation); or
(iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the
Board of Directors (together with any new directors whose
election by such Board of Directors or whose nomination for
election by the shareholders of the Parent was approved by a
vote of a majority of the directors of the Parent then still in
office who were either directors at the beginning of such period
or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the
Board of Directors then in office.
CREDIT AGREEMENT - Page 56
<PAGE> 63
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Management Stockholders" means Ronald D. Pedersen, Gary R.
Guffey and Bruce A. Butler.
"Permitted Holders" means Richmont Enterprises LLC, a Delaware
limited liability company controlled by certain Affiliates of Richmont Capital
Partners I, L.P., a Delaware limited partnership, JR Investment Corp., a
Delaware corporation (including John P. Rochon and the other current
stockholders of JR Investment Corp.), MS Acquisition Limited, a Delaware limited
partnership, the Management Stockholders and any of their respective Affiliates
(including any Person owned or controlled by any such Person, any member of any
such Person's family, any trust for the benefit of any such Person (or a member
of his family) or any Person owned or controlled by any of the foregoing) and
any Person acting in the capacity of an underwriter in connection with a public
or private offering of the Parent's Capital Stock.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Voting Stock" of a Person means all classes of Capital Stock of
such Person then outstanding that normally entitle the holders of such interests
to participate in the management or to elect those participating in the
management of such Person.
(n) A change shall occur in the financial condition of any
Borrower or in the value of the Collateral, which does, or would reasonably be
expected to, have a Material Adverse Effect.
(o) Parent shall, without the written consent of Required Banks,
enter into a settlement agreement with respect to the Monroe Litigation in which
Parent or any Subsidiary or Obligated Party agrees to pay amounts with a net
present value materially different from the negotiating range set forth in
Schedule 1.1(b).
Section 11.2 Remedies. If any Event of Default shall occur and be
continuing, the Agent may (and if directed by Required Banks, shall) do any one
or more of the following:
(a) Acceleration. By notice to Parent, declare all outstanding
principal of and accrued and unpaid interest on the Notes and all other amounts
payable by the Borrowers under the Loan Documents immediately due and payable,
and the same shall thereupon become immediately due and payable, without further
notice, demand, presentment, notice of dishonor, notice of acceleration, notice
of intent to accelerate, protest, or other formalities of any kind, all of which
are hereby expressly waived by each Borrower.
(b) Termination of Commitments. Terminate the Commitments,
including, without limitation, the obligation of the Agent to issue Letters of
Credit, without notice to any Borrower.
(c) Judgment. Reduce any claim to judgment.
(d) Foreclosure. Foreclose or otherwise enforce any Lien granted
to the Agent for the benefit of itself and the Banks to secure payment and
performance of the Obligations in accordance with the terms of the Loan
Documents.
CREDIT AGREEMENT - Page 57
<PAGE> 64
(e) Rights. Exercise any and all rights and remedies afforded by
the laws of the State of New York or any other jurisdiction, by any of the Loan
Documents, by equity, or otherwise.
Provided, however, that upon the occurrence of an Event of Default under
subsections 11.1(f) or (g) hereof, the Commitments of all of the Banks shall
automatically terminate (including, without limitation, the obligation of the
Agent to issue Letters of Credit), and the outstanding principal of and accrued
and unpaid interest on the Notes and all other amounts payable by the Borrowers
under the Loan Documents shall thereupon become immediately due and payable
without notice, demand, presentment, notice of dishonor, notice of acceleration,
notice of intent to accelerate, protest, or other formalities of any kind, all
of which are hereby expressly waived by each Borrower.
Section 11.3 Cash Collateral. If an Event of Default shall have
occurred and be continuing each Borrower shall, if requested by the Agent or
Required Banks, pledge to the Agent as security for the Obligations an amount in
immediately available funds equal to the then outstanding Letter of Credit
Liabilities, such funds to be held in a cash collateral account at the Agent
without any right of withdrawal by any Borrower.
Section 11.4 Performance by the Agent. If any Borrower shall fail to
perform any covenant or agreement in accordance with the terms of the Loan
Documents, the Agent may, at the direction of Required Banks, perform or attempt
to perform such covenant or agreement on behalf of such Borrower. In such event,
each Borrower, jointly and severally, shall, at the request of the Agent,
promptly pay any amount expended by the Agent or the Banks in connection with
such performance or attempted performance to the Agent at the Principal Office,
together with interest thereon at the applicable Default Rate from and including
the date of such expenditure to but excluding the date such expenditure is paid
in full. Notwithstanding the foregoing, it is expressly agreed that neither the
Agent nor any Bank shall have any liability or responsibility for the
performance of any obligation of any Borrower under any Loan Document. Under the
terms of certain of the agreements entered into in accordance with subsection
6.1(g), Agent may be obligated to pay certain amounts to the financial
institutions party thereto from time to time, including without limitations,
fees owed to such financial institutions arising from their lock box and other
deposit account services and amounts sufficient to reimburse such financial
institutions for the amount of any item deposited in the related account which
is returned unpaid. Also, under the terms of Section 2.22 of the Intercreditor
Agreement, Agent may be obligated to pay certain amounts to First Union National
Bank with respect to overdrafts in payroll accounts. In the event Agent is
required to pay any such amounts, Agent shall notify Parent and the Borrowers
shall promptly pay, jointly and severally, any amount so expended by Agent to
the Agent at the Principal Office, together with interest at the Default Rate
from and including the date of such expenditure to but excluding the date that
such expenditure is paid in full and if any Borrower fails to make such payment,
Agent shall have the option of automatically making a Loan in the amount so
expended as a Base Rate Account.
Section 11.5 Setoff. If an Event of Default shall have occurred and be
continuing, each Bank is hereby authorized at any time and from time to time,
without notice to any Borrower (any such notice being hereby expressly waived by
each Borrower), to set off and apply any and all deposits (general, time,
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Bank to or for the credit or the account of any Borrower
against any and all of the obligations of any Borrower now or hereafter existing
under any Loan Document, irrespective of whether or not the Agent or such Bank
shall have made any demand under such Loan Documents and although such
obligations may be unmatured. Each Bank agrees promptly to notify Parent (with a
copy to the Agent) after any such setoff and application, provided that the
failure to give such notice shall not affect the validity of such setoff and
application. The rights and remedies of each Bank hereunder are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) which such Bank may have.
CREDIT AGREEMENT - Page 58
<PAGE> 65
Section 11.6 Continuance of Default. Any Default capable of being
remedied (as determined by the Agent) shall exist and shall continue until Agent
shall have been provided evidence satisfactory to it that such Default has been
remedied. Any Default not capable of being remedied shall exist and shall
continue until waived by the number of Banks required by Section 13.11.
ARTICLE 12
The Agent
Section 12.1 Appointment, Powers and Immunities. Each Bank hereby
appoints and authorizes The Chase Manhattan Bank to act as its agent hereunder
and under the other Loan Documents (including, without limitation, the
Intercreditor Agreement) with such powers as are specifically delegated to the
Agent by the terms of the Loan Documents, together with such other powers as are
reasonably incidental thereto. Each Bank agrees that upon Agent's execution of
the Intercreditor Agreement it shall be bound by the terms and restrictions set
forth for the Banks in the Intercreditor Agreement, and each Bank hereby
consents to Agent's executing the Intercreditor Agreement on its behalf. Neither
the Agent nor any of its Affiliates, officers, directors, employees, attorneys,
or agents shall be liable for any action taken or omitted to be taken by any of
them hereunder or otherwise in connection with any Loan Document or any of the
other Loan Documents except for its or their own gross negligence or willful
misconduct. Without limiting the generality of the preceding sentence, the
Agent: (i) may treat the payee of any Note as the holder thereof until it
receives written notice of the assignment or transfer thereof signed by such
payee and in form satisfactory to the Agent; (ii) shall have no duties or
responsibilities except those expressly set forth in the Loan Documents, and
shall not by reason of any Loan Document be a trustee or fiduciary for any Bank;
(iii) shall not be required to initiate any litigation or collection proceedings
under any Loan Document except to the extent requested by Required Banks; (iv)
shall not be responsible to the Banks for any recitals, statements,
representations or warranties contained in any Loan Document, or any certificate
or other documentation referred to or provided for in, or received by any of
them under, any Loan Document, or for the value, validity, effectiveness,
enforceability, or sufficiency of any Loan Document or any other documentation
referred to or provided for therein or for any failure by any Person to perform
any of its obligations thereunder; (v) may consult with legal counsel (including
counsel for the Borrowers), independent public accountants, and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants, or experts; and (vi) shall incur no liability under or in respect
of any Loan Document by acting upon any notice, consent, certificate, or other
instrument or writing believed by it to be genuine and signed or sent by the
proper party or parties. As to any matters not expressly provided for by any
Loan Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions signed by
Required Banks, and such instructions of Required Banks and any action taken or
failure to act pursuant thereto shall be binding on all of the Banks; provided,
however, that the Agent shall not be required to take any action which exposes
it to personal liability or which is contrary to any Loan Document or applicable
law.
Section 12.2 Rights of Agent as a Bank. With respect to its Commitment,
the Loans made by it and the Note issued to it, The Chase Manhattan Bank (and
any successor acting as Agent) in its capacity as a Bank hereunder shall have
the same rights and powers hereunder as any other Bank and may exercise the same
as though it were not acting as the Agent, and the term "Bank" or "Banks" shall,
unless the context otherwise indicates, include the Agent in its individual
capacity. The Agent and its Affiliates may (without having to account therefor
to any Bank) accept deposits from, lend money to, act as trustee under
indentures of, provide merchant banking services to, and generally engage in any
kind of banking, trust, or other business with any Borrower, any Obligated
Party, and any other Person who may do business
CREDIT AGREEMENT - Page 59
<PAGE> 66
with or own securities of any Borrower or any Obligated Party, all as if it were
not acting as the Agent and without any duty to account therefor to the Banks.
Section 12.3 Defaults. The Agent shall not be deemed to have knowledge
or notice of the occurrence of a Default (other than the non-payment of
principal of or interest on the Loans or of commitment fees) unless the Agent
has received notice from a Bank or Parent specifying such Default and stating
that such notice is a "Notice of Default." In the event that the Agent receives
such a notice of the occurrence of a Default, the Agent shall give prompt notice
thereof to the Banks (and shall give each Bank prompt notice of each such
non-payment). The Agent shall (subject to Section 12.1 hereof) take such action
with respect to such Default as shall be directed by Required Banks, provided
that unless and until the Agent shall have received such directions, the Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default as it shall seem advisable and in the
best interest of the Banks.
Section 12.4 Indemnification. THE BANKS HEREBY AGREE TO INDEMNIFY THE
AGENT FROM AND HOLD THE AGENT HARMLESS AGAINST (TO THE EXTENT NOT REIMBURSED
UNDER SECTIONS 13.1 AND 13.2 HERETO, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE
BORROWER UNDER SECTIONS 13.1 AND 13.2 HERETO), RATABLY IN ACCORDANCE WITH THEIR
RESPECTIVE COMMITMENT PERCENTAGES, ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES
(INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER
WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE AGENT IN ANY WAY
RELATING TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR
OMITTED TO BE TAKEN BY THE AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN
DOCUMENTS; PROVIDED, THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF THE
FOREGOING TO THE EXTENT CAUSED BY THE AGENT'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT IS THE EXPRESS INTENTION OF
THE BANKS THAT THE AGENT SHALL BE INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS
AGAINST ALL OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS'
FEES), AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE AGENT.
WITHOUT LIMITING ANY OTHER PROVISION OF THIS SECTION, EACH BANK AGREES TO
REIMBURSE THE AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON
THE BASIS OF THE COMMITMENT PERCENTAGES) OF ANY AND ALL OUT-OF-POCKET EXPENSES
(INCLUDING ATTORNEYS' FEES) INCURRED BY THE AGENT IN CONNECTION WITH THE
PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR
ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF,
OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN
DOCUMENTS, TO THE EXTENT THAT THE AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY
THE BORROWER.
Section 12.5 Independent Credit Decisions. Each Bank agrees that it has
independently and without reliance on the Agent or any other Bank, and based on
such documentation and information as it has deemed appropriate, made its own
credit analysis of the Borrowers and decision to enter into any Loan Document
and that it will, independently and without reliance upon the Agent or any other
Bank, and based upon such documents and information as it shall deem appropriate
at the time, continue to make its own analysis and decisions in taking or not
taking action under any Loan Document. Except as otherwise specifically set
forth herein, the Agent shall not be required to keep itself informed as to the
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performance or observance by any Borrower or any Obligated Party of any Loan
Document or to inspect the properties or books of any Borrower or any Obligated
Party. Except for notices, reports and other documents and information expressly
required to be furnished to the Banks by the Agent hereunder or under the other
Loan Documents, the Agent shall not have any duty or responsibility to provide
any Bank with any credit or other financial information concerning the affairs,
financial condition or business of any Borrower or any Obligated Party (or any
of their Affiliates) which may come into the possession of the Agent or any of
its Affiliates.
Section 12.6 Several Commitments. The Commitments and other obligations
of the Banks under any Loan Document are several. The default by any Bank in
making a Loan in accordance with its Commitment shall not relieve the other
Banks of their obligations under any Loan Document. In the event of any default
by any Bank in making any Loan, each non-defaulting bank shall be obligated to
make its Loan but shall not be obligated to advance the amount which the
defaulting Bank was required to advance hereunder. No Bank shall be responsible
for any act or omission of any other Bank.
Section 12.7 Successor Agent. Subject to the appointment and acceptance
of a successor Agent as provided below, the Agent may resign at any time by
giving notice thereof to the Banks and Parent and the Agent may be removed at
any time by Required Banks if it has breached its obligations under the Loan
Documents. Upon any such resignation or removal, Required Banks will have the
right to appoint a successor Agent with Parent's consent, which shall not be
unreasonably withheld. If no successor Agent shall have been so appointed by
Required Banks and shall have accepted such appointment within thirty (30) days
after the retiring Agent's giving of notice of resignation or the Required
Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of
the Banks, appoint a successor Agent approved by Parent, which approval will not
be unreasonably withheld, which shall be a commercial bank organized under the
laws of the United States of America or any State thereof and having combined
capital and surplus of at least One Hundred Million Dollars ($100,000,000). Upon
the acceptance of its appointment as successor Agent, such successor Agent shall
thereupon succeed to and become vested with all rights, powers, privileges,
immunities, contractual obligation, and duties of the resigning or removed
Agent, including all obligations under any Letters of Credit, and the resigning
or removed Agent shall be discharged from its duties and obligations under the
Loan Documents, including, without limitation, its obligations under all Letters
of Credit. After any Agent's resignation or removal as Agent, the provisions of
this Article 12 shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was the Agent.
Section 12.8 Administrative Fee. The Borrowers agree, jointly and
severally, to pay to the Agent a quarterly administrative fee in an aggregate
amount equal to Ten Thousand Dollars ($10,000), such fee payable on the Closing
Date and on the last day of each Fiscal Quarter thereafter until the Termination
Date.
ARTICLE 13
Miscellaneous
Section 13.1 Expenses. Each Borrower hereby agrees, jointly and
severally, to pay on demand: (a) all costs and expenses of the Agent arising in
connection with the preparation, negotiation, execution, and delivery of the
Loan Documents, including, without limitation, the fees and expenses of legal
counsel for the Agent; (b) all costs and expenses of the Agent arising in
connection the preparation, negotiation, execution and delivery of any and all
amendments or other modifications to the Loan Documents, including, without
limitation, the fees and expenses of legal counsel for the Agent; (c) all fees,
costs and expenses of the Agent arising in connection with any Letter of Credit,
including the
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Agent's customary fees for amendments, transfers and drawings on Letters of
Credit; (d) all costs and expenses of the Agent in connection with any Default
and the enforcement of any Loan Document, including, without limitation, the
fees and expenses of legal counsel for the Agent; (e) all reasonable fees, costs
and expenses of any Bank (including legal fees and expenses of counsel to any
Bank) arising in connection with an Event of Default; (f) all transfer, stamp,
documentary, or other similar taxes, assessments, or charges levied by any
Governmental Authority in respect of any Loan Document; (g) all costs, expenses,
assessments, and other charges incurred in connection with any filing,
registration, recording, or perfection of any security interest or Lien
contemplated by any Loan Document; and (h) all other costs and expenses incurred
by the Agent in connection with any Loan Document, including, without
limitation, all costs, expenses, and other charges incurred in connection with
any field examination, audit or appraisal in respect of the Borrowing Base, the
Collateral or the records of the Borrowers and the Obligated Parties relating
thereto.
Section 13.2 Indemnification. EACH BORROWER SHALL, JOINTLY AND
SEVERALLY, INDEMNIFY THE AGENT AND EACH BANK AND EACH AFFILIATE THEREOF AND
THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND
HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS,
DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING
ATTORNEYS' FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR
INDIRECTLY ARISE FROM OR RELATE TO (A) ANY BREACH BY ANY BORROWER OR ANY
OBLIGATED PARTY OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT
CONTAINED IN ANY OF THE LOAN DOCUMENTS, (B) THE PRESENCE, RELEASE, THREATENED
RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON,
ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF ANY BORROWER, (C)
THE USE OR PROPOSED USE OF ANY LETTER OF CREDIT OR ANY PAYMENT OR FAILURE TO PAY
WITH RESPECT TO ANY LETTER OF CREDIT, (D) ANY AND ALL TAXES, LEVIES, DEDUCTIONS,
AND CHARGES (OTHER THAN FRANCHISE TAXES AND ANY OTHER TAX OR CHARGE IMPOSED ON
THE INCOME OF SUCH INDEMNIFIED PARTY) IMPOSED ON THE AGENT OR ANY BANK IN
RESPECT OF ANY LETTER OF CREDIT, OR (E) ANY INVESTIGATION, LITIGATION, OR OTHER
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION,
LITIGATION, OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING, THE LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY; PROVIDED THAT THE PERSON
ENTITLED TO BE INDEMNIFIED UNDER THIS SECTION SHALL NOT BE INDEMNIFIED FROM OR
HELD HARMLESS AGAINST ANY LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, DISBURSEMENTS, COSTS OR EXPENSES (INCLUDING ATTORNEYS' FEES) ARISING
OUT OF OR RESULTING FROM ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT
LIMITING ANY PROVISION OF ANY LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE
PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE
INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES,
CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES
(INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR
CONTRIBUTORY NEGLIGENCE OF SUCH PERSON.
Section 13.3 Limitation of Liability. None of the Agent, any Bank, or
any Affiliate, officer, director, employee, attorney, or agent thereof shall
have any liability with respect to, and each Borrower and, by the execution of
the Loan Documents to which it is a party, each Obligated Party, hereby waives,
releases, and agrees not to sue any of them upon, any claim for any special,
indirect, incidental, consequential or punitive damages suffered or incurred by
any Borrower or any Obligated Party in
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connection with, arising out of, or in any way related to any of the Loan
Documents, or any of the transactions contemplated by any of the Loan Documents.
Section 13.4 No Duty. Except as may otherwise be required by Section
13.22, all attorneys, accountants, appraisers, and other professional Persons
and consultants retained by the Agent or any Bank shall have the right to act
exclusively in the interest of the Agent and the Banks and shall have no duty of
disclosure, duty of loyalty, duty of care, or other duty or obligation of any
type or nature whatsoever to any Borrower, any Obligated Party, any of the
Borrowers' shareholders or any other Person.
Section 13.5 No Fiduciary Relationship. The relationship between the
Borrowers and the Obligated Parties on the one hand and the Agent and each Bank
on the other is solely that of debtor and creditor, and neither the Agent nor
any Bank has any fiduciary or other special relationship with any Borrower or
any Obligated Parties, and no term or condition of any of the Loan Documents
shall be construed so as to deem the relationship between the Borrowers and the
Obligated Parties on the one hand and the Agent and each Bank on the other and
any Bank to be other than that of debtor and creditor.
Section 13.6 Equitable Relief. Each Borrower recognizes that in the
event any Borrower or any Obligated Party fails to pay, perform, observe, or
discharge any or all of the obligations under the Loan Documents, any remedy at
law may prove to be inadequate relief to the Agent and the Banks. Each Borrower
therefore agrees that the Agent and the Banks, if the Agent or the Required
Banks so request, shall be entitled to temporary and permanent injunctive relief
in any such case without the necessity of proving actual damages.
Section 13.7 No Waiver; Cumulative Remedies. No failure on the part of
the Agent or any Bank to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power, or privilege under any Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power, or privilege under any Loan Document preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege. The rights and remedies provided for in the Loan Documents are
cumulative and not exclusive of any rights and remedies provided by law.
Section 13.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. No
Borrower may assign or transfer any of its rights or obligations hereunder
without the prior written consent of the Agent and all of the Banks. Any Bank
may sell participations to one or more banks or other institutions, including
any special purpose funding vehicle (a "SPC"), identified as such in writing
from time to time by a Bank, in or to all or a portion of its rights and
obligations under the Loan Documents (including, without limitation, all or a
portion of its Commitment, the Loans owing to it and the Letter of Credit
Liabilities which it has made or in which it has a participating interest);
provided, however, that (i) such Bank's obligations under the Loan Documents
(including, without limitation, its Commitments) shall remain unchanged, (ii)
such Bank shall remain solely responsible to the Borrowers for the performance
of such obligations, (iii) such Bank shall remain the holder of its Notes and
owner of its participation or other interests in Letter of Credit Liabilities
for all purposes of any Loan Document, (iv) the Borrowers shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under the Loan Documents, and (v) such Bank shall not sell a
participation that conveys to the participant the right to vote or give or
withhold consents under any Loan Document, other than the right to vote upon or
consent to (1) any increase of such Bank's Commitments, (2) any reduction of the
principal amount of, or interest to be paid on, the Loans or other Obligations
of such Bank, (3) any reduction of any commitment fee, letter of credit fee, or
other amount payable to such Bank under any Loan Document, or (4) any
postponement of any
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date for the payment of any amount payable in respect of the Loans or other
Obligations of such Bank. Each party hereto hereby agrees that no SPC shall be
liable for any indemnity or similar payment obligation under this Agreement (all
liability for which shall remain with the Bank granting the participation). In
furtherance of the foregoing, each party hereto hereby agrees (which agreement
shall survive the termination of this Agreement) that, prior to the date that is
one year and one day after the payment in full of all outstanding commercial
paper or other senior indebtedness of any SPC, it will not institute against, or
join any other Person in instituting against, such SPC any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings under the
laws of the United States or any State thereof.
(b) Each Borrower and each of the Banks agree that any Bank (the
"Assigning Bank") may at any time assign to one or more commercial banks,
savings and loan association, savings bank, finance company, insurance company,
pension fund, mutual fund, or other financial institution (whether a
corporation, partnership, or other entity) (herein an "Eligible Assignee") all,
or a proportionate part of all, of its rights and obligations under the Loan
Documents (including, without limitation, its Commitments and Loans and
participation interests) (each an "Assignee"); provided, however, that (i) each
such assignment shall be of a consistent, and not a varying, percentage of all
of the assigning Bank's rights and obligations under the Loan Documents, (ii)
except in the case of an assignment of all of a Bank's rights and obligations
under the Loan Documents, the amount of the Commitment of the assigning Bank
being assigned pursuant to each assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall in no event be
less than Five Million Dollars ($5,000,000), (iii) the parties to each such
assignment shall execute and deliver to the Agent for its acceptance and
recording in the Register (as defined below), an Assignment and Acceptance,
together with the Note subject to such assignment, and a processing and
recordation fee of Three Thousand Dollars ($3,000) payable by the assignor or
assignee (and not any Borrower); and (iv) Parent and the Agent must consent to
such assignment, which consent shall not be unreasonably withheld, with such
consents to be evidenced by Parent's and the Agent's execution of the Assignment
and Acceptance. Upon such execution, delivery, acceptance, and recording, from
and after the effective date specified in each Assignment and Acceptance, which
effective date shall be at least five (5) Business Days after the execution
thereof, or, if so specified in such Assignment and Acceptance, the date of
acceptance thereof by the Agent, (x) the assignee thereunder shall be a party
hereto as a "Bank" and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, have the rights
and obligations of a Bank hereunder and under the Loan Documents and (y) the
Bank that is an assignor thereunder shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Loan Documents (and, in the case of an Assignment and Acceptance covering all or
the remaining portion of a Bank's rights and obligations under the Loan
Documents, such Bank shall cease to be a party thereto). Notwithstanding the
foregoing, at no time shall the aggregate amount of the Agent's share of the
Loans and Commitments be less than any other Bank's share of the Loans and
Commitments.
(c) The Agent shall maintain at its Principal Office a copy of
each Assignment and Acceptance delivered to and accepted by it and a register
for the recordation of the names and addresses of the Banks and the Commitments
of, and principal amount of the Loans owing to and Letter of Credit Liabilities
participated in by, each Bank from time to time (the "Register"). The entries in
the Register shall be conclusive and binding for all purposes, absent manifest
error, and the Borrowers, the Agent, and the Banks may treat each Person whose
name is recorded in the Register as a Bank hereunder for all purposes under the
Loan Documents. The Register shall be available for inspection by Parent or any
Bank at any reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by
an Assigning Bank and Assignee representing that it is an Eligible Assignee,
together with any Notes subject to such
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assignment, the Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit "E" hereto, (i) accept
such Assignment and Acceptance, (ii) record the information contained therein in
the Register, and (iii) give prompt written notice thereof to Parent. Within
five (5) Business Days after its receipt of such notice each Borrower, at their
expense, shall execute and deliver to the Agent in exchange for the surrendered
Note new Notes to the order of such Eligible Assignee in an amount equal to the
Commitment assumed by it pursuant to such Assignment and Acceptance and, if the
assigning Bank has retained a Commitment, a Note to the order of the assigning
Bank in an amount equal to the Commitment retained by it hereunder (each such
promissory note shall constitute a "Note" for purposes of the Loan Documents).
Such new Notes shall be in an aggregate principal amount of the surrendered
Note, shall be dated the effective date of such Assignment and Acceptance, and
shall otherwise be in substantially the form of Exhibit "A" hereto.
(e) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section,
disclose to the assignee or participant or proposed assignee or participant, any
information relating to any Borrower furnished to such Bank by or on behalf of
such Borrower.
Section 13.9 Survival. All representations and warranties made in any
Loan Document or in any document, statement, or certificate furnished in
connection with any Loan Document shall survive the execution and delivery of
the Loan Documents and no investigation by the Agent or any Bank or any closing
shall affect the representations and warranties or the right of the Agent or any
Bank to rely upon them. Without prejudice to the survival of any other
obligation of the Borrowers hereunder, the obligations of the Borrowers under
Article 5 hereof and Sections 13.1 and 13.2 hereof shall survive repayment of
the Notes and termination of the Commitments and the Letters of Credit.
Section 13.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES, AND THE
OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG
THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES
THERETO.
Section 13.11 Amendments. No amendment or waiver of any provision of
any Loan Document to which any Borrower is a party, nor any consent to any
departure by any Borrower therefrom, shall in any event be effective unless the
same shall be agreed or consented to by Required Banks and each Borrower and
shall be in compliance with the Intercreditor Agreement, and each such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, that no amendment, waiver, or consent shall
do any of the following: (i) increase the Commitments of any Bank without the
written consent of such Bank, (ii) reduce the principal amount of any Loan or
Reimbursement Obligation or reduce the rate of interest thereon, or reduce any
fees payable hereunder, without the written consent of each Bank affected
thereby, (iii) postpone the scheduled date of payment of the principal amount of
any Loan or Reimbursement Obligation, or any interest thereon, or any fees
payable hereunder, or reduce the amount of, waive or excuse any such payment, or
postpone the scheduled date of expiration of any Revolving Commitment, without
the written consent of each Bank affected thereby, (iv) change any of the
provisions of this Section or the definition of "Required Banks" or any other
provision of any Loan Document specifying the number or percentage of Banks
required to waive, amend or modify any rights thereunder or make any
determination or grant any consent thereunder, without the written consent of
each Bank or (v) release any Collateral or release any Borrower or any Obligated
Party from liability without the consent of each Bank. Notwithstanding anything
to the
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contrary contained in this Section, no amendment waiver, or consent shall be
made with respect to Sections 2.7, Section 4.6 or Article 12 hereof without the
prior written consent of the Agent.
Section 13.12 Maximum Interest Rate.
(a) No interest rate specified in any Loan Document shall at any
time exceed the Maximum Rate. If at any time the interest rate (the "Contract
Rate") for any Obligation shall exceed the Maximum Rate, thereby causing the
interest accruing on such Obligation to be limited to the Maximum Rate, then any
subsequent reduction in the Contract Rate for such Obligation shall not reduce
the rate of interest on such Obligation below the Maximum Rate until the
aggregate amount of interest accrued on such Obligation equals the aggregate
amount of interest which would have accrued on such Obligation if the Contract
Rate for such Obligation had at all times been in effect.
(b) No provision of any Loan Document shall require the payment
or the collection of interest in excess of the maximum amount permitted by
applicable law. If any excess of interest in such respect is hereby provided
for, or shall be adjudicated to be so provided, in any Loan Document or
otherwise in connection with this loan transaction, the provisions of this
Section shall govern and prevail and neither the Borrowers nor the sureties,
guarantors, successors, or assigns of the Borrowers shall be obligated to pay
the excess amount of such interest or any other excess sum paid for the use,
forbearance, or detention of sums loaned pursuant hereto. In the event any Bank
ever receives, collects, or applies as interest any such sum, such amount which
would be in excess of the maximum amount permitted by applicable law shall be
applied as a payment and reduction of the principal of the Obligations; and, if
the principal of the Obligations has been paid in full, any remaining excess
shall forthwith be paid to Parent. In determining whether or not the interest
paid or payable exceeds the Maximum Rate, the Borrowers and each Bank shall, to
the extent permitted by applicable law, (a) characterize any non-principal
payment as an expense, fee, or premium rather than as interest, (b) exclude
voluntary prepayments and the effects thereof, and (c) amortize, prorate,
allocate, and spread in equal or unequal parts the total amount of interest
throughout the entire contemplated term of the Obligations so that interest for
the entire term does not exceed the Maximum Rate.
Section 13.13 Notices. All notices and other communications provided
for in any Loan Document to which any Borrower or any Obligated Party is a party
shall be given or made in writing and telecopied, mailed by certified mail
return receipt requested, or delivered to the intended recipient at the "Address
for Notices" specified below its name on the signature pages hereof and, if to
an Obligated Party, at the address for notices for the Borrowers; or, as to any
party at such other address as shall be designated by such party in a notice to
each other party given in accordance with this Section. Except as otherwise
provided in any Loan Document, all such communications shall be deemed to have
been duly given when transmitted by telecopy, subject to telephone confirmation
of receipt, or when personally delivered or, in the case of a mailed notice,
three (3) Business Days after being duly deposited in the mails, in each case
given or addressed as aforesaid; provided, however, notices to the Agent
pursuant to Section 2.7 or 4.3 hereof shall not be effective until received by
the Agent.
Section 13.14 Governing Law, Etc. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York and the
applicable laws of the United States of America. This Agreement shall be
performable for all purposes in New York City. Any action or proceeding against
any Borrower or any Obligated Party under or in connection with any of the Loan
Documents may be brought in any New York state or federal court in New York
City. Each Borrower (and by its execution of the Loan Documents to which it is a
party, each Obligated Party) hereby irrevocably (a) submits to the nonexclusive
jurisdiction of such courts, and (b) waives any objection it may now or
hereafter have as to the venue of any such action or proceeding brought in any
such court or that any such court is an inconvenient forum. Each Borrower (and
by its execution of the Loan
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Documents to which it is a party, each Obligated Party) agrees that service of
process upon it may be made by certified or registered mail, return receipt
requested, at its address specified or determined in accordance with the
provisions of Section 13.13. Nothing herein or in any of the other Loan
Documents shall affect the right of the Agent or any Bank to serve process in
any other manner permitted by law or shall limit the right of the Agent or any
Bank to bring any action or proceeding against any Borrower, any Obligated Party
or any of their respective property in courts in other jurisdictions. Any action
or proceeding by any Borrower or any Obligated Party against the Agent or any
Bank shall be brought only in a court located in New York City.
Section 13.15 Counterparts. This Agreement may be executed in one or
more counterparts and on telecopy counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same agreement.
Section 13.16 Severability. Any provision of any Loan Document held by
a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of any Loan Document and the effect thereof
shall be confined to the provision held to be invalid or illegal.
Section 13.17 Headings. The headings, captions, and arrangements used
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 13.18 Non-Application of Chapter 346 of Texas Finance Code. The
provisions of Chapter 346 of the Texas Finance Code are specifically declared by
the parties hereto not to be applicable to any Loan Documents or to the
transactions contemplated thereby.
Section 13.19 Construction. Each Borrower, each Obligated Party (by its
execution of the Loan Documents to which its is a party) the Agent and each Bank
acknowledges that each of them has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review the Loan Documents with
its legal counsel and that the Loan Documents shall be construed as if jointly
drafted by the parties thereto.
Section 13.20 Independence of Covenants. All covenants under the Loan
Documents shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitations of, another
covenant shall not avoid the occurrence of a Default if such action is taken or
such condition exists.
Section 13.21 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE AGENT OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION, OR
ENFORCEMENT THEREOF.
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Section 13.22 Confidentiality. Agent and each Bank (each a "Lending
Party") agrees to keep any Designated Information (as defined below) delivered
or made available by any Borrower to it confidential from anyone other than
Persons employed or retained by such Lending Party who are, or are expected to
be, engaged in evaluating, approving, structuring or administering the credit
facility provided herein; provided that nothing herein shall prevent any Lending
Party from disclosing such Designated Information (a) to any other Lending
Party, (b) to any other Person who agrees to be bound by provisions
substantially similar to those contained in this Section if reasonably
incidental to the administration of the credit facility provided herein, (c)
upon the order of any court or administrative agency, (d) upon the request or
demand of any regulatory agency or authority, (e) which had been publicly
disclosed other than as a result of a disclosure by any Lending Party prohibited
by this Agreement, (f) in connection with any litigation to which such Lending
Party or any of its Affiliates may be a party to the extent such information is
necessary in such litigation, (g) to the extent necessary in connection with the
exercise of any remedy hereunder, (h) to such Lending Party's legal counsel and
independent auditors who are made aware of the provisions of this Section 13.22,
(i) to any Affiliate of such Lending Party solely in connection with this
Agreement if such party is made aware of the provisions of this Section 13.22;
and (j) subject to provisions substantially similar to those contained in this
Section, to any actual or proposed participant or assignee of any of its rights
and obligations under the Loan Documents in accordance with the terms hereof.
The term "Designated Information" means any information which has been
designated by Parent in writing as confidential.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORROWERS:
MARKETING SPECIALISTS CORPORATION
MARKETING SPECIALISTS SALES COMPANY
By:
------------------------------------------
Name:
-------------------------------------
Authorized Officer for all Borrowers
PAUL INMAN ASSOCIATES, INC.
BROMAR, INC.
By:
------------------------------------------
Name:
-------------------------------------
Authorized Officer for all Borrowers
Address for Notices to any Borrower:
17855 Dallas Parkway, Suite 200
Dallas, Texas 76287
Fax No.: 972-349-6448
Telephone No.: 972-349-____
Attention: Timothy Byrd
CREDIT AGREEMENT - Page 68
<PAGE> 75
Commitment: THE CHASE MANHATTAN BANK,
individually as a Bank and as the Agent
$16,666,666.67
By:
-----------------------------------------
George Louis McKinley
Vice President
Address for Notices:
Asset Based Lending
633 Third Avenue, 7th Floor
New York, New York 10017-6764
Attention: Credit Deputy
Fax No.: 212-622-5271
Telephone No.: 212-622-5227
Lending Office for Base Rate
Accounts and Libor Accounts:
633 Third Avenue
New York, New York 10017-6764
Commitment: CREDIT SUISSE/FIRST BOSTON
$16,666,666.67
By:
------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address for Notices:
---------------------------------------------
---------------------------------------------
---------------------------------------------
Attention:
Fax No.:
Telephone No.:
Lending Office for Base Rate
Accounts and Libor Accounts:
---------------------------------------------
---------------------------------------------
---------------------------------------------
CREDIT AGREEMENT - Page 69
<PAGE> 76
Commitment FLEET CAPITAL BANK
$16,666,666.66
By:
------------------------------------------
Name: Hance VanBeber
Title: Senior Vice President
Address for Notices:
Fleet Capital Corporation
2711 N. Haskell Avenue
Suite 2100, LB 21
Dallas, Texas 75204
Attention: Mr. Hance VanBeber
Fax No.: (214) 828-6530
Telephone No.: (214) 828-6515
Lending Office for Base Rate
Accounts and Libor Accounts:
2711 N. Haskell
Suite 2100, LB 21
Dallas, Texas 75204
CREDIT AGREEMENT - Page 70
<PAGE> 77
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<S> <C>
"A" Note
"B" Compliance Certificate
"C" Borrowing Base Report
"D" Security Agreement
"E" Assignment and Acceptance
"F" Guaranty Agreement
"G" Receivables Report
</TABLE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Schedule Description of Schedule
-------- -----------------------
<S> <C>
1.1(a) Previous Senior Debt
1.1(b) Monroe Litigation
7.9 Debt Levels
7.14 List of Subsidiaries
9.1 Debt
9.2 Existing Liens
9.5 Existing Investments
9.7 Permitted Affiliate Transactions
</TABLE>
INDEX TO EXHIBITS AND SCHEDULES, Solo Page
<PAGE> 78
EXHIBIT "A"
TO
MARKETING SPECIALISTS CORPORATION
CREDIT AGREEMENT
Note
Exhibit "A", Cover Page
<PAGE> 79
NOTE
$______________ __, 20_
FOR VALUE RECEIVED, the undersigned, MARKETING SPECIALISTS CORPORATION,
a Delaware corporation, PAUL INMAN ASSOCIATES, INC., a Michigan corporation,
MARKETING SPECIALISTS SALES COMPANY, a Texas corporation, and BROMAR, INC., a
California corporation (collectively, the "Borrowers"), hereby promise, jointly
and severally, to pay to the order of _______________ (the "Bank"), at Agent's
Principal Office, in lawful money of the United States of America and in
immediately available funds, the principal amount of ___________________________
and No/100 Dollars ($_____________) or such lesser amount as shall equal the
aggregate unpaid principal amount of the Loans made by the Bank to the Borrowers
under the Credit Agreement referred to below, on the dates and in the principal
amounts provided in the Credit Agreement, and to pay interest on the unpaid
principal amount of each such Loan, at such office, in like money and funds, for
the period commencing on the date of such Loan until such Loan shall be paid in
full, at the rates per annum and on the dates provided in the Credit Agreement.
The Borrowers hereby authorize the Bank to record in its records the
amount of each Loan and Type of Accounts established under each Loan and all
Continuations, Conversions and payments of principal in respect thereof, which
records shall, in the absence of manifest error, constitute prima facie evidence
of the accuracy thereof; provided, however, that the failure to make such
notation with respect to any such Loan or payment shall not limit or otherwise
affect the obligations of the Borrowers under the Credit Agreement or this Note.
This Note is one of the Notes referred to in the Credit Agreement dated
as of March 30, 2000, among the Borrowers, the Bank, the other banks party
thereto (the "Banks"), and THE CHASE MANHATTAN BANK as agent for the Banks (in
such capacity, the "Agent" and such Credit Agreement, as the same may be amended
or otherwise modified from time to time, being referred to herein as the "Credit
Agreement"), and evidences Loans made by the Bank thereunder. The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity of this Note upon the happening of certain stated events and for
prepayments of Loans prior to the maturity of this Note upon the terms and
conditions specified in the Credit Agreement. Capitalized terms used in this
Note have the respective meanings assigned to them in the Credit Agreement.
This Note shall be governed by and construed in accordance with the
laws of the State of New York and the applicable laws of the United States of
America.
Except for any notices expressly required by the Loan Documents, the
Borrowers and each obligor, surety, guarantor, endorser and other party ever
liable for payment of any sums of money payable on this Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, diligence in collecting, grace and all
other formalities of any kind, and consent to all extensions without notice for
any period or periods of time and partial payments, before or after maturity,
and any impairment of any collateral securing this Note, all without prejudice
to the holder. The holder shall similarly have the right to deal in any way, at
any time, with one or more of the foregoing parties without notice to any other
party, and to grant any such party any extensions of time for payment of any of
said indebtedness, or to release any such party or to release or substitute part
or all of the collateral securing this Note, or to grant any other indulgences
or forbearances whatsoever, without notice to any other party and without in any
way affecting the personal liability of any party hereunder.
Note, Page 1
<PAGE> 80
MARKETING SPECIALISTS CORPORATION
PAUL INMAN ASSOCIATES, INC.
MARKETING SPECIALISTS SALES COMPANY
BROMAR, INC.
By:
----------------------------------------------
Name:
-----------------------------------------
Authorized Officer for all Borrowers
Note, Page 2
<PAGE> 81
EXHIBIT "B"
TO
MARKETING SPECIALISTS CORPORATION
CREDIT AGREEMENT
Compliance Certificate
Exhibit "B", Cover Page
<PAGE> 82
COMPLIANCE CERTIFICATE
for the
quarter ending ________ __, ____
To: The Chase Manhattan Bank
633 Third Avenue, 7th Floor
New York, New York 10017-6764
with a copy to
2200 Ross Avenue, 4th Floor
Dallas, Texas 75201
and each Bank
Ladies and Gentlemen:
This Compliance Certificate (the "Certificate") is being delivered
pursuant to Section 8.1(c) of that certain Credit Agreement (as amended, the
"Agreement") dated as of March 30, 2000 among MARKETING SPECIALISTS CORPORATION
(the "Parent") and certain of its subsidiaries (the "Subsidiaries") and THE
CHASE MANHATTAN BANK, as agent, and the Banks named therein. All capitalized
terms, unless otherwise defined herein, shall have the same meanings as in the
Agreement. All the calculations set forth below shall be made pursuant to the
terms of the Agreement.
The undersigned, an authorized financial officer of the Parent, does
hereby certify to the Agent and the Banks that:
1. DEFAULT.
No Default has occurred and is continuing or if a Default has occurred
and is continuing, I have described on the attached Exhibit "A" the
nature thereof and the steps taken or proposed to remedy such Default.
<TABLE>
<CAPTION>
2. Compliance
----------
<S> <C> <C> <C> <C>
(a) Annual audited financial statements of Parent and the Yes No N/A
Subsidiaries on a consolidated basis and within 90 days after the
end of each Fiscal Year.
(b) Monthly unaudited financial statements of Parent and the Yes No N/A
Subsidiaries on a consolidated basis and within the
applicable days after each month end.
(c) Weekly Receivable Reports each Monday. Yes No N/A
(d) Monthly Borrowing Base Report 20 days after each month end. Yes No N/A
(e) Annual projections within 45 days after the beginning of Yes No N/A
each Fiscal Year.
</TABLE>
3. SECTION 9.1 - DEBT
<TABLE>
<S> <C> <C> <C> <C>
No Additional Debt except:
(a) Purchase money not to exceed: $3,000,000 Yes No
Actual Outstanding: $________
(b) Other Debt not to exceed $2,000,000 Yes No
Actual Outstanding: $________
</TABLE>
Compliance Certificate, Page 1 of 3
<PAGE> 83
4. SCHEDULE 10.1 - MINIMUM FIXED CHARGES COVERAGE RATIO
<TABLE>
(a) EBITDA for last 4 Fiscal Quarters
<S> <C> <C> <C> <C>
(i) Net Income $
--------
(ii) Plus taxes included and interest deducted $
--------
(iii) Plus amortization and depreciation $
--------
(iv) Plus other noncash charges not included in (ii) or (iii) $
--------
(v) Minus Capital Expenditures $
--------
(vi) EBITDA [4(a)(i) plus 4(a)(ii) plus 4(a)(iii) plus 4(a)(iv)
minus 4(a)(v)] $
--------
(b) Scheduled amortization of Debt for last 4 Fiscal Quarters
plus cash interest plus cash taxes $
--------
(c) Actual Fixed Charges Coverage Ratio: 4(a)(vi)) 4(b) = :1.00
---------
(d) Minimum Fixed Charges Coverage Ratio: :1.00 Yes No
---------
</TABLE>
5. SECTION 10.2 - MAXIMUM DEBT TO EBITDA RATIO
<TABLE>
<S> <C> <C> <C> <C>
(a) Adjusted EBITDA
(i) EBITDA $
--------
(ii) Plus applicable adjustments per Credit Agreement $
--------
(iii) Adjusted EBITDA $
--------
(b) Principal amount of consolidated Debt $
--------
(c) Actual Debt to Adjusted EBITDA Ratio: 5(a)(iii)) 5(b) = :1.00
---------
(d) Maximum Debt to Adjusted EBITDA Ratio: :1.00 Yes No
---------
</TABLE>
6. SECTION 10.4 - MINIMUM INTEREST COVERAGE RATIO
<TABLE>
<S> <C> <C> <C> <C>
(a) EBITDA for applicable period
(i) Net Income $
--------
(ii) Plus taxes included and interest deducted $
--------
(iii) Plus amortization and depreciation $
--------
(iv) Plus other noncash charges not included in (ii) or $
--------
(iii) $
--------
(v) 6(a)(i) plus 6(a)(ii) plus 6(a)(iii) plus 6(a)(iv) $
--------
(b) Consolidated cash interest expense for applicable period
(c) Actual Interest Coverage Ratio: 6(a)) 6(b) = :1.00
----------
(d) Minimum Interest Coverage Ratio: :1.00 Yes No
----------
</TABLE>
COMPLIANCE CERTIFICATES, Page 2 of 3
<PAGE> 84
7. SECTION 10.5 - MINIMUM EBITDA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(a) Minimum Required EBITDA for period $________
Yes No
(b) Actual EBITDA $________
</TABLE>
8. SECTION 10.6 - CAPITAL EXPENDITURES LIMIT
<TABLE>
<S> <C> <C> <C> <C>
(a) Yearly Limit for current Measurement Period $________
(b) Carryover Amount $________
(c) Capital Expenditure Limit: 8(a) plus 8(b) $________
Yes No
(d) Actual Capital Expenditures to date $________
(e) Carryover Amount (8(a)- 8(d))
$________
</TABLE>
9. SECTION 3.2 - DETERMINATION OF MARGIN AND FEES
<TABLE>
<S> <C> <C>
(a) Leverage Ratio
(i) Non-Subordinated Debt $________
(ii) Adjusted EBITDA for last 4 Fiscal Quarters $________
(iii) Leverage Ratio (9(a) divided by 9(a)(ii)) ____:1.00
(b) Set forth below are new margins and fees in accordance
with Section 3.2:
(i) Base Margin __________%
(ii) Libor Rate Margin __________%
</TABLE>
10. ATTACHED SCHEDULES
Attached hereto as schedules are the calculations supporting the
computation set forth above in this Certificate. All information
contained herein and on the attached schedules is true and correct.
11. FINANCIAL STATEMENTS
The unaudited financial statements attached hereto were prepared in
accordance with GAAP (or the generally accepted accounting principles
of the jurisdiction of organization of the applicable Person) and
fairly present (subject to year end audit adjustments) the financial
conditions and the results of the operations of the Persons reflected
thereon, at the date and for the periods indicated therein.
12. In the interest of any conflict between this Compliance Certificate and
the Agreement, the Agreement shall control.
IN WITNESS WHEREOF, the undersigned has executed this Certificate
effective this _______ day of ____________.
MARKETING SPECIALISTS CORPORATION
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
COMPLIANCE CERTIFICATES, Page 3 of 3
<PAGE> 85
EXHIBIT "C"
TO
MARKETING SPECIALISTS CORPORATION
CREDIT AGREEMENT
Borrowing Base Report
Exhibit "C", Cover Page
<PAGE> 86
BORROWING BASE REPORT
TO: The Chase Manhattan Bank, as agent
633 Third Avenue, 7th Floor
New York, New York 10017-6764
and each Bank
Ladies and Gentlemen:
This Borrowing Base Report for the __________ ending _________________,
20__ (the "Period") is executed and delivered by Marketing Specialists
Corporation (the "Parent") to THE CHASE MANHATTAN BANK (the "Agent"), pursuant
to that certain Credit Agreement dated as of March ___, 2000, among the Parent
and certain of its Subsidiaries, the Agent and the Banks named therein. All
terms used herein shall have the meanings assigned to them in the Credit
Agreement (as amended to the date hereof, the "Credit Agreement").
The Parent represents and warrants to the Agent and the Banks that all
information contained herein is true, correct, and complete, and that the total
Eligible Accounts referred to below represent the Eligible Accounts that qualify
for purposes of determining the Borrowing Base under the Credit Agreement. The
Parent also represents and warrants that all figures listed below or attached
hereto have been calculated based on the provisions of the Credit Agreement. The
Parent further represents and warrants to the Agent and the Banks that attached
hereto are Schedules 1-8 showing the Borrowing Base for each Borrower and the
following Receivables reports: (a) as Exhibit A, a list of all Receivables of
the Borrower as of the last day of the Period, showing all Receivables aged in
30, 60, 90 and 120 day intervals and specifying the balance due for account
debtor; (b) as Exhibit B, a sales report summary of the Borrower for the Period;
(c) as Exhibit C, a collections report (including lockbox activity statement)
for the Period; and (d) as Exhibit D, a customer credit report for the Period.
The Parent represents and warrants to the Agent and the Banks that the
representations and warranties of the Borrowers contained in Article 7 of the
Credit Agreement and contained in the other Loan Documents are true and correct
on and as of the date of this Borrowing Base Report as if made on and as of the
date hereof except to the extent that such representations and warranties speak
to a specific date, and that no Default has occurred and is continuing.
BORROWING BASE SUMMARY:
Individual Borrowing Base of:
<TABLE>
<S> <C> <C>
1. Marketing Specialists Corporation............................................... $__________
2. Paul Inman Associates, Inc...................................................... $__________
3. Marketing Specialists Sales Company............................................. $__________
4. Bromar, Inc..................................................................... $__________
Aggregate Borrowing Base........................................................ $__________
</TABLE>
Borrowing Base Report, Page 1
<PAGE> 87
OUTSTANDING REVOLVING CREDIT SUMMARY:
Outstanding Revolving Credit of:
<TABLE>
<S> <C> <C>
1. Marketing Specialists Corporation............................................... $__________
2. Paul Inman Associates, Inc...................................................... $__________
3. Marketing Specialists Sales Company............................................. $__________
4. Bromar, Inc..................................................................... $__________
Aggregate Borrowing Base........................................................ $__________
AGGREGATE AVAILABLE CREDIT
(Lesser of Aggregate Borrowing Base
and the Commitments less Aggregate
Outstanding Revolving Credit)................................................... $__________
</TABLE>
In the event of any conflict between this Borrowing Base Report and the Credit
Agreement, the Credit Agreement shall control.
Date: __________, 20__.
PARENT:
MARKETING SPECIALISTS CORPORATION
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
Borrowing Base Report, Page 2
<PAGE> 88
Schedule ____
to
Borrowing Base Report
Marketing Specialists Corporation
Borrowing Base Report
for
[Name of Borrower]
Schedule ___ to Borrowing Base Report, Cover Page
<PAGE> 89
ELIGIBLE ACCOUNTS:
<TABLE>
<S> <C> <C>
1. Gross Receivables
(a) Ending balance as of prior period ending _______, 20___
(i.e., date of last Borrowing Base Report or 12/31/99 if
first Borrowing Base Report ...................................................... $__________
(b) Collections on Receivables since prior period end................................. $__________
(c) Other credits on Receivables since prior period end............................... $__________
(d) Receivables generated since prior period end...................................... $__________
(e) Other debits since prior period end............................................... $__________
(f) Gross Receivables for period ending ______, 20___ (the sum of
1(a) minus 1(b) minus 1(c) plus 1(d) plus 1(e)) .................................. $__________
2. Less: Ineligible Receivables (determined pursuant to the definition of Eligible
Account in the Credit Agreement, without duplication)................................. $__________
(a) Receivables not in compliance with all applicable laws, rules and regulations,
including without limitation, usury laws.......................................... $__________
(b) Receivables outstanding for more than 120 days after the original date of invoice
or 90 days past due............................................................... $__________
(c) Receivables arising from unenforceable contracts or where applicable Borrower is
in default........................................................................
(d) The services reflected on the applicable invoice have not been completed or goods
not delivered or amounts are not properly billable................................ $__________
(e) Receivables subject to defects in title or is subject to any Lien except Liens in
favor of the Agent................................................................ $__________
(f) Receivable is not subject to a first perfected Lien in favor of the Agent or is
not payable to a Lockbox Account covered by an agency account agreement........... $__________
(g) account debtor is insolvent or the subject of any bankruptcy or insolvency
proceeding or has made an assignment for the benefit of creditors, suspended
normal business operations, dissolved, liquidated, terminated its existence,
ceased to pay its debts as they become due, or suffered a receiver or trustee to
be appointed for any of its assets affairs........................................ $__________
(h) Receivable is evidenced by chattel paper or any instrument........................ $__________
(i) Borrower's performance of the contract to which the Receivable relates is assured
by a performance, completion, or other bond....................................... $__________
(j) Receivable is owed by an Affiliate of the Borrower or a director, officer, agent,
stockholder or employee of such Borrower or by one Borrower to another............ $__________
(k) Receivables not payable in Dollars................................................ $__________
(l) Account debtor or other Person obligated on such Receivable is not domiciled in
the United States and the Receivable is not backed by a satisfactory letter of
credit issued or confirmed by a bank located in the United States or insured by
insurance......................................................................... $__________
(m) More than 50% of aggregate amount of Receivables owed by the account debtor to
any Borrower are more than 90 days past due....................................... $__________
</TABLE>
Schedule ___ to Borrowing Base Report, Page 1
<PAGE> 90
<TABLE>
<S> <C> <C>
(n) Account debtor is a Government Authority and the Federal Assignment of Claims Act
of 1940 or similar statute have not been complied to the satisfaction of the
Agent .............................................................................. $__________
(o) Receivable charged or written off as uncollectible in accordance with GAAP......... $__________
(p) Failure to file Notice of Business Activity Report.................................. $__________
(q) Goods of sale not owned, not delivered on a absolute sale basis or returned or
rejected............................................................................ $__________
(r) Receivable arises from sale of a perishable agricultural commodity or livestock
owned and purchased by the Borrower for its own account............................. $__________
(s) Receivable is an Excluded Account................................................... $__________
3. Total Ineligible Accounts (total 2(a) through (s))...................................... $__________
4. Contra accounts......................................................................... $__________
5. Setoffs, counterclaims, etc. by account debtors......................................... $__________
6. Retainage by account debtors............................................................ $__________
7. Accounts subject to 10% rule............................................................ $__________
8. Accounts not eligible due to sale of Borrower........................................... $__________
9. TOTAL ELIGIBLE ACCOUNTS (1(f) minus 3 through 8)........................................ $
==========
BORROWING BASE
10. Unapplied Cash......................................................................... $__________
11. Net Eligible Accounts (Line 9 minus Line 10)........................................... $__________
12. 85% (or if such other percentage as may apply as determined in accordance with the
Credit Agreement) of line 11........................................................... $__________
13. Pledged cash........................................................................... $__________
14. Reserves established by the Agent...................................................... $__________
15. BORROWING BASE as of the date hereof (line 12, plus line 13 minus line 14)............. $__________
AVAILABLE CREDIT:
16. Outstanding Revolving Credit........................................................... $__________
(a) Loans.............................................................................. $__________
(b) Letter of Credit Liabilities....................................................... $__________
(c) TOTAL (16(a) plus 16(b))........................................................... $__________
17. AVAILABLE CREDIT AMOUNT [(the lesser of the amount of the Commitments or line 15
minus line 16 (c))].................................................................... $__________
</TABLE>
Schedule ___ to Borrowing Base Report, Page 2
<PAGE> 91
EXHIBIT "D"
TO
MARKETING SPECIALISTS CORPORATION
CREDIT AGREEMENT
Security Agreement
Exhibit "D", Cover Page
<PAGE> 92
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") dated as of March 30, 2000,
is by and among MARKETING SPECIALISTS CORPORATION, a Delaware corporation, PAUL
INMAN ASSOCIATES, INC., a Michigan corporation, MARKETING SPECIALISTS SALES
COMPANY, a Texas corporation, and BROMAR, INC., a California corporation (each
individually a "Debtor" and collectively, the "Debtors") and THE CHASE MANHATTAN
BANK, as agent for the Banks as that term is defined below (the "Secured
Party").
R E C I T A L S:
The Debtors are entering into that certain Credit Agreement dated as of
even date herewith with the banks parties thereto (each individually a "Bank"
and collectively, the "Banks"), and the Secured Party, as agent for the Banks
(such agreement as it may be amended or otherwise modified from time to time
herein as the "Credit Agreement"). The execution and delivery of this Agreement
is a condition to Secured Party and each Bank entering into the Credit Agreement
and making the extensions of credit thereunder.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the adequacy, receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Secured Party and Banks to make
the Loans and issue the Letters of Credit under the Credit Agreement, the
parties hereto hereby agree as follows:
ARTICLE 1
Definitions
Section 1.1. Definitions. As used in this Agreement, the following
terms have the following meanings:
"Account" means any "account," as such term is defined in
Article or Chapter 9 of the UCC, now owned or hereafter acquired by
Debtor, and, in any event, shall include, without limitation, each of
the following, whether now owned or hereafter acquired by the Debtor:
(a) all rights of the Debtor to payment for goods sold or leased or
services rendered, whether or not earned by performance, (b) all
accounts receivable of the Debtor, (c) all rights of the Debtor to
receive any payment of money or other form of consideration including,
without limitation, all Payment Intangibles, (d) all security pledged,
assigned or granted to or held by the Debtor to secure any of the
foregoing, (e) all guaranties of, or indemnifications with respect to,
any of the foregoing, (f) all rights of the Debtor as an unpaid seller
of goods or services, including, but not limited to, all rights of
stoppage in transit, replevin, reclamation and resale, (g) all rights
to brokerage commissions; and (h) all other Supporting Obligations,
including any applicable Letter of Credit Rights.
"Chattel Paper" means any "chattel paper," as such term is
defined in Article or Chapter 9 of the UCC, now owned or hereafter
acquired by the Debtor.
"Collateral" has the meaning specified in Section 2.1 of this
Agreement.
"Deposit Accounts" means any and all deposit accounts or other
bank accounts now owned or hereafter acquired or opened by the Debtor,
and any account which is a replacement or
Security Agreement, Page 1
<PAGE> 93
substitute for any of such accounts including, without limitation,
those deposit accounts identified on Schedule 3.2.
"Document" means any "document," as such term is defined in
Article or Chapter 9 of the UCC, now owned or hereafter acquired by the
Debtor, including, without limitation, all documents of title and all
receipts covering, evidencing or representing goods now owned or
hereafter acquired by the Debtor.
"Financial Assets" means any "financial asset," as such term
is defined in the UCC.
"General Intangibles" means any "general intangibles," as such
term is defined in Article or Chapter 9 of the UCC, now owned or
hereafter acquired by the Debtor and, (a) in any event, shall include,
without limitation, each of the following, whether now owned or
hereafter acquired by the Debtor: (i) all of the Debtor's the books and
records, including without limitation, all books and records, computer
runs, invoices, tapes, processing software, processing contracts (such
as contracts for computer time and services) and any computer prepared
information, tapes, or data of every kind and description, whether in
the possession of any Debtor or in the possession of third parties and
all of each Debtor's other data, plans, manuals, computer software,
computer tapes, computer disks, computer programs, source codes, object
codes, rights of the Debtor to retrieve data and other information from
third parties and other data of every kind and description, to the
extent that they indicate, summarize or evidence, or otherwise relate
to, the Accounts or Inventory, whether in the possession of any Debtor
or in the possession of any third party.; (ii) all of the Debtor's
contract rights, including, without limitation, all of Debtor's right,
title and interest in and to the Lockbox Agreements which include,
without limitation, the following: (A) all rights of the Debtor to
receive moneys due and to become due under or pursuant to such
agreements, (B) all rights of the Debtor to receive proceeds of any
insurance, indemnity, warranty, guaranty, or other Supporting
Obligations with respect to such agreements, (C) all claims of the
Debtor for damages arising out of or for breach of or default under
such agreements, and (D) all rights of the Debtor to terminate such
agreements, to perform thereunder and to compel performance and
otherwise exercise all rights and remedies thereunder; (iii) all rights
of the Debtor to payment under letters of credit and similar
agreements, including without limitation, all letter of credit rights;
(iv) all choses in action and causes of action of the Debtor (whether
arising in contract, tort or otherwise and whether or not currently in
litigation) and all judgments in favor of the Debtor, including without
limitation, all commercial tort claims; and (v) all rights of the
Debtor under any insurance, surety or similar contract or arrangement
and (b) shall specifically exclude any Intellectual Property.
"Instrument" means any "instrument," as such term is defined
in Article or Chapter 9 of the UCC, now owned or hereafter acquired by
the Debtor, and, in any event, shall include all promissory notes,
drafts, bills of exchange and trade acceptances of the Debtor, whether
now owned or hereafter acquired.
"Intellectual Property" means the Trademarks and Trademark
Licenses.
"Inventory" means any "inventory," as such term is defined in
Article or Chapter 9 of the UCC, now owned or hereafter acquired by the
Debtor, and, in any event, shall include, without limitation, each of
the following, whether now owned or hereafter acquired by the Debtor:
(a) all goods and other personal property of the Debtor that are held
for sale or lease or to be furnished under any contract of service; (b)
all raw materials, work-in-process, finished goods, inventory, supplies
and materials of such Debtor; (c) all wrapping, packaging, advertising
and shipping
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materials of the Debtor; (d) all goods that have been returned to,
repossessed by or stopped in transit by the Debtor; and (e) all
Documents evidencing any of the foregoing.
"Investment Property" means any "investment property" as such
term is defined in Article or Chapter 9 of the UCC, now owned or
hereafter acquired by the Debtor, and, in any event, shall include,
without limitation, each of the following, whether now owned or
hereafter acquired by the Debtor: (a) any security, whether
certificated or uncertificated; (b) any security entitlement; (c) any
securities account (including, without limitation, those described on
Schedule 3.2); (d) any commodity contract; and (e) any commodity
account (including, without limitation, those described on Schedule
3.2), provided, however, that Investment Property shall not include any
Equity Interests issued by Subsidiaries.
"Letter of Credit Rights" means "letter of credit rights," as
such term is defined in the UCC.
"Lockbox Accounts" shall mean the lockbox accounts described
on Schedule 3.2 and any other accounts established pursuant to the
Lockbox Agreements in which all funds received pursuant to the Lockbox
Agreements shall be deposited.
"Lockbox Agreements" shall mean the lockbox or other
agreements described on Schedule 3.2 and any lockbox or other agreement
entered into by a Debtor, with the Secured Party, any Bank or any other
depository institution acceptable to the Secured Party, pursuant to
which a lockbox and deposit account shall be established for a Debtor
into which payments on such Debtor's accounts or other Collateral shall
be sent and deposited, each in form and substance satisfactory to the
Secured Party, as the same may be amended or otherwise modified.
"Obligations" means, with respect to each Debtor, all
"Obligations" (as defined in the Credit Agreement) for which such
Debtor is obligated under the terms of the Credit Agreement, as
determined in accordance with Section 4.13 of the Credit Agreement.
"Payment Intangibles" means "payment intangibles" as such term
is defined in the UCC.
"Proceeds" means any "proceeds," as such term is defined in
Article or Chapter 9 of the UCC and, in any event, shall include, but
not be limited to, (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to the Debtor from time to time
with respect to any of the Collateral, (b) any and all payments (in any
form whatsoever) made or due and payable to the Debtor from time to
time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any
Governmental Authority (or any Person acting, or purporting to act, for
or on behalf of any Governmental Authority), and (c) any and all other
amounts from time to time paid or payable under or in connection with
any of the Collateral and all other Payment Intangibles relating
thereto.
"Supporting Obligations" means "supporting obligations" as
such term is defined in the UCC.
"Trademark License" means any written agreement now or
hereafter in existence granting to the Debtor any right to use any
Trademark, including, without limitation, the agreements identified on
Schedule 3.5.
"Trademarks" means all of the following: (a) all trademarks,
trade names, corporate names, company names, business names, fictitious
business names, trade styles, service marks,
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logos, other business identifiers, prints and labels on which any of
the foregoing appear, all registrations and recordings thereof and all
applications in connection therewith, including, without limitation,
registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United
States, any state thereof or any other country or any political
subdivision thereof, including, without limitation, those described in
Schedule 3.5; (b) all reissues, extensions and renewals thereof; (c)
all income, royalties, damages and payments now or hereafter relating
to or payable under any of the foregoing, including, without
limitation, damages or payments for past or future infringements of any
of the foregoing; (d) the right to sue for past, present and future
infringements of any of the foregoing; (e) all rights corresponding to
any of the foregoing throughout the world; and (f) all goodwill
associated with and symbolized by any of the foregoing; in each case,
whether now owned or hereafter acquired by the Debtor.
"UCC" means the Uniform Commercial Code as in effect in the
State of New York from time to time and for purpose of the definitions
contained in this Section 1.1 and the last sentence of Section 1.2,
includes the Revised Article 9 of the Uniform Commercial Code included
in the 1998 official text of the Uniform Commercial Code as approved by
the American Law Institute in 1998 and the National Conference of
Commissioners on Uniform State Laws in 1999 ("Revised Article 9"). For
purposes of this Section 1.1 and the last sentence of Section 1.2, in
the event of any difference between the Uniform Commercial Code as in
effect in the State of New York and Revised Article 9, Revised Article
9 shall control. For purposes of all provisions of this Agreement other
than this Section 1.1 and the last sentence of Section 1.2, if, by
applicable law, the perfection or effect of perfection or
non-perfection of the security interest created hereunder in any
Collateral is governed by the Uniform Commercial Code as in effect on
or after the date hereof in any other jurisdiction, "UCC" means the
Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such perfection or the
effect of perfection or non-perfection.
Section 1.2. Other Definitional Provisions. Terms used herein that are
defined in the Credit Agreement and are not otherwise defined herein shall have
the meanings therefor specified in the Credit Agreement. References to
"Sections," "subsections," "Exhibits" and "Schedules" shall be to Sections,
subsections, Exhibits and Schedules, respectively, of this Agreement unless
otherwise specifically provided. All definitions contained in this Agreement are
equally applicable to the singular and plural forms of the terms defined. All
references to statutes and regulations shall include any amendments of the same
and any successor statutes and regulations. References to particular sections of
the UCC should be read to refer also to parallel sections of the Uniform
Commercial Code as enacted in each state or other jurisdiction where any portion
of the Collateral is or may be located. Terms used herein, which are defined in
the UCC, unless otherwise defined herein or in the Credit Agreement, shall have
the meanings determined in accordance with the UCC.
ARTICLE 2
Security Interest
Section 2.1 Security Interest. (a) As collateral security for the
prompt payment and performance in full when due of its Obligations (whether at
stated maturity, by acceleration or otherwise), each Debtor hereby pledges and
assigns to the Secured Party, and grants to the Secured Party a continuing lien
on and security interest in, all of its right, title and interest in and to the
following, whether now owned or hereafter arising or acquired and wherever
located (collectively, the "Collateral"):
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(i) all Accounts;
(ii) all Inventory;
(iii) all Deposit Accounts and all funds, certificates, Documents,
Instruments, checks, drafts, wire transfer receipts and other
earnings, profits or other Proceeds from time to time
representing, evidencing, deposited into or held in the
Deposit Accounts; and
(iv) all Instruments, Financial Assets, other Investment Property,
Documents, Chattel Paper, General Intangibles, products and
Proceeds evidencing title to, or the right to possession of,
arising from the sale or other disposition of, necessary for
or used in connection with the production, manufacture, sale
or other disposition of, or otherwise relating to, or arising
or created out of the property described in clauses (i)
through (iii) of this Section 2.1.
(b) Secured Party disclaims any lien, pledge or security interest in equipment,
fixtures, Intellectual Property, real estate, insurance policies (other than
insurance specifically relating to a loss with respect to the Collateral) or
stock of subsidiaries or any Proceeds thereof (other than proceeds of insurance
specifically relating to a loss with respect to the Collateral).
Section 2.2. Debtor Remains Liable. Notwithstanding anything to the
contrary contained herein, (a) each Debtor shall remain liable under the
documentation included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by the Secured Party of
any of its rights or remedies hereunder shall not release any Debtor from any of
its duties or obligations under such documentation, (c) the Secured Party shall
not have any obligation under any of such documentation included in the
Collateral by reason of this Agreement, and (d) the Secured Party shall not be
obligated to perform any of the obligations of any Debtor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
ARTICLE 3
Representations and Warranties
To induce the Secured Party and the Banks to enter into this Agreement
and the Credit Agreement, each Debtor represents and warrants to the Secured
Party and the Banks that:
Section 3.1 Location of Inventory; Third Parties in Possession. All of
its Inventory is located at the places specified in Schedule 3.1 for such
Debtor. Schedule 3.1 correctly identifies the landlords or mortgagees, if any,
of each location identified in Schedule 3.1 currently leased or owned by such
Debtor. No Persons other than such Debtor and Secured Party has possession of
any of the Collateral except as disclosed on Schedule 3.1 and Schedule 3.2. For
each third Person in possession of Collateral identified on Schedule 3.1,
Schedule 3.1 identifies the Person, the address where the Collateral is held and
the capacity in which such Person holds the Collateral. None of its Collateral
has been located in any location within the past four months other than as set
forth on Schedule 3.1.
Section 3.2 Deposit, Commodity and Securities Accounts. Schedule 3.2
correctly identifies all of its lockbox agreements and all deposit, commodity
and securities accounts and the institutions holding such accounts. No Person
other than such Debtor has control over any deposit, commodity or securities
account or any Investment Property.
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Section 3.3 Office Locations; Fictitious Names; Predecessor Companies.
Its chief place of business, its chief executive office and its jurisdiction of
organization is located at the places identified for it on Schedule 3.1. Within
the last four months it has not had any other chief place of business, chief
executive office or jurisdiction of organization except as disclosed on Schedule
3.1. It does not do business nor has it done business during the past five years
under any trade-name or fictitious business name except as disclosed on Schedule
3.3. Schedule 3.3 sets forth an accurate list of all names of all predecessor
companies of such Debtor including the names of any entities it acquired (by
stock purchase, asset purchase, merger or otherwise) and the chief place of
business and chief executive officer of each such predecessor company. For
purposes of the foregoing, a "predecessor company" shall mean, with respect to a
Debtor, any Person whose assets or Equity Interests are acquired by the Debtor
or who was merged with or into the Debtor within the last four months prior to
the Closing Date.
Section 3.4 Delivery of Collateral. Except as provided by Section 4.2,
it has delivered to Secured Party all Collateral the possession of which is
necessary to perfect the security interest of Secured Party therein.
ARTICLE 4
Covenants
Each Debtor covenants and agrees with the Secured Party that until the
Obligations are paid and performed in full, all commitments of the Secured Party
and the Banks to any Debtor have expired or have been terminated and no Letter
of Credit remains outstanding:
Section 4.1 Accounts. It shall, in accordance with its customary
business practices, endeavor to collect or cause to be collected from each
account debtor under its Accounts, as and when due, any and all amounts owing
under such Accounts. Without the prior written consent of the Secured Party, it
shall not, outside the ordinary course of business or after the occurrence and
during the continuance of an Event of Default: (a) grant any extension of time
for any payment with respect to any of the Accounts beyond 120 days after such
payment's due date, (b) compromise, compound, or settle any of the Accounts for
less than the full amount thereof, (c) release, in whole or in part, any Person
liable for payment of any of the Accounts, (d) allow any credit or discount for
payment with respect to any Account other than trade or other customary
discounts granted in the ordinary course of business, or (e) release any Lien or
guaranty securing any Account unless the Account has been paid.
Section 4.2 Further Assurances. At any time and from time to time, upon
the request of the Secured Party, and at its sole expense, it shall, subject to
the exceptions to the creation, perfection and/or protection of Liens permitted
by Section 8.10 of the Credit Agreement, promptly execute and deliver all such
further agreements, documents and instruments and take such further action as
the Secured Party may reasonably deem necessary or appropriate to preserve and
perfect its security interest in the Collateral and carry out the provisions and
purposes of this Agreement or to enable the Secured Party to exercise and
enforce its rights and remedies hereunder with respect to any of the Collateral.
Without limiting the generality of the foregoing, it shall upon reasonable
request by the Secured Party but subject to the exceptions to the creation,
perfection and/or protection of Liens permitted by Section 8.10 of the Credit
Agreement, (a) execute and deliver to the Secured Party such financing
statements as the Secured Party may from time to time require (Debtor also
hereby authorizes Secured Party to file such financing statements without
Debtor's signature naming it as debtor, Secured Party as secured party and
describing the Collateral as Secured Party may deem appropriate); (b) take such
action as the Security Party may request to permit the Secured Party to have
control over each deposit account and any Investment Property; (c) deliver to
the Secured Party all Collateral the possession of which is necessary to perfect
the security interest therein, duly endorsed and/or accompanied by duly executed
instruments of transfer or
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assignment, all in form and substance satisfactory to Secured Party; except
that, prior to the occurrence of a Default and when no Default exists, a Debtor
may: (i) retain any letters of credit (other than those securing Accounts)
received in the ordinary course of business, (ii) retain and utilize in the
ordinary course of business all dividends, distributions and interest paid in
respect to any of the Investment Property, and (iii) retain any Documents
received and further negotiated in the ordinary course of business; and (d)
execute and deliver to the Secured Party such other agreements, documents and
instruments as the Secured Party may reasonably require to perfect and maintain
the validity, effectiveness and priority of the Liens intended to be created by
the Loan Documents.
Section 4.3 Third Parties in Possession of Collateral. Other than in
connection with repairs or maintenance to such Collateral, and subject to the
terms of Section 8.10 of the Credit Agreement, it shall not permit any third
Person (including any warehouseman, bailee, agent, consignee or processor) to
hold any Collateral, unless it shall: (i) notify such third Person of the
security interests created hereby; (ii) instruct such Person to hold all such
Collateral for Secured Party's account subject to Secured Party's instructions;
and (iii) take all other actions the Secured Party reasonably deems necessary to
perfect and protect its and such Debtor's interests in such Collateral pursuant
to the requirements of the UCC of the applicable jurisdiction where the
warehouseman, bailee, consignee, agent, processor or other third Person is
located (including the filing of a financing statement in the proper
jurisdiction naming the applicable third Person as debtor and the applicable
Debtor as secured party and notifying the third Person's secured lenders of
Debtor's interest in such Collateral before the third Person receives possession
of the Collateral in question).
Section 4.4 Corporate Changes. It shall not change its name, identity,
jurisdiction of organization or corporate structure in any manner that might
make any financing statement filed in connection with this Agreement seriously
misleading unless it shall have given the Secured Party thirty (30) days prior
written notice thereof and shall have taken all action reasonably deemed
necessary or desirable by the Secured Party to protect its Liens and the
perfection and priority thereof required by the Loan Documents. It shall not
change its principal place of business, chief executive office or the place
where it keeps its books and records unless it shall have given the Secured
Party thirty (30) days prior written notice thereof and shall have taken all
action reasonably deemed necessary or desirable by the Secured Party to cause
its security interest in the Collateral to be perfected with the priority
required by the Loan Documents.
Section 4.5 Inventory. It shall keep its Inventory at (or in transit
to) any of the locations specified on Schedule 3.1 hereto as a location of such
Debtor or, upon thirty (30) days prior written notice to the Secured Party, at
such other places within the United States of America where all action required
to perfect the Secured Party's security interest in such Collateral with the
priority required by the Loan Documents shall have been taken.
Section 4.6 Warehouse Receipts Non-Negotiable. It agrees that if any
warehouse receipt or receipt in the nature of a warehouse receipt is issued in
respect of any portion of the Collateral, such warehouse receipt or receipt in
the nature thereof shall not be "negotiable" (as such term is used in Section
7.104 of the UCC) unless such warehouse receipt or receipt in the nature thereof
is delivered to the Secured Party.
Section 4.7 Voting Rights; Distributions, Etc. So long as no Event of
Default exists, it shall be entitled to exercise any and all voting and other
consensual rights (including, without limitation, the right to give consents,
waivers and notifications) pertaining to any of the Investment Property;
provided, however, that no vote shall be cast or consent, waiver or ratification
given or action taken without the prior written consent of the Secured Party
which would be inconsistent with or violate any provision of this Agreement or
any other Loan Document.
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Section 4.8 Intellectual Property Covenants. Debtor shall not abandon
any trademark application or any other Intellectual Property which is necessary
for the conduct of Debtor's business without the prior written consent of
Secured Party.
Section 4.9 Lockbox of Proceeds. It shall instruct all customers and
other Persons obligated with respect to all of its Accounts and other Collateral
to make all payments with respect thereto to a post office box or boxes in
accordance with the terms of one or more of the Lockbox Agreements. It shall
irrevocably instruct each depository bank who has entered into a Lockbox
Agreement and who receives proceeds of its Accounts to remit all proceeds of
such payments directly to Secured Party on a daily basis by automated clearing
house debit directly for credit to the Concentration Account or by wire transfer
to Secured Party for application in accordance with the Credit Agreement. Any
income received by the Secured Party with respect to the balance from time to
time standing to the credit of the Concentration Account shall remain, or be
deposited, in the Concentration Account. In addition to the foregoing, it agrees
that if any Proceeds (including, without limitation, the payments made in
respect of Accounts) shall be received by it, it shall as promptly as possible
deposit such Proceeds into the Concentration Account. Until so deposited, all
such Proceeds shall be held in trust by such Debtor for the benefit of the
Secured Party and shall be segregated from any other funds or property of such
Debtor.
Section 4.10 Deposit, Commodity and Security Accounts. It shall not
amend or modify any Lockbox Agreement. It shall not open any new deposit,
commodity or security account or otherwise utilize any deposit account other
than the Contribution Account, the Disbursement Account and the other deposits
accounts disclosed on Schedule 3.2 unless it shall have given the Secured Party
thirty (30) days prior written notice thereof and shall have taken all action
deemed necessary or desirable by the Secured Party to cause its security
interest therein to be perfected with priority required by the Loan Documents.
Prior to the occurrence and continuance of an Event of Default, it may make
purchases and sales of Investment Property and Financial Assets in accordance
with the restrictions on investment set out in the Credit Agreement provided
that at no time shall it purchase or acquire marketable securities or open or
maintain any commodity or security accounts. After the occurrence and during the
continuance of an Event of Default it shall not be authorized to make purchases
and sales of the Investment Property or Financial Assets and it shall take such
steps as Secured Party may reasonably request to give Secured Party control over
all Investment Property. It will not give any party control over any Investment
Property or Financial Assets.
Section 4.11 Commercial Tort Claims. It will grant to Secured Party a
security interest in any commercial tort claim that arises after the date hereof
that relates to or arises out of the Collateral or the conduct of the Debtor's
business in relation thereto.
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ARTICLE 5
Rights of the Secured Party
Section 5.1 POWER OF ATTORNEY. EACH DEBTOR HEREBY IRREVOCABLY
CONSTITUTES AND APPOINTS THE SECURED PARTY AND ANY OFFICER OR AGENT THEREOF,
WITH FULL POWER OF SUBSTITUTION, AS ITS TRUE AND LAWFUL ATTORNEY-IN-FACT WITH
FULL IRREVOCABLE POWER AND AUTHORITY IN THE NAME OF SUCH DEBTOR OR IN ITS OWN
NAME, TO TAKE, AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF A DEFAULT, ANY
AND ALL ACTIONS AND TO EXECUTE ANY AND ALL DOCUMENTS AND INSTRUMENTS WHICH THE
SECURED PARTY AT ANY TIME AND FROM TIME TO TIME DEEMS NECESSARY OR DESIRABLE TO
ACCOMPLISH THE PURPOSES OF THIS AGREEMENT AND, WITHOUT LIMITING THE GENERALITY
OF THE FOREGOING, EACH DEBTOR HEREBY GIVES THE SECURED PARTY THE POWER AND RIGHT
ON BEHALF OF SUCH DEBTOR AND IN ITS OWN NAME TO DO ANY OF THE FOLLOWING AFTER
THE OCCURRENCE AND DURING THE CONTINUANCE OF A DEFAULT, WITH NOTICE TO SUCH
DEBTOR BUT WITHOUT THE CONSENT OF ANY DEBTOR:
(i) to demand, sue for, collect or receive, in the name of the
Debtor or in its own name, any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral and, in
connection therewith, endorse checks, notes, drafts, acceptances, money orders,
documents of title or any other instruments for the payment of money under the
Collateral or any policy of insurance;
(ii) to pay or discharge taxes, Liens or other encumbrances
levied or placed on or threatened against the Collateral;
(iii) (A) to direct account debtors and any other parties liable
for any payment under any of the Collateral to make payment of any and all
monies due and to become due thereunder directly to the Secured Party or as the
Secured Party shall direct (Debtor agrees that if any Proceeds of any Collateral
(including payments made in respect of Accounts) shall be received by it while
an Event of Default exists, it shall promptly deliver such Proceeds to the
Secured Party with any necessary endorsements, and until such Proceeds are
delivered to the Secured Party, such Proceeds shall be held in trust by such
Debtor for the benefit of the Secured Party and shall not be commingled with any
other funds or property of such Debtor); (B) to receive payment of and receipt
for any and all monies, claims and other amounts due and to become due at any
time in respect of or arising out of any Collateral; (C) to sign and endorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, proxies, stock powers,
verifications and notices in connection with accounts and other documents
relating to the Collateral; (D) to commence and prosecute any suit, action or
proceeding at law or in equity in any court of competent jurisdiction to collect
the Collateral or any part thereof and to enforce any other right in respect of
any Collateral; (E) to defend any suit, action or proceeding brought against the
Debtor with respect to any Collateral; (F) to settle, compromise or adjust any
suit, action or proceeding described above and, in connection therewith, to give
such discharges or releases as the Secured Party may deem appropriate; (G) to
exchange any of the Collateral for other property upon any merger,
consolidation, reorganization, recapitalization or other readjustment of the
issuer thereof and, in connection therewith, deposit any of the Collateral with
any committee, depositary, transfer agent, registrar or other designated agency
upon such terms as the Secured Party may determine; (H) to add or release any
guarantor, endorser, surety or other party to any of the Collateral; (I) to
renew, extend or otherwise change the terms and conditions of any of the
Collateral; (J) to grant or issue any exclusive or nonexclusive license under or
with respect to any of the Intellectual Property (subject to the rights of third
parties under pre-existing licenses); (K) to endorse the Debtor's name on all
applications, documents,
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papers and instruments necessary or desirable in order for the Secured Party to
use any of the Intellectual Property; (L) to make, settle, compromise or adjust
any claims under or pertaining to any of the Collateral (including claims under
any policy of insurance); and (M) to sell, transfer, pledge, convey, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Secured Party were the absolute owner thereof for
all purposes, and to do, at the Secured Party's option and the Debtors' expense,
at any time, or from time to time, all acts and things which the Secured Party
deems necessary to protect, preserve, maintain, or realize upon the Collateral
and the Secured Party's security interest therein.
THIS POWER OF ATTORNEY IS A POWER COUPLED WITH AN INTEREST AND SHALL BE
IRREVOCABLE UNTIL TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH SECTION 7.11.
The Secured Party shall be under no duty to exercise or withhold the exercise of
any of the rights, powers, privileges and options expressly or implicitly
granted to the Secured Party in this Agreement, and shall not be liable for any
failure to do so or any delay in doing so. Neither the Secured Party nor any
Person designated by the Secured Party shall be liable for any act or omission
or for any error of judgment or any mistake of fact or law, except any of the
same resulting from its or their gross negligence or willful misconduct. This
power of attorney is conferred on the Secured Party solely to protect, preserve,
maintain and realize upon its security interest in the Collateral. The Secured
Party shall not be responsible for any decline in the value of the Collateral
and shall not be required to take any steps to preserve rights against prior
parties or to protect, preserve or maintain any Lien given to secure the
Collateral.
Section 5.2 Assignment by the Secured Party. The Secured Party and each
Bank may at any time assign or otherwise transfer all or any portion of their
rights and obligations under this Agreement and the other Loan Documents
(including, without limitation, the Obligations) to any other Person, to the
extent permitted by, and upon the conditions contained in, the Credit Agreement,
and such Person shall thereupon become vested with all the benefits thereof
granted to the Secured Party and the Banks, respectively, herein or otherwise.
Section 5.3 Possession; Reasonable Care. The Secured Party may, from
time to time, in its sole discretion, appoint one or more agents to hold
physical custody, for the account of the Secured Party, of any or all of the
Collateral that the Secured Party has a right to possess. The Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which the Secured Party accords its own
property, it being understood that the Secured Party shall not have any
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Secured Party has or is deemed to have knowledge
of such matters, or (b) taking any necessary steps to preserve rights against
any parties with respect to any Collateral.
ARTICLE 6
Default
Section 6.1 Rights and Remedies. If an Event of Default shall have
occurred and be continuing, the Secured Party shall have the following rights
and remedies:
(i) In addition to all other rights and remedies granted to the
Secured Party in this Agreement or in any other Loan Document or by applicable
law, the Secured Party shall have all of the rights and remedies of a secured
party under the UCC (whether or not the UCC applies to the affected Collateral).
Without limiting the generality of the foregoing, the Secured Party may (A)
without demand
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or notice to any Debtor, collect, receive or take possession of the Collateral
or any part thereof and for that purpose the Secured Party may enter upon any
premises on which the Collateral is located and remove the Collateral therefrom
or render it inoperable, and/or (B) sell, lease or otherwise dispose of the
Collateral, or any part thereof, in one or more parcels at public or private
sale or sales, at the Secured Party's offices or elsewhere, for cash, on credit
or for future delivery, and upon such other terms as the Secured Party may deem
commercially reasonable or otherwise as may be permitted by law. The Secured
Party shall have the right at any public sale or sales, and, to the extent
permitted by applicable law, at any private sale or sales, to bid (which bid may
be, in whole or in part, in the form of cancellation of indebtedness) and become
a purchaser of the Collateral or any part thereof free of any right or equity of
redemption on the part of any Debtor, which right or equity of redemption is
hereby expressly waived and released by each Debtor. Upon the request of the
Secured Party, the Debtors shall assemble the Collateral and make it available
to the Secured Party at any place designated by the Secured Party that is
reasonably convenient to the Debtors and the Secured Party. Each Debtor agrees
that the Secured Party shall not be obligated to give more than ten (10) days
prior written notice of the time and place of any public sale or of the time
after which any private sale may take place and that such notice shall
constitute reasonable notice of such matters. The Secured Party shall not be
obligated to make any sale of Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of Collateral may have been given.
The Secured Party may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for sale, and such sale may, without further notice,
be made at the time and place to which the same was so adjourned. The Debtors
shall, jointly and severally, be liable for all reasonable expenses of retaking,
holding, preparing for sale or the like, and all reasonable attorneys' fees,
legal expenses and other costs and expenses incurred by the Secured Party in
connection with the collection of the Obligations and the enforcement of the
Secured Party's rights under this Agreement. The Debtors shall remain liable for
any deficiency if the Proceeds of any sale or other disposition of the
Collateral applied to the Obligations are insufficient to pay the Obligations in
full. The Secured Party may apply the Collateral against the Obligations as
provided in the Credit Agreement. Each Debtor waives all rights of marshalling,
valuation and appraisal in respect of the Collateral. Any cash held by the
Secured Party as Collateral and all cash proceeds received by the Secured Party
in respect of any sale of, collection from or other realization upon all or any
part of the Collateral may, in the discretion of the Secured Party, be held by
the Secured Party as collateral for, and then or at any time thereafter applied
in whole or in part by the Secured Party against, the Obligations in the order
permitted by the Credit Agreement. Any surplus of such cash or cash proceeds and
interest accrued thereon, if any, held by the Secured Party and remaining after
payment in full of all the Obligations shall be promptly paid over to the
Debtors or to whomsoever may be lawfully entitled to receive such surplus;
provided that the Secured Party shall have no obligation to invest or otherwise
pay interest on any amounts held by it in connection with or pursuant to this
Agreement.
(ii) The Secured Party may cause any or all of the Collateral
held by it to be transferred into the name of the Secured Party or the name or
names of the Secured Party's nominee or nominees.
(iii) The Secured Party may exercise any and all rights and
remedies of any Debtor under or in respect of the Collateral, including, without
limitation, any and all rights of any Debtor to demand or otherwise require
payment of any amount under, or performance of any provision of, any of the
Collateral and any and all voting rights and corporate powers in respect of the
Collateral. Each Debtor shall execute and deliver (or cause to be executed and
delivered) to the Secured Party all such proxies and other instruments as the
Secured Party may reasonably request for the purpose of enabling the Secured
Party to exercise the voting and other rights which it is entitled to exercise
pursuant to this clause (iii) and to receive the dividends, interest and other
distributions which it is entitled to receive hereunder.
Security Agreement, Page 11
<PAGE> 103
(iv) The Secured Party may collect or receive all money or
property at any time payable or receivable on account of or in exchange for any
of the Collateral, but shall be under no obligation to do so.
(v) On any sale of the Collateral, the Secured Party is hereby
authorized to comply with any limitation or restriction with which compliance is
necessary, in the view of the Secured Party's counsel, in order to avoid any
violation of applicable law or in order to obtain any required approval of the
purchaser or purchasers by any applicable Governmental Authority.
(vi) For purposes of enabling the Secured Party to exercise its
rights and remedies under this Section 6.1 and enabling the Secured Party and
its successors and assigns to enjoy the full benefits of the Collateral in each
case as the Secured Party shall be entitled to exercise its rights and remedies
under this Section 6.1, each Debtor hereby grants to the Secured Party an
irrevocable, nonexclusive license (exercisable only during an Event of Default
but without payment of royalty or other compensation to the Debtor) to use any
of the Intellectual Property. This license shall also inure to the benefit of
all successors, assigns and transferees of the Secured Party.
Section 6.2 Private Sales. Debtors recognize that the Secured Party may
be unable to effect a public sale of any or all of the Collateral by reason of
certain prohibitions contained in the laws of any jurisdiction outside the
United States or in the Securities Act of 1933, as amended from time to time
(the "Securities Act") and applicable state securities laws, but may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers who will be obliged to agree, among other things, to acquire such
Collateral for their own account for investment and not with a view to the
distribution or resale thereof. Each Debtor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall, to the extent permitted
by law, be deemed to have been made in a commercially reasonable manner. Neither
the Secured Party nor the Banks shall be under any obligation to delay a sale of
any of the Collateral for the period of time necessary to permit the issuer of
such securities to register such securities under the laws of any jurisdiction
outside the United States, under the Securities Act or under any applicable
state securities laws ("Registration"), even if such issuer would agree to do
so. Each Debtor further agrees to do or cause to be done, to the extent that
each Debtor may do so under applicable law, all such other reasonable acts and
things as may be necessary to make such sales or resales of any portion or all
of the Collateral valid and binding and in compliance with any and all
applicable laws, regulations, orders, writs, injunctions, decrees or awards of
any and all courts, arbitrators or governmental instrumentalities, domestic or
foreign, having jurisdiction over any such sale or sales, all at Debtors'
expense, but in no event shall the Debtors be obligated to cause a Registration
to be made.
ARTICLE 7
Miscellaneous
Section 7.1 No Waiver; Cumulative Remedies. No failure on the part of
the Secured Party to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power, or privilege. The
rights and remedies provided for in this Agreement are cumulative and not
exclusive of any rights and remedies provided by law.
Section 7.2 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Debtors and the Secured Party and
respective successors and assigns, except that no Debtor
Security Agreement, Page 12
<PAGE> 104
may assign any of its rights or obligations under this Agreement without the
prior written consent of the Banks and Secured Party may not appoint a successor
Secured Party except in accordance with the Credit Agreement.
Section 7.3 AMENDMENT; ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this
Agreement may be amended or waived only by an instrument in writing signed by
the parties hereto and the Required Banks.
Section 7.4 Notices. All notices and other communications provided for
in this Agreement shall be given or made in accordance with the Credit
Agreement.
Section 7.5 Governing Law. This agreement shall be governed by, and
construed in accordance with, the laws of the State of New York and applicable
laws of the United States of America.
Section 7.6 Headings. The headings, captions, and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 7.7 Survival of Representations and Warranties. All
representations and warranties made in this Agreement or in any certificate
delivered pursuant hereto shall survive the execution and delivery of this
Agreement, and no investigation by the Secured Party shall affect the
representations and warranties or the right of the Secured Party to rely upon
them.
Section 7.8 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
Section 7.9 Waiver of Bond. In the event the Secured Party seeks to
take possession of any or all of the Collateral by judicial process, each Debtor
hereby irrevocably waives any bonds and any surety or security relating thereto
that may be required by applicable law as an incident to such possession, and
waives any demand for possession prior to the commencement of any such suit or
action.
Section 7.10 Severability. Any provision of this Agreement which is
determined by a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 7.11 Termination. If all of the Obligations shall have been
paid and performed in full, all commitments of the Secured Party and the Banks
to all Debtors shall have expired or terminated and no Letters of Credit shall
remain outstanding, the Secured Party shall, upon the written request of the
Parent, execute and deliver to the Debtors a proper instrument or instruments
acknowledging the release and termination of the security interests created by
this Agreement, and shall duly assign and deliver to the Debtors (without
recourse and without any representation or warranty) such of the Collateral as
may be in the possession of the Secured Party and has not previously been sold
or otherwise applied pursuant to this Agreement.
Security Agreement, Page 13
<PAGE> 105
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
DEBTORS:
MARKETING SPECIALISTS CORPORATION
PAUL INMAN ASSOCIATES, INC.
MARKETING SPECIALISTS SALES COMPANY
BROMAR, INC.
By:
-----------------------------------------
Name:
-----------------------------------
Authorized Officer of all Debtors
SECURED PARTY:
THE CHASE MANHATTAN BANK, as Agent
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Security Agreement, Page 14
<PAGE> 106
Schedule 3.1
to
Marketing Specialists Corporation
Security Agreement
LOCATIONS
- --------------------------------------------------------------------------------
A. CHIEF EXECUTIVE OFFICE FOR ALL DEBTORS:
17855 Dallas Parkway, Suite 200
Dallas, Texas 75287
Landlord:
North Arrowhead/Briargrove Place
17855 Dallas Parkway, Suite 190
Dallas, Texas 75287
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B. JURISDICTION OF ORGANIZATION AND OTHER LOCATIONS:
- --------------------------------------------------------------------------------
1. MARKETING SPECIALISTS CORPORATION
- --------------------------------------------------------------------------------
Jurisdiction of Incorporation: Delaware
- --------------------------------------------------------------------------------
Inventory Locations: None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. MARKETING SPECIALISTS SALES COMPANY
- --------------------------------------------------------------------------------
Jurisdiction of Incorporation: Texas
- --------------------------------------------------------------------------------
Inventory Locations Leased or Owned by Debtor:
- --------------------------------------------------------------------------------
Name and Address of Third Party Landlord/Mortgagee
- --------------------------------------------- ----------------------------------
Stoughton Corporate Center CD-SP Realty Trust
Condominium c/o Hunneman Management Company,
1053 Turnpike Street Inc.
Stoughton, MA 02072 70-80 Lincoln Street
Boston, MA 02111
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Third Party Inventory Locations
- --------------------------------------------------------------------------------
Name and Address of Third Party Capacity in Which Inventory is Held
- ------------------------------------------ -------------------------------------
Reynolds Transfer & Storage Storage and Distribution
2302 Darwin Road
Madison, WI 53704
Contact: Cheryl Castner, Poly Cello
(207) 767-1624 (x104)
John Richgels
(608) 244-6255
- --------------------------------------------------------------------------------
Schedule 3.3 to Security Agreement, Page 1
<PAGE> 107
- --------------------------------------------------------------------------------
Sonoco Storage and Distribution
12851 Leyva Street
Norwalk, CA 90650
Contact: Kathy Sorenson
(562) 921-0881
- --------------------------------------------------------------------------------
Pallestro Distribution Storage and Distribution
21118 Cabot Blvd.
Hayward, CA 94540
Contact: Cheryl Castner, Poly Cello
(207) 767-1624 (x104)
- --------------------------------------------------------------------------------
All State Storage and Distribution
46 Rice Street
Presque Isle, ME 04769
Contact: Cheryl Castner, Poly Cello
(207) 767-1624 (x104)
- --------------------------------------------------------------------------------
Malnove Storage and Distribution
10500 Canada Drive
Jacksonville, FL 32218
Contact: Cissy
(904) 757-5030
(800) 813-1330
- --------------------------------------------------------------------------------
D&D Storage and Distribution
789 Kings Mill Road
York, PA 17402
Contact: Cheryl Castner, Poly Cello
(207) 767-1624 (x104)
- --------------------------------------------------------------------------------
Holman Distribution Storage and Distribution
22430 76th Avenue South
Kent, WA 98032
Contact: Ginger
(253) 872-7143 (x303)
Sue
(253) 872-7143 (x304)
- --------------------------------------------------------------------------------
Union Industries, Inc. Storage and Distribution
Admiral Street
Providence, RI 02908
Contact: John Wilbur
Kathy Dichristofaro
(800) 556-6454
- --------------------------------------------------------------------------------
Graphic Packaging Corporation Packaging
3400 N. Marine Drive
P. O. Box 17128
Portland, OR 97217
Contact: June Germony
(503) 240-4623
- --------------------------------------------------------------------------------
Schedule 3.3 to Security Agreement, Page 2
<PAGE> 108
- --------------------------------------------------------------------------------
Mohawk Northern Plastics Storage and Distribution
701 A Street N.E.
P. O. Box 583
Auburn, WA 98071
Contact: Michelle Erpelding
(253) 939-8206
(800) 426-1100 (x214)
- --------------------------------------------------------------------------------
Americold Storage and Distribution
2323 Jess Street
Los Angeles, CA 90023
Los Angeles County
- --------------------------------------------------------------------------------
3. BROMAR, INC.
- --------------------------------------------------------------------------------
Jurisdiction of Incorporation: California
- --------------------------------------------------------------------------------
Inventory Locations: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. PAUL INMAN ASSOCIATES, INC.
- --------------------------------------------------------------------------------
Jurisdiction of Incorporation: Michigan
- --------------------------------------------------------------------------------
Inventory Locations: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prior Chief Executive Office Landlord/Mortgagee
(within last 4 months)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
30095 Northwestern Highway Paul Inman, L.L.C.
Farmington Hills, MI 48334 28899 Millbrook
Oakland County Farmington Hills, MI 48334
- --------------------------------------------------------------------------------
Schedule 3.3 to Security Agreement, Page 3
<PAGE> 109
Schedule 3.2
to
Marketing Specialists Corporation
Security Agreement
DEPOSIT, LOCKBOX, COMMODITY AND SECURITY ACCOUNTS
[see attached]
Schedule 3.3 to Security Agreement, Page 1
<PAGE> 110
Schedule 3.3
to
Marketing Specialists Corporation
Security Agreement
PRIOR NAMES AND PREDECESSOR COMPANIES
I. Prior Names
A. MARKETING SPECIALISTS CORPORATION
1. Merkert American
2. Monroe
B. PAUL INMAN ASSOCIATES, INC.
1. Creative Advertising
C. MARKETING SPECIALISTS SALES COMPANY
1. Food Service Sales
2. Marketing Specialists of Minnesota
3. Marketing Specialists of Tennessee
4. Marketing Specialists
5. Richmont Marketing
6. Merkert Enterprises
7. Atlas Marketing
8. Meatmaster
9. Rogers-American
10. Towers Marketing
D. BROMAR, INC.
1. Food Service Sales
================================================================================
PREDECESSOR COMPANIES
================================================================================
1. UNITED BROKERAGE COMPANY
================================================================================
Chief Executive Office Location
- --------------------------------------------------------------------------------
Kent County, Michigan
================================================================================
2. BUCKEYE SALES & MARKETING, INC.
================================================================================
Chief Executive Office Location
================================================================================
Summit County, Ohio
================================================================================
3. ATLAS MARKETING COMPANY, INC.
================================================================================
Chief Executive Office Location
================================================================================
Mecklenburg County, North Carolina
- --------------------------------------------------------------------------------
Schedule 3.3 to Security Agreement, Page 1
<PAGE> 111
================================================================================
4. JOHNSON - LIEBER, INC.
================================================================================
Chief Executive Office Location
================================================================================
Renton, Washington
================================================================================
5. MARKETING SPECIALISTS CO., INC.
================================================================================
Chief Executive Office Location
- --------------------------------------------------------------------------------
Canton, Massachusetts
- --------------------------------------------------------------------------------
Schedule 3.3 to Security Agreement, Page 2
<PAGE> 112
EXHIBIT "E"
TO
MARKETING SPECIALISTS CORPORATION
CREDIT AGREEMENT
Assignment and Acceptance
Exhibit "E", Cover Page
<PAGE> 113
ASSIGNMENT AND ACCEPTANCE
Dated _____________
Reference is made to the Credit Agreement dated March 30, 2000 (as the
same may be amended and in effect from time to time, the "Credit Agreement"),
among Marketing Specialists Corporation, a Delaware corporation (the "Parent"),
certain of its subsidiaries (collectively, with the Parent, the "Borrowers"),
the banks named therein (the "Banks"), and THE CHASE MANHATTAN BANK, as agent
for the Banks (in such capacity, the "Agent") (such Credit Agreement, as it has
been or may hereafter be amended or otherwise modified from time to time, being
hereinafter referred to as the "Credit Agreement" and capitalized terms used
herein and not otherwise defined shall have the meanings assigned to such terms
in the Credit Agreement). This Assignment and Acceptance is being executed
pursuant to Section 13.8 of the Credit Agreement.
________________________________ (the "Assignor") and ______________
_______ (the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee without
recourse, representation or warranty except as specifically
set forth herein, and the Assignee hereby purchases and
assumes from the Assignor as of the Effective Date (as defined
below), a ___________% interest in and to all the Assignor's
rights and obligations under the Commitment of the Assignor on
the Effective Date and such percentage interest in the Loans
owing to the Assignor outstanding on the Effective Date
together with such percentage interest in all Letters of
Credit outstanding on the Effective Date and all unpaid
interest and fees accrued from the Effective Date relating to
such Loans and Letters of Credit. After giving effect to this
the foregoing assignment, the amount utilized to determine (a)
Assignee's Commitment shall be $__________ and (b) Assignor's
Commitment shall be $__________.
2. The Assignor (i) represents that as of the date hereof, its
Commitment is $_____________ and the outstanding principal
balance of its Loans is $_____________ (as unreduced by any
assignments which have not yet become effective); (ii) makes
no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or any
other Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the
Credit Agreement or any other Loan Document, other than that
it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and
clear of any adverse claim; (iii) makes no representation or
warranty and assumes no responsibility with respect to the
financial condition of the Borrowers or any Obligated Party or
the performance or observance by the Borrowers or any
Obligated Party of any of their obligations under the
Agreement or any Loan Document; and (iv) attaches the Note
held by Assignor and requests that the Agent exchange such
Note for a new Note payable to the order of (A) Assignee in an
amount equal to the Commitment assumed by the Assignee
pursuant hereto and the outstanding principal amount of the
Loans assigned to Assignee pursuant hereto, as applicable, and
(B) the Assignor in amounts equal to the Commitment and Loans
retained by the Assignor under the Credit Agreement, as
specified above.
3. The Assignee (i) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (ii)
confirms that it has received a copy of the Credit
Assignment and Acceptance, Page 1
<PAGE> 114
Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 7.2 or Section 8.1
thereof, and such other documents and information as it has
deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Acceptance; (iii)
agrees that it will, independently and without reliance upon
the Agent, the Assignor, or any other Bank and based on such
documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement and the other
Loan Documents; (iv) confirms that it is eligible to be an
Assignee; (v) appoints and authorizes the Agent to take such
action on its behalf and to exercise such powers under the
Loan Documents as are delegated to the Agent by the terms
thereof, together with such powers as are reasonably
incidental thereto; (vi) agrees that it will perform in
accordance with their terms all obligations which by the terms
of the Credit Agreement and the other Loan Documents are
required to be performed by it as a Bank.
4. The effective date for this Assignment and Acceptance once
signed by the parties hereto and accepted by Agent and
Borrower shall be __________, 20__ (the "Effective Date").
Following the execution of this Assignment and Acceptance, it
will be delivered to the Agent for acceptance and recording.
5. Upon such acceptance and recording, from and after the
Effective Date, (i) the Assignee shall be a party to the
Credit Agreement and, to the extent provided in this
Assignment and Acceptance, shall have the rights and
obligations of a Bank thereunder and under the other Loan
Documents and (ii) the Assignor shall, to the extent provided
in this Assignment and Acceptance, relinquish its rights and
be released from its obligations under the Credit Agreement
and the other Loan Documents.
6. Upon such acceptance and recording, from and after the
Effective Date, the Agent shall make all payments in respect
of the interest assigned hereby (including payments of
principal, interest, fees, and other amounts) to the Assignee.
The Assignor and Assignee shall make all appropriate
adjustments in payments under the Credit Agreement and the
Note for periods prior to the Effective Date directly between
themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New
York and applicable laws of the United States of America.
8. This Assignment and Acceptance may be executed in any number
of counterparts and on telecopy counterparts and by different
parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
[NAME OF ASSIGNOR]
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Assignment and Acceptance, Page 2
<PAGE> 115
[NAME OF ASSIGNEE]
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address for Notices:
------------------------------------------
------------------------------------------
------------------------------------------
Telecopy No.:
-----------------------------
Telephone No.
-----------------------------
Lending Office for Base Rate Accounts
and Libor Accounts
------------------------------------------
------------------------------------------
------------------------------------------
ACCEPTED BY:
THE CHASE MANHATTAN BANK
as Agent
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
MARKETING SPECIALISTS CORPORATION
as the Parent
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
Assignment and Acceptance, Page 3
<PAGE> 116
Schedule 1.1(a)
to
Marketing Specialists Corporation
Credit Agreement
Previous Senior Debt
<TABLE>
<CAPTION>
Total Amount
Outstanding on
Lender Borrower Closing Date
------ -------- --------------
<S> <C> <C>
1. Certain Lenders including Marketing Specialists $23,750,000
First Union National Bank, as Corporation
agent for such Lenders
"Previous Senior Debt" does not
include the First Union Loan
</TABLE>
Schedule 1.1(a) - Solo Page
<PAGE> 117
Schedule 1.1(b)
to
Marketing Specialists Corporation
Credit Agreement
Monroe Litigation
Monroe & Company, LLC vs. Marketing Specialists Corporation, Commonwealth of
Massachusetts, Middlesex, Superior Court Department of the Trial Court, C.A. No.
99-4745, filed October 1, 1999. Marketing Specialists Corporation made an
initial settlement offer of $2 million prior to the hearing on Monroe & Company,
LLC's motion for summary judgment. Attached to this disclosure schedule is a
copy of a letter setting forth Monroe & Company, LLC's most recent settlement
proposal. The "negotiating range" as used in this Agreement, is $2,000,000 to
$2,855,000.
Schedule 1.1(b) - Solo Page
<PAGE> 118
Schedule 7.9
to
Marketing Specialists Corporation
Credit Agreement
Debt Levels (excl. Credit Facility)
<TABLE>
<S> <C> <C>
Bank Debt:
First Union Term Loan (1) 43,750,000
Mortgage Debt:
CREC (2)
Mortgage on Canton Building 9,160,751
Rexham Note Payable (2) 3,612,368
---------------
Mortgage on Charlotte Building
Total Senior Debt 56,523,119
Senior Subordinated Debt:
Senior Subordinated Notes -
Chase Securities Inc. 100,000,000
Acquisition Obligations -
Pari passu to bonds 86,120,269
---------------
Total Senior Subordinated Debt 186,120,269
Subordinated Debt:
Acquisition Obligations -
subordinated to bonds 12,068,111
---------------
Total Subordinated Debt 12,068,111
Total Debt 254,711,499
(1) Payment of $8,750,000 will be made at closing - reducing the balance to
$35,000,000.
(2) In process of selling these buildings.
NOTE:
Employee related Deferred Compensation 1,375,795
Not originating from Acquisition
</TABLE>
Schedule 7.9 - Solo Page
<PAGE> 119
Schedule 7.14
to
Marketing Specialists Corporation
Credit Agreement
List of Subsidiaries; List of Borrower Shareholders
A. Wholly-owned Subsidiaries of Marketing Specialists
Corporation.
<TABLE>
<S> <C> <C>
1. MARKETING SPECIALISTS SALES COMPANY
Principal Address: 17855 Dallas Parkway, Suite 2000,
Dallas, Texas 75287
Location of Books and Records: 17855 Dallas Parkway, Suite 2000,
Dallas, Texas 75287
Authorized Stock: 10,000,000
Issued and Outstanding Stock: 137,635
</TABLE>
Marketing Specialists Sales Company is not party to any
agreement providing for options, rights, rights of conversion,
redemption, purchase or repurchase, rights of first refusal
and similar rights relating to its Capital Stock.
<TABLE>
<S> <C> <C>
2. PAUL INMAN ASSOCIATES, INC.
Principal Address: 17855 Dallas Parkway, Suite 2000,
Dallas, Texas 75287
Location of Books and Records: 17855 Dallas Parkway, Suite 2000,
Dallas, Texas 75287
Authorized Stock: 1,000 shares of Common Stock, $0.01 par value per share
Issued and Outstanding Stock: 1,000 shares of Common Stock
</TABLE>
Paul Inman Associates, Inc. is not party to any agreement
providing for options, rights, rights of conversion,
redemption, purchase or repurchase, rights of first refusal
and similar rights relating to its Capital Stock.
B. Wholly-owned Subsidiaries of Marketing Specialists Sales Company
<TABLE>
<S> <C> <C>
1. BROMAR, INC., a California corporation
Principal Address: 744 N. Eckhoff Street, Orange, CA 92868
Location of Books and Records: 17855 Dallas Parkway, Suite 2000,
Dallas, Texas 75287
Authorized Stock: 2,000,000 shares of Common Stock, no par value
Issued and Outstanding Stock: 1,000 shares of Common Stock
</TABLE>
Bromar, Inc. is not party to any agreement providing for
options, rights, rights of conversion, redemption, purchase or
repurchase, rights of first refusal and similar rights
relating to its Capital Stock.
Schedule 7.14 - Page 1 of 5
<PAGE> 120
Schedule 9.1
to
Marketing Specialists Corporation
Credit Agreement
Existing Debt
1. Please see attached Debt Schedule.
2. Unsecured Letter of Credit Promissory Note dated January 26, 2000 in
the principal amount of $1.6 million payable to Richmont Capital
Partners I, L.P. by Marketing Specialists Sales Company.
3. Guaranty Fee Agreement dated as of January 26, 2000 between Marketing
Specialists Sales Company and Richmont Capital Partners I, L.P.
relating to certain fee obligations.
4. Amendment No. 1 to Guaranty Fee Agreement dated as of January 26, 2000
between Marketing Specialists Sales Company and Richmont Capital
Partners I, L.P. effecting subordination provisions for the fees
payable under the Guaranty Fee Agreement.
5. Unsecured Letter of Credit Promissory Note dated March 29, 2000 in the
principal amount of $1,071,133 payable to Richmont Capital Partners I,
L.P. by Marketing Specialists Sales Company.
6. Subordinated Promissory Note dated January 27, 2000 in the original
principal amount of $9,240,000 payable to Johnson-Lieber, Inc. by
Marketing Specialists Sales Company.
Schedule 9.1
<PAGE> 121
Schedule 9.2
to
Marketing Specialists Corporation
Credit Agreement
Existing Liens
Schedule 9.2
<PAGE> 122
Schedule 9.5
to
Marketing Specialists Corporation
Credit Agreement
Existing Investments
1. Texas Stadium Bonds
2. Personal Seat License in the football stadium under construction in
Nashville, Tennessee
3. Two shares of common stock of Bradford & Company Food Brokers, Inc.
4. Seats at Ericson Stadium
5. Smith Barney investment account regarding customer stocks
6. Property investment, Sesame Place, Irving, Texas
Schedule 9.7 - Solo Page
<PAGE> 1
EXHIBIT 10.7
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
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 MARCH 30, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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SECTION 1 - DEFINITIONS...........................................................................................1
1.1. Definitions........................................................................................1
1.2. Rules of Construction.............................................................................17
SECTION 2 - TERM LOAN............................................................................................17
2.1. Term Loan.........................................................................................17
2.2. Promissory Notes..................................................................................17
2.3. Lenders' Participation............................................................................18
2.4. Use of Proceeds...................................................................................18
2.5. Repayment.........................................................................................18
2.6. Interest..........................................................................................18
2.7. Prepayment........................................................................................21
2.8. Funding Costs and Loss of Earnings................................................................23
2.9. Payments..........................................................................................23
2.10. Regulatory Changes in Capital Requirements........................................................23
2.11. Subordination.....................................................................................24
SECTION 3 - REPRESENTATIONS AND WARRANTIES.......................................................................26
3.1. Organization and Good Standing....................................................................26
3.2. Power and Authority; Validity of Agreement........................................................26
3.3. No Violation of Laws or Agreements................................................................26
3.4. Material Contracts................................................................................26
3.5. Compliance........................................................................................26
3.6. Litigation........................................................................................27
3.7. Title to Assets...................................................................................27
3.8. Accuracy of Information; Full Disclosure..........................................................27
3.9. Taxes and Assessments.............................................................................28
3.10. Indebtedness......................................................................................29
3.11. Management Agreements.............................................................................29
3.12. Investments; Ownership............................................................................29
3.13. ERISA.............................................................................................29
3.14. Fees and Commissions..............................................................................30
3.15. No Extension of Credit for Securities.............................................................30
3.16. Perfection of Security Interest...................................................................30
3.17. Hazardous Wastes, Substances and Petroleum Products...............................................31
3.18. Solvency..........................................................................................31
</TABLE>
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<TABLE>
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3.19. Employee Controversies...........................................................................32
3.20. Year 2000 Compliance.............................................................................32
3.21. Indenture........................................................................................32
SECTION 4 - CONDITIONS...........................................................................................32
4.1. Effectiveness of Second Amended and Restated Credit Agreement.....................................32
4.2. Sales Force Acquisition...........................................................................36
SECTION 5 - AFFIRMATIVE COVENANTS................................................................................37
5.1. Existence and Good Standing.......................................................................37
5.2. Interim Financial Statements......................................................................37
5.3. Annual Financial Statements.......................................................................37
5.4. Compliance Certificate............................................................................38
5.5. Additional Reports................................................................................38
5.6. Public Information................................................................................38
5.7. Books and Records.................................................................................39
5.8. Insurance.........................................................................................39
5.9. Litigation; Event of Default......................................................................39
5.10. Taxes.............................................................................................39
5.11. Costs and Expenses................................................................................39
5.12. Compliance; Notification..........................................................................40
5.13. ERISA.............................................................................................40
5.14. Maximum Debt to EBITDA Ratio......................................................................41
5.15. Capital Expenditure Limits........................................................................41
5.16. Minimum EBITDA....................................................................................42
5.17. Minimum Interest Coverage Ratio...................................................................42
5.18. Minimum Fixed Charges Coverage Ratio..............................................................43
5.19. Management Changes................................................................................43
5.20. Transactions Among Affiliates.....................................................................43
5.21. Additional Collateral Security Documents..........................................................43
5.22. Collateral Audit..................................................................................44
5.23. Notice upon Change in Control.....................................................................44
5.24. Management Meetings...............................................................................44
5.25. Maintenance of Property...........................................................................44
5.26. Other Agreements..................................................................................44
5.27. Other Information.................................................................................45
SECTION 6 - NEGATIVE COVENANTS...................................................................................45
6.1. Indebtedness......................................................................................45
</TABLE>
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<TABLE>
<S> <C>
6.2. Guarantees.......................................................................................46
6.3. Loans............................................................................................46
6.4. Liens and Encumbrances...........................................................................46
6.5. Additional Negative Pledge.......................................................................47
6.6. Restricted Payments..............................................................................47
6.7. Transfer of Assets; Liquidation..................................................................48
6.8. Acquisitions and Investments.....................................................................48
6.9. Payments to Affiliates...........................................................................49
6.10. Certain Changes..................................................................................49
6.11. Restrictive Agreements...........................................................................50
6.12. Use of Proceeds..................................................................................50
SECTION 7 - DEFAULT..............................................................................................51
7.1. Events of Default................................................................................51
7.2. Remedies.........................................................................................54
7.3. Right of Set-off.................................................................................55
7.4. Turnover of Property Held by Lender's Affiliates.................................................55
7.5. Remedies Cumulative; No Waiver...................................................................55
SECTION 8 - AGENCY PROVISIONS....................................................................................56
8.1. Application of Payments..........................................................................56
8.2. Set-Off..........................................................................................56
8.3. Modifications and Waivers........................................................................56
8.4. Obligations Several..............................................................................57
8.5. Lenders' Representations.........................................................................57
8.6. Investigation....................................................................................57
8.7. Powers of Agent..................................................................................57
8.8. General Duties of Agent, Immunity and Indemnity..................................................57
8.9. No Responsibility for Representations or Validity, etc...........................................58
8.10. Action on Instruction of Lenders; Right to Indemnity.............................................58
8.11. Employment of Agents.............................................................................58
8.12. Reliance on Documents............................................................................58
8.13. Agent's Rights as a Lender.......................................................................58
8.14. Expenses.........................................................................................58
8.15. Resignation of Agent.............................................................................59
8.16. Successor Agent..................................................................................59
8.17. Collateral Security and Intercreditor Agreements.................................................59
8.18. Enforcement by Agent.............................................................................60
8.19. Acknowledgment of Intercreditor Agreement........................................................60
</TABLE>
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<TABLE>
<S> <C>
SECTION 9 - MISCELLANEOUS........................................................................................60
9.1. Indemnification and Release Provisions...........................................................60
9.2. Participations and Assignments...................................................................61
9.3. Binding and Governing Law........................................................................61
9.4. Survival.........................................................................................61
9.5. No Waiver; Delay.................................................................................62
9.6. Modification.....................................................................................62
9.7. Headings.........................................................................................62
9.8. Notices..........................................................................................62
9.9. Payment on Non-Business Days.....................................................................63
9.10. Time of Day......................................................................................63
9.11. Severability.....................................................................................63
9.12. Counterparts.....................................................................................63
9.13. Confidentiality..................................................................................63
9.14. Consent to Jurisdiction and Service of Process...................................................64
9.15. WAIVER OF JURY TRIAL.............................................................................64
9.16. ACKNOWLEDGMENTS..................................................................................65
</TABLE>
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<PAGE> 6
LIST OF EXHIBITS
Schedule 1: Lenders Pro Rata Shares and Maximum Principal Amounts
Exhibit A Form of Promissory Note
Exhibit B: Disclosure Pursuant to Representations and Warranties
Exhibit C: Funding Costs and Loss of Earnings Calculation
Exhibit D: Form of Compliance Certificate
Exhibit E: Form of Assignment
Exhibit F: Incumbency Certificate
Exhibit G: Form of Notice of Conversion/Continuation
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<PAGE> 7
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is
made this _____ day of March, 2000, by and among MARKETING SPECIALISTS
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, and First Union as Lender and Agent are parties to
that certain Amended and Restated Credit Agreement dated August 18, 1999, as
amended (the "Existing Credit Agreement");
WHEREAS, the parties desire to amend the Existing Credit Agreement and the
Lenders signatory hereto desire to become party to the 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) or the collateral security therefor,
all of which shall remain outstanding under and be governed by this Agreement
and such Loan Documents;
NOW, THEREFORE, 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.
"Adjusted Base Rate" means the Base Rate plus 3.75%.
"Adjusted Libor Rate" means the Libor Rate plus 5.00%.
<PAGE> 8
"Affiliate" means as to any party: (i) any Person who or entity which
directly or indirectly owns, controls or holds five percent (5%) or more of the
outstanding beneficial interests in such party; (ii) any entity of which five
percent (5%) or more of the outstanding beneficial interest is directly or
indirectly owned, controlled, or held by such party; (iii) any entity which
directly or indirectly is under common control with such party; (iv) any
director or general partner of such party or any Affiliate; or (v) any immediate
family member of any Person who is an Affiliate. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of an entity,
whether through the ownership of voting securities, by contract, or otherwise.
"Agent" means First Union 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 Second Amended and Restated Credit Agreement and all
exhibits hereto, as each may be amended, modified, extended, consolidated or
restated from time to time.
"Authorized Officer" means any of the officers of the Borrower designated
as such pursuant to the most recent Incumbency Certificate delivered to Lenders.
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 Marketing Specialists Corporation, a Delaware
corporation. "Business Day" means any day not a Saturday, Sunday or a day on
which banks
are required or permitted to be closed under the laws of the Commonwealth of
Pennsylvania.
"Capital Expenditures" means, for any period, all expenditures which are
classified as capital expenditures in accordance with GAAP including all such
expenditures associated with Capital Lease Obligations.
"Capital Lease Obligations" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property, which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP. For purposes of this
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<PAGE> 9
Agreement, the amount of such Capital Lease Obligations shall be the capitalized
amount thereof, determined in accordance with GAAP.
"Capital Leases" means capital leases and subleases, as defined in
Statement 13 of the Financial Accounting Standards Board dated November 1976, as
amended and updated from time to time.
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, as amended from time to time, and all rules and
regulations promulgated pursuant thereto.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and regulations with respect thereto in effect from time to time.
"Collateral" means the collateral security for the Loan, including under
the Collateral Security Documents, this Agreement or any other Loan Document.
"Collateral Security Documents" means the Security Agreement, the Guaranty,
the Pledge Agreements, and any other document or instrument executed and/or
delivered from time to time hereunder or in connection herewith granting or
evidencing Collateral for the Senior Obligations.
"Company" means individually, and "Companies" means individually and
collectively, Borrower and each Guarantor.
"Compliance Certificate" means a certificate in the form of Exhibit D
attached hereto delivered by Borrower to Lenders pursuant to Paragraph 5.4
hereof.
"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 and any Person, the total of the following,
each calculated without duplication for such Person on a consolidated basis for
such period: (a) Net Income; plus (b) any provision for (or less any benefit
from) income or franchise taxes included in determining Net Income; plus (c)
Interest Expense deducted in determining Net Income; plus (d) amortization and
depreciation expense deducted in determining Net Income; plus (e) other noncash
charges deducted in determining consolidated net income and not already deducted
in accordance with clauses (b) and (c) of the definition of Net Income.
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<PAGE> 10
"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.
"Equity Interests" means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person and any option, warrant or
other right relating 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 an increase in Excess Cash Flow to the extent that
it is negative, and a decrease 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.
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<PAGE> 11
"Existing Credit Agreement" means the Amended and Restated Credit Agreement
dated August 18, 1999, as amended by Amendment No. 1 dated September 24, 1999.
"Existing 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 (as
defined therein);
(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.;
(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;
(iv) the payment obligations to the Stockholders of Paul Inman
Associates, Inc. under those certain Subordinated Promissory Notes dated October
13, 1999;
(v) 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 MSSC, Timmons-Sheehan, Inc. and the stockholders of
Timmons-Sheehan, Inc.;
(vi) 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;
(vii) 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
MSSC; and
(viii) obligation to Johnson-Lieber, Inc. under the Subordinated
Promissory Note dated January 27, 2000 by Marketing Specialists Sales Company.
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<PAGE> 12
"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."
"First Union" means First Union National Bank, a national banking
association.
"Fiscal Quarters" means the three (3) month periods falling in each Fiscal
Year ending March 31, June 30, September 30, and December 31.
"Fiscal Year" means a twelve (12) month period ending December 31.
"Fixed Charges" means, for any period, the total of the following for
Borrower calculated on a consolidated basis without duplication: (a) scheduled
amortization of Indebtedness plus (b) cash interest expense plus (c) cash taxes.
"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.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person or indemnifying such other Person from a
liability or other obligation and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness or other obligation of the payment
thereof or to protect the obligee against loss in respect thereof (in whole or
in part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor" means individually, and "Guarantors" means individually and
collectively, the Subsidiaries of Borrower, being MSSC, Paul Inman Associates,
Inc., a Michigan corporation and Bromar, Inc., a California corporation.
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<PAGE> 13
"Guaranty" means the Second Amended and Restated Guaranty Agreement
executed by Guarantors in favor of Lenders as delivered pursuant to Paragraph
4.1 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.
"Incumbency Certificate" means a certificate in the form of Exhibit F
attached hereto delivered by Borrower to Lenders from time to time.
"Indebtedness" means as to any Person at any time (without duplication):
(a) all obligations of such Person for borrowed money; (b) all obligations of
such Person evidenced by bonds, notes, debentures, or other similar instruments;
(c) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable of such Person arising in
the ordinary course of business that are not past due by more than ninety (90)
days or that are being contested in good faith by appropriate proceedings
diligently pursued and for which adequate reserves have been established; (d)
all Capital Lease Obligations of such Person; (e) all indebtedness or other
obligations of others Guaranteed by such Person; (f) all obligations secured by
a Lien existing on property owned by such Person, whether or not the obligations
secured thereby have been assumed by such Person or are non-recourse to the
credit of such Person; (g) all reimbursement obligations of such Person (whether
contingent or otherwise) in respect of letters of credit, bankers' acceptances,
surety or other bonds and similar instruments; (h) all liabilities of such
Person in respect of unfunded vested benefits under any Plan; (i) all
liabilities of such Person under any interest rate swap, interest rate caps,
interest rate collars or other similar agreements, or any foreign exchange,
currency hedging, commodity hedging or other similar agreement; (j) any
agreement pursuant to which a Person is or may become obligated to make any
payment (i) in connection with the purchase by any third party of any Equity
Interest or subordinated Indebtedness or (ii) the amount of which is determined
by reference to the price or value at any time of any Equity Interest or
subordinated indebtedness; (k) all obligations of such Person, contingent or
otherwise, for the payment of money under any noncompete, consulting or any
other similar arrangements providing for the deferred payment of the purchase
price for an acquisition; and (l) all other amounts which are, in accordance
with GAAP, required to be reflected as liabilities on a consolidated balance
sheet of such Person other than accruals and deferred taxes.
"Indemnification Escrow Agreement" means the Indemnification Escrow
Agreement dated December 18, 1998 entered into pursuant to the Merkert Stock
Purchase Agreement.
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<PAGE> 14
"Indenture" means the Indenture dated as of December 19, 1997 governing the
Richmont Subordinated Notes as amended by the Supplemental Indenture dated as of
August 18, 1999, and as may be further amended from time to time.
"Intercreditor Agreement" means the Intercreditor Agreement entered into
among the Borrower, the Agent, and the Revolver Agent, dated as of the date
hereof, and as may be amended from time to time.
"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 Maturity 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 Loan hereunder.
"Libor Portion" means a Portion as to which the applicable rate of interest
is based on the Adjusted Libor Rate.
"Libor Rate" means, for any Interest Period, as applied to a Libor Portion,
the rate per annum (rounded upwards, if necessary to the next 1/16 of 1%)
determined pursuant to the following formula:
Base Libor Rate
Libor Rate = ----------------------
1 - Reserve Percentage
For purposes hereof, "Base 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
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<PAGE> 15
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 1/16 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.
"Lien" means any lien, mortgage, security interest, tax lien, financing
statement, pledge, charge, hypothecation, assignment, preference, priority, or
other encumbrance of any kind or nature whatsoever (including, without
limitation, any conditional sale or title retention agreement), whether arising
by contract, operation of law, or otherwise.
"Loan" means the outstanding principal balance of indebtedness advanced
pursuant to Paragraph 2.1 hereof, together with interest accrued thereon and
fees and expenses payable hereunder in connection therewith.
"Loan Documents" means this Agreement, the Notes, the 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.
"MSSC" means Marketing Specialists Sales Company, a Texas corporation.
"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 (taken as a whole)
to perform their obligations under (i) this Agreement and the other Loan
Documents or (ii) the Revolver.
"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.
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<PAGE> 16
"Maturity Date" means March 30, 2002.
"Maximum Principal Amount" means the maximum principal amount of the Loan,
up to which the applicable Lender has agreed to lend funds as set forth in
Schedule 1 attached hereto.
"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.
"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), (v) or (vi).
"Net Income" means, for any period and any Person, such Person's
consolidated net income (or loss), but excluding: (a) the income of any other
Person (other than its subsidiaries) in which such Person or any of its
subsidiaries has an ownership interest, unless received by such Person or its
subsidiary in a cash distribution; (b) any after-tax gains or losses
attributable to asset disposition; (c) to the extent not included in clauses (a)
and (b) above, any after-tax extraordinary, non-cash or nonrecurring gains or
losses; and (d) non-cash or nonrecurring charges due to changes in accounting
principles required by GAAP.
"Note" means individually, and "Notes" means individually and collectively,
the Second Amended and Restated Notes in the form of Exhibit A attached hereto
delivered by Borrower to each Lender, as may be amended, modified or restated
from time to time.
"Notice of Conversion/Continuation" means a notice regarding selection of
interest rates in the form of Exhibit G attached hereto.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
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"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.
"Permitted Revolver Financing" means the Revolver on the date hereof and
any amendment or refinancing, provided, that (i) the principal amount shall not
exceed Sixty Million Dollars ($60,000,000), (ii) no Lien shall exist thereunder
other than the Lien on the Shared Collateral and (iii) any such amendment or
refinancing shall have no detrimental effect on the position of the Lenders
hereunder.
"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 Second Amended and Restated Pledge
Agreement executed by the Companies in favor of Agent pursuant to Paragraph
4.1(d) hereof and any additional Pledge Agreement executed and delivered from
time to time pursuant to Paragraph 5.21 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.
"Post-Default Payment" means any payments, or proceeds of the Collateral,
from the Borrower or any other source with respect to the Senior Obligations,
including from the exercise of any set-off which payments or proceeds are:
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(i) received by a Lender within 90 days prior to the commencement of a
bankruptcy proceeding of any nature as described in Paragraph 7.1(j) with
respect to the Borrower, or the acceleration of the Loan, and which payment
reduces the amount of the obligations owed to such Lender below the amount owed
to such Lender as of the 90th day prior to such occurrence, or
(ii) received by a Lender after commencement of a bankruptcy proceeding
of any nature as described in Paragraph 7.1(j) with respect to the Borrower, or
the acceleration of the Loan.
However, Post-Default Payments shall not include (i) payments made to the Agent
pursuant to Paragraph 2.10 of this Agreement or (ii) any payment made pursuant
to Paragraph 8.17(b).
"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 any Lender, the ratio which the outstanding
principal balance of its portion of the Loan bears to the aggregate outstanding
principal balance of the Loan at any time, or if no Indebtedness is outstanding
under the Loan or the context otherwise requires, its percentage share set forth
in Schedule 1 attached hereto.
"RCP" means Richmont Capital Partners I, L.P., a Delaware limited
partnership.
"Registration Rights Agreement" means the Registration Rights Agreement
dated the date hereof between the Borrower and the holders of the Warrants, and
as may be amended from time to time.
"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 sixty-six and two-thirds percent (66-2/3%) or more
of the aggregate principal amount outstanding under the Loan.
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"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 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 Libor Portion 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.
"Revolver" means that certain Credit Agreement among the Companies, the
Revolver Lenders and the Revolver Agent, dated the date hereof, and as may be
amended from time to time.
"Revolver Agent" means The Chase Manhattan Bank, as agent for the Revolver
Lenders under the Revolver, or any successor agent thereunder.
"Revolver Lenders" means the financial institution identified as "Banks" in
the Revolver.
"Richmont" means Richmont Marketing Specialists, Inc., a Delaware
corporation.
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"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 Subordinated Notes" means the 10 1/8 % Senior Subordinated Notes
due 2007 issued pursuant to the Indenture.
"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.
"Sales Force" means The Sales Force Companies, Inc., an Illinois
corporation.
"Sales Force Acquisition" means the acquisition by the Borrower of all of
the outstanding capital stock of Sales Force pursuant to that certain Stock
Purchase Agreement by and among MSSC, Sales Force and the stockholders of Sales
Force dated as of February__, 2000 and in form and substance acceptable to the
Lenders.
"Security Agreement" means the Second Amended and Restated Security
Agreement executed by Borrower and Guarantors delivered pursuant to Paragraph
4.1(c) hereof (including as joined in by any additional Guarantors pursuant to
Paragraph 5.21 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,
including, without limitation, the Existing Subordinated Obligations.
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"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 Loan, (ii) any currency
or interest rate swap or similar obligation with any Lender, and (iii) any other
obligation under any Loan Document.
"Senior Secured Debt" means any Indebtedness that is secured by any asset
(real, personal, or mixed) of Borrower or any Subsidiary, including without
limitation the principal balance of the Loan and all Capital Leases.
"Shared Collateral" has the meaning given such term in the Intercreditor
Agreement.
"Stockholders Agreement" means the Stockholders Agreement dated the date
hereof among the Borrower, First Union Investors, Inc., a North Carolina
corporation, MS Acquisition Limited, a Delaware limited partnership, and
Richmont Capital Partners I, L.P., a Delaware limited partnership, as may be
further amended from time to time.
"Subordinated Debt" means the Existing Subordinated Obligations, the
Richmont Subordinated Notes and any other Indebtedness of Borrower or a
Subsidiary subordinated to the Senior Obligations pursuant to a subordination
agreement in form and substance satisfactory to the Required Lenders, as
approved in writing prior to the incurrence of such Indebtedness.
"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 meeting the requirements set forth in the
Waiver Agreement, or (ii) this Agreement being terminated and all amounts due
and owing hereunder having been fully paid in cash.
"Synthetic Purchase Agreement" means any agreement pursuant to which a
Person is or may become obligated to make any payment (i) in connection with the
purchase by any third party of any Equity Interest or Subordinated Debt or (ii)
the amount of which is determined by reference to the price or value at any time
of any Equity Interest or subordinated Indebtedness; provided that no phantom
stock or similar plan providing for payments only to
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current or former directors, officers or employees of any Company shall be
deemed to be a Synthetic Purchase Agreement.
"Tax Escrow Agreement" means the Tax Escrow Agreement dated December 18,
1998, entered into pursuant to the Merkert Stock Purchase Agreement.
"Three Party Agreement" means an agreement entered into among the Revolver
Agent, the Agent, the Companies and a depository institution at which an
approved lock box and approved lock box account are maintained, which Three
Party Agreement Relating to Lockbox Services (With Activation) shall be
substantially in the form of that certain Three Party Agreement dated the date
hereof among the Revolver Agent, MSSC and Bank of America, N.A..
"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 Loan 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.
"Voting Agreement" means the Voting Agreement dated August 18, 1999 among
MS Acquisition Limited, Ronald D. Pedersen, Bruce A. Butler, Gary R. Guffey,
Jeffrey A. Watt, Monroe & Company LLC, and JLM Management LLC.
"Waiver Agreement" means the Waiver, Consent and Amendment Agreement dated
August 13, 1999 among Borrower and First Union as Lender and as Agent.
"Warrant Agreement" means the Warrant Agreement dated the date hereof
between Borrower and the holders of the Warrants, and as may be further amended
from time to time.
"Warrant Agreements" means (i) the Warrant Agreement, (ii) the Registration
Rights Agreement and (iii) the Stockholders Agreement, collectively providing
for customary rights acceptable to the Lenders (including, but not limited to,
anti-dilution, pre-emptive, co-sale and piggyback rights and put provisions) and
containing certain clawback provisions limiting the ability of the holders of
the Warrants to exercise the entirety of the Warrants.
"Warrants" means detachable Warrants issued to the Lenders or their
Affiliates representing the right to purchase at a nominal exercise price four
percent (4%) of the Common Stock of Borrower on a fully diluted basis, and
governed by the Warrant Agreements.
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"Working Capital" means current assets (net of cash) less current
liabilities (net of short term debt and current maturities of long term debt).
"Year 2000 Compliant" and "Year 2000 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.
SECTION 2
TERM LOAN
2.1. Term Loan. Pursuant to the Existing Credit Agreement and prior to the
effective date hereof, First Union advanced the Loan to Borrower, in the
aggregate amount of Thirty-Five Million Dollars ($35,000,000). The Loan is
hereby continued under this Agreement.
2.2. Promissory Notes. The Indebtedness of the Borrower to each Lender will
be evidenced by a Note executed by Borrower in favor of such Lender. The
original principal amount of each Lender's Note will be in the amount identified
in Schedule 1 attached hereto as its Maximum Principal Amount; provided,
however, that notwithstanding the face amount of
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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.
The Notes collectively amend and restate the Amended and Restated Revolving
Credit Note and the Amended and Restated Term Note executed and delivered by
Borrower pursuant to the Existing Credit Agreement (the "Prior Notes");
provided, however, that such 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 Loan in the
Maximum Principal Amounts and Pro Rata Shares set forth in Schedule 1 attached
hereto.
2.4. Use of Proceeds. The Loan shall be used solely to partially refinance
outstanding amounts under the Existing Credit Agreement, and in no event shall
funds be advanced to or used by Subsidiaries that are not Guarantors.
2.5. Repayment. Subject to certain mandatory prepayments as set forth in
Paragraph 2.7 hereof, the aggregate outstanding principal balance under the Loan
on the Maturity Date together with all interest, fees and costs due hereunder,
shall be due and payable in full on such Maturity Date. Notwithstanding the
foregoing, the entire outstanding balance of the Loan shall be due and payable
immediately upon acceleration of the Loan in accordance with Paragraph 7.2
hereof.
2.6. Interest. Portions of the Loan 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 Loan shall bear interest at either (A) the
Adjusted Base Rate, or (B) the Adjusted Libor 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 for each such Libor Portion through the end of
the applicable Interest Period, and thereafter, at
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the rate of two percent (2%) per annum in excess of the Adjusted Base Rate and
(B) on any Base Rate Portion, at the rate of two percent (2%) per annum in
excess of the Adjusted Base Rate.
(b) Procedure for Determining Interest Periods and Rates of Interest.
(i) If Borrower elects the Adjusted 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 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 timely notice of its
election of the Adjusted Libor Rate, Borrower shall be deemed to have elected
that the Adjusted Base Rate shall apply to any Portion as to which the Interest
Period is expiring until Borrower shall have given proper notice of a change in
or determination of the rate of interest in accordance with this Paragraph
2.6(a). Notices with respect to the selection of interest rates pursuant to this
Paragraph 2.6(b) shall be made by delivery to Agent of a Notice of
Conversion/Continuation.
(ii) Borrower shall not elect more than six (6) different Libor
Portions to be applicable to the Loan 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 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 Adjusted
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
(i) on the basis of the actual number of days elapsed over a year of 360 days if
at the Adjusted Libor Rate, or (ii) over a year of 365 or 366 days, as
applicable, if at the Adjusted Base Rate.
(d) Reserves. If at any time when a Portion is subject to 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 Libor Rate, Borrower hereby agrees to pay within five (5)
Business Days of written demand thereof from
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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 Loan with respect to which such
payment is required, subject to the requirements of Paragraph 2.7 and 2.8
hereof.
(e) Special Provisions Applicable to Adjusted Libor Rate. The following
special provisions shall apply to the Adjusted Libor Rate:
(i) Change of Adjusted Libor Rate. The Adjusted Libor Rate may be
automatically adjusted by Agent on a prospective basis to take into account the
additional or increased cost of maintaining any necessary reserves for
Eurodollar deposits or increased costs due to changes in applicable law or
regulation or the interpretation thereof occurring subsequent to the
commencement of the then applicable Interest Period, including but not limited
to changes in tax laws (except changes of general applicability in corporate
income tax laws) and changes in the reserve requirements imposed by the Board of
Governors of the Federal Reserve System (or any successor), excluding the
Reserve Percentage and any Reserve which has resulted in a payment pursuant to
subparagraph (d) above, that increase the cost to Lenders of funding the Loan or
a Portion thereof bearing 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
Loan with respect to which such adjustment is made, subject to the requirements
of Paragraph 2.7 and 2.8 hereof.
(ii) Unavailability of Eurodollar Funds. In the event that Borrower
shall have requested 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
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are unavailable, or that 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 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 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
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 Loan subject to 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 Adjusted Libor Rate shall be suspended until such time as such Lender (or
such Lender's bank Affiliate) may again cause the Adjusted Libor Rate to be
applicable to any Portion of the outstanding principal balance of the Loan and
any such Lender's share of any Portion shall then be subject to the Adjusted
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. 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 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 2.8 hereof. Any
such payment with respect to the 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, Borrower
shall make principal payments on the Loan in the circumstances and in the
amounts set forth below:
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(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), all of the Net Cash
Proceeds to the seller of such transaction shall be paid directly to Agent for
the account of Lenders; provided, however, that (x) proceeds with respect to
condemnation, damage or destruction of property shall not be required to be
applied to the Loan pursuant hereto if such proceeds are used to repair or
replace such property within one hundred eighty (180) days after receipt by
Borrower or its Subsidiaries, and (y) the proceeds of the sale of the (1) Rogers
Building in Charlotte, North Carolina pursuant to Paragraph 6.7(a) hereof shall
be applied first to the payment of the mortgage thereon, and then to payment to
certain prior shareholders of Rogers-American Company, Inc. to the extent they
have not been paid prior thereto and (2) 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 any Company incurs Indebtedness
consented to by Required Lenders which is not otherwise permitted pursuant to
Paragraph 6.1 hereof, all of the net cash proceeds of such Indebtedness shall be
paid directly to Agent for the account of the Lenders.
(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 stock options issued to officers, employees and directors of
the Borrower or its Subsidiaries, and (y) the issuance of stock as consideration
for acquisitions), all of the net cash proceeds to the Borrower of such issuance
shall be paid directly to Agent for the account of the Lenders.
(D) Refunds. In the event that Borrower or any Subsidiary
receives any return of any surplus assets of any pension plan, or receives any
tax refund, the full amount of such returned assets or such refund shall be paid
immediately to Agent for the account of the Lenders.
(ii) Excess Cash Flow. Until the 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, 2000, Borrower shall
make a prepayment of the Loan in an amount equal to seventy-five percent (75%)
of Excess Cash Flow for such Fiscal Year.
(iii) Additional Requirements. Any payments pursuant to this
Paragraph 2.7(b) shall be accompanied by all accrued and unpaid interest and
fees in connection with the amount prepaid (including any amount payable under
Paragraph 2.8 hereof); provided,
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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
Loan shall be repaid pursuant to such payments; and (y) if any amount would
otherwise be payable by Borrower pursuant to Paragraph 2.8 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), Borrower shall pay any cost associated
with the establishment or maintenance of such account and 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).
(c) 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.
2.8. Funding Costs and Loss of Earnings. In connection with any prepayment
or repayment of a Portion bearing interest at the Adjusted Libor Rate made on
other than the last day of the applicable Interest Period, whether such
prepayment or repayment is voluntary, mandatory, by demand, acceleration or
otherwise, Borrower shall pay to Lenders all reasonable funding costs and loss
of earnings which may arise in connection with such prepayment or repayment, as
calculated by Agent in accordance with Exhibit C hereto.
2.9. 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 at 1345 Chestnut Street, Philadelphia, PA 19107, or such other office as
may be designated by Agent from time to time. Borrower hereby authorizes Agent
to charge Borrower's account with Agent for all payments of principal, interest
and fees when due hereunder.
2.10. 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
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holding company, as a consequence of this Agreement or the Loan to a level below
that which such Lender or its holding company could have achieved but for such
adoption, change or compliance (taking into consideration such Lender's policies
and the policies of such Lender's holding company with respect to capital
adequacy) by an amount deemed by such Lender to be material, then from time to
time Borrower shall pay to such Lender such additional amount or amounts as will
compensate such Lender or its holding company for any such reduction suffered
together with interest on each such amount from the date demanded until payment
in full thereof at the rate provided in Paragraph 2.6(a)(ii) hereof with respect
to amounts not paid when due. Such Lender will notify Borrower of any event
occurring after the date of this Agreement that will entitle such Lender to
compensation pursuant to this Paragraph 2.10, 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 2.10.
2.11. Subordination. The Borrower hereby agrees that the Subordinated
Indebtedness (as defined below) shall be subordinate and junior in right of
payment to the prior payment in full of all Obligated Party Obligations as
herein provided. The Subordinated Indebtedness shall not be payable, and no
payment of principal, interest or other amounts on account thereof, and no
property or guarantee of any nature to secure or pay the Subordinated
Indebtedness shall be made or given, directly or indirectly by or on behalf of
any Subordination Party (hereafter defined) or received, accepted, retained or
applied by any Company unless and until the Obligated Party Obligations shall
have been paid in full in cash; except that prior to the occurrence and
continuance of a Default, a Company shall have the right to receive, accept,
retain and apply payments on the Subordinated Indebtedness made in the ordinary
course of business. After the occurrence and during the continuance of a
Default, no payments of principal or interest may be made or given, directly or
indirectly, by or on behalf of any Subordination
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Party or received, accepted, retained or applied by any Company unless and until
the Obligated Party Obligations shall have been paid in full in cash. If any
sums shall be paid to a Company by any Subordination Party or any other Person
on account of the Subordinated Indebtedness when such payment is not permitted
hereunder, such sums shall be held in trust by such Company for the benefit of
Agent and the Lenders and shall forthwith be paid to Agent without affecting the
liability of the Borrower under this Agreement and may be applied by Agent
against the Obligated Party Obligations in accordance with this Agreement as if
such payments were Collateral. Upon the request of Agent, the Borrower shall
execute, deliver, and endorse to Agent such documentation as Agent may request
to perfect, preserve, and enforce its rights hereunder. For purposes of this
Agreement and with respect to a Company, the term "Subordinated Indebtedness"
means all indebtedness, liabilities, and obligations of any other Company or any
Obligated Party (herein a "Subordination Party") to such Company, whether such
indebtedness, liabilities, and obligations now exist or are hereafter incurred
or arise, or are direct, indirect, contingent, primary, secondary, several,
joint and several, or otherwise, and irrespective of whether such indebtedness,
liabilities, or obligations are evidenced by a note, contract, open account, or
otherwise, and irrespective of the Person or Persons in whose favor such
indebtedness, obligations, or liabilities may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by such Company. The term "Obligated Party Obligations" means, with
respect to any Subordination Party, all obligations, indebtedness and liability
of such Subordination Party to the Agent and the Lenders under the Loan
Documents (including, without limitation, any and all post-petition interest and
expenses whether or not allowed under any bankruptcy, insolvency or other
similar law). The Borrower agrees that any and all Liens (including any judgment
liens) upon any Subordination Party's assets securing payment of any
Subordinated Indebtedness shall be and remain inferior and subordinate to any
and all Liens upon any Subordination Party's assets securing payment of the
Obligated Party Obligations or any part thereof, regardless of whether such
Liens in favor of a Company, Agent or any Bank presently exist or are hereafter
created or attached. Without the prior written consent of Agent, no Company
shall (i) file suit against any Subordination Party or exercise or enforce any
other creditor's right it may have against any Subordination Party, or (ii)
foreclose, repossess, sequester, or otherwise take steps or institute any action
or proceedings (judicial or otherwise, including without limitation the
commencement of, or joinder in, any liquidation, bankruptcy, rearrangement,
debtor's relief or insolvency proceeding) to enforce any obligations of any
Subordination Party to such Company or any Liens held by such Company on assets
of any Subordination Party. In the event of any receivership, bankruptcy,
reorganization, rearrangement, debtor's relief, or other insolvency proceeding
involving any Subordination Party as debtor, Agent shall have the right to prove
and vote any claim under the Subordinated Indebtedness and to receive directly
from the receiver, trustee or other court custodian all dividends,
distributions, and payments made in respect of the Subordinated Indebtedness
until the Obligated Party Obligations have been paid in full in cash.
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Agent may apply any such dividends, distributions, and other payments against
the Obligated Party Obligations in accordance with this Agreement as if such
payments were Collateral.
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 B, 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 B 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 B attached hereto,
there exists no material default under any contracts material to the businesses
of the Companies or their Subsidiaries.
3.5. Compliance.
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(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 B 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 B, 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. All real estate owned by any of the Companies is
listed as Exhibit B attached hereto, including the street address and real
property description with respect thereto. 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 B attached hereto. All such assets are fully covered by the insurance
required under Paragraph 5.8 hereof.
3.8. Accuracy of Information; Full Disclosure.
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(a All information furnished to Lenders concerning the financial
condition and results of operations of the Companies, including the pro forma
financial statements for the Companies on a consolidated basis for the Fiscal
Year ended December 31, 1998 and the interim pro forma financial statements for
the Companies on a consolidated basis for the nine months ended September 30,
1999 (but not including projections) has been prepared in accordance with GAAP
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.
(b This Agreement 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 any and all
facts which would, either singly or in the aggregate, have a Material Adverse
Effect. The company prepared financial statements for the Companies on a
consolidated basis for the Fiscal Year ended December 31, 1999 have been
prepared by the Borrower in good faith and the Borrower reasonably believes that
such statements fairly present in all material respects the financial condition
and results of operations of the Companies as of the dates and for the periods
covered and disclose all liabilities of the Companies required to be disclosed
in accordance with GAAP.
3.9. Taxes and Assessments. Except as described on Exhibit B attached
hereto:
(a Each Company and each Subsidiary has filed all required tax returns
or has filed for extensions of time for the filing thereof, and has paid all
applicable federal, state and local taxes, other than taxes not yet due or which
may be paid hereafter without penalty; provided that no such taxes shall be
required to be paid if they are being contested in good faith by appropriate
proceedings and are covered by appropriate reserves maintained in accordance
with GAAP; and there is no material tax deficiency or additional assessment in
connection therewith not provided for in the financial statements required
hereunder; and
(b Each Company and each Subsidiary has properly withheld all amounts
required by law to be withheld for income taxes and unemployment taxes including
without limitation, all amounts required with respect to social security and
unemployment compensation, relating to its employees, and has remitted such
withheld amounts in a timely manner to the appropriate taxing authority, agency
or body.
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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 B attached hereto, and
indebtedness permitted pursuant to Paragraph 6.1 hereof. Without limiting the
foregoing, set forth on Exhibit B is a complete and accurate listing of all
Seller Obligations outstanding as of the date hereof, indicating the Person to
whom the obligation is owed, the aggregate principal amount thereof as of
December 31, 1999, such obligations are due; and all such Seller Obligations, to
the extent they remain unpaid as of the date hereof, 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 B attached hereto.
3.12. Investments; Ownership. Each (a) direct and indirect Subsidiary of
Borrower and (b) holder of at least five percent (5%) of any class of stock in
the Borrower is identified on Exhibit B attached hereto, which indicates (x) as
to each such Subsidiary, the number of shares and classes of stock, and the
ownership thereof, and (y) as to each holder, the number of shares and classes
of stock of such holder. 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 ss.412 of the Code, whether or not waived which would, either
singly or in the aggregate, have a Material Adverse Effect;
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(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
(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 B, 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 Loan 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 Loan 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 B 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 (other
than the Shared Collateral, in which the security interest of the Lenders shall
be second only to that of the Revolver Lenders) covered by the Security
Agreement and the Pledge Agreement, subject to the Permitted Liens.
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3.17. Hazardous Wastes, Substances and Petroleum Products. Except as
otherwise set forth on Exhibit B 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.
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 contingent 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
its 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.
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(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 Loan has 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 B, 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. Year 2000 Compliance. The Companies completed a review and assessment
of their material computer systems and applications, micro-processor based goods
and equipment owned or used by them in their business, and all products
currently sold by them, and have made inquiry of their material suppliers,
vendors and customers, with respect to functionality before, during and after
the year 2000 (the "Year 2000 Problem"). Based on the foregoing review,
assessment and inquiry and the Borrower's experience through the date of this
Agreement with such systems, applications, goods and equipment, the Year 2000
Problem has not had and will not result in a Material Adverse Effect.
3.21. Indenture. The Senior Obligations have been (and hereby are)
designated as "Designated Senior Indebtedness" (as defined in the Indenture) for
all purposes under the Indenture.
SECTION 4
CONDITIONS
4.1. Effectiveness of Second 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:
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(a Promissory Notes. The Notes duly executed by Borrower.
(b Guaranty. A Second Amended and Restated Guaranty Agreement duly
executed by each wholly-owned Subsidiary of Borrower, jointly and severally, in
favor of Lenders.
(c Security Agreement. A Second Amended and Restated Security Agreement
duly 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.
(d Pledge Agreement. A Second Amended and Restated Pledge Agreement
duly executed by each of the Companies in favor of Agent, for the benefit of
Lenders, pledging all of the issued and outstanding shares of capital stock of
each direct and indirect Subsidiary of Borrower to Agent, for the benefit of
Lenders, as Collateral for the Senior Obligations, together with the stock
certificates evidencing the pledged shares and stock powers duly endorsed in
blank.
(e 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 and (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 including incumbencies of each Company 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.
(f 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.
(g Corporate Opinion. Legal opinions addressing corporate, validity,
perfection and enforceability matters with respect to each Company, and opining
that no violation of the terms of the Indenture has occurred, reasonably
satisfactory to Agent.
(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.
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(i Real Estate. Title reports, appraisals and environmental assessments
for all real property owned by the Companies, with results satisfactory to
Agent.
(j Landlord Waivers. Each landlord consent and waiver delivered for the
benefit of the Revolver Lenders, which shall equally be for the benefit of the
Lenders.
(k Financial Projections. Financial projections including, but not
limited to balance sheets, income statements and cash flow statements for
Borrower and its consolidated Subsidiaries for the period January 1, 2000
through December 31, 2001, certified by the chief financial officer of Borrower
as constituting a good faith projection based upon assumptions believed to be
reasonable.
(l Warrants. The Warrants and Warrant Agreements duly executed by the
respective parties thereto, all in form and substance satisfactory to Lenders.
(m Event of Default. No Event of Default or Default shall have occurred
and be continuing and all of the representations and warranties set forth herein
and in the other Loan Documents shall be true and correct.
(n Certain Agreements. An acknowledgment executed by RCP regarding the
limitations imposed hereunder on fees payable to such party by the Companies.
(o Notice to Subordinated Debt Holders. Written notice shall have been
delivered to each holder of the Existing Subordinated Obligations of the amount
of the Loan hereunder.
(p Indenture. Evidence satisfactory to the Agent that (i) the holders
of the Richmont Subordinated Notes shall have consented to the departure from
Section 4.03 of the Indenture to permit the incurrence of Indebtedness hereunder
and under the Revolver and (ii) the Indebtedness hereunder is "Senior
Indebtedness" and has been designated as "Designated Senior Indebtedness" under
the Indenture.
(q Letters of Credit. All letters of credit issued by the Agent at the
request of any Company shall have been released and terminated with the consent
of the beneficiary and replaced by letters of credit issued for the account of
RCP, and a written undertaking by RCP to provide for the additional projected
letter of credit requirements of the Companies. Any recourse to any of the
Companies or their assets in connection with such letters of credit shall be
expressly subordinated to the Lenders and may be taken only prior to the
occurrence of an Event of Default hereunder.
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<PAGE> 41
(r Intercreditor Agreement. An Intercreditor Agreement executed by the
Borrower, the Agent and the Revolver Agent.
(s Revolver. A certificate by an Authorized Officer of Borrower,
certifying that all conditions to closing of the Revolver have been met (without
waiver by the Companies), together with copies of (i) authorizing resolutions
and (ii) executed closing documents delivered in connection with the Revolver,
in form and substance satisfactory to the Lenders with a maximum principal
amount of not less than Fifty Million Dollars ($50,000,000).
(t Availability under Revolver. A certificate of the Borrower setting
forth the calculation of the amount available to be advanced under the Revolver
after giving effect to the funding of the Sales Force Acquisition, the repayment
of the Existing Credit Agreement and other items permitted to be paid at
closing, which amount shall not be less than Eighteen Million Dollars
($18,000,000).
(u Equity. Verification satisfactory to the Agent that the Borrower
received at least Ten Million Dollars ($10,000,000) on the date hereof from MS
Acquisition Limited, a Delaware limited partnership, in exchange for share of
common stock in the Borrower.
(v Three Party Agreement. The Three Party Agreement duly executed by
each party thereto.
(w Repayment of Indebtedness. Evidence of repayment, with proceeds of
the Loan and the initial amount advanced under the Revolver, of all amounts
outstanding under the Existing Credit Agreement, except for the Term Loan
continued hereunder, together with (i) all accrued and unpaid interest, (ii) all
costs and charges for which invoices have been issued and (iii) any funding
costs and loss of earnings arising in connection with such repayment.
(x Seller Obligations. Receipt of a detailed analysis on the Seller
Obligations in form and substance satisfactory to the Agent.
(y Consents. Receipt of all required consents and approvals under
applicable law or contract, including, without limitation, consent of the
holders of the Richmont Subordinated Notes.
(z Other Documents. Such additional documents as Agent reasonably may
request.
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4.2. Sales Force Acquisition. The Lenders' consent to the Sales Force
Acquisition shall be subject to the Agent's receipt of the following documents
and satisfaction of the following conditions:
(a Joinder. A joinder to the Guaranty, the Security Agreement and the
Intercreditor Agreement by Sales Force and each of its Subsidiaries, a
supplement to the Pledge Agreements or an additional Pledge Agreement pledging
all of the shares of stock of Sales Force and each of its Subsidiaries, and such
other documents as Agent may reasonably require in connection therewith,
including without limitation UCC-1 financing statements, secretary's
certificates, resolutions and legal opinions, all in form and substance
satisfactory to Agent.
(b Lien Searches. Uniform Commercial Code, tax lien and judgment lien
searches against Sales Force and each of its Subsidiaries in those offices and
jurisdictions as Agent shall reasonably request.
(c Pay-Offs and Releases. Evidence of the pay-off and/or release of all
Indebtedness of Sales Force and each of its Subsidiaries, in form and substance
satisfactory to Agent.
(d Indenture Compliance. Evidence of compliance with the covenants set
forth in the Indenture, including evidence of the permissibility of the
incurrence of debt in connection with the proposed acquisition, with supporting
documentation in form and substance satisfactory to Agent.
(e Acquisition Documents. Certified copies of the letter of intent,
purchase agreement and Seller Obligations, which documents shall be satisfactory
to Agent and which Seller Obligations shall be subordinated to the Senior
Obligations on terms approved in writing by all Lenders.
(f Disclosures. Disclosures pursuant to the representations and
warranties set forth in Section 3 of this Agreement and pursuant to the Security
Agreement and any other Loan Documents, reflecting the Sales Force Acquisition,
all of which shall have been approved by Lenders in writing.
(g Other Information. Other information that the Agent may reasonably
request, including copies of due diligence reports prepared by or for the
Borrower.
(h Closing Certificate. A certificate by an Authorized Officer of
Borrower, certifying that all conditions to closing of the acquisition have been
met (without waiver by the Companies).
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SECTION 5
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as 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 thirty-five (35) days after the end of
each month that is not a fiscal quarter end, unaudited consolidated and
consolidating financial statements for such month and for the year to date, in
form and substance as reasonably required by Agent, including (i) a balance
sheet, (ii) a 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).
(b Furnish to each Lender within forty-five (45) days after the end of
each Fiscal Quarter that is not a Fiscal Year end, 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 ninety (90)
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
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of the annual audit, with copies of any management letters prepared
by such 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
Compliance Certificate 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, 5.16, 5.17 and 5.18.
5.5. Additional Reports.
(a) Not later than the last Business Day of the first month of each
Fiscal Year, furnish to each Lender, in form reasonably satisfactory to Agent,
the Borrower's business plan for such Fiscal Year, which shall include, without
limitation, a balance sheet, an income statement, a statement of cash flows and
the revenues/losses projected to result for such Fiscal Year, all approved by
the Board of Directors of Borrower.
(b) At the time of delivery of monthly financial statements pursuant to
Paragraph 5.2(a), furnish to each Lender 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.
(c) On the date delivered to the Revolver Agent, a copy of each item
delivered to the Revolver Agent in accordance with Section 8.1(d) of the
Revolver.
(d) Furnish to each Lender at the time of delivery financial statements
pursuant to Paragraph 5.2(a) for March, 2000, June 2000, and each month
thereafter cash flow projections for the twelve week period immediately
following such month, including, but not limited to, a calculation of borrowing
needs for such twelve week period and projected borrowing availability under the
Revolver for such twelve week period; provided, that such reporting shall no
longer be required after the date on which Lenders have been provided evidence
satisfactory to them that (i) the consolidated EBITDA of Borrower calculated for
the nine-month period ended December 31, 2000 equals or exceeds Forty Million
Dollars ($40,000,000); or (ii) the consolidated EBITDA of Borrower calculated
for any twelve month period equals or exceeds Fifty Million Dollars
($50,000,000).
5.6. Public Information. Deliver to Lenders promptly following transmission
thereof, copies of all financial statements, proxy statements, notices and
reports, and copies of
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any registration statement or annual or quarterly reports, if any, filed with
the Securities and Exchange Commission (or successor entity) or sent to
shareholders of Borrower.
5.7. Books and Records. Keep and maintain satisfactory and adequate books
and records of account in accordance with GAAP and make or cause the same to be
made available to Agent or its agents or nominees at any reasonable time upon
reasonable notice for inspection and to make extracts thereof and permit Agent
or its agents or nominees to discuss contents of same with senior officers of
Borrower and also with outside auditors and accountants of Borrower.
5.8. Insurance. Keep and maintain all of its property and assets in good
order and repair and covered by insurance with reputable and financially sound
insurance companies against such hazards and in such amounts as is customary in
the industry, under policies requiring the insurer to furnish reasonable notice
to Agent and opportunity to cure any non-payment of premiums prior to
termination of coverage and naming Agent, for the benefit of Lenders, as loss
payee and additional insured.
5.9. Litigation; Event of Default. Notify Lenders in writing immediately of
the institution of any litigation, the commencement of any administrative
proceedings, the happening of any event or the assertion or threat in writing of
any claim, to the extent that any of the foregoing, either singly or in the
aggregate, would, either singly or in the aggregate, have a Material Adverse
Effect, or the occurrence of any Event of Default or Default hereunder. Without
limitation of the foregoing, Borrower shall keep Lenders reasonably advised as
to the status of such litigation.
5.10. Taxes. Subject to the matters disclosed on Exhibit B 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
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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 and the repayment of the
Loan.
5.12. Compliance; Notification.
(a Comply in all material respects with all local, state and federal
laws and regulations applicable to its business, including without limitation
all laws and regulations of the Local Authorities, and with the provisions and
requirements of all franchises, permits, certificates of compliance, approval
and need issued by regulatory authorities and with other like grants of
authority held by any Company; and notify Lenders immediately in detail of any
actual or alleged failure to comply with or perform, breach, violation or
default under any such laws or regulations or under the terms of any of such
franchises, licenses or grants of authority, or of the occurrence or existence
of any facts or circumstances which with the passage of time, the giving of
notice or otherwise could create such a breach, violation or default or could,
either singly or in the aggregate, occasion the termination of any of such
franchises, licenses or grants of authority, to the extent that any of the
foregoing would, either singly or in the aggregate, have a Material Adverse
Effect.
(b With respect to applicable Environmental Laws, promptly notify Agent
when, in connection with the conduct of the Companies' business(es) or
operations, any Person (including, without limitation, EPA or any state or local
agency) provides oral or written notification to any Company, or any Company
otherwise becomes aware, of a condition with regard to a Release or threat of
Release of Hazardous Substances which would, either singly or in the aggregate,
have a Material Adverse Effect; and notify Agent in detail 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
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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. Maximum Debt to EBITDA Ratio. As of the last day of each Fiscal
Quarter, Borrower shall not permit the ratio of (a) the principal amount of all
Indebtedness of the Companies outstanding as of such date determined on a
consolidated basis to (b) Adjusted EBITDA calculated for the four (4) Fiscal
Quarter period ending on the last day of such Fiscal Quarter to be more than:
(i) 7.75 to 1.00 as of the Fiscal Quarter ending on June 30, 2000; (ii) 6.50 to
1.00 as of the Fiscal Quarter ending on September 30, 2000; and (iii) 6.00 to
1.00 as of the Fiscal Quarter ending on December 31, 2000, and for each Fiscal
Quarter thereafter. As used in this Paragraph 5.14 the following terms have the
following meanings:
"Adjusted EBITDA" means, for any period, (a) Borrower's consolidated EBITDA
plus (b) for calculations including the Fiscal Quarter ending September 30,
1999, $10,452,000, plus (c) for calculations including the Fiscal quarter
ending December 31, 1999, $11,420,000, plus (d) at any time after the Sales
Force Acquisition is consummated, an amount equal to the lesser of (i) the
actual consolidated EBITDA for companies acquired in the Sales Force
Acquisition or (ii) $1,000,000 for each Fiscal Quarter (or pro-rated portion
thereof for partial Fiscal Quarters) that is included in the measurement
period for Adjusted EBITDA but that is before the Sales Force Acquisition is
consummated.
5.15. Capital Expenditure Limits. The Borrower shall not, and shall not
permit any Subsidiary to, make or incur Capital Expenditures during each period
set forth in the table below in excess of an aggregate amount for the Borrower
and all Subsidiaries equal to the applicable Capital Expenditure Limit for such
period. The term "Capital Expenditure Limit" means, for each period set forth in
the table below, the sum of (a) the Dollar amount set forth in the table below
opposite the applicable period (such Dollar amount as set forth for each such
period herein the "Yearly Limit") plus (b) One Hundred percent (100%) of the
portion of the Yearly Limit from the immediately preceding period which was not
expended by the Borrower and the Subsidiaries in such preceding period (the
amount calculated for any period under this clause (b), herein the "Carryover
Amount"). In calculating compliance with this Section 10.6, (a) Capital
Expenditures made in a period shall first be debited against the Yearly Limit
for such period then debited against the Carryover Amount carried into such
period, if any, from the preceding period pursuant to this Section 10.6, and (b)
the aggregate amount of all payments due under a Capital Lease Obligation for
the entire term thereof (excluding, however, the interest
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portion of capitalized lease payments) shall be considered expended in full on
the date that the Capital Lease Obligation is entered into.
<TABLE>
<CAPTION>
====================================== ==========
Period Amount
====================================== ==========
<S> <C>
Calendar year ending December 31, 2000 $7,000,000
- -------------------------------------- ----------
Each Fiscal Year thereafter $7,500,000
====================================== ==========
</TABLE>
5.16. Minimum EBITDA. As of the last day of each Fiscal Quarter during the
periods set forth below, Borrower shall cause its EBITDA calculated for the four
(4) Fiscal Quarters then ended to be not less than the amount set forth below
opposite the applicable period:
<TABLE>
<CAPTION>
========================================== ===========
Period Amount
========================================== ===========
<S> <C>
January 1, 2000 through March 31, 2000 $ 5,400,000
- ------------------------------------------ -----------
April 1, 2000 through June 30, 2000 $14,400,000
- ------------------------------------------ -----------
July 1, 2000 through September 31, 2000 $29,700,000
- ------------------------------------------ -----------
October 1, 2000 through December 31, 2000 $45,000,000
- ------------------------------------------ -----------
January 1, 2001 through March 31, 2001 $46,000,000
- ------------------------------------------ -----------
April 1, 2001 through Maturity Date $47,000,000
========================================== ===========
</TABLE>
5.17. Minimum Interest Coverage Ratio. As of the last day of each Fiscal
Quarter during the periods set forth below, Borrower shall not permit the ratio
of its EBITDA to its consolidated cash interest expense, both calculated for the
period since January 1, 2000, then ended or, if four (4) Fiscal Quarters or more
have elapsed since January 1, 2000, then for the four (4) Fiscal Quarters then
ended, to be less than the ratio set forth below for such period:
<TABLE>
<CAPTION>
==================================================== ============
Period Ratio
==================================================== ============
<S> <C>
April 1, 2000 through June 30, 2000 1.00 to 1.00
- ---------------------------------------------------- ------------
July 1, 2000 though September 31, 2000 1.50 to 1.00
- ---------------------------------------------------- ------------
October 1, 2000 through December 31, 2000 1.60 to 1.00
- ---------------------------------------------------- ------------
Each quarter end beginning January 1, 2001 and 1.75 to 1.00
through Maturity Date
==================================================== ============
</TABLE>
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<PAGE> 49
5.18. Minimum Fixed Charges Coverage Ratio. Borrower shall not permit the
ratio of its Modified EBITDA to its Fixed Charges calculated as of the last day
of each Fiscal Quarter beginning with the Fiscal Quarter ending March 31, 2001,
for the four (4) Fiscal Quarters then ended, to be less than 1.00 to 1.00.
As used in this Paragraph 5.18, "Modified EBITDA" means, for any period, the
total of the following for Borrower calculated on a consolidated basis without
duplication: (a) EBITDA minus (b) Capital Expenditures.
5.19. Management Changes. Notify Agent in writing within ten (10) Business
Days after any change of its Executive Officers.
5.20. Transactions Among Affiliates. Except pursuant to existing agreements
as described on Exhibit B attached 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.
5.21. Additional Collateral Security Documents.
(a) Deliver to Agent each landlord consent and waiver and bailee
consent delivered to the Revolver Agent, to which the Agent shall be a named as
a party on equal terms and with equal priority as the Revolver Agent.
(b) At any time deliver to Agent within sixty (60) days following
notice from Agent, (i) such environmental reports as Agent shall reasonably
require with respect to any real property owned, leased or operated by any
Company, and (ii) 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.
(c) Execute, deliver, file and record such additional documents,
instruments or agreements as Agent shall reasonably require from time to time in
order to perfect, maintain, protect or realize upon a security interest and lien
on all of the assets of the Companies, including without limitation mortgages,
pledges or assignments of specific assets, UCC financing statements, landlord
waivers and consents and other documentation.
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<PAGE> 50
5.22. Collateral Audits. Collateral audits on Borrower and its Subsidiaries
shall be performed from time to time at the request of the 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 two (2) collateral audits
requested under this subparagraph (b) in any twelve-month period.
5.23. 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.
5.24. Management Meetings. The senior management of the Borrower shall meet
with Lenders (a) each month during the six months following the date hereof, and
(b) thereafter upon the request of any Lender.
5.25. Maintenance of Property. Except for dispositions permitted by
Paragraph 6.7 or disuse in the ordinary course of business, protect and preserve
all properties useful in and material to its business, including all material
copyrights, patents, trade names and trademarks and other intellectual property;
maintain in good working order and condition all material buildings, equipment
and other tangible real and personal property; and from time to time make or
cause to be made all renewals, replacements and additions to such material
property necessary for the conduct of its business, so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times.
5.26. Other Agreements.
(a) Notify Agent in writing not less than ten (10) Business Days prior
to the date any Company enters into any agreement respecting Indebtedness
containing financial covenants, or any amendment or modification thereof. In the
event that any agreement of such Company now or hereafter imposes financial
covenants on any Company which are more restrictive to such Company than those
contained is this Agreement, the corresponding covenants, terms and conditions
of this Agreement shall be deemed to be automatically and immediately amended to
include the applicable covenants, terms and/or conditions of such other
agreement.
(b) In the event any property or assets of any Company is subject to a
lien or security interest in violation of Paragraph 6.4 hereof, the Borrower
shall make, or cause to be made, provisions whereby the Loan shall be secured
equally and ratably with all other obligations secured thereby, and in any case
the Lenders shall have the benefit, to the full extent
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<PAGE> 51
that, and with such priority as the creditors may be entitled under applicable
law, of any equitable lien on such property securing the Loan. Such violation of
Paragraph 6.4 hereof shall constitute an Event of Default hereunder, whether or
not the Loan is secured pursuant to this Paragraph 5.26.
(c) The Borrower hereby agrees to promptly execute and deliver any and
all such documents and instruments and to take all such further actions as Agent
may deem necessary or appropriate to effectuate the provisions of this Paragraph
5.26.
(d) The Borrower hereby agrees that it will (i) cause all accounts with
First Union other than payroll account #2079950027162 to be closed within sixty
(60) days after the date hereof, and (ii) case payroll account #2079950027162
with First Union to be closed by June 30, 2000.
5.27. Other Information. Provide any Lender with any other documents and
information, financial or otherwise, reasonably requested by such Lender from
time to time.
SECTION 6
NEGATIVE COVENANTS
So long as any Indebtedness of Borrower to Lenders remains outstanding
hereunder, Borrower covenants and agrees that 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) Existing Subordinated Obligations; (v) existing
Seller Obligations which are not Subordinated Debt, as described on Exhibit B;
(vi) the existing mortgage indebtedness to Corporate Real Estate Capital, LLC
(relating to properties in Canton, Massachusetts) and to Rexham Industries Corp.
(relating to property in Charlotte, North Carolina) described on Exhibit B in
the outstanding principal amount at December 31, 1999 of $9,200,000 and
$3,600,000, respectively, as reduced from time to time by payments thereon,
provided that such mortgage indebtedness shall be paid off in full upon sale of
the property so mortgaged; (vii) tax obligations for which funds have been
escrowed as provided in Paragraph 4.1(p) of the Existing Credit Agreement;
(viii) Indebtedness issued under Permitted Revolver Financing; (ix) Indebtedness
of one Company to another Company; (x)
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<PAGE> 52
Guarantees permitted pursuant to Paragraph 6.2 hereof; and (xi) Subordinated
Debt incurred in connection with the Sales Force Acquisition.
6.2. Guarantees. 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 B, 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 Revolver, Permitted Revolver Financings and the Richmont
Subordinated Notes; (vi) Guarantees incurred in the ordinary course of business
with respect to surety and appeal bonds, performance and return-of-money bonds
and other similar obligations; (vii) Indebtedness constituting obligations to
reimburse worker's compensation insurance companies for claims paid by such
companies on any Company's behalf in accordance with the policies issued to such
Company; (viii) Indebtedness of any Company under any interest rate swap,
interest rate caps, interest rate collars or other similar agreements, or any
foreign exchange, currency hedging, commodity hedging or other similar agreement
entered into to enable such Company to fix or limit its interest expense or to
limit the market risk of holding currency or a commodity in either the cash or
futures markets; provided that, in the case of any Synthetic Purchase Agreement
related to any Subordinated Debt, the obligations of the Company thereunder must
be subordinated to the Senior Debt to at least the same extent as the
Subordinated Debt to which such Synthetic Purchase Agreement relates (the
Borrower shall promptly deliver to the Agent a copy of any Synthetic Purchase
Agreement to which any Company becomes a party); (vii) the existing guarantees
as of the date hereof as disclosed on Exhibit B.
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, (iii) the loan to Gerald R. Leonard is described in
Section 3.12 of Exhibit B hereto, and (iv) loans to employees outstanding on the
date hereof as described on Exhibit B, 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 (iv)) not to exceed 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 Loan, and except (i) liens arising
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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 are limited to the assets purchased or leased
pursuant thereto and the proceeds thereof; (ii) Liens of mechanics, materialmen,
warehousemen, carriers, landlords or other similar statutory Liens securing
obligations that are not yet due or are being contested in good faith by
appropriate proceedings diligently pursued and for which adequate reserves have
been established in accordance with GAAP and are incurred in the ordinary course
of business; (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; (v) the existing mortgage liens pursuant to the
mortgage Indebtedness permitted pursuant to Paragraph 6.1(vi) hereof (vi) the
liens in the Shared Collateral securing the Indebtedness permitted pursuant to
Paragraph 6.1(viii) hereof; (vii) encumbrances consisting of minor easements,
zoning restrictions, or other restrictions on the use of real property that do
not (individually or in the aggregate) materially affect the value of the assets
encumbered thereby or materially impair the ability of Borrower and each
Subsidiary to use such assets in their respective businesses, and none of which
is violated in any material respect by existing or proposed structures or land
use; (viii) any attachment or judgment Lien not constituting an Event of
Default; (ix) Lien's granted to the Indenture trustee in Section 7.07 of the
Indenture.
6.5. Additional Negative Pledge. Except for agreements relating to: (a)
Liens permitted pursuant to Subparagraphs 6.4(i) or 6.4(v); (b) leases of
property; or (c) the sale or disposition of assets permitted hereunder, provided
such agreement relates only to the property subject to such Lien, leased or sold
or disposed of (and only pending the closing of such sale or disposition), and
except as set forth in the Permitted Revolver Financing, 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 Subordinated Debt, subject
to the subordination provisions with respect thereto, and (ii) provided there is
no Event of Default under Paragraph 7.1(a) hereof, the Loan has not been
accelerated as provided herein, and no "Payment Blockage Period" is in effect
under the Indenture, Borrower may make payments required under the 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.
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(b) Make any voluntary payment or prepayment of any Indebtedness,
including, without limitation, any obligations to sellers in connection with
previous acquisitions, provided that, in the absence of an Event of Default
hereunder, Borrower and its Subsidiaries may make all regularly scheduled
payments of principal and interest on account of any such Indebtedness and
obligations which is not Subordinated Debt.
(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 RCP (A) as described in clause
(i) of the disclosure under Paragraph 6.9 on Exhibit B, and (B) as described in
clause (ii) of the disclosure under Paragraph 6.9 of Exhibit B, 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 RCP prior to completion of a
Successful Syndication, and (ii) the Companies may make regularly scheduled
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 and the
amount of such payment is not materially in excess of the range of settlement
proposals disclosed on Exhibit B attached hereto.
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, Borrower and its Subsidiaries may sell real property, so long as the
purchase price is not less than the greater of (i) its appraised value or (ii)
the amount of all indebtedness secured by such real property; or
(b) discontinue, liquidate, or change in any material respect any
substantial part of its operations or business(es), except as a result of an
intercompany merger permitted pursuant to Paragraph 6.8(iii) hereof.
6.8. Acquisitions and Investments. Purchase or otherwise acquire (including
without limitation by way of share exchange) any part or amount of the capital
stock, partnership interests, or assets of, or make any investments in, any
other Person; or enter into any new business activities or ventures not directly
related to its present business; or merge or consolidate with or into any other
Person; or create any Subsidiary; provided, however that:
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(i) the Companies may own the Subsidiaries owned by them on the date
hereof as set forth on Exhibit B attached hereto and may make additional
investments in any such Subsidiaries;
(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, at least ten (10) Business Days prior written notice thereof shall
have been delivered to Agent, and all documentation reasonably required by Agent
shall have been executed, delivered and filed in order to establish and maintain
Agent's existing security interests in the assets of the Companies; and
(iv) the Companies may consummate the Sales Force Acquisition, subject
to the completion of all conditions set forth in Paragraph 4.2.
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 B attached hereto.
6.10. Certain Changes.
(a) Make any change in the Fiscal Year 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.
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(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 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
undertaking expressly conditions the Companies' obligations thereunder on
obtaining consent thereto from Lenders or Required Lenders, as applicable.
6.11. Restrictive Agreements. Except for agreements relating to: (a) Liens
permitted pursuant to Subparagraphs 6.4(i) or 6.4(v); (b) leases of property; or
(c) the sale or disposition of assets permitted hereunder, provided such
agreement relates only to the property subject to such Lien, leased or sold or
disposed of, provided such agreement relates only to the property subject to
such Lien, leased or sold or disposed of (and only pending the closing of such
sale or disposition), and except under Permitted Revolver Financing, the
Companies will not, and will not permit any of their Subsidiaries to, directly
or indirectly, enter into, incur or permit to exist any agreement or other
arrangement that prohibits, restricts or imposes any condition upon (a) the
ability of any Company or any Subsidiary to create, incur or permit to exist any
lien upon any of its material property or assets, or (b) the ability of any
Subsidiary to pay dividends or other distributions with respect to any shares of
its capital stock or to make or repay loans or advances to any Company or any
other Subsidiary or to guarantee indebtedness of any Company or any other
Subsidiary; provided that the foregoing shall not apply to restrictions and
conditions imposed by law or by this Agreement.
6.12. Use of Proceeds. Use any of the proceeds of the Loan, directly or
indirectly, to purchase or carry margin securities within the meaning of
Regulation U of the
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Board of Governors of the Federal Reserve System; or engage as its principal
business in the extension of credit for purchasing or carrying such securities.
SECTION 7
DEFAULT
7.1. Events of Default. Each of the following events shall be an Event of
Default hereunder:
(a) If Borrower shall fail to pay when due any installment of
principal, or fail to pay within three (3) Business Days of when due any
interest, fees, costs, expenses or any other sum, payable to Lenders or Agent
under the Senior Obligations;
(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;
(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);
(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;
(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;
(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);
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(g) A Change of Control shall occur. As used in this Subparagraph (g),
the following terms have the following meanings:
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following events:
(i) the Permitted Holders either (x) cease to be the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of at least 35% of the aggregate of the total voting power of the
Voting Stock of the Borrower, whether as a result of issuance of securities of
the Borrower, any merger, consolidation, liquidation or dissolution of the
Borrower, any direct or indirect transfer of securities by any Permitted Holder
or otherwise, or (y) do not have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of the Board of
Directors (for purposes of this clause (i), the Permitted Holders shall be
deemed to own beneficially any Voting Stock of an entity (the "specified
entity") held by any other entity (the "parent entity") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the parent
entity);
(ii) (x) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in clause (i) above, except that such person
shall be deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 35% of
the total voting power of the Voting Stock of the Borrower and (y) the Permitted
Holders "beneficially own" (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power of
the Voting Stock of the Borrower than such other Person and do not have the
right or ability by voting power, contract or otherwise to elect or designate
for election a majority of the Board of Directors (for the purposes of this
clause ii), such other Person shall be deemed to own beneficially any Voting
Stock of a specified corporation held by a parent corporation, if such other
person "beneficially owns" (as defined in this clause (ii)), directly or
indirectly, more than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders "beneficially own" (as defined in clause
(i) above), directly or indirectly, in the aggregate a lesser percentage of the
voting power of the Voting Stock of such parent corporation and do not have the
right or ability by voting power, contract or otherwise to elect or designate
for election a majority of the board of directors of such parent corporation);
or
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(iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together with
any new directors whose election by such Board of Directors or whose nomination
for election by the shareholders of the Borrower was approved by a vote of a
majority of the directors of the Borrower then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Management Stockholders" means Ronald D. Pedersen, Gary R. Guffey and
Bruce A. Butler.
"Permitted Holders" means Richmont Enterprises LLC, a Delaware limited
liability company controlled by certain Affiliates of Richmont Capital Partners
I, L.P., a Delaware limited partnership, JR Investment Corp., a Delaware
corporation (including John P. Rochon and the other current stockholders of JR
Investment Corp.), MS Acquisition Limited, a Delaware limited partnership, the
Management Stockholders and any of their respective Affiliates (including any
Person owned or controlled by any such Person, any member of any such Person's
family, any trust for the benefit of any such Person (or a member of his family)
or any Person owned or controlled by any of the foregoing) and any Person acting
in the capacity of an underwriter in connection with a public or private
offering of the Borrower's Capital Stock.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Voting Stock" of a Person means all classes of Capital Stock of such
Person then outstanding that normally entitle the holders of such interests to
participate in the management or to elect those participating in the management
of such Person.
(h) If the Borrower fails to make payment as required by the Indenture
on any Richmont Subordinated Notes tendered for repurchase pursuant to Section
4.08 of the Indenture on or before the earlier of (i) the repurchase date
specified in the notice of the occurrence of a "Change in Control" (as defined
in the Indenture) delivered to the holders of the Richmont Subordinated Notes or
(ii) sixty (60) days after the delivery of such notice of a Change in Control;
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(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 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;
(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;
(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.
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
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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. 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 any Company and is specifically
authorized hereby to set-off against and apply to the then unpaid balance of the
Liabilities any items or funds of any Company held by such 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 any Company including,
without limitation, securities and/or certificates of deposit, now or hereafter
maintained by any Company for its or their own account with such Lender or any
affiliate of such Lender, and any other indebtedness at any time held or owing
by such Lender or any affiliate of such Lender, to or for the credit or the
account of any Company, 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 each
Company hereby grants 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. Each Company further
authorizes each 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 any Company, to turn over to the Agent any property of such
Company, including, without limitation, funds and securities, held by such
affiliate for any such Company's account and to debit any deposit account
maintained by such Company with such 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 such Lender 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
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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.
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 Loan. 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 (or such combination of Lenders and
Revolver Lenders that, as to certain actions, is required under the
Intercreditor Agreement and is further described therein); 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 Loan to the extent it is proposed to be decreased, (B) the
date or amounts of payment of the Loan or interest thereon, to postpone payment
thereof, (C) the definition of Required Lenders, (D) this Paragraph 8.3, or (E)
the definition of Pro Rata Share; (ii) release
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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 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.
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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.
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.
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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.
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 and Intercreditor Agreements. Agent, on behalf of
the Lenders, has entered into the Intercreditor Agreement. Lenders have reviewed
and hereby consent to and agree to be bound by the Intercreditor Agreement To
the extent that the following matters are not governed by the Intercreditor
Agreement, Agent and Lenders agree as follows:
(a) 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.
(b) Lenders hereby agree that the proceeds of any realization on the
Collateral by Agent, and all Post-Default Payments, shall be applied as follows:
first, to the payment of reasonable expenses of Agent, and to the expenses of
sale or other realization upon such Collateral, including reasonable attorney's
fees and expenses of every kind, including without limitation reasonable
allocated costs of staff counsel), (ii) second, equally and ratably to all
amounts of interest, expenses and fees with respect to the Loan, (iii) third,
equally and ratably to all amounts of principal of the Loan, (iv) fourth,
equally and ratably to all other amount representing Senior Obligations, and
(vii) fifth, the balance, if any returned to the Borrower or such other Persons
as are entitled thereto.
(c) No Lender shall have any individual right to exercise remedies with
respect to the Collateral. If at any time during the continuance of an Event of
Default any
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Lender acquires custody, control or possession of any Collateral or any proceeds
thereof other than pursuant to the terms of this Agreement, such Lender shall
promptly cause such Collateral or the proceeds thereof to be delivered or put in
the custody, possession or control of Agent for disposition and distribution in
accordance with this Agreement. Until such time as such Lender shall have
complied with the foregoing, such Lender shall be deemed to hold such Collateral
and the proceeds thereof in trust for the parties entitled thereto hereunder.
(d) The Lenders agree that all Post-Default Payment received by any
Lender from any of the Companies or from any other source shall be paid over to
Agent for distribution in accordance with 8.17(b) above.
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.
8.19. Acknowledgment of Intercreditor Agreement. Each Lender hereto
acknowledges having reviewed the Intercreditor Agreement and agrees to the
amendments and modifications to certain duties of the Agent and terms of this
Agreement resulting therefrom.
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
making of the Loan 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
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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 and the repayment of the Loan.
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 Loan 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 Loan 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 Loan 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 Borrower,
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 service fee. Any assignment pursuant to subparagraph (b) shall be in the
form attached hereto as Exhibit F attached hereto.
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
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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 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:
Marketing Specialists Corporation
17855 Dallas Parkway
Suite 200
Dallas, TX 75287
Attention: Timothy Byrd
Telecopier: (972) 349-6448
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<PAGE> 69
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
with a copy to:
First Union National Bank
One First Union Center, TW-10
301 South College Street
Charlotte, NC 28288-0608
Attention: Syndication Agency Services
Telephone No.: (704) 374-2698
Telecopy No.: (704) 383-0288
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 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
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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 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)
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<PAGE> 71
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.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 72
IN WITNESS WHEREOF, the undersigned, by their duly authorized officers, as
applicable, have executed this Second Amended and Restated Credit Agreement the
day and year first above written.
Attest: MARKETING SPECIALISTS CORPORATION
By: By:
--------------------------------- --------------------------------------
Name: Name:
Title: Title:
FIRST UNION NATIONAL BANK, for itself and
as Agent
By:
--------------------------------------
Name:
Title:
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<PAGE> 73
Schedule 1
Lenders Pro Rata Shares and Maximum Principal Amount
<TABLE>
<CAPTION>
Pro Rata
Lender Loan Share
- ------ ---- -----
<S> <C> <C>
First Union $35,000,000 100%
National Bank
----------- ----------
TOTAL $35,000,000 100.000000%
</TABLE>
<PAGE> 1
EXHIBIT 10.8
SECOND AMENDED AND RESTATED
SECURITY AGREEMENT
This Second Amended and Restated Security Agreement (this "Security
Agreement") is entered into as of March 30, 2000, by and among Marketing
Specialists Corporation (the "Borrower"), and the subsidiaries of Borrower
signatory hereto (the "Guarantors", and together with the Borrower, individually
and collectively, the "Companies"), in favor of First Union National Bank, a
national banking association, as agent ("Agent") for the lenders (together with
such additional financial institutions as may become Lenders from time to time
as provided in the Credit Agreement described below "Lenders").
BACKGROUND
1. Borrower has entered into that certain Second Amended and Restated
Credit Agreement dated as of the date hereof (as may be amended from time to
time, the "Credit Agreement") among the Borrower, the Lenders and the Agent.
2. Pursuant to the Credit Agreement, Marketing Specialists Sales
Company ("MSSC," a Guarantor hereunder), The Chase Manhattan Bank (the "Revolver
Agent") and Bank of America, N.A. ("Account Agent") are entering into that
certain Three Party Agreement Relating to Lockbox Services (with Activation)
dated the date hereof (the "Agency Account Agreement"), providing that, upon
notice from Revolver Agent (or Agent, to the extent the Revolver Agent is no
longer a party thereto) to Account Agent, Account Agent will shut down the
Companies' lock box accounts and forward checks or other items or payment
instruments received thereafter to Agent.
3. As a condition to Agent's and Lenders' willingness to enter into the
Credit Agreement, the Companies are willing to execute and deliver to Agent, as
agent for the Lenders, this Security Agreement.
4. The Borrower, Guarantors and the Agent are parties to that certain
Amended and Restated Security Agreement dated August 18, 1999 (the "Existing
Security Agreement").
5. The parties desire to amend the Existing Security Agreement and the
Guarantors signatory hereto desire to become party to the Security Agreement as
set forth herein.
6. This Security Agreement amends and restates in its entirety the
Existing Security Agreement; provided, however, that this Security Agreement
shall not constitute a novation and nothing herein shall be deemed to have
terminated or discharged any indebtedness or obligation under the Existing
Security Agreement, all of which shall remain outstanding under and be governed
by this Security Agreement.
<PAGE> 2
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
each Company and the Agent hereby agree as follows:
A. DEFINITIONS. All capitalized terms used and not defined herein shall have the
respective meaning ascribed thereto in the Credit Agreement. In addition, as
used herein, the following terms shall have the following meanings:
1. BOOKS AND RECORDS. The term "Books and Records" means all of
the Companies' books and records, including without
limitation, all books and records indicating, summarizing, or
evidencing the Collateral, including without limitation,
computer runs, invoices, tapes, processing software,
processing contracts (such as contracts for computer time and
services) and any computer prepared information, tapes, or
data of every kind and description relating to the Collateral,
whether in the possession of any Companies or in the
possession of third parties.
2. COLLATERAL. The term "Collateral" means all tangible and
intangible property of the Companies, whether now owned or
hereafter acquired, including, but not limited to, each
Company's interest now and in the future in the following
types or items of property:
a. ACCOUNTS - All presently owned and hereafter acquired
accounts, accounts receivable, contract rights,
bills, acceptances, and other forms of obligations
arising out of the sale, lease or consignment of
goods or the rendition of services by any of the
Companies; together with any property evidencing or
relating to the Accounts (including, without
limitation, guaranties, credit insurance and Letters
of Credit), any security for the Accounts, all Books
and Records relating thereto, and all Proceeds of any
of the foregoing, including returned or reclaimed
inventory.
b. INVENTORY - All presently owned and hereafter
acquired inventory of every nature, kind, and
description, wherever located, including, without
limitation, raw materials, goods, work in process,
finished goods, parts or supplies; all goods and
property held for sale or lease or to be furnished
under contracts of service; and all goods and
inventory returned, reclaimed or repossessed,
together with all Proceeds of any of the foregoing.
c. EQUIPMENT - All presently owned and hereafter
acquired equipment, whether or not affixed to realty,
including, without limitation, machines,
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<PAGE> 3
computers, kiosks, trucks, trailers, motors, tools,
dies, parts, jigs, goods, accessories, handling and
delivery equipment, fixtures, improvements, office
machines and furniture, together with all Proceeds of
any of the foregoing, and all accessions,
accessories, replacements and the rights of the
Companies under any manufacturer's warranties
relating to the foregoing.
d. CHATTEL PAPER - All presently owned and hereafter
acquired chattel paper, including, but not limited
to, any writing or writings which evidence both a
monetary obligation and a security interest in or a
lease of specific goods, together with all Proceeds
of any of the foregoing.
e. GENERAL INTANGIBLES - All presently owned and
hereafter acquired general intangibles, including,
without limitation, any personal property, choses in
action, causes of action, designs, plans, goodwill,
tax refunds, licenses, franchises, trademarks,
tradenames, service marks, copyrights, trade
agreements, customer lists and patents and all rights
under license agreements for use of the same,
together with all Proceeds of any of the foregoing.
f. INSTRUMENTS - All presently owned and hereafter
acquired instruments, including, without limitation,
bills of exchange, notes, and all negotiable
instruments, all checks or other items or payment
instruments, all certificated securities, all
certificates of deposit and any other writing that
evidences a right to the payment of money and is not
itself a security agreement or lease and is of a type
that is in the ordinary course of business
transferred by delivery with any necessary
endorsement or assignment, together with all Proceeds
of any of the foregoing.
g. DOCUMENTS - All presently owned and hereafter
acquired documents, including, but not limited to,
documents of title (as that term is defined in the
Uniform Commercial Code) and any and all receipts,
including, but not limited to, receipts of the kind
described in Article 7 of the Uniform Commercial
Code, together with all Proceeds of any of the
foregoing.
h. LETTERS OF CREDIT - All presently owned and hereafter
acquired letters of credit, including, but not
limited to, any written undertaking to pay money
conditioned upon presentation of specified documents,
and advices of letters of credit, together with all
Proceeds of any of the foregoing.
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<PAGE> 4
i. INVESTMENT PROPERTY - All presently owned and
hereafter acquired investment property, including all
securities, securities accounts, and security
entitlements, together with all Proceeds of any of
the foregoing.
j. PROCEEDS - All presently owned and hereafter acquired
proceeds, as that term is defined in the Uniform
Commercial Code, including, without limitation,
whatever is received upon the use, lease, sale,
exchange, collection, any other utilization or any
disposition of any of the Collateral described in
this Section A(2), whether cash or non-cash, all
rental or lease payments, accounts, chattel paper,
instruments, documents, contract rights, general
intangibles, equipment, inventory, substitutions,
additions, accessions, replacements, products, and
renewals of, for, or to such property and all
insurance therefor.
3. LIABILITIES. The term "Liabilities" means any and all
obligations and indebtedness of every kind and description of
the Companies to the Lenders pursuant to, under, or in
connection with the Loan Documents, whether such debts or
obligations are primary or secondary, direct or indirect,
absolute or contingent, sole, joint or several, secured or
unsecured, due or to become due, contractual or tortious,
arising by operation of law or otherwise, or now or hereafter
existing, whether incurred by any Companies as principal,
surety, endorser, guarantor, accommodation party or otherwise,
including, without limitation, principal, interest and fees,
late fees and expenses (including attorneys' fees and costs
and/or the allocated fees and costs of Agent's in-house legal
counsel, to the extent required to be paid under the Loan
Documents), or that have been or may hereafter be contracted
or incurred, and any obligations of the Companies or any of
them under interest rate protection agreements, swaps, hedging
contracts or similar arrangements with any Lender (including
without limitation, any swap agreements as defined in 11
U.S.C. Section 101). If a party ceases to be a Lender, any
obligations under interest rate protection agreements, swaps,
hedging contracts or similar arrangements (including without
limitation, any swap agreements as defined in 11 U.S.C.
Section 101) with that party prior to the date it ceased to be
a Lender shall continue to be Liabilities secured hereunder.
4. LOAN DOCUMENTS. The term "Loan Documents" means the Credit
Agreement, the Notes, the Collateral Security Documents, and
any other documents and agreements executed and delivered in
connection with the Credit Agreement.
5. SECURITY AGREEMENT. The term "Security Agreement" means this
Security Agreement, together with all Schedules and Exhibits
hereto as may be amended, restated or otherwise modified from
time to time.
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<PAGE> 5
6. UNIFORM COMMERCIAL CODE. The term "Uniform Commercial Code"
means the Uniform Commercial Code, in effect from time to time
in the Commonwealth of Pennsylvania.
Unless the context otherwise requires, all capitalized terms not
specifically defined herein which are defined in the Uniform Commercial
Code shall have the meanings stated therein.
B. SECURITY INTEREST. In order to secure the due and punctual payment and
performance of the Liabilities, the Companies hereby grant to Agent,
for the benefit of the Lenders, a continuing security interest in and
general lien upon their right, title and interest in the Collateral.
The security interests granted herein are granted as security only and
shall not subject Agent to, or in any way affect or modify, any
obligation or liability of the Companies with respect to any of the
Collateral or any transaction which gave rise thereto.
C. FURTHER ASSURANCES; FILING.
1. DELIVERY OF DOCUMENTS, ETC. At any time and from time to time,
upon the demand of Agent, the Companies will, at the
Companies' expense: (i) give, execute, deliver, file, and/or
record any notice, statement, instrument, document, agreement,
or other papers that may be necessary or desirable, or that
Agent may request, in order to create, preserve, perfect, or
validate any security interest granted pursuant hereto or
intended to be granted hereunder or to enable Agent to
exercise or enforce its rights hereunder or with respect to
such security interest; (ii) keep, stamp, or otherwise mark
any and all documents, instruments, chattel paper, and their
respective Books and Records in such manner as Agent may
reasonably require to evidence the security interest granted
hereunder.
2. FILING OF FINANCING STATEMENT. At Agent's sole option, and
without the consent of the Companies, Agent may file a carbon,
photographic, or other reproduction of this Security Agreement
or any financing statement executed pursuant hereto as a
financing statement in any jurisdiction so permitting. Without
the prior written consent of Agent, no Companies shall file or
authorize or permit to be filed in any jurisdiction any such
financing or like statement in which First Union National Bank
or its successor as Agent is not named as the sole secured
party as Agent for the Lender, except as permitted under the
Credit Agreement.
D. REPRESENTATIONS AND WARRANTIES. Each Company represents and warrants to
Agent, which representations and warranties shall be continuing
representations and warranties until all of the Liabilities are
satisfied in full, as follows:
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<PAGE> 6
1. SECURITY AGREEMENT QUESTIONNAIRES. Set forth on Schedule A are
complete, true and correct responses as to each Company to the
information requested by the Security Agreement Questionnaire
attached as Schedule A (subject to subsequent disclosure
pursuant to Paragraph E(2) hereof). If, for any reason, any
Company's Security Agreement Questionnaire is not attached to
this Security Agreement at the time of execution, such failure
shall in no way alter Agent's right to rely upon the
representations and warranties contained in such Security
Agreement Questionnaire and the other representations and
warranties contained in this Section D. The Companies agrees
that Agent may attach any Company's Security Agreement
Questionnaire to this Security Agreement at any time
subsequent to the execution of this Security Agreement.
2. DEPOSIT ACCOUNTS. Set forth on Schedule B is a complete, true
and correct listing of all lock boxes and deposit accounts
maintained by each of the Companies including the name of the
depository institution, how the account is titled, and the
account number (subject to subsequent disclosure pursuant to
Paragraph E(2) hereof) other than (i) petty cash accounts,
provided the aggregate balance of all such petty cash accounts
shall not at any time exceed $200,000, and (ii) "MDS accounts"
which do not contain any funds appearing on the balance sheet
of the Companies or to which the Companies are legally
entitled (all such lock boxes and accounts not excluded by
clauses (i) and (ii), the "Covered Accounts"). Each Covered
Account listed on Schedule B other than the "Deposit Accounts"
(as defined in the Agency Account Agreement) shall be promptly
closed, or shall remain open solely for the purpose or
purposes identified on Schedule B. No Company shall establish
or maintain any Covered Account not listed on Schedule B
without prior written consent of Agent.
3. NO CONSENTS NECESSARY. No consent or approval of any person or
entity, including, without limitation, any debt or equity
holder of any Companies, or of any public authority, is
necessary for the valid execution, delivery and performance of
this Security Agreement, or any document or instrument
executed in connection herewith, or the exercise by Agent or
Lenders of their rights and remedies hereunder that have not
been obtained.
4. TITLE. The Companies are, or to the extent that any Collateral
will be acquired after the date hereof, will be, the owners of
the Collateral, holding good and marketable title thereto,
free from any lien, security interest, encumbrance, or claim
other than the liens and encumbrances of Agent and have the
right to grant the security interests created by this Security
Agreement subject to Permitted Liens under the Credit
Agreement.
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<PAGE> 7
5. NO FICTITIOUS NAMES. The Companies do not operate or issue
invoices under any name other than the name(s) set forth on
the signature page hereof and as otherwise disclosed on
Schedule A.
6. COLLATERAL NOT SUBJECT TO AGREEMENTS OR LICENSES. The
Collateral is not subject to or restricted by any agreement or
license relating to patents, trademarks, trade secrets, or
copyrights, except that the Companies' computer and word
processing equipment is subject to various software licenses
or otherwise disclosed on Schedule A.
E. COVENANTS. Each Company hereby covenants and agrees that for as long as
any Liabilities are outstanding:
1. DEFENSE OF COLLATERAL. The Companies shall defend the
Collateral against all claims and demands of all persons or
entities at any time claiming any interest therein other than
Agent.
2. NOTICE OF CHANGES IN LOCATION OF CHIEF EXECUTIVE OFFICE,
RESIDENCE, BOOKS AND RECORDS, COLLATERAL. The Companies shall
provide Agent with prompt written notice of: (i) any intended
change in the chief executive office or residence of any of
the Companies, and/or any office where any of the Companies
maintain their Books and Records; (ii) the location or
movement of any Collateral to or at an address other than the
addresses set forth on Schedule A hereto; and (iii) the
establishment of any new lock box or deposit account, all such
notices to be received by Agent at least 30 days prior to the
effective date of any such change; provided, that no notice
shall be required pursuant to (i) or (ii) above with respect
to any sales office location at which no Books and Records are
maintained other than Books and Records that are duplicates of
Books and Records maintained at other locations of which Agent
has notice hereunder and at which the aggregate value of all
other Collateral located at such premises does not exceed
$20,000. If any such new location as set forth in (i) and (ii)
above is on leased or mortgaged premises, the Companies will
furnish Agent, prior to the effective date of any such change,
with landlord's or mortgagee's waivers pertaining to such
premises in form and substance reasonably satisfactory to
Agent. With respect to any new deposit account, the Companies
shall, if required by Agent, prior to the first use of such
deposit account, furnish to Agent with blocked account letters
or such other agreements with the applicable depository
institution as Agent shall reasonably require, in each case in
form and substance reasonably satisfactory to Agent.
3. CONTROLLED ACCOUNT. The Companies hereby acknowledge and agree
that (i) except as agreed to by the Agent in writing, all
account debtors of the Companies will be instructed to send
payment to the Post Office Boxes (as defined in the Agency
Account Agreement) maintained by Account Agent, and all
payments
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<PAGE> 8
from account debtors will be deposited initially into the
Lockbox Accounts (as defined in the Agency Account Agreement)
maintained by Account Agent, and (ii) MSSC will maintain at
all times instructions to Account Agent to sweep daily all
available funds in the Deposit Accounts to a deposit account
maintained with the Revolver Agent (or Agent, to the extent
the Revolver Agent is no longer a party thereto) for this
purpose.
4. SECURITY INTERESTS IN COLLATERAL. The Companies shall keep the
Collateral free from any lien, security interest, or
encumbrance except those in favor of Agent and except as
permitted pursuant to the Credit Agreement, in good order and
repair, reasonable wear and tear excepted, and will not waste
or destroy the Collateral or any part thereof. If reasonably
requested by Agent, the Companies shall give notice of Agent's
security interests in the Collateral to any third person with
whom the Companies has any actual or prospective contractual
relationship or other business dealings.
5. MAINTENANCE, INSPECTION OF BOOKS AND RECORDS. The Companies
shall maintain complete and accurate Books and Records and
shall make all necessary entries therein to reflect the costs,
values and locations of the Collateral and all payments,
credits and adjustments thereto. The Companies shall keep
Agent fully informed as to the location of all such Books and
Records, shall permit Agent and its authorized agents to have
full, complete and unrestricted access thereto at all
reasonable times to inspect, audit and make copies of any and
all such Books and Records (collectively, a "Records
Inspection") and upon submission to the Companies of an
invoice therefor, the Companies will reimburse Agent for any
and all fees and costs related to any Records Inspection by
Agent and its authorized agents, provided that, unless an
Event of Default has occurred and is continuing: (i) Agent
shall give Companies reasonable notice of such Records
Inspection; and (ii) Agent shall not perform more than three
Records Inspections (not including ordinary course visits and
meetings) at the premises of the Companies during any twelve
month period. Agent's rights hereunder shall be enforceable at
law or in equity, and the Companies consents to the entry of
judicial orders or injunctions enforcing specific performance
of such obligations hereunder.
6. MAINTENANCE AND INSPECTION OF EQUIPMENT. With respect to
equipment constituting Collateral, the Companies shall: (i)
keep accurate books and records with respect thereto,
including, without limitation, maintenance records; (ii) upon
request, deliver to Agent all evidence of ownership in such
Collateral, including certificates of title with Agent's
interest appropriately noted on the certificate; (iii) permit
Agent and its authorized agents to inspect any or all such
equipment at all reasonable times, provided that, unless an
Event of Default has occurred: (A) Agent shall give Companies
reasonable notice of such inspection of equipment;
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<PAGE> 9
and (B) Agent shall not perform more than three such
inspections (not including ordinary course visits and
meetings) at the premises of the Companies during any twelve
month period; (iv) preserve such equipment, excluding obsolete
equipment, in good condition and repair, and pay the cost of
all replacement parts, repairs to and maintenance of such
equipment, and (v) if after the date hereof, any of the
Collateral is moved to or located upon land (other than at
locations identified on the Security Agreement Questionnaires)
which land is the subject of a lease or mortgage, at the
request of Agent, use reasonable best efforts to deliver an
agreement of subordination from the lessor or mortgagee
providing that any lien of such party shall be subordinate to
the security interest of Agent granted herein.
7. CONTINUING OF PERFECTED STATUS OF COLLATERAL. The Companies
agrees to cooperate and join, at their expense, with Agent in
taking such steps as are necessary, in Agent's judgment, to
perfect or continue the perfected status of the security
interests granted herein, including, without limitation, the
execution and delivery of any financing statements, amendments
thereto and continuation statements, the notation of
encumbrances in favor of Agent on certificates of title, and
the execution and filing of any collateral assignments and any
other instruments requested by Agent to perfect its security
interest in the Collateral and any and all general intangibles
relating to the Collateral. Agent is expressly authorized to
file financing statements without the Companies's signature.
F. GENERAL AUTHORITY.
1. BANK AS ATTORNEY-IN-FACT. Each Company hereby irrevocably
appoints Agent (and any of its attorneys, officers, employees,
or agents), upon the occurrence and during the continuation of
an Event of Default, as its true and lawful attorney-in-fact,
said appointment being coupled with an interest, with full
power of substitution, in the name of the Companies, Agent, or
otherwise, for the sole use and benefit of Agent in its sole
discretion, but at the Companies' expense, to exercise, to the
extent permitted by law, in its name or in the name of the
Companies or otherwise, the powers set forth herein, whether
or not any of the Liabilities are due, such powers, including,
but not limited to, the power at any time: (i) to endorse the
name of the Companies upon any instruments of payment,
invoice, freight, or express bill, bill of lading, storage, or
warehouse receipt relating to the Collateral; (ii) to demand,
collect, receive payment of, settle, compromise, or adjust all
or any of the Collateral; (iii) to sign and file one or more
financing statements naming the Companies as debtor and Agent
as secured party and indicating therein the types or
describing the items of Collateral herein specified; (iv) to
correspond and negotiate directly with insurance carriers; and
(v) to execute any notice, statement, instrument, agreement,
or other paper that Agent may require to create, preserve,
perfect, or validate any security interest granted
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<PAGE> 10
pursuant hereto or to enable Agent to exercise or enforce its
rights hereunder or with respect to such security interest.
2. LIABILITY OF BANK AS ATTORNEY-IN-FACT. Neither Agent nor its
attorneys, officers, employees, or agents shall be liable for
acts, omissions, any error in judgment, or mistake in fact in
its/their capacity as attorney-in-fact. Each Company hereby
ratifies all acts of Agent as its attorney-in-fact. This
power, being coupled with an interest, is irrevocable until
the Liabilities have been fully satisfied. Agent shall not be
required to take any steps necessary to preserve any rights
against prior parties with respect to any of the Collateral.
3. EFFECT OF EXTENSIONS AND MODIFICATIONS. Agent may extend the
time of payment, arrange for payment in installments, or
otherwise modify the terms of, or release, any of the
Collateral, without thereby incurring responsibility to, or
discharging or otherwise affecting any liability of, any
Companies or any other obligor.
G. EVENTS OF DEFAULT. The occurrence of an Event of Default under the
Credit Agreement shall constitute an Event of Default under this
Security Agreement.
H. REMEDIES.
1. ACCELERATION OF LIABILITIES; GENERAL RIGHTS OF BANK. Upon the
occurrence and during the continuance of an Event of Default,
Agent may, in accordance with Paragraph 7.2 of the Credit
Agreement, exercise any and all rights and remedies it has
under this Security Agreement, any other Loan Document and/or
applicable law.
2. RIGHT OF SETOFF. If any Liabilities shall be due and payable
or any one or more Events of Default shall have occurred and
be continuing, whether or not the Agent shall have made demand
under any Loan Document and regardless of the adequacy of any
collateral for the Liabilities or other means of obtaining
repayment of the Liabilities, each Lender shall have the
right, without notice to any Company and is specifically
authorized hereby to set-off against and apply to the then
unpaid balance of the Liabilities any items or funds of any
Company held by such 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 any
Company including, without limitation, securities and/or
certificates of deposit, now or hereafter maintained by any
Company for its or their own account with such Lender or any
affiliate of such Lender, and any other indebtedness at any
time held or owing by such 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
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<PAGE> 11
withdrawal of time deposits. For such purpose, the Lenders
shall have, and each Company hereby grants to each Lender, a
first lien on and security interest in such deposits,
property, funds and accounts and the proceeds thereof, subject
to Permitted Liens under the Credit Agreement.
3. TURNOVER OF PROPERTY HELD BY AFFILIATES. Each Company
authorizes each 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 any Company,
to turn over to the Agent any property of such Company,
including, without limitation, funds and securities, held by
such affiliate for any such Company's account and to debit any
deposit account maintained by such Company with such 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 such Lender up to
the amount of the Liabilities, and to pay or transfer such
amount or property to the Agent for application to the
Liabilities.
4. ADDITIONAL RIGHTS AND REMEDIES. In addition to the rights and
remedies available to Agent as set forth above, upon the
occurrence of an Event of Default hereunder, or at any time
thereafter, Agent may at its option in accordance with the
Credit Agreement, immediately and without notice, do any or
all of the following, which rights and remedies are
cumulative, may be exercised from time to time, and are in
addition to any rights and remedies available to Agent under
any other agreement or instrument by and between any Company
or Companies and the Agent:
a. Exercise any and all of the rights and remedies of a
secured party under the Uniform Commercial Code,
including, without limitation, the right to require
the Companies to assemble the Collateral and make it
available to Agent at a place reasonably convenient
to the parties;
b. Notify account debtors of any Company that their
obligations to such Company are payable directly to
Agent, for benefit of the Lenders, and collect such
sums.
c. Operate, utilize, recondition and/or refurbish any of
the Collateral for the purpose of enhancing or
preserving the value thereof by any means deemed
appropriate by Agent, in its sole discretion,
including, without limitation, converting raw
materials and/or work-in-process into finished goods;
d. Demand, sue for, collect, or retrieve any money or
property at any time payable, receivable on account
of, or in exchange for, or make any
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<PAGE> 12
compromise, or settlement deemed desirable with
respect to any of the Collateral;
e. Upon five (5) business days' prior written notice to
the Borrower (or one (1) day notice by telephone with
respect to Collateral that is perishable or threatens
to decline rapidly in value), which each Company
hereby acknowledges to be sufficient, commercially
reasonable and proper, Agent may sell, lease or
otherwise dispose of any or all of the Collateral at
any time and from time to time at public or private
sale, with or without advertisement thereof. Each
Company waives the benefit of any marshaling doctrine
with respect to Agent's exercise of its rights
hereunder. Each Company grants a royalty-free license
to Agent for all patents, service marks, trademarks,
tradenames, copyrights, computer programs and other
intellectual property and proprietary rights
sufficient to permit Agent to exercise all rights
granted to Agent under this Section. Agent or anyone
else may be the purchaser of any or all of the
Collateral so sold and thereafter hold such
Collateral absolutely, free from any claim or right
of whatsoever kind, including any equity of
redemption of any Company or any other obligor, any
such notice, right and/or equity of redemption being
hereby expressly waived and released.
5. APPLICATION OF PROCEEDS. Upon a sale of any Collateral by
Agent, Agent shall apply the sale proceeds in accordance with
Section 8.17 of the Credit Agreement, except the fees payable
under Paragraph 2.13 thereof, which shall be paid solely to
Agent.
I. MISCELLANEOUS.
1. REMEDIES CUMULATIVE; NO WAIVER. The rights, powers and
remedies of Agent provided in this Security Agreement and any
of the other Loan Documents are cumulative and not exclusive
of any right, power or remedy provided by law or equity. No
failure or delay on the part of Agent in the exercise of any
right, power or remedy shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or
remedy preclude any other or further exercise thereof, or the
exercise of any other right, power or remedy.
2. NOTICES. Each Company agrees that any notice, request or
consent required to be given to such Companies hereunder or in
connection herewith may be given to Borrower on behalf of such
Companies. Any notice, request or consent required hereunder
or in connection herewith shall be deemed satisfactorily given
if in writing and delivered by hand, mailed (registered or
certified mail) or sent by facsimile transmission to Agent or
Borrower at their respective addresses or
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<PAGE> 13
telecopier number set forth below, or to any party at such
other addresses or telecopier numbers as may be given by any
party to the others in writing:
if to Borrower:
Marketing Specialists Corporation
17855 Dallas Parkway
Suite 200
Dallas, TX 75287
Attention: Timothy Byrd
Telecopier: (972) 349-6448
if to Agent:
First Union National Bank
1345 Chestnut Street
PA 4843
Philadelphia, PA 19107
Attention: Robert A. Brown
Telecopier: (215) 786-2877
3 COSTS AND EXPENSES; INDEMNIFICATION. Whether or not the
transactions contemplated by this Security Agreement and the
other Loan Documents are fully consummated, the Borrower shall
promptly pay (or reimburse, as Agent may elect) all reasonable
costs and expenses which Agent has incurred or may hereafter
incur in connection with the negotiation, preparation,
reproduction, interpretation, perfection, monitoring and
enforcement of the Loan Documents, the collection of all
amounts due under the Loan Documents, and all amendments,
modifications, consents or waivers, if any, to the Loan
Documents. Such costs and expenses shall include, without
limitation, the fees and disbursements of counsel to Agent,
the costs of appraisals, searches of public records, costs of
filing and recording documents with public offices, internal
and/or external audit and/or examination fees and costs,
stamp, excise and other taxes, the fees of Agent's
accountants, consultants or other professionals, costs and
expenses from any actual or attempted sale of all or any part
of the Collateral, or any exchange, enforcement, collection,
compromise, or settlement of any of the Collateral or receipt
of the proceeds thereof, and for the care and preparation for
sale of the Collateral (including insurance costs) and
defending and asserting the rights and claims of Agent in
respect thereof, by litigation or otherwise. Each Company
shall indemnify, defend and hold harmless Agent with respect
to any and all claims, expenses, demands, losses, costs, fines
or liabilities of any kind (including, without limitation,
those involving death, personal injury or property damage and
including reasonable attorneys fees and costs) arising from
the use or
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<PAGE> 14
ownership of the Collateral other than those resulting from
Agent's own willful misconduct or gross negligence. The
reimbursement and indemnification obligations of each Company
under this Section shall constitute Liabilities secured by the
Collateral and shall survive any termination of the Loan
Documents.
4 GOVERNING LAW. This Security Agreement shall be construed in accordance
with and governed by the substantive laws of the Commonwealth of
Pennsylvania without reference to conflict of laws principles.
5 INTEGRATION. This Security Agreement and the other Loan Documents
constitute the sole agreement of the parties with respect to the
subject matter hereof and thereof and supersede all oral negotiations
and prior writings with respect to the subject matter hereof and
thereof.
6 AMENDMENT; WAIVER. No amendment of this Security Agreement, and no
waiver of any one or more of the provisions hereof shall be effective
unless set forth in writing and signed by the parties hereto.
7 SUCCESSORS AND ASSIGNS. This Security Agreement (i) shall be binding
upon each Company and the Agent and their respective successors and
permitted assigns, and (ii) shall inure to the benefit of each Company
and the Agent and their respective successors and permitted assigns;
provided, however, that no Company may assign its rights hereunder or
any interest herein without the prior written consent of Agent, and any
such assignment or attempted assignment by any Company shall be void
and of no effect with respect to Agent.
8 SEVERABILITY. The illegality or unenforceability of any provision of
this Security Agreement or any instrument or agreement required
hereunder shall not in any way affect or impair the legality or
enforceability of the remaining provisions of this Security Agreement
or any instrument or agreement required hereunder. In lieu of any
illegal or unenforceable provision in this Security Agreement, there
shall be added automatically as a part of this Security Agreement a
legal and enforceable provision as similar in terms to such illegal or
unenforceable provision as may be possible.
9 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. Each Company
irrevocably appoints each officer of Borrower as its attorney upon whom
may be served any notice, process or pleading in any action or
proceeding against it arising out of or in connection with this
Security Agreement, the Credit Agreement, the Notes, the Loan Documents
or any of the Collateral; each Company hereby consents that any action
or proceeding against it be commenced and maintained in any court
within the Commonwealth of Pennsylvania or in the United States
District Court for the
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<PAGE> 15
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.
10 INCONSISTENCIES. The Loan Documents are intended to be consistent.
However, in the event of any inconsistencies among any of the Loan
Documents, such inconsistency shall not affect the validity or
enforceability of any Loan Document. In the event of any inconsistency
or ambiguity in any of the Loan Documents, the Loan Documents shall not
be construed against any one party but shall be interpreted consistent
with Agent's policies and procedures.
11 HEADINGS. The headings of sections and paragraphs have been included
herein for convenience only and shall not be considered in interpreting
this Security Agreement.
12 SCHEDULES. If a Schedule and/or an Exhibit is attached hereto, the
provisions thereof are incorporated herein.
13 WAIVER OF JURY TRIAL; ACKNOWLEDGMENTS.
a0 EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE NOTES OR
OTHER LOAN DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
AGENT OR LENDERS. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
AGENT'S ENTERING INTO THIS AGREEMENT ON BEHALF OF THE LENDERS.
b0 BORROWER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF
COUNSEL IN THE REVIEW AND EXECUTION OF THIS AGREEMENT AND,
SPECIFICALLY, SECTION 13(a) HEREOF, AND
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<PAGE> 16
FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE
FOREGOING WAIVER OF JURY TRIAL HAVE BEEN FULLY EXPLAINED TO
BORROWER BY SUCH COUNSEL.
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<PAGE> 17
IN WITNESS WHEREOF the parties hereto have executed this Second Amended and
Restated Security Agreement as of the date above first written.
Attest: MARKETING SPECIALISTS
CORPORATION
By: By:
----------------------------- ------------------------------
Name: Name:
Title: Title:
Attest: MARKETING SPECIALISTS SALES
COMPANY
By: By:
----------------------------- -----------------------------
Name: Name:
Title: Title:
Attest: BROMAR, INC.
By: By:
----------------------------- -----------------------------
Name: Name:
Title: Title:
Attest: PAUL INMAN ASSOCIATES, INC.
By: By:
----------------------------- -----------------------------
Name: Name:
Title: Title:
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<PAGE> 18
SCHEDULE A
Security Agreement Questionnaires Attached
A-1
<PAGE> 19
SCHEDULE B
Deposit Accounts
B-1
<PAGE> 1
EXHIBIT 10.9
SECOND AMENDED AND RESTATED
PLEDGE AGREEMENT
This Second Amended and Restated Pledge Agreement (this "Pledge
Agreement") is entered into as of March 30, 2000, by and among Marketing
Specialists Corporation (the "Borrower") and the subsidiaries of the Borrower
signatory hereto (each individually a "Pledgor" and individually and
collectively, "Pledgors"), in favor of First Union National Bank, a national
banking association ("Pledgee"), as agent for the lenders (together with such
additional financial institutions as may become Lenders from time to time as
provided in the Credit Agreement described below "Lenders").
BACKGROUND
A. Borrower has entered into that certain Second Amended and Restated
Credit Agreement dated the date hereof (as may be amended from time to time, the
"Credit Agreement") among the Borrower, the Lenders and the Pledgee.
B. As a condition to Pledgee's and Lenders' willingness to enter into
the Credit Agreement, the Pledgors are willing to execute and deliver to
Pledgee, as agent for the Lenders, this Pledge Agreement.
C. The Borrower, certain of the Pledgors and the Pledgee are parties to
that certain Amended and Restated Pledge Agreement dated August 18, 1999 (the
"Existing Pledge Agreement").
D. The parties desire to amend the Existing Pledge Agreement and the
Pledgors signatory hereto desire to become party to the Pledge Agreement as set
forth herein.
E. This Pledge Agreement amends and restates in its entirety the
Existing Pledge Agreement; provided, however, that this Pledge Agreement shall
not constitute a novation and nothing herein shall be deemed to have terminated
or discharged any indebtedness or obligation under the Existing Pledge
Agreement, all of which shall remain outstanding under and be governed by this
Pledge Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
each Pledgor and the Pledgee hereby agree as follows:
<PAGE> 2
1. For the purposes of this Pledge Agreement:
(a) Capitalized terms used and not otherwise defined herein shall
have the meanings ascribed to such terms in the Credit Agreement.
(b) The term "Collateral" shall mean all shares of stock,
partnership interests, LLC interests, or other equity interests in any direct or
indirect Subsidiary of Borrower (the "Securities") now or hereafter owned by any
Pledgor, together with (i) all rights to distributions and other rights under
organizational documents, or under any other agreements, with respect thereto,
and all contract rights, general intangibles and investment property associated
with or representing such Pledgor's rights and interests with respect thereto,
and (ii) all additions to, substitutions or exchanges for, proceeds of and
distributions on, any of the foregoing, and all associated secondary rights and
secondary considerations of any kind (including, without limitation,
subscription rights and bonus shares). A list of the Securities as of the date
hereof is set forth on Schedule A attached hereto.
(c) The term "Obligations" shall mean any and all obligations and
Indebtedness of every kind and description of the Pledgors to the Lenders
pursuant to, under, or in connection with the Loan Documents, whether such debts
or obligations are primary or secondary, direct or indirect, absolute or
contingent, sole, joint or several, secured or unsecured, due or to become due,
contractual or tortious, arising by operation of law or otherwise, or now or
hereafter existing, whether incurred by any Pledgor as principal, surety,
endorser, guarantor, accommodation party or otherwise, including, without
limitation, principal, interest and fees, late fees and expenses (including,
attorneys' fees and costs and/or the allocated fees and costs of Pledgee's
in-house legal counsel to the extent required to be paid under the Loan
Documents), or that have been or may hereafter be contracted or incurred, and
any obligations of the Pledgors or any of them under interest rate protection
agreements, swaps, hedging contracts or similar arrangements with any Lender
(including, without limitation, any swap agreements as defined in 11 U.S.C.
Section 101). If a party ceases to be a Lender, any obligations under interest
rate protection agreements, swaps, hedging contracts or similar arrangements
(including, without limitation, any swap agreements as defined in 11 U.S.C.
Section 101) with such party prior to the date it ceased to be a Lender shall
continue to be Obligations secured by the pledge hereunder.
2. Pledgors hereby pledge, and grant a lien as security with respect
to, the Collateral to Pledgee, as agent for the Lenders, as collateral security
for all of the Obligations.
3. Pledgors represent and warrant that:
(a) The chief place of business, chief executive offices and the
office(s) where their records are kept concerning accounts, contract rights and
other similar Collateral, are as set forth on Schedule B attached hereto, and as
set forth on Schedule B, each Pledgor either owns such premises free and clear
of any mortgage or other liens and
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<PAGE> 3
encumbrances except as set forth on Schedule B or it leases such premises from
the record owner identified on Schedule B.
(b) Each Pledgor conducts business under and through its legal name
as set forth on the signature page hereto, and no other names except as set
forth on Schedule B attached hereto.
(c) Pledgors have good title to the Securities free and clear of all
liens and encumbrances except the security interest created hereby; and such
Securities constitute the percentage of the issued and outstanding shares of
each class of the capital stock or other equity interests of the subsidiaries of
Pledgors identified in Schedule A.
(d) The Securities are validly issued, fully paid and nonassessable
and are not subject to any charter, bylaw, statutory, contractual or other
restrictions governing their issuance, transfer, ownership or control except as
indicated on the stock certificates for the Securities.
(e) Pledgors have delivered to Pledgee all certificates or other
similar instruments or documents representing or evidencing the Securities,
together with corresponding assignment or transfer powers duly executed in blank
by Pledgors, and this Pledge Agreement and such powers have been duly and
validly executed and are binding and enforceable against Pledgor in accordance
with their terms except as such enforceability may be affected by bankruptcy
laws and other laws of general application relating to creditors' rights; and
the pledge of the Securities in accordance with the terms hereof creates a valid
and perfected first priority security interest in the Securities securing
payment of the Obligations.
(f) No authorization, approval, or other action by, and no notice to
or filing with any governmental authority or regulatory body is required for (i)
the pledge by Pledgors of the Securities pursuant to this Pledge Agreement, (ii)
the execution, delivery or performance of this Pledge Agreement by Pledgor or
(iii) the exercise by Pledgee of the (A) voting or other rights provided for in
this Pledge Agreement or (B) remedies in respect of the Collateral pursuant to
this Pledge Agreement (except as may be required in connection with such
disposition by laws affecting the offering and sale of securities generally or
the perfection of liens and security interests in proceeds).
4. Anything herein to the contrary notwithstanding, (a) each Pledgor
shall remain liable under any contracts and agreements included in the
Collateral to perform all of its duties and obligations thereunder to the same
extent as if this Pledge Agreement had not been executed, (b) the exercise by
Pledgee of any of its rights hereunder shall not release any Pledgor from any of
its duties or obligations under any contracts and agreements included in the
Collateral and (c) Pledgee shall not have any obligation or liability under any
contracts and agreements included in the Collateral by reason of this Pledge
Agreement, nor shall Pledgee be
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<PAGE> 4
obligated to perform any of the obligations or duties of any Pledgor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
5. Each Pledgor will promptly notify and provide Pledgee with a
complete description of the opening of any new places of business which would be
required to be disclosed pursuant to Paragraph 3(a) above (excluding sales
offices at which no books and records are maintained other than books and
records that are duplicates of books and records maintained at other locations
of which Pledgee has notice hereunder), the conduct of business under any names
or through any entities other than those set forth above, the relocation of any
of the Collateral, and the acquisition of any new Collateral. Each Pledgor will
furnish to Pledgee from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Pledgee may reasonably request upon reasonable notice,
all in reasonable detail.
6. At any time and from time to time, upon the request of Pledgee, each
Pledgor will, at its own expense:
(a) defend the Collateral against the claims and demands of all
persons.
(b) deliver and pledge to Pledgee, endorsed or accompanied by
instruments of assignment or transfer satisfactory to Pledgee, any instruments
and documents covered hereby which Pledgee may specify.
(c) give, execute, deliver and file or record in the proper
governmental offices, any instrument, paper or document, including but not
limited to one or more financing statements under the Uniform Commercial Code,
satisfactory to Pledgee, or take any action, which Pledgee reasonably may deem
necessary or desirable in order to create, preserve, perfect, continue, modify,
terminate or otherwise affect any security interest granted pursuant hereto, or
to enable Pledgee to exercise or enforce any of its rights hereunder.
(d) keep, and stamp or otherwise mark, any of its documents and
instruments and its individual books and records relating to any of the
Collateral in such manner as Pledgee reasonably may require.
(e) pay, or reimburse Pledgee in the amount of, all reasonable
expenses (including reasonable fees and expenses of attorneys, experts and
agents) incurred in any way in connection with the exercise, defense or
assertion of any rights or interests of Pledgee hereunder, the enforcement of
any provisions hereof, or the management, preservation, use, operation,
maintenance, collection, possession, disposition or enforcement of any of the
Collateral (all such expenses to be Obligations hereunder).
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<PAGE> 5
7. Each Pledgor agrees not to:
(i) sell or otherwise dispose of, or grant any option
(collectively, "Transfer") with respect to, any of the Collateral, provided
however, that nothing herein shall prohibit a merger of a wholly-owned
Subsidiary into any of the Companies as permitted pursuant to Paragraph 6.8(iii)
of the Credit Agreement; or
(ii) create or permit to exist any lien, security interest, or
other charge or encumbrance upon or with respect to any of the Collateral,
except the security interest under this Pledge Agreement. Each Pledgor agrees
that all additional shares of stock or other equity interests of any direct or
indirect Subsidiary of Borrower acquired by any Pledgor after the date hereof
shall automatically and without any further action of any Pledgor be pledged
hereunder and constitute a part of the Collateral hereunder, and in connection
therewith, each Pledgor agrees to immediately deliver to Pledgee any
certificates or other instruments or documents representing or evidencing the
Securities and a supplement to Schedule A attached hereto describing such
additional Collateral.
8. Prior to the full payment and performance of the Obligations,
Pledgee shall be entitled to receive, as additional Collateral, any and all
additional shares of stock or any other property of any kind distributable on or
by reason of the Securities pledged hereunder, whether in the form of or by way
of stock dividends, warrants, partial liquidation, conversion, prepayments or
redemptions (in whole or in part), liquidation, or otherwise, other than cash
dividends. If any of such property, other than such cash dividends, shall come
into the possession or control of any Pledgor, such Pledgor shall hold or
control and forthwith transfer and deliver the same to Pledgee subject to the
provisions hereof.
9. So long as no default has occurred under any of the Obligations or
Loan Documents and each Pledgor is in full compliance with the terms hereof:
(a) Pledgors shall be entitled to receive and retain any normal,
regularly declared cash dividends paid on the Securities pledged hereunder.
(b) Pledgors may exercise all voting rights, if any, pertaining to
the Securities for any purpose not inconsistent with the terms hereof or of the
Obligations or Loan Documents. In the event the Securities have been transferred
into the name of Pledgee or a nominee or nominees of Pledgee prior to default,
Pledgee or its nominee will execute and deliver upon request of Pledgors an
appropriate proxy in order to permit Pledgors to vote, if applicable, the same.
10. Each Pledgor shall take all actions (and execute and deliver from
time to time all instruments and documents) reasonably necessary or appropriate
or reasonably requested
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<PAGE> 6
by Pledgee, to continue the validity, enforceability and perfected status of the
pledge of Securities hereunder.
11. Pledgee shall be under no obligation to take any actions and shall
have no liability (except for gross negligence or willful misconduct) with
respect to the preservation or protection of the pledged Securities or any
underlying interests represented thereby as against any prior or other parties.
In the event Pledgors request that Pledgee take or omit to take action(s) with
respect to the Collateral, Pledgee may refuse so to do with impunity if Pledgors
do not, upon request of Pledgee, post sufficient, creditworthy indemnities with
Pledgee which, in Pledgee's sole discretion, are sufficient to hold it harmless
from any possible liability of any kind in connection therewith.
12. Pledgors agree that Pledgee, at any time and without affecting its
rights in the pledged Securities and without notice to Pledgors, may grant any
extensions, releases or other modifications of any kind respecting the Loan
Documents, Obligations and any collateral security therefor and each Pledgor,
except as otherwise provided herein or in the Loan Documents, waives all notices
of any kind in connection with the Obligations, the Loan Documents and any
changes therein or defaults or enforcement proceedings thereunder, whether
against Pledgors or any other party. Each Pledgor hereby waives any rights it
has at equity or in law to require Pledgee to apply any rights of marshaling or
other equitable doctrines in the circumstances.
13. After the occurrence and during the continuance of an Event of
Default under the Credit Agreement:
(a) Pledgee may transfer or cause to be transferred any of the
pledged Securities into its own or a nominee's or nominees' name or names.
(b) Pledgee shall be entitled to receive and apply in payment of the
Obligations any cash dividends, interest or other payment on the pledged
Securities.
(c) Pledgee shall be entitled to exercise in Pledgee's discretion
all voting rights, if any, pertaining thereto and in connection therewith and at
the written request of Pledgee, Pledgors shall execute any appropriate dividend,
payment or brokerage orders or proxies.
(d) Pledgors shall take any action necessary or required or
reasonably requested by Pledgee, in order to allow Pledgee fully to enforce the
pledge of the Securities hereunder and realize thereon to the fullest possible
extent, including but not limited to the filing of any claims with any court,
liquidator or trustee, custodian, receiver or other like person or party.
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<PAGE> 7
(e) Pledgee shall have all the rights and remedies granted or
available to it hereunder, under any statute or the common law, or under any of
the Loan Documents, including the right to sell the pledged Securities or any
portion thereof at one or more public or private sales upon ten (10) days'
written notice and to bid thereat or purchase any part or all thereof in its own
or a nominee's or nominees' names, free and clear of any equity of redemption;
and to apply the net proceeds of the sale, after deduction for any expenses of
sale, including the payment of all Pledgee's reasonable attorneys' fees in
connection with the Obligations and the sale, to the payment of the Obligations
in any manner or order which Pledgee in its sole discretion may elect, without
further notice to or consent of Pledgors and without regard to any equitable
principles of marshaling or other like equitable doctrines.
(f) Pledgee may increase, in its sole discretion, but shall not be
required to do so, the Obligations by making reasonable additional advances or
incurring reasonable expenses for the account of Pledgors deemed appropriate or
desirable by Pledgee in order to protect, enhance, preserve or otherwise further
the sale or disposition of the Collateral or any other property it holds as
security for the Obligations.
14. Each Pledgor recognizes that Pledgee may be unable to effect a sale
to the public of all or part of the Securities by reason of certain prohibitions
or restrictions in applicable securities laws and regulations (herein
collectively called the "Securities Laws"), or the provisions of other laws,
regulations or rulings, but may be compelled to resort to one or more sales to a
restricted group of purchasers who will be required to agree to acquire the
Securities for their own account, for investment and not with a view to the
further distribution or resale thereof without restriction. Each Pledgor agrees
that any sale(s) so made may be at prices and on other terms less favorable to
Pledgors than if the Securities were sold to the public, and that Pledgee has no
obligation to delay sale of the Securities for period(s) of time necessary to
permit the issuer thereof to register the Securities for sale to the public
under any of the Securities Laws. Each Pledgor agrees that negotiated sales
whether for cash or credit made under the foregoing circumstances shall not be
deemed for that reason not to have been made in a commercially reasonable
manner. Each Pledgor shall cooperate with Pledgee to satisfy any requirements
under the Securities Laws applicable to the sale or transfer of the Securities
by Pledgee, provided, however, that Pledgors shall have no obligation to file or
cause to be filed any registration statements.
In connection with any sale or disposition of the Collateral, Pledgee
is authorized to comply with any limitation or restriction as it may be advised
by its counsel is necessary or desirable in order to avoid any violation of
applicable law or to obtain any required approval of the purchasers) by any
governmental regulatory body or officer and it is agreed that such compliance
shall not result in such sale being considered not to have been made in a
commercially reasonable manner nor shall Pledgee be liable or accountable by
reason of the fact that the proceeds obtained at such sale(s) are less than
might otherwise have been obtained at public sale.
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<PAGE> 8
Pledgee may elect to obtain the advice of any independent
nationally-known investment banking firm, which is a member firm of the New York
Stock Exchange, with respect to the method and manner of sale or other
disposition of any of the Collateral, the best price reasonably obtainable
therefor, the consideration of cash and/or credit terms, or any other details
concerning such sale or disposition. Pledgee, in its sole discretion, may elect
to sell on such credit terms which it deems reasonable.
15. The powers conferred on Pledgee hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise any
such powers. Except for the safe custody of any Collateral in its possession and
the accounting for monies actually received by it hereunder, Pledgee shall have
no duty as to any Collateral or as to the taking of any necessary steps to
preserve any right of or against other parties pertaining to any Collateral.
Pledgors agree jointly and severally to indemnify Pledgee and each Secured Party
from and against any and all claims, losses and liabilities growing out of or
resulting from this Pledge Agreement (including, without limitation, enforcement
of this Pledge Agreement) or Pledgee's or any Lender's interest in the
Collateral, except claims, losses or liabilities resulting from such party's
gross negligence or wilful misconduct.
16. The parties agree that this Pledge Agreement shall be governed as
to its validity, interpretation and effect by the internal laws of the
Commonwealth of Pennsylvania without regard to the conflict of laws rules
thereof; and any terms used herein which are defined in the Uniform Commercial
Code as enacted in Pennsylvania shall have the meanings therein set forth.
17. This Pledge Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
18. If Pledgee shall waive any rights or remedies arising hereunder or
under any applicable law, such waiver shall not be deemed to be a waiver upon
the later occurrence or recurrence of any of said events. No delay by Pledgee in
the exercise of any right or remedy shall under any circumstances constitute or
be deemed to be a waiver, express or implied, of the same and no course of
dealing between the parties hereto shall constitute a waiver of Pledgee's rights
or remedies.
19. Each Pledgor hereby irrevocably appoints Pledgee, effective upon
the occurrence and during the continuation of an Event of Default under the
Credit Agreement, as its attorney-in-fact to execute, deliver and record, if
appropriate, from time to time any instruments or documents in connection with
the Collateral, in such Pledgor's or Pledgee's names.
20. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING
-8-
<PAGE> 9
OUT OF, UNDER OR IN CONNECTION WITH THIS PLEDGE AGREEMENT OR THE CREDIT
AGREEMENT OR OTHER LOAN DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF PLEDGEE OR LENDERS. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR PLEDGEE'S ENTERING INTO THIS PLEDGE
AGREEMENT ON BEHALF OF THE LENDERS.
21. EACH PLEDGOR ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL
IN THE REVIEW AND EXECUTION OF THIS PLEDGE AGREEMENT AND, SPECIFICALLY, SECTION
20 HEREOF, AND FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE FOREGOING
WAIVER OF JURY TRIAL HAVE BEEN FULLY EXPLAINED TO SUCH PLEDGOR BY SUCH COUNSEL.
22. This Pledge Agreement represents the entire understanding of the
parties with respect to the subject matter and no modification or change herein
shall be effective unless contained in a writing signed by the parties hereto.
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<PAGE> 10
IN WITNESS WHEREOF, the undersigned have executed this Second Amended
and Restated Pledge Agreement under seal as of the day and year first above
written.
Attest: MARKETING SPECIALISTS CORPORATION
By: By:
--------------------------------- ----------------------------------
Name: Name:
Title: Title:
Attest: MARKETING SPECIALISTS SALES
COMPANY
By: By:
--------------------------------- ----------------------------------
Name: Name:
Title: Title:
Attest: BROMAR, INC.
By: By:
--------------------------------- ----------------------------------
Name: Name:
Title: Title:
Attest: PAUL INMAN ASSOCIATES, INC.
By: By:
--------------------------------- ----------------------------------
Name: Name:
Title: Title:
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<PAGE> 11
Schedule A
Pledged Securities
<TABLE>
<CAPTION>
Description Percent of
Company of Securities Certificate No. No. of Shares Outstanding Equity
- ------- ------------- --------------- ------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
A-1
<PAGE> 12
Schedule B
Disclosure
B-1
<PAGE> 1
EXHIBIT 10.10
SECOND AMENDED AND RESTATED
GUARANTY AGREEMENT
This Second Amended and Restated Guaranty Agreement (this
"Guaranty"), is entered into as of March 30, 2000 by and among Marketing
Specialists Sales Company, Bromar, Inc., and Paul Inman Associates, Inc. (each
individually a "Guarantor" and individually and collectively the "Guarantors"),
in favor of First Union National Bank, a national banking association, for
itself and as agent ("Agent") for the lenders (together with such additional
financial institutions as may become Lenders from time to time as provided in
the Credit Agreement described below "Lenders").
BACKGROUND
1. Marketing Specialists Corporation ("Borrower") has entered into that
certain Second Amended and Restated Credit Agreement dated the date hereof (as
may be amended from time to time, the "Credit Agreement") among the Borrower,
the Lenders and the Agent.
2. As a condition to Agent's and Lenders' willingness to enter into the
Credit Agreement, the Guarantors are willing to execute and deliver to Agent, as
agent for the Lenders, this Guaranty.
3. The Borrower, certain of the Guarantors and the Agent are parties to
that certain Amended and Restated Guaranty Agreement dated August 18, 1999 (the
"Existing Guaranty").
4. The parties desire to amend the Existing Guaranty and the Guarantors
signatory hereto desire to become party to the Guaranty as set forth herein.
5. Each Guarantor is a Subsidiary of the Borrower, and each Guarantor's
directors have determined that it is in the best interest of such Guarantor to
execute this Guaranty and that such Guarantor will benefit directly and
indirectly from the execution of this Guaranty.
6. This Guaranty amends and restates in its entirety the Existing
Guaranty; provided, however, that this Guaranty shall not constitute a novation
and nothing herein shall be deemed to have terminated or discharged any
indebtedness or obligation under the Existing Guaranty, all of which shall
remain outstanding under and be governed by this Guaranty.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
each Guarantor and the Agent hereby agree as follows:
<PAGE> 2
1. Definitions and Construction. Reference is made to the Credit
Agreement for a statement of the terms thereof. All terms used in this Guaranty
which are defined in the Credit Agreement and not defined herein shall have the
respective meanings ascribed to such terms in the Credit Agreement.
2. Guaranty. Each Guarantor, jointly and severally, absolutely and
unconditionally, guarantees and becomes surety for the full, prompt and punctual
payment to Lenders, as and when due, whether at maturity, by acceleration or
otherwise, of any and all Indebtedness, and performance of any and all
liabilities and obligations of Borrower to Agent and Lenders or any of them
(including, without limitation, reimbursement obligations under Letters of
Credit) created at any time under, or pursuant to, the terms of the Credit
Agreement and the other Loan Documents, whether for principal, interest,
premiums, fees, expenses or otherwise, any obligations under interest rate
protection agreements, swaps, hedging contracts or similar arrangements with any
Lender (including, without limitation, any swap agreement as defined in 11
U.S.C. Section 101), and any obligations under or pursuant to any other
documents and agreements executed in connection with any of the foregoing,
including any future advances, whether obligatory or voluntary, or refinancings,
renewals or extensions of or substitutions for, any existing or future debt
(collectively, all such Indebtedness, liabilities and obligations are referred
to herein as the "Obligations"), together with any and all reasonable expenses
(including, without limitation, attorneys' fees, disbursements and the costs and
expenses of in-house counsel and legal support staff) which may be incurred by
the Agent and any Lender in collecting any or all of the Obligations or
enforcing any and all rights against any Guarantor under this Guaranty (the
"Expenses"). Without limiting any Guarantor's obligations hereunder and
notwithstanding any purported termination of this Guaranty, if any bankruptcy,
insolvency, reorganization, arrangement, readjustment, composition, liquidation,
dissolution, assignment for the benefit of creditors, or similar event with
respect to the Borrower or any endorser of all or any of the Obligations shall
occur, and such occurrence shall result in the return of (or in such event the
Agent or any Lender shall be requested to return) any payment or performance of
any of the Obligations or Expenses, then (a) without further notice, demand or
other action, the obligations of each Guarantor hereunder shall be reinstated
with respect to (i) such payment or performance returned (or requested to be
returned) and (ii) with respect to all further obligations arising as a result
of such return or request, and (b) each Guarantor shall thereupon be liable
therefor, without any obligation on the part of the Agent or any Lender to
contest or resist any such return. If a party ceases to be a Lender, then any
obligations under interest rate protection agreements, swaps, hedging contracts
or similar arrangements(including without limitation, any swap agreement as
defined in 11 U.S.C. Section 101), with that party prior to the date it ceases
to be a Lender shall continue to be Obligations guaranteed hereunder.
3. Nature and Term of Guaranty.
(1) The obligations and liability of each Guarantor under this
Guaranty shall be joint and several, absolute, primary and direct, irrevocable
and unconditional, regardless of any non-perfection of any collateral security
for the Obligations; any lack of validity or
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<PAGE> 3
enforceability of the Credit Agreement, any other Loan Document or any of the
Obligations or Expenses; the voluntary or involuntary liquidation, dissolution,
sale or other disposition of all, or substantially all of the assets,
marshalling of assets and liabilities, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition with creditors or readjustment of, or other similar proceedings
affecting Borrower, any Guarantor or any other guarantor or endorser of, any or
all of the Obligations and Expenses or any of the assets of any of them, or any
contest of the validity of this Guaranty in any such proceeding; or any law,
regulation or decree now or hereafter in effect in any jurisdiction which might
in any manner affect any of such terms or provisions or any of the rights of the
Agent or any Lender with respect thereto or which might cause or permit the
Borrower, any Guarantor or any guarantor or endorser of the Obligations and
Expenses to invoke any defense to, or any alteration in the time, amount or
manner of payment of any or all of the Obligations and Expenses or performance
of this Guaranty.
(2) This Guaranty is a continuing guaranty and shall remain in full
force and effect until: (i) the Obligations, Expenses and any and all other
amounts payable hereunder shall have been paid in full in cash; (ii) no further
loans or advances are available; (iii) no Letters of Credit are outstanding
under the Credit Agreement; and (iv) and the period during which any payment by
the Borrower or either Guarantor is or may be subject to rescission, avoidance
or refund under the United States Bankruptcy Code (or any similar state or
federal statute) shall have expired.
4. Limitation on Amount Guarantied. Anything contained in this Guaranty
to the contrary notwithstanding, the obligations of each Guarantor hereunder
shall be limited to the lesser of (i) the aggregate amount of the Obligations
and Expenses, or (ii) a maximum aggregate amount equal to the largest amount
that would not render its obligations hereunder subject to avoidance as a
fraudulent transfer or conveyance under Section 548 of Title 11 of the United
States Code or any applicable provisions of comparable state law (collectively,
the "Fraudulent Transfer Laws"), if and to the extent each Guarantor (or a
trustee on its behalf) has properly invoked the protections of the Fraudulent
Transfer Laws, in each case after giving effect to all other liabilities of such
Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws.
5. Payment in Accordance with Notes and Credit Agreement.
(1) Each Guarantor hereby guaranties that the Obligations and
Expenses shall be paid and performed strictly in accordance with the terms of
the Loan Documents.
(b) If any Obligation or Expense is not paid or performed by the
Borrower punctually, subject to any applicable grace period, including without
limitation any Obligation due by acceleration of the maturity thereof, the
Guarantors will, upon Agent's demand (at the direction of Required Lenders),
immediately pay or perform such Obligation or
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<PAGE> 4
Expense or cause the same to be paid or performed. Guarantors will pay to Agent
and each Lender, upon demand, all costs and expenses, including the Expenses,
which may be incurred by the Agent or such Lender in the collection or
enforcement of any Guarantor's obligations under this Guaranty.
6. Defaults; Rights and Remedies of Lenders.
(1) An event of default hereunder shall include each of the
following:
(i) an Event of Default as defined under any of the Loan
Documents;
(ii) any Guarantor's failure to perform any of its
obligations or duties under this Guaranty; and
(iii) any Guarantor's notice to any Lender or Agent that such
Guarantor does not intend to be liable for any future Obligations or Expenses or
contests the validity or enforceability of this Guaranty.
(2) Agent, on behalf of Lenders, in their sole discretion, may
proceed to exercise any right or remedy which they may have under this Guaranty
(in accordance with the Credit Agreement) against any Guarantor without first
pursuing or exhausting any rights or remedies which they may have against the
Borrower or against any other person or entity or any collateral security, and
may proceed to exercise any right or remedy which they may have under this
Guaranty (in accordance with the Credit Agreement) without regard to any actions
or omissions of any other person or entity, in any manner or order, without any
obligation to marshal in favor of any Guarantor or other persons or entities and
without releasing any of Guarantors' obligations hereunder with respect to any
unpaid Obligations and Expenses. Upon the occurrence and continuance of an Event
of Default, each Guarantor shall immediately pay, comply with and perform such
of the Obligations and Expenses as Agent, on behalf of Lenders, shall direct,
irrespective of whether the Obligations and Expenses to be paid, complied with
and performed by such Guarantor are those which gave rise to the Event of
Default. No remedy herein conferred upon or reserved to the Agent is intended to
be exclusive of any other available remedy or remedies, but each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
under this Guaranty or now or hereafter existing at law or in equity.
(3) If Borrower or any other person or entity defaults under the
Loan Documents and any Lender is prevented from accelerating payment thereunder,
either by operation of any bankruptcy laws, similar laws or any court order,
such Lender shall be entitled to receive from the Guarantors, upon demand by
Agent on behalf of such Lender (in accordance with the Credit Agreement), the
sums which would have otherwise been due and payable had such acceleration
occurred.
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<PAGE> 5
7. Actions by Lenders Not Affecting Guaranty. Lenders may, at any time
or from time to time, in such manner and upon such terms as they may deem
proper, extend or change the time of payment or the manner or place of payment
of, or otherwise modify or waive any of the terms of, or release, exchange,
settle or compromise any or all of the Obligations and Expenses or any
collateral security therefor, or subordinate payment of the same, or any part
thereof, to the payment of any other indebtedness, liabilities or obligations of
the Borrower which may at any time be due or owing to the Lenders or anyone, or
elect not to enforce any of the Lenders' rights with respect to any or all of
the Obligations and Expenses or any collateral security therefor, all without
notice to, or further assent of any Guarantor and without releasing or affecting
any Guarantor's obligations hereunder.
8. Payments Under Guaranty. All payments by Guarantors hereunder shall
be made in immediately available funds and in lawful money of the United States
of America to the Agent at the office of the Agent referred to in Paragraph 2.11
of the Credit Agreement or at such other location as the Agent shall specify by
notice to the Guarantors. All payments by any Guarantor under this Guaranty
shall be made by such Guarantor solely from such Guarantor's own funds and not
from any funds of the Borrower.
9. Modifications and Waivers. No failure or delay on the part of any
Lender or Agent in exercising any power or right under this Guaranty shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power preclude any other or further exercise thereof or the
exercise of any other right or power under this Guaranty. No modification or
waiver of any provision of this Guaranty nor consent to any departure therefrom
shall, in any event, be effective unless the same is in writing signed by the
Lenders (or Required Lenders to the extent applicable under the Credit
Agreement) and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to, or demand
on any Guarantor, in any case, shall entitle such Guarantor to any other or
further notice or demand in similar or other circumstances.
10. Guarantors' Waiver. Each Guarantor hereby waives the following:
(1) promptness, diligence, presentment, demand, notice of acceptance
and any other notice with respect to any of the Obligations and Expenses or this
Guaranty, except for such notice as may be expressly required under the Loan
Documents;
(2) any defense or circumstance which might otherwise constitute a
legal or equitable discharge of any Guarantor, including, without limitation,
any obligation of any Lender to proceed against Borrower prior to exercising any
rights hereunder;
(3) any and all right to terminate such Guarantor's obligations and
duties hereunder by delivery or written notice to any Lender or otherwise;
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<PAGE> 6
(4) all benefits under any present or future laws exempting any
property, real or personal, or any part of any proceeds thereof, from
attachment, levy or sale under execution, or providing for any stay of execution
to be issued on any judgment recovered under any of the Loan Documents or in any
replevin or foreclosure proceedings, or otherwise providing for any valuation,
appraisal or exemption;
(5) all rights to inquisition on any real estate, which real estate
may be levied upon pursuant to a judgment obtained under any of the Loan
Documents and sold upon any writ of execution issued thereon in whole or in
part, in any order desired by any Lender;
(6) any requirement for bonds, security or sureties required by any
statute, court rule or otherwise; and
(7) any and all procedural errors, defects and imperfections in any
action by Agent or Lenders in replevin, foreclosure or other court process or in
connection with any other action related to any of the Loan Documents or the
transactions contemplated therein.
11. Subordination; Subrogation. Each Guarantor hereby expressly agrees
that it shall not exercise, against Borrower or any other Guarantor, or other
guarantor, maker, endorser or Person, and: (a) right which such Guarantor may
now have or hereafter acquire by way of subrogation under this Guaranty, by law
or otherwise or by way of reimbursement, indemnity, exoneration, or
contribution; (b) right to assert defenses as the primary obligor of the
Obligations; (c) other claim which it now has or may hereafter acquire against
Borrower or any other Person or against or with respect to Borrower's property
(including, without limitation, any property which has been pledged to secure
the Obligations); or (d) right to enforce any remedy which any Lender may now
have or hereafter acquire against Borrower or any other Guarantor, or any other
guarantor, maker, endorser or Person; in any case, whether any of the foregoing
claims, remedies and rights may arise in equity, under contract, by payment,
statute, common law or otherwise until all Obligations and Expenses have been
indefeasibly paid in full in cash. If in violation of the foregoing any amount
shall be paid to any Guarantor on account of any such rights at any time, such
amount shall be held in trust for the benefit of the Lenders and shall forthwith
be paid to the Agent, for the benefit of the Lenders, to be credited and applied
against the Obligations and Expenses, whether matured or unmatured, in
accordance with the terms of the Notes and the Credit Agreement.
12. No Setoff by Guarantors. No setoff, counterclaim, deduction,
reduction, or diminution of any obligation, or any defense of any kind or nature
which any Guarantor has or may have against Borrower or any Lender shall be
available hereunder to any Guarantor.
13. Representations and Warranties. Each Guarantor hereby represents
and warrants that the representations and warranties set forth in Section 3 of
the Credit Agreement are true and correct in all respects including as applied
to Guarantors.
-6-
<PAGE> 7
14. Covenants. Each Guarantor covenants and agrees that, so long as the
Guaranty shall remain in effect, they shall comply in all respects with the
covenants and agreements set forth in the Credit Agreement to the extent such
covenants apply to them, including without limitation, the covenants and
agreements set forth in Sections 5 and 6 thereof.
15. Addresses for Notices. All requests, consents, notices and other
communications required or permitted hereunder or in connection herewith shall
be deemed satisfactorily given if in writing and delivered personally or by
registered or certified mail, postage pre-paid, by reliable overnight courier,
or by telecopier to the parties at their respective addresses set forth below or
at such other address as may be given by any party to the other in writing in
accordance with this Section 15:
If to Borrower or any Guarantor:
c/o Marketing Specialists Corporation
17855 Dallas Parkway
Suite 200
Dallas, TX 75287
Attention: Timothy Byrd
Telecopier: (972) 349-6448
If to Agent:
First Union National Bank
1345 Chestnut Street
PA 4843
Philadelphia, PA 19107
Attention: Robert A. Brown
Telecopier: (215) 786-2877
16. Continuing Guaranty; Transfer of Notes. This Guaranty is a
continuing guaranty and shall (i) remain in full force and effect until the
Obligations, Expenses and any and all other amounts payable under this Guaranty
shall have been paid in full and the period during which any payment made by
Borrower or any Guarantor is or may be subject to avoidance or refund under the
United States Bankruptcy Code (or any similar statute) shall have expired, (ii)
be binding upon each Guarantor and their respective successors and assigns, and
(iii) inure to the benefit of, and be enforceable by the Lenders and Agent and
their respective successors, transferees and assigns in accordance with
Paragraph 9.2 of the Credit Agreement. Without limiting (iii) above, the Lenders
may endorse, assign or otherwise transfer the Obligations to any other person or
entity in accordance with the provisions of the Credit Agreement, and such other
person or entity shall thereupon become vested with all the rights in respect
thereof granted to the Lenders herein or otherwise.
-7-
<PAGE> 8
17. Entire Agreement. This Guaranty constitutes the entire agreement,
and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
18. Severability.
(1) The invalidity or unenforceability of any one or more portions
of this Guaranty shall not affect the validity or enforceability of the
remaining portions of this Guaranty.
(2) Each Guarantor, the Agent and each Lender agree that in an
action or proceeding involving any state or federal bankruptcy, insolvency or
other law affecting the rights of creditors generally:
(1) If any clause or provision shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction and shall not in any manner affect such clause or provision in
any other jurisdiction, or any other clause or provision in this Guaranty in any
jurisdiction, or any other clause or provision in this Guaranty in any
jurisdiction.
(2) If the guaranty hereunder by any Guarantor would be held or
determined to be void, invalid or unenforceable on account of the amount of its
aggregate liability under this Guaranty, then, notwithstanding any other
provision of this Guaranty to the contrary, the aggregate amount of such
liability shall, without any further action by any Guarantor, the Agent or any
Lender or any other person, be automatically limited and reduced to the highest
amount which is valid and enforceable as determined in action or proceeding.
(3) If any other guaranty by any one or more other i.e.
guarantor is held or determined to be void, invalid or unenforceable, in whole
or in part, such holding or determination shall not impair or affect:
(1) the validity and enforceability of the guaranty
hereunder by any Guarantor, which shall continue in full force and effect in
accordance with its terms; or
(2) the validity and enforceability of any clause or
provision not so held to be void, invalid or unenforceable.
19. Counterparts. This Guaranty may be executed by Guarantors in
several separate counterparts, each of which shall be an original and all of
which taken together shall constitute one and the same instrument.
-8-
<PAGE> 9
20. Governing Law. This Guaranty shall be deemed to be a contract under
the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed in accordance with such laws.
21. Consent to Jurisdiction and Service of Process. Each Guarantor
irrevocably appoints each officer of Borrower and every other Guarantor as its
attorney upon whom may be served any notice, process or pleading in any action
or proceeding against it arising out of or in connection with this Guaranty, the
Loan Documents or any of the Collateral; each Guarantor hereby consents that any
action or proceeding against it be commenced and maintained in any court within
the Commonwealth of Pennsylvania or in the United States District Court for the
Eastern District of Pennsylvania by service of process on any officer of
Borrower or any Guarantor; and each Guarantor agrees that the courts of the
Commonwealth of Pennsylvania and the United States District Court for the
Eastern District of Pennsylvania shall have jurisdiction with respect to the
subject matter hereof and the person of such Guarantor 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
Guarantor may be found or in which any of its properties or Collateral may be
located.
22. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS GUARANTY OR OTHER LOAN DOCUMENTS OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF AGENT OR
LENDERS. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDERS' ENTERING INTO THIS
AGREEMENT.
23. ACKNOWLEDGMENTS. EACH GUARANTOR ACKNOWLEDGES THAT IT HAS HAD THE
ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS GUARANTY AND,
SPECIFICALLY, SECTION 22 HEREOF, AND FURTHER ACKNOWLEDGES THAT THE MEANING AND
EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL HAS BEEN FULLY EXPLAINED TO IT BY
SUCH COUNSEL.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the undersigned, by their duly authorized officers,
as applicable, have executed this Second Amended and Restated Guaranty Agreement
the day and year first above written.
Attest: MARKETING SPECIALISTS SALES COMPANY
By: By:
------------------------------------- ---------------------------------
Name: Name:
Title: Title:
Attest: BROMAR, INC.
By: By:
------------------------------------- ---------------------------------
Name: Name:
Title: Title:
Attest: PAUL INMAN ASSOCIATES, INC.
By: By:
------------------------------------- ---------------------------------
Name: Name:
Title: Title:
-10-
<PAGE> 1
EXHIBIT 10.11
EXECUTION COPY
STOCK PURCHASE AGREEMENT
by and among
MARKETING SPECIALISTS SALES COMPANY
as Buyer
THE SALES FORCE COMPANIES, INC.
as the Company
and
THE STOCKHOLDERS OF THE COMPANY
As of March 2, 2000
<PAGE> 2
STOCK PURCHASE AGREEMENT
INDEX
<TABLE>
<CAPTION>
Page
----
SECTION 1. SALE OF SHARES AND PURCHASE PRICE ............................... 1
<S> <C> <C>
1.1 Transfer of Company Shares ...................................... 1
1.2 Purchase Price and Payment ...................................... 2
1.3 Time and Place of Closing ....................................... 3
1.4 Further Assurances .............................................. 3
1.5 Termination of ESOT ............................................. 3
1.6 Spin-Off of Prism and PMG ....................................... 4
1.7 Transfer Taxes .................................................. 5
1.8 Non-ESOT Stockholders' Representative ........................... 6
1.9 Escrow Deposit .................................................. 7
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
STOCKHOLDERS OTHER THAN THE ESOT ................................ 7
2.1 Making of Representations and Warranties ........................ 7
2.2 Organization and Qualifications of the Company .................. 7
2.3 Capital Stock of the Company; Beneficial Ownership .............. 8
2.4 Subsidiaries; Acquisitions ...................................... 9
2.5 Authority of the Company and the Stockholders ................... 9
2.6 No Conflicts .................................................... 10
2.7 Real and Personal Property ...................................... 10
2.8 Financial Statements ............................................ 13
2.9 Taxes ........................................................... 15
2.10 Collectibility of Accounts Receivable ........................... 16
2.11 Inventories ..................................................... 16
2.12 Absence of Certain Changes ...................................... 16
2.13 Ordinary Course ................................................. 18
2.14 Approvals; Consents ............................................. 18
2.15 Banking Relations ............................................... 19
2.16 Intellectual Property ........................................... 19
2.17 Year 2000 ....................................................... 20
2.18 Contracts ....................................................... 21
2.19 Litigation ...................................................... 23
2.20 Compliance with Laws ............................................ 23
2.21 Insurance ....................................................... 23
2.22 Powers of Attorney .............................................. 24
2.23 Finder's Fee .................................................... 24
2.24 Permits; Burdensome Agreements .................................. 24
2.25 Corporate Records; Copies of Documents .......................... 24
2.26 Transactions with Interested Persons ............................ 24
2.27 Employee Benefit Programs ....................................... 25
2.28 Environmental Matters ........................................... 28
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
2.29 List of Directors and Officers .................................. 29
2.30 Employees; Labor Matters ........................................ 30
2.31 Principals ...................................................... 30
2.32 Absence of Improper Payments .................................... 32
2.33 Transfer of Shares .............................................. 32
2.34 Stock Repurchase ................................................ 32
2.35 Disclosure ...................................................... 32
SECTION 3. COVENANTS OF THE COMPANY AND THE STOCKHOLDERS ................... 33
3.1 Making of Covenants and Agreements .............................. 33
3.2 Cooperation ..................................................... 33
3.3 Consents ........................................................ 33
3.4 Notice of Default ............................................... 33
3.5 Conduct of Business ............................................. 33
3.6 Acquisition Proposals ........................................... 35
3.7 Transfers of Shares; Voting ..................................... 35
3.8 Confidentiality ................................................. 36
3.9 Tax Returns ..................................................... 36
3.10 Options and Other Rights ........................................ 36
3.11 Consummation of Agreement ....................................... 36
3.12 Fees and Expenses ............................................... 36
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER ......................... 37
4.1 Making of Representations and Warranties ........................ 37
4.2 Organization of Buyer ........................................... 37
4.3 Authority of Buyer .............................................. 37
4.4 Litigation ...................................................... 37
4.5 Finder's Fee .................................................... 37
4.6 No Conflicts .................................................... 37
4.7 Reports and Financial Statements ................................ 38
SECTION 5. COVENANTS OF BUYER .............................................. 38
5.1 Making of Covenants and Agreements .............................. 38
5.2 Consents ........................................................ 38
5.3 Competitor Proposals ............................................ 38
5.4 Cooperation ..................................................... 39
5.5 Notice of Default ............................................... 39
5.6 Confidentiality ................................................. 39
SECTION 6. CONDITIONS ...................................................... 39
6.1 Conditions to the Obligations of Buyer .......................... 39
6.2 Conditions to Obligations of the Company and the Stockholders ... 42
SECTION 7. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED ..................... 43
7.1 Termination ..................................................... 43
7.2 Effect of Termination ........................................... 44
7.3 Right to Proceed ................................................ 44
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 8. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING .................... 45
8.1 Survival of Warranties .......................................... 45
SECTION 9. INDEMNIFICATION ................................................. 45
9.1 Indemnification by the Stockholders ............................. 45
9.2 Limitations on Indemnification by the Stockholders .............. 46
9.3 Indemnification by Buyer ........................................ 48
9.4 Limitation on Indemnification by Buyer .......................... 48
9.5 Notice; Defense of Claims ....................................... 48
9.6 Satisfaction of Stockholder Indemnification Obligations ......... 49
SECTION 10. DEFINITIONS .................................................... 49
SECTION 11. MISCELLANEOUS .................................................. 54
11.1 Fees and Expenses ............................................... 54
11.2 Governing Law ................................................... 54
11.3 Notices ......................................................... 54
11.4 Entire Agreement ................................................ 55
11.5 Assignability; Binding Effect ................................... 55
11.6 Execution in Counterparts ....................................... 55
11.7 Amendments ...................................................... 55
11.8 Publicity and Disclosures ....................................... 56
11.9 Dispute Resolution; Consent to Jurisdiction ..................... 56
11.10 Consent to Jurisdiction ......................................... 57
11.11 Specific Performance ............................................ 57
11.12 No Third-Party Beneficiaries .................................... 58
11.13 Severability .................................................... 58
11.14 No Stock Restrictions ........................................... 58
</TABLE>
<PAGE> 5
LIST OF EXHIBITS AND SCHEDULES
Exhibit A: List of Stockholders, Stockholdings and Consideration to be Paid
Exhibit B: Form of Indemnification Escrow Agreement
Exhibit B-1 Form of Purchase Agreement Escrow
Exhibit C: Form of Promissory Note
Exhibit D: Form of Opinion of Counsel for the Company and the Stockholders
Exhibit E: Form of Opinion of Counsel for the ESOT
Exhibit F: Form of Employment and Noncompetition Agreement
Exhibit G: Form of General Release
Schedule
1.2(b) Liabilities and Working Capital
1.6 Customers of Prism and PMG
2.2 Organization and Qualifications of the Company
2.3 Capital Stock of the Company; Beneficial Ownership
2.4(a) Subsidiaries; Acquisitions
2.4(b) Acquisition Rights
2.6 No Conflicts
2.7(a) Real Property
2.7(b) Personal Property
2.8 Financial Statements
2.8(d) Projections of Commission Revenues
2.8(e) Automobile Expenses
2.8(f) Compensation
2.9 Taxes
2.10 Collectibility of Accounts Receivable
2.11 Inventories
2.12 Absence of Certain Changes
2.14 Approval; Consents
2.15 Banking Relations
2.16 Intellectual Property and Intellectual Property Rights
2.18 Contracts, etc.
2.19 Litigation
2.20 Compliance with Laws
2.21 Insurance
2.24 Permits, Burdensome Agreements
2.26 Transactions with Interested Persons
2.27 Employee Benefit Programs
2.28 Environmental Matters
2.29 List of Officers and Directors
2.30 Employees; Labor Matters
2.31 Principals
2.31(f) Annual Commission Revenues
2.32 Promotional Funds
2.34 Stock Repurchase
4.6 No Conflicts
6.1(k) Employment and Noncompetition Agreements
(v)
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") entered into as of
March 2, 2000 by and among Marketing Specialists Sales Company, a Texas
corporation ("Buyer"), The Sales Force Companies, Inc., an Indiana corporation
(the "Company"), and the holders of the Company's capital stock listed on
Exhibit A hereto, such stockholders being herein collectively referred to as the
"Stockholders" and individually as a "Stockholder."
W I T N E S S E T H
WHEREAS, the Stockholders own, or will own as of the Closing (as
defined in Section 1.3 hereof, of record and beneficially all of the issued and
outstanding shares (the "Company Shares") of the common stock, par value $0.50
per share (the "Common Stock"), of the Company; and
WHEREAS, the Stockholders desire to sell all of the Company Shares to
Buyer, and Buyer desires to acquire all of the Company Shares.
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
SECTION 1. SALE OF SHARES AND PURCHASE PRICE.
1.1 Transfer of Company Shares. In consideration of and in reliance
upon the representations, warranties and covenants contained herein and upon the
terms and subject to the conditions set forth in this Agreement, Buyer hereby
purchases, and each Stockholder hereby sells, assigns, conveys, transfers and
delivers to Buyer all of such Stockholder's right, title and interest in any and
all of the Company Shares owned beneficially or of record by such Stockholder
free and clear of any and all liens, encumbrances, charges, claims or adverse
interests of any kind. At the Closing, each Stockholder shall deliver or cause
to be delivered to Buyer certificates representing all of the Company Shares
owned by such Stockholder, as set forth in Exhibit A attached hereto. Such stock
certificates shall be duly endorsed in blank for transfer or shall be presented
with stock powers duly executed in blank, with such signature guarantees and
such other documents as may be reasonably required by Buyer to effect a valid
transfer of such Company Shares by such Stockholder in accordance with this
Agreement. Each Stockholder by execution of this Agreement hereby appoints Buyer
as his attorney-in-fact to effectuate transfer of the Company Shares at the
Closing.
<PAGE> 7
1.2 Purchase Price and Payment.
(a) In consideration of the sale by the Stockholders to Buyer of
the Company Shares and in reliance upon the representations and warranties of
the Company and the Stockholders herein contained and made at the Closing and
subject to the satisfaction of all of the conditions contained herein, Buyer
agrees that, subject to Section 1.2(b) hereof, it will: (i) pay (i) $5,020,324
in cash at the Closing to the Company's Employee Stock Ownership Trust (the
"ESOT"), (ii) deliver to the Escrow Agent $750,000, subject to reduction as set
forth in Section 1.2(b) below (the "Escrow Amount"), to be held by the Escrow
Agent pursuant to and in accordance with the terms of the Indemnification Escrow
Agreement to be executed by the ESOT substantially in the form attached hereto
as Exhibit B (the "Indemnification Escrow Agreement") and (iii) deliver to each
Stockholder, other than the ESOT, a junior subordinated promissory note in the
principal amount specified in Exhibit A (the "Notes") substantially in the form
attached hereto as Exhibit C (the amounts specified in clauses (i), (ii) and
(iii) of this sentence, the "Purchase Price"). The aggregate amount of the Notes
is $7,459,920.
(b) The Purchase Price will be increased or decreased, as
appropriate, dollar-for-dollar to the extent that, as of the Closing: (x) the
long-term liabilities and the present value (assuming an 8% discount rate) of
the off-balance-sheet liabilities of the Company and its Subsidiaries (as
defined in Section 2.4 hereof) in the aggregate are more or less than $12.8
million ("Liabilities") or (y) the working capital of the Company (calculated on
the basis of unrestricted cash) is more or less than $1.5 million ("Working
Capital") (either clause (x) or (y) or both may give rise to an adjustment in
the Purchase Price). The Purchase Price will be decreased dollar-for-dollar to
the extent that, as of the Closing, the Company has less than $2.4 million of
unrestricted cash. Unrestricted cash means cash, cash equivalents and marketable
securities not subject to any restrictions as to their application. At least two
(2) business days prior to the Closing the Company and Buyer shall prepare a
statement to be attached hereto as Schedule 1.2(b) which sets forth the
Liabilities, Working Capital, unrestricted cash and the amount of any adjustment
to the Purchase Price, each as estimated as of the Closing Date. The Purchase
Price adjustment shall be calculated based on the balance sheet of the Company
as of a date not more than seven (7) days prior to the Closing Date. The
Purchase Price will be increased or decreased, as appropriate, as of the Closing
Date in accordance with Schedule 1.2(b). Any decrease in the Purchase Price
pursuant to this Section 1.2(b) which is allocable to the ESOT shall not exceed
$750,000 and will reduce the Escrow Amount by an amount equal to the decrease in
Purchase Price allocable to the ESOT. The pay off amounts due to LaSalle
National Bank, LaSalle National Leasing Corporation and the cost of the letter
of credit for the ESOT as of the Closing will not reduce the amount of
unrestricted cash of the Company for purposes of this Section 1.2(b) but will be
considered Liabilities for purposes of this Section 1.2(b). The Prism Tax
Reserve (as defined in Section 1.6(h)) shall not be included in the calculation
of Working Capital or unrestricted cash for purposes of this Section 1.2(b). Any
upward Purchase Price adjustment pursuant to this Section 1.2 shall be payable
in cash in the case of payments to be made to the ESOT within ninety (90) days
after the Closing and, in the case of any other Stockholder, will be pro rata in
accordance with each Stockholder's respective equity interests in the Company.
Any such increase in the Purchase Price payable to a Stockholder other than the
ESOT will be payable by delivery of a
2
<PAGE> 8
replacement Note in exchange for the Note then held by such Stockholder. The
principal amount of such replacement Note will be equal to the sum of the
principal amount outstanding under the Note then held by such Stockholder plus
the additional purchase price allocable to such Stockholder pursuant to this
Section 1.2(b). In all other respects the terms of the replacement Note shall be
the same as the terms of the prior Note.
(c) In addition, in the event that within one year following the
Closing the Company or Buyer or any affiliate of the Company is appointed to
represent Colgate and/or Schering-Plough and such appointment(s) results in
incremental annualized commission revenue of at least $3.5 million in the year
following the date of such appointment (it being understood that the commission
revenue resulting from the Company's and Buyer's existing Colgate and
Schering-Plough business as of the Closing shall be excluded from the
calculation of such commission revenues), the Purchase Price shall be increased
by $2.2 million, to be allocated among the Stockholders other than the ESOT as
set forth on Exhibit A hereto, payable in the form of a junior subordinated
promissory note substantially in the form attached hereto as Exhibit C after the
date of such appointment. Further, in the event that following the Closing the
Buyer sells all of the capital stock or all or substantially all of the assets
of the Company, Marketing Specialists Corporation or Buyer to a purchaser that
has annual revenues in excess of $1 billion for the year preceding such sale,
the present value (assuming a 9% discount rate) of all amounts not yet paid to
the Stockholders shall become immediately due and payable upon the consummation
of such sale.
(d) In the event that the Non-ESOT Stockholders' Representative (as
defined in Section 1.8(a)) notifies Buyer in writing that the Notes have been
deposited with a central collection agency, Buyer shall use commercially
reasonable efforts to make all payments under the Notes to such central
collection agency in accordance with the instructions of the Stockholders'
Representative.
1.3 Time and Place of Closing. The closing of the purchase and sale
provided for in this Agreement (herein called the "Closing") shall be held at
10:00 a.m. on April 14, 2000 at the offices of Goodwin, Procter & Hoar LLP,
Exchange Place, Boston, Massachusetts 02109 or at such other place as may be
determined by Buyer and the Company.
1.4 Further Assurances. The Stockholders from time to time after the
Closing at the request of Buyer and without further consideration shall execute
and deliver further instruments of transfer and assignment and take such other
action as Buyer may reasonably require to more effectively transfer and assign
to, and vest in Buyer the Company Shares and all rights thereto, and to fully
implement the provisions of this Agreement.
1.5 Termination of ESOT. It is the intention of the parties to this
Agreement that the ESOT will be terminated as soon as reasonably practicable
after the Closing Date but in no event later than one year following the Closing
Date. The Buyer agrees to pay administrative
3
<PAGE> 9
expenses and trustee fees of the ESOT in accordance with the terms and
conditions of that certain Trustee Agreement between First Bankers Trust Company
and the Company.
1.6 Spin-Off of Prism and PMG. The parties to this Agreement
acknowledge and agree that prior to or concurrently with the Closing, The
Deliverance Group, Inc. ("Deliverance"), a wholly-owned subsidiary of the
Company, will sell its fifty percent (50%) general partnership interest in Prism
Partners, an Illinois partnership ("Prism") and its twenty-five (25%) general
partnership interest in Prism Merchandising Group, an Illinois partnership
("PMG") to JTW, Inc., a corporation controlled by Robert Shallenberg or other
entity controlled by Robert Shallenberg (the "Spin-Off Sale"). The terms of the
Spin-Off Sale include deferred payments to be made to Deliverance over a period
of five years ("Deferred Payment Obligation"). Immediately following the
Spin-Off Sale, Deliverance will transfer the Deferred Payment Obligation to the
Company and the Company will distribute the Deferred Payment Obligation to the
Stockholders in redemption of some of their shares (the "Redemption"). In
connection with the Spin-Off Sale the parties to this Agreement agree that:
(a) Deliverance, in accordance with a plan of liquidation, will
liquidate as soon as possible subsequent to the consummation of the Spin-Off
Sale and the Closing (the "Deliverance Liquidation");
(b) the Redemption, in and of itself, is a permitted transaction
and will not be deemed to violate the covenants, representations or warranties
set forth herein;
(c) Buyer agrees that for a period of one year from the Closing
Date, it will not directly or indirectly, solicit any customers of Prism or PMG
that are set forth on Schedule 1.6 hereto ("Prism Customers"):
(d) The persons listed below, who will be employed by Buyer after
the Closing, will not be required by Buyer or its affiliates to disclose to
Buyer, its agents, officers or employees any confidential information of Prism
or PMG, or to compete for or solicit any Prism Customers for a period of three
(3) years after the Closing: William F. Lee, James McArthur and Donn Robbins.
(e) Buyer agrees that if at any time while the Deferred Payment
Obligation is unpaid, Buyer (or any of its affiliates) receives material
revenues from any of the Prism Customers for services rendered of the type
previously performed by Prism or PMG which results in a corresponding loss in
material revenues to Prism or PMG ("Loss Customer Revenues") and if, subsequent
to the receipt of such revenues, there is a default of Prism, PMG, JTW, Inc., or
other obligor (each, an "Obligor") under the Deferred Payment Obligation, Buyer
shall pay on the same terms as the Notes to the holders of the Deferred Payment
Obligation an amount equal to:
4
<PAGE> 10
(i) the percentage (or aggregate of such percentages) which
are set forth on Schedule 1.6 hereto for each Prism
Customer (or Prism Customers) from whom Buyer received
Loss Customer Revenues multiplied by
(ii) the balance of the Deferred Payment Obligation due at the
date of default.
Notwithstanding anything in this Section 1.6(e) to the contrary, Buyer
shall have no obligation to make payments to the holders of the Deferred Payment
Obligation in accordance with this Section 1.6(e) upon a payment default by the
Obligor unless the default by the Obligor occurs as a result of Obligor's
financial inability due to insolvency to pay the Deferred Payment Obligation and
Obligor has (i) filed a petition for bankruptcy or (ii) is the subject of an
involuntary proceeding under the Bankruptcy Act, or (iii) makes an assignment
for the benefit of creditors, or (iv) initiates or is the subject of any other
similar proceeding, or (v) a receiver or liquidator is appointed for Obligor by
a court of competent jurisdiction, or (vi) the holders of the Deferred Payment
Obligation obtain a judgment against Obligor, which remains unsatisfied for 31
days after its entry, and for which no surety appeal bond has been filed and
approved by a court of competent jurisdiction.
(f) If and to the extent any payments are made by Buyer pursuant to
Section 1.6(e), Buyer shall be subrogated in any bankruptcy proceeding of the
Obligor to the rights of the payees who have received such payments to the
extent of such payments, provided, however, Buyer's rights shall, in all cases,
be subordinate to the rights of all payees on the Deferred Payment Obligation.
(g) If Buyer or any affiliate becomes entitled to any tax refund,
credit or other benefit relating to the distribution of the Deferred Payment
Obligation in the Redemption, Buyer shall restore such refund, credit or other
benefit to the parties to whom the Deferred Payment Obligation was distributed.
(h) Any taxes payable by the Company in connection with the
transactions contemplated by the Spin-Off Sale and the Redemption will be borne
by the Company and an amount sufficient to pay all such taxes will be set aside
by the Company from the initial purchase price due at the closing of the
Spin-Off Sale (the "Prism Tax Reserve").
(i) Any indemnification obligations of Deliverance which arise out
of or in connection with the transactions contemplated by the Spin-Off Sale or
the Redemption will be paid by the Stockholders.
1.7 Transfer Taxes. All excise, sales, transfer and similar taxes, fees
and duties under applicable law incurred in connection with the Spin-Off Sale,
the Redemption and the sale and transfer of the Company Shares under this
Agreement will be borne and paid by the
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Stockholders, and the Stockholders shall promptly reimburse the Company and
Buyer for any such tax, fee or duty which any of them is required to pay under
applicable law.
1.8 Non-ESOT Stockholders' Representative.
(a) In order to administer efficiently (i) the implementation of
the Agreement by the Stockholders, (ii) the waiver of any condition to the
obligations of the Stockholders to consummate the transactions contemplated
hereby, and (iii) the settlement of any dispute with respect to the Agreement,
the Stockholders, other than the ESOT, hereby designate William F. Lee as their
representative (the "Non-ESOT Stockholders' Representative"). For purposes of
this Section 1.8, the term "Stockholder" shall be deemed not to include the
ESOT.
(b) The Stockholders hereby authorize the Non-ESOT Stockholders'
Representative (i) to take all action necessary in connection with the
implementation of the Agreement on behalf of the Stockholders, the waiver of any
condition to the obligations of the Stockholders to consummate the transactions
contemplated hereby, or the settlement of any dispute, (ii) to give and receive
all notices required to be given under the Agreement and (iii) to take any and
all additional action as is contemplated to be taken by or on behalf of the
Stockholders by the terms of this Agreement, including without limitation, the
execution and delivery of documents to transfer the Company Shares to Buyer;
provided, however, that the Non-ESOT Stockholders' Representative shall not have
authority to commence legal proceedings on behalf of the Stockholders without
their consent.
(c) In the event that the Non-ESOT Stockholders' Representative
dies, becomes legally incapacitated or resigns from such position, Thomas J.
Gallagher shall fill such vacancy and shall be deemed to be the Non-ESOT
Stockholders' Representative for all purposes of this Agreement; however, no
change in the Non-ESOT Stockholders' Representative shall be effective until
Buyer is given notice of it by the Stockholders.
(d) All decisions and actions by the Non-ESOT Stockholders'
Representative shall be binding upon all of the Stockholders, and no Stockholder
shall have the right to object, dissent, protest or otherwise contest the same.
(e) By their execution of this Agreement, the Stockholders agree
that:
(i) Buyer shall be able to rely conclusively on the
instructions and decisions of the Non-ESOT Stockholders'
Representative as to any actions required or permitted to
be taken by the Stockholders or the Non-ESOT
Stockholders' Representative hereunder, and no party
hereunder shall have any cause of action against Buyer
for any action taken by Buyer in reliance upon the
instructions or decisions of the Non-ESOT Stockholders'
Representative;
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(ii) all actions, decisions and instructions of the Non-ESOT
Stockholders' Representative shall be conclusive and
binding upon all of the Stockholders and no Stockholder
shall have any cause of action against the Non-ESOT
Stockholders' Representative for any action taken,
decision made or instruction given by the Non-ESOT
Stockholders' Representative under this Agreement, except
for fraud or willful breach of this Agreement by the
Non-ESOT Stockholders' Representative;
(iii) remedies available at law for any breach of the
provisions of this Section 1.8 are inadequate; therefore,
Buyer shall be entitled to temporary and permanent
injunctive relief without the necessity of proving
damages if Buyer brings an action to enforce the
provisions of this Section 1.8; and
(iv) the provisions of this Section 1.8 are independent and
severable, shall constitute an irrevocable power of
attorney, coupled with an interest and surviving death,
granted by the Stockholders to the Non-ESOT Stockholders'
Representative and shall be binding upon the executors,
heirs, legal representatives and successors of each
Stockholder.
(f) All fees and expenses incurred by the Non-ESOT Stockholders'
Representative shall be paid by the Stockholders.
1.9 Escrow Deposit. At the Closing, Buyer shall deposit the sum of
$500,000 (the "Escrow Deposit") with the Escrow Agent pursuant to a Purchase
Agreement Escrow substantially in the form attached hereto as Exhibit B-1 (the
"Purchase Agreement Escrow") in order to satisfy any payment required by Section
7.2(b) hereof.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS OTHER
THAN THE ESOT.
2.1 Making of Representations and Warranties. As a material inducement
to Buyer to enter into this Agreement and consummate the transactions
contemplated hereby, the Company and each of the Stockholders other than the
ESOT jointly and severally hereby make to Buyer the representations and
warranties contained in this Section 2. For the purposes of this Agreement, to
the extent that any disclosure made by the Company or any Stockholder would be
required to be made on more than one Schedule delivered hereunder, the Company
and each Stockholder may make such disclosure by a cross-reference to
information set forth on any other Schedule delivered hereunder. Capitalized
terms used and not otherwise defined in the Schedules shall have the meanings
ascribed thereto in this Agreement.
2.2 Organization and Qualifications of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Indiana with full corporate power and authority to own or lease
its properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such
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business is currently conducted or proposed to be conducted. The copies of the
Company's Articles of Incorporation, as amended to date, certified by the
Secretary of State of the State of Indiana, and of the Company's By-laws, as
amended to date, certified by the Company's Secretary, and heretofore delivered
to Buyer's counsel, are complete and correct, and no amendments thereto are
pending. Except as set forth in Schedule 2.2 attached hereto, the Company is not
in violation of any term of its Articles of Incorporation or By-laws. The
Company is qualified to do business as a foreign corporation in all
jurisdictions in which the nature of the business conducted by the Company or
the characters of the assets owned or leased by it make such qualification
necessary or prudent except for those jurisdictions wherein a failure to be so
qualified could not have a Material Adverse Effect. A "Material Adverse Effect"
shall mean an effect that is or would be materially adverse to the business,
results of operations, condition (financial or otherwise), assets or prospects
of the Company and its subsidiaries taken as a whole.
2.3 Capital Stock of the Company; Beneficial Ownership.
(a) The authorized capital stock of the Company consists of (i)
300,000 shares of Common Stock, of which 92,945 shares are duly and validly
issued, outstanding, fully paid and non-assessable and of which 56,860 shares
are authorized but unissued. The Company holds 150,195 shares of Common Stock in
its treasury. Upon the close of the Redemption, 71,288.815 shares of Common
Stock will be duly and validly issued, outstanding, fully paid and
non-assessable and the Company will hold 171,851.19 shares of Common Stock in
its treasury. Except as disclosed on Schedule 2.3 attached hereto, no person or
entity other than the Stockholders holds any shares of the capital stock of the
Company and there are no outstanding subscriptions, calls, options, warrants,
rights, commitments, preemptive rights, arrangements or agreements of any kind
for or relating to the issuance sale transfer, registration or voting of, or
outstanding securities convertible into, exchangeable for or carrying the right
to purchase, subscribe for or otherwise acquire, any shares of capital stock of
any class or any other equity security of the Company or outstanding warrants,
options or other rights to acquire any such convertible securities. None of the
Company's capital stock has been issued in violation of any applicable federal
or state securities law. Except as set forth in the Schedule 2.3 attached
hereto, there are no voting trusts, voting agreements, proxies or other
agreements, instruments or undertakings with respect to the voting of the
Company Shares to which the Company or any of the Stockholders is a party.
(b) Except as disclosed in Schedule 2.3 attached hereto, each of
the Stockholders owns beneficially and of record the Company Shares set forth
opposite such Stockholder's name on Exhibit A hereto free and clear of any lien,
security interest, charge, pledge, restriction, encumbrance or adverse interest
of any kind or nature (collectively, "Liens").
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2.4 Subsidiaries; Acquisitions.
(a) The Company's subsidiaries and investments in any other
corporation or business organization are listed in Schedule 2.4(a)
(collectively, but excluding Prism Partners and Prism Merchandising Group, the
"Subsidiaries" or individually, a "Subsidiary"). Except as set forth in Schedule
2.4(a), each Subsidiary of the Company is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation with
full corporate, or partnership, as the case may be, power and authority to own
or lease its properties and to conduct its business in the manner and in the
places where such properties are owned or leased or such business is currently
conducted or proposed to be conducted. Except as disclosed in Schedule 2.4(a),
all of the outstanding shares of capital stock or other equity interests of each
Subsidiary are owned beneficially and of record by the Company free of any Lien
and said shares or other equity interests have been duly and validly issued and
are outstanding, fully paid and non-assessable. The copies of the articles of
incorporation (or comparable document) as amended to date, of each Subsidiary
certified by the Secretary of State of the jurisdiction in which each Subsidiary
is organized and of each Subsidiary's by-laws, as amended to date, certified by
the Company's Secretary, and heretofore delivered to Buyer's counsel, are
complete and correct, and no amendments thereto are pending. None of the
Subsidiaries is in violation of any term of its articles of incorporation (or
comparable document) or by-laws (or comparable document). Each Subsidiary is
duly qualified to do business as a foreign corporation , or partnership, as the
case may be, where the nature of the conduct of its business makes its
qualification so necessary, except where the failure to be so qualified could
not, individually or in the aggregate, have a Material Adverse Effect. Except as
disclosed in Schedule 2.4(a), there are no outstanding, subscriptions, calls,
warrants, options, rights, commitments, preemptive rights or arrangements or
agreements to purchase or acquire any of the shares of capital stock of any
Subsidiary, or any outstanding securities convertible into such shares or
outstanding warrants, options or other rights to acquire any such convertible
securities.
(b) Except as set forth in Schedule 2.4(b) attached hereto, the
Company does not have any rights, warrants or options (the "Acquisition Rights")
to purchase or acquire the capital stock or all or substantially all of the
assets of any other corporation or business organization (an "Acquisition").
Schedule 2.4(b) attached hereto sets forth the name of each of the entities
subject to any Acquisition Rights, the type of transaction contemplated by the
parties in each Acquisition, the termination rights, if any, associated with
such Acquisition Rights, and whether or not the consummation of the transactions
contemplated by this Agreement requires the consent of any other party to such
transaction. Each of the Acquisition Rights is fully enforceable, and will
remain so, after the Closing.
2.5 Authority of the Company and the Stockholders. The Company has full
right, authority and corporate power, and each Stockholder has full right,
power, authority and capacity, to enter into this Agreement and each agreement,
document and instrument to be executed and delivered by the Company or any
Stockholder pursuant to this Agreement and to carry out the transactions
contemplated hereby and thereby. The execution, delivery and performance by the
Company and each Stockholder of this Agreement and each such other
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agreement, document and instrument have been duly authorized by all necessary
action of the Company and/or such Stockholder and no other action on the part of
the Company or any Stockholder is required in connection therewith.
2.6 No Conflicts. This Agreement and each agreement, document and
instrument executed and delivered by the Company and/or any Stockholder pursuant
to this Agreement constitutes, or when executed and delivered will constitute,
valid and binding obligations of the Company and/or such Stockholder enforceable
in accordance with their terms. Except as disclosed in Schedule 2.6 attached
hereto, the execution, delivery and performance by the Company of this Agreement
and each other agreement, document or instrument to be executed, delivered or
performed by the Company or any Stockholder (the "Transaction Documents") does
not and will not, with or without the giving of notice or the lapse of time or
both, (i) does not and will not violate any provision of the Articles of
Incorporation or By-laws of the Company or any Subsidiary; and (ii) does not and
will not violate any laws of the United States or any state or other
jurisdiction applicable to the Company or any Stockholder or require the
Company, any Subsidiary or any Stockholder to obtain any approval, consent or
waiver of, or make any filing with, any person or entity (governmental or
otherwise) that has not been obtained or made. Except as disclosed in Schedule
2.6 attached hereto, neither the course of conduct of the Company or any
Stockholder in connection with the negotiation, execution and delivery of this
Agreement or any other Transaction Document nor the execution, delivery or
performance by the Company or any Stockholder of this Agreement or any
Transaction Document does or will result in a breach of, constitute a default
under, accelerate any obligation under, or give rise to a right of termination
of any indenture or loan or credit agreement or any other agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award to which the Company, any
Subsidiary or any Stockholder is a party or by which the property of the
Company, any Subsidiary or any Stockholder is bound or affected, or result in
the creation or imposition of any mortgage, pledge, or other Lien in any of the
Company's assets or the Company Shares.
2.7 Real and Personal Property.
(a) Real Property. Neither the Company nor any of its Subsidiaries
owns, or has ever owned, any real property. All of the real property leased by
the Company or any of its Subsidiaries is identified on Schedule 2.7(a) (herein
referred to as the "Real Property"). Copies of each lease as currently in effect
with respect to the Real Property have been delivered to Buyer.
(i) Title. Each of the Company and its Subsidiaries has
enforceable leasehold interests in the Real Property, in
each case free and clear of all easements, covenants,
restrictions, leases, mortgages, liens, assessments,
claims, rights, judgments, encroachments or other matters
affecting title (collectively, "Encumbrances"), other
than:
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(x) easements, covenants, restrictions and similar
encumbrances that do not and could not interfere with the
use of the Real Property as currently used and improved,
(y) minor encroachments that do not and could not materially
adversely affect the value or use of the Real Property as
currently used and improved and that could be removed
without material cost, and
(z) liens for Taxes (as defined below) not yet due or
delinquent or being contested in good faith pursuant to
appropriate proceedings and statutory liens arising in
the ordinary course of business by operation of law that
are not yet due or delinquent.
((x), (y) and (z) are collectively referred to as "Permitted Encumbrances"),
except as set forth on Schedule 2.7(a). To the Knowledge of the Company, the
Lessors of the Real Property have good, clear, record and marketable title to
the Real Property.
(ii) Status of Leases. All leases relating to Leased Real
Property are identified on Schedule 2.7(a), and true and
complete copies thereof have been delivered to Buyer.
Each of said leases has been duly authorized and executed
by the parties and is in full force and effect. Neither
the Company nor any of its Subsidiaries is in default
under any of said leases, nor has any event occurred
which, with notice or the passage of time, or both, would
give rise to such a default. To the Company's Knowledge,
the other party to each of said leases is not in default
under any of said leases and there is no event which,
with notice or the passage of time, or both, would give
rise to such a default. For purposes of this Agreement,
the "Knowledge" of any person other than the Company
shall mean that such person had actual knowledge of the
facts at issue and the Knowledge of the Company shall
mean that the President, Chief Executive Officer or Chief
Financial Officer or any other corporate executive
officer of the Company knew or should have known the
facts at issue after inquiry of the officers or employees
of the Company who would reasonably be expected to know
the matters covered by the statement in question.
(iii) Consents. Except as set forth in Schedule 2.7(a), no
consent or approval is required with respect to the
transactions contemplated by this Agreement from the
other parties to any lease of Real Property, from the
holder of any Encumbrance on any Real Property, or from
any regulatory authority, no filing with any regulatory
authority is required in connection therewith, and to the
extent that any such consents, approvals or filings are
required, the Company or the Stockholders will obtain or
complete them before the Closing.
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(iv) Condition of Real Property. Except as set forth in
Schedule 2.7(a), there are no material defects in the
physical condition of any land, buildings or improvements
constituting part of the Real Property, including without
limitation, structural elements, mechanical systems,
parking and loading areas, and all such buildings and
improvements are in good operating condition and repair,
have been well maintained and are free from infestation
by rodents or insects. To the Company's Knowledge, none
of the Real Property is located in an area designated by
any governmental authority as being within a flood plain
or subject to special flood or other hazards. Access to
the Real Property is by a public way or public street. To
the Company's Knowledge, all water, sewer, gas, electric,
telephone, drainage and other utilities required by law
or necessary for the current or planned operation of the
Real Property have been connected under valid permits and
pursuant to valid easements where required, and are
sufficient to service the Real Property and in good
operating condition.
(v) Compliance with the Law. Neither the Company nor any
Subsidiary has received any notice from any governmental
authority of any violation of any law, ordinance,
regulation, license, permit or authorization issued with
respect to any Real Property that has not been heretofore
corrected and no such violation exists which,
individually or in the aggregate, could have a material
adverse effect on the operation or value of any Real
Property. To the Company's Knowledge, all improvements
located on or constituting part of the Real Property and
their use and operation by the Company and its
Subsidiaries were and are now in compliance in all
respects with all applicable laws, ordinances,
regulations, licenses, permits and authorizations, expect
as set forth in Schedule 2.7(a). To the Company's
Knowledge, no approval or consent to the transactions
contemplated by this Agreement is required of any
governmental authority with jurisdiction over any aspect
of the Real Property or its use or operations. Neither
the Company nor any Subsidiary has received any notice of
any real estate tax deficiency or assessment or is aware
of any proposed deficiency, claim or assessment with
respect to any of the Real Property, or any pending or
threatened condemnation thereof.
(b) Personal Property. A complete description of the material items
of machinery and equipment of the Company and each of its Subsidiaries is
contained in Schedule 2.7(b) hereto. The material terms of each lease pursuant
to which the Company leases personal property, as in effect on the date hereof,
are set forth on Schedule 2.7(b). The Company's total obligation with respect to
automobile leases is set forth on Schedule 2.7(b). Except as specifically
disclosed in said Schedule or in the Base Balance Sheet (as defined in Section
2.8(a)), the Company and each of its Subsidiaries has good and marketable title
to all of its owned personal property. None of such personal property or assets
is subject to any mortgage, pledge, conditional sale agreement or Lien except as
specifically disclosed in said Schedule or in the Base Balance Sheet. The Base
Balance Sheet reflects all material items of personal property owned by the
Company and each of its Subsidiaries. Except as otherwise
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specified in Schedule 2.7(b) hereto, all leasehold improvements, furnishings,
machinery and equipment of the Company and each of its Subsidiaries are in good
repair (ordinary wear and tear excepted), have been well maintained, and
substantially comply with all applicable laws, ordinances and regulations, and
such machinery and equipment is in good working order. Neither the Company nor
any of the Stockholders has Knowledge of any pending or threatened change of any
such law, ordinance or regulation which could adversely affect the Company, any
of its Subsidiaries or any of their businesses.
2.8 Financial Statements.
(a) The Company has delivered to Buyer the following financial
statements, copies of which are attached hereto as Schedule 2.8:
(i) consolidated balance sheets of the Company and its
Subsidiaries for its fiscal years ended October 31, 1996,
1997 and 1998 and statements of income, retained earnings
and cash flows for the three years then ended, which
consolidated statements have been audited by Grant
Thornton LLP, independent public accountants (such
financial statements, the "Audited Financial
Statements"). The Company's audited consolidated balance
sheet as of October 31, 1998, is sometimes referred to
herein as the "Base Balance Sheet."
(ii) consolidated balance sheets of the Company and its
Subsidiaries as of November 30, 1999 (herein the "Interim
Balance Sheet") and statements of income, retained
earnings and cash flows for the one-month period then
ended, certified by the Company's Chief Financial Officer
(the "Interim Financial Statements"). The Audited
Financial Statements and the Interim Financial Statements
are referred to herein, collectively, as the "Financial
Statements."
Said Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied consistently during
the periods covered thereby, are complete and correct in all material respects
and present fairly the financial condition of the Company and each of its
Subsidiaries at the dates of said statements and the results of its operations
for the periods covered thereby.
(b) As of the date of the Base Balance Sheet, neither the Company
nor any Subsidiary had any liabilities of any nature, whether accrued, absolute,
contingent or otherwise, asserted or unasserted, known or unknown (including
without limitation, liabilities as guarantor or otherwise with respect to
obligations of others, liabilities for taxes due or then accrued or to become
due, or contingent or potential liabilities relating to activities of the
Company or any Subsidiary or the conduct of their business prior to the date of
the Base Balance Sheet regardless of whether claims in respect thereof had been
asserted as of such date), except: (i) liabilities stated or adequately reserved
against on the Base Balance Sheet, (ii)
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reflected in Schedules furnished to Buyer hereunder as of the date hereof, or
(iii) liabilities not required by GAAP to be disclosed on the Base Balance
Sheet.
(c) As of the date hereof and as of the Closing, neither the
Company nor any Subsidiary has had and will have any liabilities of any nature,
whether accrued, absolute, contingent or otherwise, asserted or unasserted,
known or unknown (including without limitation, liabilities as guarantor or
otherwise with respect to obligations of others, or liabilities for taxes due or
then accrued or to become due or contingent or potential liabilities relating to
activities of the Company or any Subsidiary or the conduct of their business
prior to the date hereof or the Closing, as the case may be, regardless of
whether claims in respect thereof had been asserted as of such date), except
liabilities (i) stated or adequately reserved against on the Interim Balance
Sheet or the notes thereto, (ii) reflected in Schedules furnished to Buyer
hereunder on the date hereof, or (iii) incurred after September 30, 1999 in the
ordinary course of business of the Company or any Subsidiary consistent with the
terms of this Agreement and which would not be required to be disclosed on a
balance sheet of the Company prepared in accordance with GAAP.
(d) The itemized projections of commission revenues for the 12
months ending September 30, 2000 which have been separately prepared by the
Company and presented to the Buyer are attached hereto as Schedule 2.8(d) and
have been based upon assumptions which are set forth therein and which were
reasonable when made and continue to be reasonable as of the date hereof and
give effect to the gains and losses of or other changes in, or with respect to,
principal accounts disclosed on Schedule 2.31(e) and 2.31(f) hereto.
(e) Schedule 2.8(e) attached hereto sets forth, on an
individualized basis, the monthly and annualized obligations of the Company for
the fiscal year ending October 31, 1999 to make lease payments with respect to
automobiles. Schedule 2.8(e) also sets forth on an aggregate basis for such
fiscal year, the annualized obligations of the Company to reimburse officers and
employees for expenses related to the use and operation of an automobile,
including gas, insurance, maintenance and mileage reimbursement.
(f) Schedule 2.8(f) attached hereto sets forth the aggregate annual
compensation of each officer, employee or consultant of the Company as of the
Closing Date.
(g) As of the Closing Date, each Stockholder other than the ESOT
shall have paid, or shall have caused or arranged for the payment of, all fees
and expenses incurred by or on behalf of any such party arising out of or in
connection with the transactions contemplated by this Agreement; provided that
the Company shall not have paid or reimbursed any party other than the ESOT or
on behalf of the ESOT for any such amount.
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2.9 Taxes.
(a) The Company and each of its Subsidiaries has paid or caused to
be paid all federal, state, local, foreign, and other taxes, including without
limitation, income taxes, estimated taxes, alternative minimum taxes, excise
taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes,
franchise taxes, capital stock taxes, employment and payroll-related taxes,
withholding taxes, stamp taxes, transfer taxes, windfall profit taxes,
environmental taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties owed by it (collectively, "Taxes"), required to be paid by
it through the date hereof whether disputed or not.
(b) The Company and each of its Subsidiaries has in accordance with
applicable law filed all federal, state, local and foreign tax returns required
to be filed by it through the date hereof, and all such returns correctly and
accurately set forth the amount of any Taxes relating to the applicable period.
A list of all federal, state, local and foreign income tax returns filed with
respect to the Company and its Subsidiaries for taxable periods ended on or
after October 31, 1993 is set forth in Schedule 2.9 attached hereto, and said
Schedule indicates those returns that have been audited or currently are the
subject of an audit. For each taxable period of the Company and its Subsidiaries
ended on or after October 31, 1995, the Company has delivered to Buyer correct
and complete copies of all federal, state, local and foreign income tax returns,
examination reports and statements of deficiencies assessed against or agreed to
by the Company or any of its Subsidiaries.
(c) Neither the United States Internal Revenue Service (the "IRS")
nor any other governmental authority is now asserting or, to the Knowledge of
the Company or any Stockholder, has threatened to assert against the Company or
any Subsidiary any deficiency or claim for additional Taxes. To the Company's
Knowledge, no claim has ever been made by an authority in a jurisdiction where
the Company or any Subsidiary does not file reports and returns that the Company
or such Subsidiary is or may be subject to taxation by that jurisdiction. There
are no security interests on any of the assets of the Company or any Subsidiary
that arose in connection with any failure (or alleged failure) to pay any Taxes.
Neither the Company nor any Subsidiary has ever entered into a closing agreement
pursuant to Section 7121 of the United States Internal Revenue Code of 1986, as
amended (the "Code").
(d) Except as set forth in Schedule 2.9 attached hereto, there has
not been any audit of any tax return filed by the Company or any Subsidiary, no
such audit is in progress, and neither the Company nor any Subsidiary has been
notified by any tax authority that any such audit is contemplated or pending.
Except as set forth in Schedule 2.9, no extension of time with respect to any
date on which a tax return was or is to be filed by the Company or any
Subsidiary is in force, and no waiver or agreement by the Company or any
Subsidiary is in force for the extension of time for the assessment or payment
of any Taxes.
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(e) Neither the Company nor any Subsidiary has ever been (or
has ever had any liability for unpaid Taxes because it once was) a member of an
"affiliated group" (as defined in Section 1504(a) of the Code). Except as set
forth in Schedule 2.9, neither the Company nor any Subsidiary has ever filed,
and has ever been required to file, a consolidated, combined or unitary tax
return with any other entity. Except as set forth in Schedule 2.9, since October
31, 1993 neither the Company nor any Subsidiary owns or has owned a direct or
indirect interest in any trust, partnership, corporation or other entity. Except
as set forth in Schedule 2.9 attached hereto, neither the Company nor any
Subsidiary is a party to any tax sharing agreement.
(f) For purposes of this Agreement, all references to Sections
of the Code shall include any predecessor provisions to such Sections and any
similar provisions of federal, state, local or foreign law.
2.10 Collectibility of Accounts Receivable. Except as disclosed on
Schedule 2.10 attached hereto, all of the accounts receivable of the Company or
any Subsidiary shown or reflected on the Interim Balance Sheet or existing at
the date hereof (less the reserve therefor set forth on the Interim Balance
Sheet) are or will be at the Closing valid and enforceable claims, fully
collectible and subject to no set off or counterclaim. Neither the Company nor
any Subsidiary has any accounts or loans receivable from any person, firm or
corporation which is affiliated with the Company or any Subsidiary or from any
director, officer or employee of the Company or any Subsidiary, except as
disclosed on Schedule 2.10 hereto, and
all accounts and loans receivable from any such person, firm or corporation
shall be paid in cash prior to the Closing.
2.11 Inventories. Except as disclosed in Schedule 2.11, the Company has
no inventory.
2.12 Absence of Certain Changes. Except as disclosed in Schedule 2.12
attached hereto or as otherwise set forth in this Section 2.12, since the date
of the Base Balance Sheet and as of the date hereof there has not been:
(a) Any change in the condition (financial or otherwise),
properties, assets, liabilities, business, operations or prospects of the
Company or any of its Subsidiaries, which change by itself or in conjunction
with all other such changes, whether or not arising in the ordinary course of
business, could have a Material Adverse Effect.
(b) Any amendment or termination, or to the Knowledge of the
Company, proposed or threatened amendment or termination, whether written or
oral, of any Contract (as defined in Section 2.17) or material lease;
(c) Any contingent liability incurred by the Company or any of
its Subsidiaries as guarantor or otherwise with respect to the obligations of
others or any
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cancellation of any material debt or claim owing to, or waiver of any material
right of, the Company or any of its Subsidiaries;
(d) Any Encumbrance or Lien placed on any of the properties of
the Company or any of its Subsidiaries which remains in existence on the date
hereof or will remain on the Closing Date;
(e) Any cancellation of any material debt or claim owing to,
or waiver of a material right of, the Company or any Subsidiary;
(f) Any obligation or liability of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted, known or
unknown (including without limitation liabilities for Taxes due or to become due
or contingent or potential liabilities relating to products or services provided
by the Company or any of its Subsidiaries or the conduct of the business of the
Company or any of its Subsidiaries since the date of the Base Balance Sheet
regardless of whether claims in respect thereof have been asserted), incurred by
the Company or any of its Subsidiaries other than obligations and liabilities
incurred in the ordinary course of business consistent with the terms of this
Agreement (it being understood that product or service liability claims shall
not be deemed to be incurred in the ordinary course of business);
(g) Any purchase, sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of any of the
properties or assets of the Company or any of its Subsidiaries other than in the
ordinary course of business;
(h) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of the Company or any of its Subsidiaries;
(i) Any declaration, setting aside or payment of any dividend
by the Company or any of its Subsidiaries, or the making of any other
distribution in respect of the capital stock of the Company or any of its
Subsidiaries, or any direct or indirect redemption, purchase or other
acquisition by the Company or any of its Subsidiaries of its own capital stock;
(j) Any labor trouble or claim of unfair labor practices
involving the Company or any of its Subsidiaries; any change in the compensation
payable or to become payable by the Company or any of its Subsidiaries to any of
its officers, employees, agents or independent contractors other than normal
merit increases in accordance with its usual practices; or any bonus payment or
arrangement made to or with any of such officers, employees, agents or
independent contractors;
(k) Any change with respect to the officers or management of
the Company or any of its Subsidiaries;
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<PAGE> 23
(l) Any payment or discharge of a material lien or liability
of the Company or any of its Subsidiaries which was not shown on the Base
Balance Sheet or incurred in the ordinary course of business thereafter;
(m) Any obligation or liability incurred by the Company or any
of its Subsidiaries to any of its officers, directors, stockholders or
employees, or any loans or advances made by the Company or any of its
Subsidiaries to any of its officers, directors, stockholders or employees,
except normal compensation and expense allowances payable to officers or
employees or as disclosed in Schedule 2.10;
(n) Since December 31, l999 and prior to the date hereof, any
resignation or termination of the Company's representation of any of the
Company's top 50 Principals (determined by commissions paid to the Company in
fiscal 1999) (with respect to all or any of the products of such Principal or
with respect to any Customers), or any change in the commission rate paid by any
Principal, or any notice of same (for purposes of this Agreement, "Principal"
shall mean any manufacturer, grower, processor, producer, distributor or other
wholesaler, or any supplier whose goods, products or lines are offered for sale
or for retail merchandising by the Company, and "Customer" shall mean any
individual, firm, corporation or other business entity from which the Company
obtains product orders on behalf of its Principals);
(o) Any change in accounting methods or practices, credit
practices or collection policies used by the Company or any of its Subsidiaries
except as disclosed in Schedule 2.12;
(p) Any other transaction entered into by the Company or any
of its Subsidiaries other than transactions in the ordinary course of business;
or
(q) Any agreement or understanding whether in writing or
otherwise, for the Company or any of its Subsidiaries to take any of the actions
specified in paragraphs (a) through (p) above.
2.13 Ordinary Course. Since the date of the Base Balance Sheet, the
Company and each of its Subsidiaries has conducted its business only in the
ordinary course and consistently with its prior practices in all material
respects.
2.14 Approvals; Consents. Except as set forth on Schedule 2.14 attached
hereto, no approval, consent, authorization or exemption from or filing with any
person or entity not a party to this Agreement is required to be obtained or
made by the Company or any Subsidiary in connection with the execution and
delivery of this Agreement and the Transaction Documents or the consummation of
the transactions contemplated hereby and thereby.
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<PAGE> 24
2.15 Banking Relations. All of the arrangements which the Company or
any of its Subsidiaries has with any banking institution are completely and
accurately described in Schedule 2.15 attached hereto, indicating with respect
to each of such arrangements the type of arrangement maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the person
or persons authorized in respect thereof.
2.16 Intellectual Property.
(a) Except as described in Schedule 2.16, the Company and each
of its Subsidiaries has exclusive ownership of, or exclusive license to use, all
material patent, copyright, trade secret, trademark, or other proprietary rights
(collectively, "Intellectual Property") used or to be used in the business of
the Company or such Subsidiary as presently conducted or contemplated. Except as
disclosed on Schedule 2.16 attached hereto, all of the rights of the Company and
each Subsidiary in such Intellectual Property are freely transferable. There are
no claims or demands of any other person pertaining to any of such Intellectual
Property and no proceedings have been instituted, or are pending or threatened,
which challenge the rights of the Company or any Subsidiary in respect thereof.
Except as described in Schedule 2.16, the Company and each of its Subsidiaries
has the right to use, free and clear of claims or rights of other persons, all
customer lists, designs, manufacturing or other processes, computer software,
systems, data compilations, research results and other information required for
or incident to its products or its business as presently conducted or
contemplated.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to the Company or any of its Subsidiaries or used or to be used by the
Company or any of its Subsidiaries in their businesses as presently conducted or
contemplated, and all other items of Intellectual Property which are material to
the business or operations of the Company or any of its Subsidiaries, are listed
in Schedule 2.16. To the Knowledge of the Company, all of such patents, patent
applications, trademark registrations, trademark applications and registered
copyrights have been duly registered in, filed in or issued by the United States
Patent and Trademark Office, the United States Register of Copyrights, or the
corresponding offices of other jurisdictions as identified on said Schedule, and
have been properly maintained and renewed in accordance with all applicable
provisions of law and administrative regulations of the United States and each
such jurisdiction.
(c) All licenses or other agreements under which the Company
or any of its Subsidiaries is granted rights in Intellectual Property are listed
in Schedule 2.16. All said licenses or other agreements are in full force and
effect, there is no material default by any party thereto, and, except as set
forth on Schedule 2.16, all of the rights of the Company or any Subsidiary
thereunder will continue in full force and effect upon consummation of the
transactions contemplated hereby. To the Knowledge of the Company, the licensors
under said licenses and other agreements have and had all requisite power and
authority to grant the rights
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<PAGE> 25
purported to be conferred thereby. True and complete copies of all such licenses
or other agreements, and any amendments thereto, have been provided to Buyer.
(d) All licenses or other agreements under which the Company
or any of its Subsidiaries has granted rights to others in Intellectual Property
owned or licensed by the Company or such Subsidiary are listed in Schedule 2.16.
All of said licenses or other agreements are in full force and effect, there is
no material default by any party thereto, and, except as set forth on Schedule
2.16, all of the rights of Company or any Subsidiary thereunder will continue in
full force and effect upon consummation of the transactions contemplated hereby.
True and complete copies of all such licenses or other agreements, and any
amendments thereto, have been provided to Buyer.
(e) The Company and each of its Subsidiaries has taken all
steps required in accordance with sound business practice to establish and
preserve its ownership of all material Intellectual Property rights with respect
to its products, services and technology. Neither the Company nor any of its
Subsidiaries has made any valuable non-public information of the Company and its
Subsidiaries available to any person other than employees of Company and its
Subsidiaries except pursuant to written agreements requiring the recipients to
maintain the confidentiality of such information and appropriately restricting
the use thereof. The Company has no Knowledge of any infringement by others of
any material Intellectual Property rights of the Company or any Subsidiary.
(f) To the Knowledge of the Company, the present and
contemplated business, activities and products of the Company and its
Subsidiaries do not infringe any Intellectual Property of any other person. No
proceeding charging the Company or any of its Subsidiaries with infringement of
any adversely held Intellectual Property has been filed or is threatened to be
filed. To the Company's Knowledge, there exists no unexpired patent or patent
application which includes claims that would be infringed by or otherwise
adversely affect the products, activities or business of the Company or any
Subsidiary. Neither the Company nor any of its Subsidiaries is making
unauthorized use of any confidential information or trade secrets of any person,
including without limitation, to the Company's Knowledge, any former employer of
any past or present employee of Company or any of its Subsidiaries. Except as
set forth in Schedule 2.16, neither the Company or any Subsidiary nor, to the
Knowledge of the Company, any of their employees have any agreements or
arrangements with any persons other than the Company or its Subsidiaries related
to confidential information or trade secrets of such persons or restricting any
such employee's ability to engage in business activities of any nature. The
activities of their employees on behalf of the Company or any Subsidiary do not
violate any such agreements or arrangements known to the Company.
2.17 Year 2000.
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(a) (i) The Company has (x) undertaken a comprehensive and
detailed inventory, review and assessment of all areas within its
business and operations to address the "Year 2000 Problem" (i.e., the
risk that applications and/or hardware used by the Company or its
suppliers and/or providers may be unable to recognize and properly
perform date-sensitive functions involving certain dates prior to and
any date on or after January 1, 2000), (y) developed a detailed plan
and time line for becoming Year 2000 Compliant on a timely basis, and
(z) to date, implemented that plan in accordance with its timetable in
all material respects;
(ii) The Company's Year 2000 program includes feasible
contingency plans to ensure uninterrupted and unimpaired business
operation, including liquidity needs, in the event of its own or a
third party's failure to be Year 2000 Compliant;
(iii) To the Knowledge of the Company none of the
Company's Key Manufacturers and Key Principals will fail to be Year
2000 Compliant in any material respect; and
(iv) The Company reasonably believes that the Year 2000
Problem will not have a Material Adverse Effect.
(b) For purposes of this Section:
(i) "Key Manufacturers" means manufacturers whose business
failure, individually or in the aggregate, could result in a Material
Adverse Effect;
(ii) "Key Principals" means principals whose business
failure, individually or in the aggregate, could result in a Material
Adverse Effect;
(iii) "Year 2000 Compliant" means with respect to the
operations of the Company and its Subsidiaries or third parties, that
all computer-controlled processes, electronic communications
interfaces, software, hardware, machinery, equipment, programs, and
tools operate for all date-sensitive functions before, on or after
January 1, 2000 consistently, predictably, accurately and
unambiguously, without interruption or manual intervention.
2.18 Contracts. Except for contracts, commitments, plans, agreements
and licenses described in Schedule 2.18 (true and complete copies of which have
been delivered to Buyer), neither the Company nor any of its Subsidiaries is a
party to or subject to:
(a) any agreement for the sale, lease or other disposition of
products or other assets not made in the ordinary course of business;
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<PAGE> 27
(b) any plan or contract providing for bonuses, pensions,
options, stock purchases, deferred compensation, retirement payments, profit
sharing, collective bargaining or the like, or any contract or agreement with
any labor union;
(c) any employment contract or contract for services which
requires the payment of more than $10,000 annually or which is not terminable
within 30 days by the Company or a Subsidiary without liability for any penalty
or severance payment;
(d) any contract or agreement for the purchase of any
commodity, material or equipment except purchase orders in the ordinary course
for less than $2,500 each, such orders not exceeding $10,000 in the aggregate;
(e) any other contracts or agreements creating any obligations
of the Company or any of its Subsidiaries of $2,500 or more on an individual
basis or $10,000 or more on an aggregate basis, with respect to any such
contract or agreement not specifically disclosed elsewhere under this Agreement;
(f) any contract or agreement providing for the purchase of
all or substantially all of its requirements of a particular product from a
supplier;
(g) any contract or agreement which by its terms does not
terminate or is not terminable without penalty by the Company or a Subsidiary or
their successors within one year after the date hereof;
(h) any contract or arrangement with any sales agent or
distributor of products of the Company or any of its Subsidiaries;
(i) any contract containing covenants limiting the freedom of
the Company or any of its Subsidiaries to compete in any line of business or
with any person or entity;
(j) any contract or agreement for the purchase of any fixed
asset for a price in excess of $2,500 whether or not such purchase is in the
ordinary course of business;
(k) any license agreement (as licensor or licensee);
(l) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money; or
(m) any contract or agreement with any officer, employee,
director or stockholder of the Company or any of its Subsidiaries or with any
persons or organizations controlled by or affiliated with any of them.
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Except as set forth on Schedule 2.18, neither the Company nor any of
its Subsidiaries is in default under any such contracts, commitments, plans,
agreements or licenses described in said Schedule (individually a "Contract" and
collectively the "Contracts") and neither the Company nor any Subsidiary has any
Knowledge of conditions or facts which with notice or passage of time, or both,
would constitute a default, except where any such default could not,
individually or in the aggregate, have a Material Adverse Effect. Each of the
Contracts is valid and in full force and effect, and will be enforceable by the
Company against the other party thereto in accordance with its terms, except for
any non-competition provision or agreement limiting the freedom of any party
thereto to compete in any line of business or with any person or entity, the
benefits of which run to the Company or any Subsidiary, the enforceability of
which may be limited by the principles governing the availability of equitable
remedies.
2.19 Litigation. Schedule 2.19 hereto lists all currently pending
litigation and governmental or administrative proceedings or investigations to
which the Company or any of its Subsidiaries is a party. There is no litigation
or governmental or administrative proceeding or investigation pending or, to the
Knowledge of the Company or the Stockholders, threatened against the Company or
any of its Subsidiaries or their affiliates and there is no litigation or
governmental or administrative proceeding or investigation pending or, to the
Knowledge of the Company or the Stockholders, threatened against any Stockholder
relating to the business of the Company nor any Subsidiary which may have a
Material Adverse Effect or which would prevent or hinder the consummation of the
transactions contemplated by this Agreement. With respect to each matter set
forth therein, Schedule 2.19 sets forth a description of the matter, the forum
(if any) in which it is being conducted, the parties thereto and the type and
amount of relief sought. There are no existing or threatened product liability,
warranty or other similar claims, or any facts upon which a material claim of
such nature could be based, against the Company or any of its Subsidiaries for
products or services which are defective or fail to meet any product or service
warranties except as disclosed in Schedule 2.19 hereto. Except as disclosed in
Schedule 2.19, no claim has been asserted against the Company or any of its
Subsidiaries for renegotiation or price redetermination of any business
transaction, and there are no facts upon which any such claim could be based.
2.20 Compliance with Laws. Except as set forth in Schedule 2.20 hereto,
the Company and each of its Subsidiaries is in compliance in all material
respects with all applicable statutes, ordinances, orders, judgements, decrees,
rules and regulations promulgated by any federal, state, municipal entity,
agency, court or other governmental authority which apply to the Company or any
Subsidiary or to the conduct of its business, and neither the Company nor any of
its Subsidiaries has received notice of a violation or alleged violation of any
such statute, ordinance, order, rule or regulation.
2.21 Insurance. The physical properties and assets of the Company and
each of its Subsidiaries are insured to the extent disclosed in Schedule 2.21
attached hereto and all such insurance policies and arrangements are disclosed
in said Schedule. Said insurance policies
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and arrangements are in full force and effect, all premiums with respect thereto
are currently paid, and the Company and each of its Subsidiaries is in
compliance in all material respects with the terms thereof. Said insurance is
adequate and customary for the business engaged in by the Company and each
Subsidiary and is sufficient for compliance by the Company and each Subsidiary
with all requirements of law and all agreements and leases to which the Company
or any Subsidiary is a party.
2.22 Powers of Attorney. Neither the Company nor any Subsidiary nor any
Stockholder has granted to any other person or entity any outstanding power of
attorney.
2.23 Finder's Fee. Neither the Company nor any of its Subsidiaries has
incurred or become liable for any broker's commission or finder's fee relating
to or in connection with the transactions contemplated by this Agreement.
2.24 Permits; Burdensome Agreements. Schedule 2.24 lists all permits,
registrations, licenses, franchises, certifications and other approvals required
from federal, state or local authorities in order for the Company and each of
its Subsidiaries to conduct its business other than Approvals the failure of
which to obtain could not, individually or in the aggregate have a Material
Adverse Effect (collectively, the "Approvals"). The Company and each of its
Subsidiaries has obtained all such Approvals, which are valid and in full force
and effect, and is operating in compliance therewith. Such Approvals include,
but are not limited to, those required under federal, state, or local statutes,
ordinances, orders, requirements, rules, regulations, or laws pertaining to
environmental protection, public health and safety, worker health and safety,
buildings, highways or zoning. Except as disclosed in Schedule 2.24, neither the
Company nor any of its Subsidiaries is subject to or bound by any agreement,
judgment, decree or order which could, individually or in the aggregate, have a
Material Adverse Effect.
2.25 Corporate Records; Copies of Documents. The corporate record books
of the Company and each of its Subsidiaries accurately record all corporate
action taken by their respective stockholders and board of directors and
committees. The copies of the corporate records of the Company and each of its
Subsidiaries, as made available to Buyer for review, are true and complete
copies of the originals of such documents. The Company has made available for
inspection and copying by Buyer and its counsel true and correct copies of all
documents referred to in this Section or in the Schedules delivered to Buyer
pursuant to this Agreement.
2.26 Transactions with Interested Persons. Except as set forth in
Schedule 2.26 hereto, neither the Company, any of its Subsidiaries, nor any
Stockholder, officer, supervisory employee or director of the Company or any of
its Subsidiaries nor, to the Knowledge of Company, any of their respective
spouses or family members, owns directly or indirectly on an individual or joint
basis any material interest in, or serves as an officer or director or in
another similar capacity of, any competitor or supplier of Company or any of its
Subsidiaries,
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or any organization which has a material contract or arrangement with the
Company or any of its Subsidiaries. The terms of any such contract or
arrangement are set forth in Schedule 2.26.
2.27 Employee Benefit Programs.
(a) Schedule 2.27 sets forth a list of every Employee Program
that has been maintained by the Company or an Affiliate (including, without
limitation, any entity or business which the Company or any Subsidiary has
acquired by asset purchase, stock purchase, merger, consolidation or other
similar transaction) at any time during the six-year period ending on the
Closing Date.
(b) Each Employee Program which has ever been maintained by
the Company or an Affiliate and which has been intended to qualify under Section
401(a) or 501(c)(9) of the Code has received a favorable determination or
approval letter from the IRS regarding its qualification under such section and
has, in fact, been qualified under the applicable section of the Code from the
effective date of such Employee Program through and including the Closing Date
(or, if earlier, the date that all of such Employee Program's assets were
distributed). Except as set forth on Schedule 2.27, no event or omission has
occurred which would cause any such Employee Program to lose its qualification
or otherwise fail to satisfy the relevant requirements to provide tax-favored
benefits under the applicable Code Section (including without limitation Code
Sections 105, 125, 401(a) and 501(c)(9)). Except as set forth on Schedule 2.27,
each asset held under any such Employee Program may be liquidated or terminated
without the imposition of any redemption fee, surrender charge or comparable
liability. No partial termination (within the meaning of Section 411(d)(3) of
the Code) has occurred with respect to any Employee Program.
(c) Except as set forth on Schedule 2.27, neither the Company
nor any Affiliate knows, nor should any of them reasonably know, of any failure
of any party to comply with any laws applicable with respect to the Employee
Programs that have ever been maintained by the Company or any Affiliate. With
respect to any Employee Program ever maintained by the Company or any Affiliate,
there has been no (i) "prohibited transaction," as defined in Section 406 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or Code
Section 4975, (ii) failure to comply with any provision of ERISA, other
applicable law, or any agreement, or (iii) non-deductible contribution, which,
in the case of any of (i), (ii), or (iii), could subject the Company or any
Affiliate to liability either directly or indirectly (including, without
limitation, through any obligation of indemnification or contribution) for any
damages, penalties, or taxes, or any other loss or expense. Except as disclosed
on Schedule 2.27, no litigation or governmental administrative proceeding (or
investigation) or other proceeding (other than those relating to routine claims
for benefits) is pending or threatened with respect to any such Employee
Program. All payments and/or contributions required to have been made (under the
provisions of any agreements or other governing documents or applicable law)
with respect to all Employee Programs ever maintained by the Company or any
Affiliate, for all periods prior to the Closing Date, either
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have been made or have been accrued (and all such unpaid but accrued amounts are
described on Schedule 2.27).
(d) Neither the Company nor any Affiliate has incurred any
liability under Title IV of ERISA which has not been paid in full prior to the
Closing. There has been no "accumulated funding deficiency" (whether or not
waived) with respect to any Employee Program ever maintained by the Company or
any Affiliate and subject to Code Section 412 or ERISA Section 302. With respect
to any Employee Program maintained by the Company or any Affiliate and subject
to Title IV of ERISA, there has been no (nor will there be any as a result of
the transactions contemplated by this Agreement) (i) "reportable event," within
the meaning of ERISA Section 4043 or the regulations thereunder, for which the
notice requirement is not waived by the regulations thereunder, and (ii) event
or condition which presents a material risk of a plan termination or any other
event that may cause the Company or any Affiliate to incur liability or have a
lien imposed on its assets under Title IV of ERISA. Except as described in
Schedule 2.27, no Employee Program maintained by the Company or any Affiliate
and subject to Title IV of ERISA (other than a Multiemployer Plan) has any
"unfunded benefit liabilities" within the meaning of ERISA Section 4001(a)(18),
as of the Closing Date. Neither the Company nor any Affiliate has ever
maintained a Multiemployer Plan. Except as described on Schedule 2.27, none of
the Employee Programs ever maintained by the Company or any Affiliate has ever
provided health care or any other non-pension benefits to any employees after
their employment is terminated (other than as required by part 6 of subtitle B
of Title I of ERISA) or has ever promised to provide such post-termination
benefits.
(e) With respect to each Employee Program maintained by the
Company within the six years preceding the Closing Date, complete and correct
copies of the following documents (if applicable to such Employee Program) have
previously been delivered to Buyer: (i) all documents embodying or governing
such Employee Program, and any funding medium for the Employee Program
(including, without limitation, trust agreements) as they may have been amended
to the date hereof; (ii) the most recent IRS determination or approval letter
with respect to such Employee Program under Code Section 401(a) or 501(c)(9),
and any applications for determination or approval subsequently filed with the
IRS; (iii) the six most recently filed IRS Forms 5500, with all applicable
schedules and accountants' opinions attached thereto; (iv) the six most recent
actuarial valuation reports completed with respect to such Employee Program; (v)
the summary plan description for such Employee Program (or other descriptions of
such Employee Program provided to employees) and all modifications thereto; (vi)
any insurance policy (including any fiduciary liability insurance policy or
fidelity bond) related to such Employee Program; (vii) any registration
statement or other filing made pursuant to any federal or state securities law
and (viii) all correspondence to and from any state or federal agency within the
last six years with respect to such Employee Program.
(f) Each Employee Program required to be listed on Schedule
2.27 may be amended, terminated, or otherwise modified by the Company to the
greatest extent permitted
26
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by applicable law, including the elimination of any and all future benefit
accruals under any Employee Program and no employee communications or provision
of any Employee Program document has failed to effectively reserve the right of
the Company or the Affiliate to so amend, terminate or otherwise modify such
Employee Program.
(g) Each Employee Program ever maintained by the Company
(including each non-qualified deferred compensation arrangement) has been
maintained in compliance with all applicable requirements of federal and state
securities laws including (without limitation, if applicable) the requirements
that the offering of interests in such Employee Program be registered under the
Securities Act of 1933, as amended, and/or state "Blue Sky" laws.
(h) Each Employee Program ever maintained by the Company or an
Affiliate has complied with the applicable notification and other applicable
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985,
Health Insurance Portability and Accountability Act of 1996, the Newborns' and
Mothers' Health Protection Act of 1996, the Mental Health Parity Act of 1996 and
the Women's Health and Cancer Rights Act of 1998.
(i) For purposes of this section:
(i) "Employee Program" means (A) all employee benefit
plans within the meaning of ERISA Section 3(3), including, but
not limited to, multiple employer welfare arrangements (within
the meaning of ERISA Section 3(40)), plans to which more than
one unaffiliated employer contributes and employee benefit
plans (such as foreign or excess benefit plans) which are not
subject to ERISA; (B) all stock option plans, stock purchase
plans, bonus or incentive award plans, severance pay policies
or agreements, deferred compensation agreements, supplemental
income arrangements, vacation plans, and all other employee
benefit plans, agreements, and arrangements (including any
informal arrangements) not described in (A) above, including
without limitation, any arrangement intended to comply with
Code Section 120, 125, 127, 129 or 137; and (C) all plans or
arrangements providing compensation to employee and
non-employee directors. In the case of an Employee Program
funded through a trust described in Code Section 401(a) or an
organization described in Code Section 501(c)(9), or any other
funding vehicle, each reference to such Employee Program shall
include a reference to such trust, organization or other
vehicle.
(ii) An entity "maintains" an Employee Program if
such entity sponsors, contributes to, or provides benefits
under or through such Employee Program, or has any obligation
(by agreement or under applicable law) to contribute to or
provide benefits under or through such Employee Program, or
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if such Employee Program provides benefits to or otherwise
covers employees of such entity (or their spouses, dependents,
or beneficiaries).
(iii) An entity is an "Affiliate" of the Company if
it would have ever been considered a single employer with the
Company under ERISA Section 4001(b) or part of the same
"controlled group" as the Company for purposes of ERISA
Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means an employee pension
or welfare benefit plan to which more than one unaffiliated
employer contributes and which is maintained pursuant to one
or more collective bargaining agreements.
(j) The Company's liabilities with respect to deferred
compensation as of the Closing Date do not exceed $160,000 in the aggregate.
(k) Schedule 2.27 accurately sets forth the current salaries
and hourly rates of the Company's employees as of the Closing Date together with
a reasonable estimate of the annualized salaries payable to the Company's
part-time employees. The aggregate amount of full-time salaries as of the
Closing is set forth on Schedule 2.27.
2.28 Environmental Matters.
(a) Except as set forth in Schedule 2.28 hereto, and except as
could not have a Material Adverse Effect, (i) neither the Company nor any of its
Subsidiaries has ever generated, transported, used, stored, treated, disposed
of, or managed any Hazardous Waste (as defined below); (ii) no Hazardous
Material has ever been or is threatened to be spilled, released, or disposed of
at any site presently or formerly owned, operated, leased, or used by the
Company or any of its Subsidiaries, or has ever been located in the soil or
groundwater at any such site; (iii) no Hazardous Material has ever been
transported from any site presently or formerly owned, operated, leased, or used
by the Company or any of its Subsidiaries for treatment, storage, or disposal at
any other place; (iv) neither the Company nor any of its Subsidiaries presently
owns, operates, leases, or uses, nor has it previously owned, operated, leased,
or used any site on which underground storage tanks are or were located; and (v)
no lien has ever been imposed by any governmental agency on any property,
facility, machinery, or equipment owned, operated, leased, or used by the
Company or any of its Subsidiaries in connection with the presence of any
Hazardous Material.
(b) Except as set forth in Schedule 2.28 hereto, and except as
could not have a Material Adverse Effect, (i) neither the Company nor any of its
Subsidiaries has any liability under, nor has it ever violated, any
Environmental Law (as defined below); (ii) the Company and each of its
Subsidiaries, any property owned, operated, leased, or used by any of them, and
any facilities and operations thereon, are presently in compliance with all
applicable Environmental Laws; (iii) neither the Company or any of its
Subsidiaries has ever entered into
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or been subject to any judgment, consent decree, compliance order, or
administrative order with respect to any environmental or health and safety
matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) neither the Company nor any of its Subsidiaries has
any reason to believe that any of the items enumerated in clause (iii) of this
subsection will be forthcoming.
(c) Except as set forth in Schedule 2.28 hereto, and except as
could not have a Material Adverse Effect, no site owned, operated, leased, or
used by the Company or any of its Subsidiaries contains any asbestos or
asbestos-containing material, any polychlorinated biphenyls (PCBs) or equipment
containing PCBs, or any urea formaldehyde foam insulation.
(d) The Company has provided to Buyer copies of all documents,
records, and information available to the Company or any of its Subsidiaries
concerning any environmental or health and safety matter relevant to the Company
or any of its Subsidiaries, whether generated by the Company, its Subsidiaries,
or others, including without limitation, environmental audits, environmental
risk assessments, site assessments, documentation regarding off-site disposal of
Hazardous Materials, spill control plans, and reports, correspondence, permits,
licenses, approvals, consents, and other authorizations related to environmental
or health and safety matters issued by any governmental agency.
(e) For purposes of this Section 2.28, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant,
contaminant, or other substance which may pose a threat to the environment or to
human health or safety, as defined or regulated under any Environmental Law;
(ii) "Hazardous Waste" shall mean and include any hazardous waste as defined or
regulated under any Environmental Law; (iii) "Environmental Law" shall mean any
environmental or health and safety-related law, regulation, rule, ordinance, or
by-law at the foreign, federal, state, or local level, whether existing as of
the date hereof, previously enforced, or subsequently enacted; and (iv)
"Company" shall mean and include Company, each of its Subsidiaries and all other
entities for whose conduct the Company or any of its Subsidiaries is or may be
held responsible under any Environmental Law.
2.29 List of Directors and Officers. Schedule 2.29 hereto contains a
true and complete list of all current directors and officers of the Company and
each of its Subsidiaries. In addition, Schedule 2.29 hereto contains a list of
all managers, employees and consultants of the Company and any Subsidiary who,
individually, have received or are scheduled to receive compensation from the
Company or any of its Subsidiaries for the fiscal year ending October 31, 1999
in excess of $100,000 in each case such Schedule includes the current job title,
current compensation rate and aggregate compensation during the preceding twelve
(12) months of each such individual.
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2.30 Employees; Labor Matters. The Company and its Subsidiaries employ
a total of 399 full-time employees and 259 part-time employees. Neither the
Company nor any of its Subsidiaries is delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for it to the date hereof or amounts
required to be reimbursed to such employees. Upon termination of the employment
of any of said employees, neither the Company, any Subsidiary nor Buyer will by
reason of the transactions contemplated under this Agreement or anything done
prior to the Closing be liable to any of said employees for so-called "severance
pay" or any other payments. Neither the Company nor any Subsidiary has any
policy, practice, plan or program of paying severance pay or any form of
severance compensation in connection with the termination of employment. Except
as set forth on Schedule 2.30, the Company and each of its Subsidiaries is in
compliance with all applicable laws and regulations respecting labor,
employment, fair employment practices, work place safety and health, terms and
conditions of employment, and wages and hours. There are no charges of
employment discrimination or unfair labor practices, nor are there any strikes,
slowdowns, stoppages of work, or any other concerted interference with normal
operations which are existing, pending or, to the Knowledge of the Company or
any Stockholder, threatened against or involving the Company or any of its
Subsidiaries. No question concerning representation exists respecting any
employees of the Company or any of its Subsidiaries. There are no grievances,
complaints or charges that have been filed against the Company or any of its
Subsidiaries under any dispute resolution procedure (including, but not limited
to, any proceedings under any dispute resolution procedure under any collective
bargaining agreement) that could, individually or in the aggregate, have a
Material Adverse Effect and there is no arbitration or similar proceeding
pending and no claim therefor has been asserted. No collective bargaining
agreement is in effect or is currently being or is about to be negotiated by the
Company or any of its Subsidiaries. Except as set forth on Schedule 2.30,
neither the Company nor any of its Subsidiaries has received any information
indicating that any of its employment policies or practices is currently being
audited or investigated by any federal, state or local government agency. The
Company and each of its Subsidiaries is, and at all times since November 6, 1986
has been, in compliance in all material respects with the requirements of the
Immigration Reform Control Act of 1986.
2.31 Principals.
(a) The list of the Company's Principals and the aggregate
brokerage commission revenues received by the Company during the twelve-month
period ended October 31, 1999 from each such Principal, attached hereto as
Schedule 2.31, is, as of the date hereof, true, correct and complete. The
Company has delivered to Buyer true and complete copies of all written brokerage
agreements and/or letters of appointment with or from the Company's 25
Principals, which paid the greatest amount of commission revenues for the twelve
(12) months ended October 31, 1999, in effect as of the date of this Agreement.
Set forth on Schedule 2.31 is a list of all other agreements and documents with
or involving any person or entity and relating to financial obligations of the
Company with respect to commissions or other payments
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received by the Company (or an affiliate of the Company) from Principals. Except
as set forth on Schedule 2.31, since October 31, 1997, the Company has had no
commitment, understanding or agreement with any Principal or any other person or
entity relating to payments to be made by the Company to any person or entity
computed in whole or in part with respect to sales of or commissions paid or to
be paid by any Principal.
(b) Except as set forth on Schedule 2.31, the Company is not
currently, and since October 31, 1997 has not been, subject to any notice of
probation from any Principal. Except as set forth on Schedule 2.31, since
October 31, 1997, the Company has not received any oral or written communication
from any Principal which places the Company on probation or otherwise suggests,
threatens or implies possible termination of the Company's appointment as broker
for such Principal, any reduction in the commission rate paid to the Company or
any reduction as to the geographic area, Customers or products represented by
the Company, conditionally or unconditionally.
(c) To the Knowledge of the Company and the Stockholders, none
of the Company's 50 Principals which paid the greatest amount of commission
revenues for the twelve (12) months ended October 31, 1999 intends to, or is
considering, amending the terms of the Company's brokerage agreement with such
Principal in order or reappoint, or continue the appointment of, the Company as
broker with respect to a lesser portion of the applicable territory than the
greatest portion of such area in which, or with respect to fewer than the
greatest number of product items or Customers than, the Company acted as broker
for such Principal during the twelve-month period ended October 31, 1999, or at
a lower commission rate than the highest rate paid by such Principal to the
Company with respect to sales during such period. The relationships of the
Company with its 50 Principals which paid the greatest amount of commission
revenues for the twelve (12) months ended October 31, 1999 are good commercial
working relationships.
(d) Except as set forth on Schedule 2.31, there are, and since
October 31, 1998 there have been, no disputes or claims involving individually
in excess of $2,500 or in the aggregate in excess of $10,000, (i) between the
Company and any Principal, (ii) between the Company and any Customer, or (iii)
to the Knowledge of the Company, between any Principal and any Customer. As used
in this Section 2.30(d), the terms "disputes" or "claims" shall mean (A) matters
which, to the Knowledge of the Company, have been referred to counsel or are the
subject of litigation, or (B) matters as to which a Principal has threatened to
seek recourse against the Company, or may be reasonably expected to seek
recourse against the Company, if such matter is not resolved to the satisfaction
of such Principal.
(e) Since October 31, 1998, with respect to all Principals (i)
which have terminated such party's brokerage relationship with the Company or
(ii) which have reduced or otherwise adversely modified the geographic territory
in which the Company acts as broker or the product item(s) represented by the
Company or (iii) from which the Company has resigned,
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in whole or in part, its representation as a food broker, Schedule 2.31(e) sets
forth the name of such Principal and the effective date of such termination,
reduction or resignation.
(f) Since October 31, 1998, with respect to all Principals
which have entered into a brokerage relationship with the Company, or which have
substantially increased an existing brokerage relationship with the Company,
Schedule 2.31(f) sets forth (i) the name of such Principal and the date on which
such Principal entered into a brokerage agreement with the Company and (ii) the
Company's estimated annualized commission revenues attributable to such
Principal for the twelve months ending September 30, 2000, which estimates were
reasonable when made and continue to be reasonable.
2.32 Absence of Improper Payments.
(a) Since October 31, 1989 the Company: (i) has not made any
contributions, payments or gifts of its property to or for the private use of
any governmental official, employee or agent where either the payment or the
purpose of such contribution, payments or gift is illegal under the laws of the
United States, any state thereof or any other jurisdiction (foreign or
domestic), (ii) has not established or maintained any unrecorded fund or asset
for any purpose, or made any false or artificial entries on its books or records
for any reason, (iii) has not made any payments to any person where the Company
intended or understood that any part of such payment was to be used for any
other purpose other than that described in the documents supporting the payment,
(iv) has not made any contribution, or reimbursed any political gift or
contribution made by any other person, to candidates for public office, whether
federal, state or local, where such contribution would be in violation of
applicable law or (v) has not misused, misapplied or improperly handled,
administered or managed market development or promotional funds or market
development or promotional fund accounts in any material respect.
(b) Schedule 2.32 sets forth each of the Company's promotional
funds.
2.33 Transfer of Shares. Since October 31, 1993, to the Knowledge of
the Company, no holder of stock of the Company or any Subsidiary has at any time
transferred any of such stock to any employee of the Company or any Subsidiary,
which transfer constituted or could be viewed as compensation for services
rendered to the Company or any Subsidiary by said employee.
2.34 Stock Repurchase. Since October 31, 1993, except as set forth on
Schedule 2.34, neither the Company nor any Subsidiary has redeemed or
repurchased, or entered into any written or oral agreement to redeem or
repurchase, any of its capital stock.
2.35 Disclosure. The representations, warranties and statements
contained in this Agreement and in the agreements, documents, instruments,
certificates, Exhibits and Schedules delivered by the Company pursuant to this
Agreement to Buyer do not contain any untrue
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statement of a material fact, and, when taken together, do not omit to state a
material fact required to be stated therein or necessary in order to make such
representations, warranties or statements not misleading in light of the
circumstances under which they were made.
SECTION 3. COVENANTS OF THE COMPANY AND THE STOCKHOLDERS.
3.1 Making of Covenants and Agreements. The Company, each Subsidiary
and each Stockholder jointly and severally hereby make the covenants and
agreements set forth in this Section 3 and the Stockholders agree to cause the
Company and its Subsidiaries to comply with such agreements and covenants.
3.2 Cooperation. The Company, each Subsidiary and each Stockholder
shall cooperate with all reasonable requests of the Buyer or any of its
representatives and agents to more effectively consummate the transactions
contemplated hereby and the transactions referred to herein.
3.3 Consents. The Company, each Subsidiary and each Stockholder shall
use commercially reasonable efforts to obtain or cooperate with the Buyer in
obtaining all consents, authorizations and approvals of third parties including,
without limitation, any requisite consent of any governmental authorities,
regulatory agencies and other entities necessary in connection with the
consummation of the transactions contemplated hereby or referred to herein.
3.4 Notice of Default. Promptly upon the occurrence of, or promptly
upon the Company, any Subsidiary or any Stockholder becoming aware of the
impending or threatened occurrence of, any event which would cause or constitute
a breach or default, or would have caused or constituted a breach or default had
such event occurred or been known to the Company, any Subsidiary or any
Stockholder prior to the date hereof, of any of the representations, warranties
or covenants of the Company or any Stockholder contained in or referred to in
this Agreement or in any Schedule or Exhibit referred to in this Agreement, the
Company, any Subsidiary or any Stockholder shall give detailed written notice
thereof to the Buyer and the Company, such Subsidiary or each Stockholder shall
use its or his reasonable best efforts to prevent or promptly remedy the same.
3.5 Conduct of Business. Except as contemplated by this Agreement or as
is necessary to effectuate the transactions contemplated hereby, between the
date of this Agreement and the Closing Date, the Company and each Subsidiary
shall, and each Stockholder shall cause the Company and each Subsidiary to:
(a) Conduct its business in the ordinary course and refrain
from changing or introducing any method of management or operations except in
the ordinary course of business consistent with prior practices;
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(b) Refrain from making any change or incurring any obligation
to make a change in its Articles of Incorporation, By-laws or authorized or
issued capital stock;
(c) Refrain from declaring, setting aside or paying any
dividend, making any other distribution in respect of its capital stock or
making any direct or indirect redemption, purchase or other acquisition of its
stock except in the ordinary course of the administration of the ESOT;
(d) Refrain from making any purchase, sale or disposition of
any asset or property costing more than $10,000 other than in the ordinary
course of business, from purchasing any capital asset for use in the business
costing more than $10,000 and from mortgaging, pledging, subjecting to a lien or
otherwise encumbering any of the assets of the Company or any Subsidiary other
than in the ordinary course of business;
(e) Refrain from incurring or assuming any liability,
obligation or indebtedness for borrowed money in an aggregate amount in excess
of $50,000 incurring or assuming any contingent liability as a guarantor or
otherwise with respect to the obligations of others, and from incurring any
other contingent or fixed obligations or liabilities except in the ordinary
course of business;
(f) Refrain from canceling any material indebtedness owed to
the Company or any Subsidiary or waiving any claims or rights of substantial
value, other than in the ordinary course of business consistent with past
practice;
(g) Refrain from making any change in the compensation payable
or to become payable to any of its officers, employees, agents or independent
contractors except in connection with promotions made, or bonuses paid, in the
ordinary course of business consistent with past practices;
(h) Refrain from adopting or amending any Employee Program or
collective bargaining agreement, except as may be required by law;
(i) Refrain from prepaying loans (if any) from its
Stockholders, officers or directors or making any change in such borrowing
arrangements;
(j) Refrain from making any change in any method of accounting
or accounting practice or policy other than those required by GAAP;
(k) Use its commercially reasonable efforts consistent with
its prior business practices to prevent any change with respect to its
management and supervisory personnel and banking arrangements;
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(l) Use its commercially reasonable efforts consistent with
its past practices to keep intact its business organizations, to keep available
its present employees and to preserve the goodwill of all suppliers, customers
and others having business relations with it in connection with the Company or
any Subsidiary;
(m) Have in effect and maintain at all times all insurance of
the kind described in Section 2.21 above or equivalent insurance with any
substitute insurers;
(n) Maintain its properties, facilities, equipment and other
assets in as good working order and condition as of the date of this Agreement,
ordinary wear and tear excepted;
(o) Perform all its material obligations under debt and lease
instruments and all other agreements relating to or affecting its assets,
properties, equipment and rights;
(p) Refrain from entering into any new lease agreements other
than in the ordinary course of business without the prior knowledge and written
consent of Buyer; and
(q) Maintain compliance with all applicable permits, rules,
laws, regulations, consent orders and the like.
3.6 Acquisition Proposals. Except in connection with the transactions
contemplated hereby, unless and until this Agreement shall have been terminated
in accordance with its terms, neither the Company, nor any Subsidiary nor any
Stockholder shall cause the Company to (a) take any action to solicit, initiate
submission of or encourage any Acquisition Proposal (as defined below), (b)
participate in any substantive discussions or negotiations regarding an
Acquisition Proposal with any person other than the Buyer and Buyer's
representatives or (c) furnish any information with respect to or afford access
to the properties, books or records of the Company or any Subsidiary to any
person who is known by the Company, such Subsidiary or the Stockholder to be
considering making or has made an offer with respect to an Acquisition Proposal
other than the Buyer or (d) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any person
other than by the Buyer and its representatives to do or seek any of the
foregoing. The Company and each Stockholder shall promptly notify the Buyer upon
receipt of any offer or notice that any person is considering making an offer
with respect to an Acquisition Proposal and shall not accept any such offer for
so long as this Agreement remains in effect. For purposes hereof, an
"Acquisition Proposal" shall include any offer or other proposal to acquire or
purchase all or a portion of the capital stock or any assets of, or any equity
interest in, the Company or any Subsidiary, any merger or business combination
with the Company or any Subsidiary, any public or private offering of shares of
the capital stock of the Company or any Subsidiary, or any other acquisition or
financing involving the Company or any Subsidiary.
3.7 Transfers of Shares; Voting. Unless and until this Agreement shall
have been terminated, none of the Stockholders shall directly or indirectly
exchange, deliver, assign,
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pledge, encumber or otherwise transfer or dispose of any of the Company Shares
which he holds of, nor shall any Stockholder directly or indirectly grant any
right of any kind to acquire, dispose of, vote or otherwise control in any
manner any Company Shares.
3.8 Confidentiality. The Company, each Subsidiary and the Stockholders
shall hold in strict confidence, and will not use, any confidential or
proprietary data or information obtained from Buyer with respect to the Buyer's
business or financial condition except for the purpose of evaluating,
negotiating and completing the transaction contemplated hereby. Information
generally known in the Buyer's industry or which has been disclosed to the
Company, any Subsidiary or any Stockholder by third parties which have a right
to do so shall not be deemed confidential or proprietary information for
purposes of this Agreement. If the transaction contemplated by this Agreement is
not consummated, the Company, each Subsidiary and each Stockholder will return
to the Buyer all copies of such data and information, including but not limited
to financial information, customer lists, business and corporate records,
worksheets, test reports, tax returns, lists, memoranda, and other documents
prepared by or made available to the Company, any Subsidiary or any Stockholder
in connection with the transaction.
3.9 Tax Returns. The Company, each Subsidiary and each Stockholder
shall use its or his best efforts to cause the Company and each Subsidiary, in
accordance with applicable law, (i) to promptly prepare and file on or before
the due date or any extension thereof all federal, state and local tax returns
required to be filed by them with respect to taxable periods of the Company that
include any period ending on or before the Closing Date and (ii) to pay all
Taxes of the Company shown on such returns attributable to periods ending on or
before the Closing Date.
3.10 Options and Other Rights. The Company, each Subsidiary and each
Stockholder shall use its or his best efforts to cause each person or entity
which holds options, warrants or other rights or securities exercisable for or
convertible into shares of any class of equity security of the Company or any
Subsidiary to agree to the termination or cancellation of such rights or
securities pursuant to a written agreement in form and substance satisfactory to
the Buyer and its counsel.
3.11 Consummation of Agreement. The Company, each Subsidiary and each
Stockholder shall use its or his best efforts to perform and fulfill all
conditions and obligations on his part to be performed and fulfilled under this
Agreement to the end that the transactions contemplated by this Agreement be
fully carried out.
3.12 Fees and Expenses. As of the Closing Date, each Stockholder other
than the ESOT shall have paid, or shall have caused or arranged for the payment
of, all fees and expenses incurred by or on behalf of any such party arising out
of or in connection with the transactions contemplated by this Agreement;
provided that the Company shall not have paid or reimbursed any party other than
the ESOT or on behalf of the ESOT for any such amount. The Company shall pay the
ESOT's expenses arising out of or in connection with the transactions
contemplated by this Agreement.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
4.1 Making of Representations and Warranties. As a material inducement
to the Company and the Stockholders to enter into this Agreement and consummate
the transactions contemplated hereby, Buyer hereby makes the representations and
warranties to the Company and the Stockholders contained in this Section 4.
4.2 Organization of Buyer. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas with
full corporate power to own or lease its properties and to conduct its business
in the manner and in the places where such properties are owned or leased or
such business is conducted by it.
4.3 Authority of Buyer. Buyer has full right, authority and power to
enter into this Agreement, the Notes and each agreement, document and instrument
to be executed and delivered by Buyer pursuant to this Agreement and to carry
out the transactions contemplated hereby. The execution, delivery and
performance by Buyer of this Agreement, the Notes and each such other agreement,
document and instrument have been duly authorized by all necessary corporate
action of Buyer and no other action on the part of Buyer is required in
connection therewith. This Agreement, the Notes and each other agreement,
document and instrument executed and delivered by Buyer pursuant to this
Agreement constitute, or when executed and delivered will constitute, valid and
binding obligations of Buyer enforceable in accordance with their terms.
4.4 Litigation. There is no litigation pending or, to the Buyer's
Knowledge, threatened against Buyer which would prevent or hinder the
consummation of the transactions contemplated by this Agreement or the payment
of the Notes.
4.5 Finder's Fee. Except for the arrangements between the Buyer and
Monroe & Company, LLC and between the Buyer and Richmont Capital Partners I,
L.P. as previously disclosed to the Company, Buyer has not incurred or become
liable for any broker's commission or finder's fee relating to or in connection
with the transactions contemplated by this Agreement.
4.6 No Conflicts. The execution, delivery and performance by Buyer of
this Agreement and each other agreement contemplated by this Agreement to which
such entity is a party does not and will not with or without the giving of
notice or the lapse of time or both, (a) violate any provision of Buyer's
Certificate of Incorporation, as amended to date, (b) constitute a violation of,
or conflict with or result in any breach of, acceleration of any obligation
under, right of termination under, or default under, any agreement or instrument
to which Buyer is a party or by which either of them is bound, (c) to the
Knowledge of Buyer violate any judgment, decree, order, statute, law, rule or
regulation applicable to Buyer (d) except as set forth on Schedule 4.6 attached
hereto, require Buyer to obtain any approval, consent or waiver
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of, or to make any filing with, any person or entity (governmental or otherwise)
that has not been obtained or made or (e) result in the creation or imposition
of any Lien on any of property or assets of Buyer.
4.7 Reports and Financial Statements. From January 1, 1999 to the date
hereof, except where failure to have done so did not and would not have a
Material Adverse Effect on Buyer, Buyer has filed all reports, registrations and
statements, together with any required amendments thereto, that it was required
to file with the Securities and Exchange Commission (the "SEC"), including, but
not limited to, Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements
(collectively, the "Buyer Reports"). As of their respective dates (but taking
into account any amendments filed prior to the date of this Agreement), the
Buyer Reports complied in all material respects with all the rules and
regulations promulgated by the SEC and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Since the date of the most recent
Buyer Report, there has been no event that Buyer is required to disclose on Form
8-K, other than as may be required with respect to the transactions contemplated
hereby.
SECTION 5. COVENANTS OF BUYER.
5.1 Making of Covenants and Agreements. Buyer hereby makes to the
Company and the Stockholders the covenants and agreements set forth in this
Section 5, and agrees to comply with and perform all covenants and agreements
contained in this Section 5.
5.2 Consents. Buyer shall use commercially reasonable efforts to obtain
all consents, authorizations and approvals of third parties including, without
limitation, any requisite consent of any governmental authorities, regulatory
agencies and other entities necessary in connection with the consummation of the
transactions contemplated hereby or referred to herein.
5.3 Competitor Proposals. Except in connection with the transactions
contemplated hereby, unless and until this Agreement shall have been terminated
in accordance with its terms, neither the Buyer nor any of the Buyer's
directors, officers, employees, affiliates, agents or representatives (each, a
"Buyer Representative") will, nor will Buyer nor any Buyer Representative permit
any third party to, directly or indirectly, (a) take any action to solicit,
initiate submission of or encourage or entertain, any proposal or offer from any
person relating to any acquisition or purchase of any of the assets of, or any
capital stock or other equity interest in, any company engaged in the food
brokerage business principally in the same geographic area in which the Company
engages in the food brokerage business (a "Competitor"), any merger, business
combination or similar transaction with a Competitor (a "Competitor Proposal")
(b) participate in any discussions or negotiations regarding a Competitor
Proposal with any person or entity other than the Company and its
representatives, or (c) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
person to do any of the foregoing.
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5.4 Cooperation. Buyer shall cooperate with all reasonable requests of
the Company or any of its representatives and agents to more effectively
consummate the transactions contemplated hereby and the transactions referred to
herein.
5.5 Notice of Default. Promptly upon the occurrence of, or promptly
upon Buyer becoming aware of the impending or threatened occurrence of, any
event which would cause or constitute a breach or default, or would have caused
or constituted a breach or default had such event occurred or been known to
Buyer prior to the date hereof, of any of the representations, warranties or
covenants of Buyer contained in or referred to in this Agreement or in any
Schedule or Exhibit referred to in this Agreement, Buyer shall give detailed
written notice thereof to the Company and shall use its or his reasonable best
efforts to prevent or promptly remedy the same.
5.6 Confidentiality. Buyer shall hold in strict confidence, and will
not use, any confidential or proprietary data or information obtained from the
Company with respect to the Company's business or financial condition except for
the purpose of evaluating, negotiating and completing the transaction
contemplated hereby. Information generally known in the Company's industry or
which has been disclosed to Buyer by third parties which have a right to do so
shall not be deemed confidential or proprietary information for purposes of this
Agreement. If the transaction contemplated by this Agreement is not consummated
Buyer will return to the Company all copies of such data and information,
including but not limited to financial information, customer lists, business and
corporate records, worksheets, test reports, tax returns, lists, memoranda, and
other documents prepared by or made available to Buyer in connection with the
transaction.
SECTION 6. CONDITIONS.
6.1 Conditions to the Obligations of Buyer. The obligation of Buyer to
consummate this Agreement and the transactions contemplated hereby are subject
to the fulfillment, prior to or at the Closing, of the following conditions
precedent:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of the Company and the Stockholders contained in
Section 2 shall be true and correct as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing; and the Company and
each of the Stockholders shall, on or before the Closing, have performed all of
their obligations hereunder which by the terms hereof are to be performed on or
before the Closing; each of the conditions specified in this Section 6.1 shall
have been satisfied or waived (in whole or in part) in writing by the Buyer; and
on the Closing Date a certificate to such effect executed on behalf of each the
Company and the Stockholder Representative on behalf of each Stockholder shall
be delivered to the Buyer.
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(b) Authorization. The Board of Directors of the Company shall
have duly adopted resolutions in form reasonably satisfactory to the Buyer and
shall have taken all action necessary for the purpose of authorizing the Company
to consummate the transactions contemplated by this Agreement in accordance with
the terms thereof.
(c) Certificate from Officers. The Company shall have
delivered to Buyer a certificate of the Company's President and Chief Financial
Officer dated as of the Closing to the effect that the statements set forth in
paragraph (a) and (b) above in this Section 6.1 are true and correct.
(d) No Material Adverse Change. There shall have been no
material adverse change in the financial condition, prospects, properties,
assets, liabilities, operations, business or prospects of the Company or any
Subsidiary since the date of the Base Balance Sheet, whether or not in the
ordinary course of business, provided, however, that for purposes of this
Section 6.1(d) a net loss (i.e., new business less lost business, all calculated
on an annualized basis) of less than $3.4 million in annualized commission
revenues (excluding lost revenues attributable to McCormick) shall not be
considered to be such a material adverse change. For purposes of this Section
6.1(d), lost business shall be measured as of December 31, 1999.
(e) Approval of Buyer's Counsel. All actions, proceedings,
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this Agreement shall have been approved by Goodwin, Procter & Hoar LLP as
counsel for Buyer, and such counsel shall have received on behalf of Buyer such
other certificates and other documents in form satisfactory to such counsel, as
Buyer may reasonably require from the Company and the Stockholders to evidence
compliance with the terms and conditions hereof as of the Closing and the
correctness as of the Closing of the representations and warranties of the
Stockholders and the Company and the fulfillment of their respective covenants.
(f) Indemnification Escrow Agreement. The ESOT and the Escrow
Agent shall have executed and delivered the Indemnification Escrow Agreement,
substantially in the form attached hereto as Exhibit B.
(g) Opinions of Counsel.
(i) On the Closing Date, Buyer shall have received from
Schwartz & Freeman, counsel for the Company and the Stockholders other than the
ESOT, an opinion as of said date, substantially in form attached hereto as
Exhibit D.
(ii) On the Closing Date, Buyer shall have received from
McDermott, Will & Emery, counsel for the ESOT, an opinion as of said date,
substantially in the form attached hereto as Exhibit E.
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(h) No Litigation. There shall have been no determination by
the Company, acting in good faith, that the consummation of the transactions
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by any person or any federal, state, or other
governmental authority of litigation, proceedings or other action against Buyer,
the Company, any Subsidiary or any Stockholder. The transactions contemplated
hereby shall not be in violation of any law or regulation and shall not be
subject to any injunction, stay or restraining order.
(i) Consents. The Company or the Stockholders shall have made
all filings with and notifications of governmental authorities, regulatory
agencies and other entities required to be made by the Company, its Subsidiaries
or the Stockholders in connection with the execution and delivery of this
Agreement, the performance of the transactions contemplated hereby and the
continued operation of the business of the Company and its Subsidiaries by Buyer
subsequent to the Closing; and the Company, the Stockholders and Buyer shall
have received all authorizations, waivers, consents and permits, in form and
substance reasonably satisfactory to Buyer, from all third parties, including,
without limitation, the expiration or early termination of all applicable
premerger waiting periods pursuant to the Hart-Scott-Rodino Anti-Trust
Improvement Act of 1976, as amended (the "HSR Act"), and those approvals by all
other applicable governmental authorities, regulatory agencies, lessors, lenders
and contract parties, required to permit the continuation of the business of the
Company and each Subsidiary and the consummation of the transactions
contemplated by this Agreement, and to avoid a breach, default, termination,
acceleration or modification of any indenture, loan or credit agreement or any
other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award as a result of, or in connection with, the execution and
performance of this Agreement.
(j) Compensation Expense. The aggregate compensation expense
of the Company (including, without limitation, expenses for salary, wages,
benefits, bonuses and commissions) shall be in an amount not in excess of $25.0
million on an annualized basis.
(k) Employment Agreements. Each of the persons identified in
Schedule 6.1 (k) shall have executed and delivered to Buyer an Employment and
Noncompetition Agreement in substantially the form of Exhibit F attached hereto.
(l) Business Relations. Buyer shall be reasonably satisfied
based on personal interviews with the Principals and Customers that such
Principals and Customers intend to continue their current level of business with
the Company and its Subsidiaries after the closing.
(m) Employee Programs. The Company shall have taken all steps
necessary under the relevant documents and applicable law to maintain the
qualification of each
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Employee Program identified on Schedule 2.27 notwithstanding the purchase of the
Company Shares by Buyer.
(n) Resignations. The Company shall have delivered to Buyer
the resignations of all of the Directors (including Advisory Directors) and
Officers of the Company and each Subsidiary, such resignations to be effective
at the Closing.
(o) Releases. The Company shall have delivered to Buyer
general releases signed by each of the Stockholders of all claims which any of
them have against the Company and any Subsidiary in the form attached here to as
Exhibit G.
(p) Due Diligence and Disclosure Schedules. Buyer, in its sole
discretion, shall be satisfied with the results of its legal, accounting,
business, environmental, title and other due diligence review of the Company and
the Subsidiaries. Buyer, in its sole discretion, shall, be satisfied with the
form and substance of the Disclosure Schedules to this Agreement which shall
have been delivered to Buyer by the Company and the Stockholders on or prior to
the date hereof.
(q) Good Standing. At or prior to the Closing, Buyer shall
have received from the Company and each non-dissolved Subsidiary a certificate
of good standing from the Secretary of State of the state of their respective
incorporation and each other jurisdiction in which the Company or any
non-dissolved Subsidiary is qualified to do business.
(r) Financing and Related Approval. Buyer shall have received
the approval and consent of the lenders under that certain Amended and Restated
Credit Agreement, dated as of August 18, 1999 (the "Credit Agreement"), among
Buyer, the lenders party thereto and First Union National Bank, as agents for
the lenders, as amended from time to time thereafter, necessary for the Buyer to
consummate the transactions contemplated by this Agreement in compliance with
such Credit Agreement. In addition, Buyer shall have such amounts available for
borrowing under such Credit Agreement as may be required to pay the portion of
the Purchase Price payable at Closing.
6.2 Conditions to Obligations of the Company and the Stockholders. The
obligation of the Company and the Stockholders to consummate this Agreement and
the transactions contemplated hereby is subject to the fulfillment, prior to or
at the Closing, of the following conditions precedent:
(a) Representations; Warranties; Covenants. The
representations and warranties of the Buyer contained in this Agreement shall be
true and correct on the date hereof and as of the Closing Date; each of the
conditions specified in this Section 6.2 shall have been satisfied or waived (in
whole or in part) in writing by the Company.
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(b) Approval of the Company's Counsel. All actions,
proceedings, instruments and documents required to carry out this Agreement and
the transactions contemplated hereby and all related legal matters contemplated
by this agreement shall have been approved by Schwartz & Freeman as counsel for
the Company and the Stockholders, and McDermott, Will & Emery as counsel for the
ESOT, and such counsel shall have received on behalf of the Company and the
Stockholders such certificates and other documents, in form satisfactory to such
counsel as the Company may reasonably require from Buyer to evidence compliance
with the terms and conditions hereof as of the Closing and the correctness as of
the Closing of the representations and warranties of Buyer and the fulfillment
of its covenants.
(c) Fairness Opinion. The ESOT shall have received from Duff
and Phelps LLC an opinion, dated as of the Closing Date, to the effect that, in
the opinion of such firm, the consideration to be received by the ESOT in the
transaction for its Company Shares is not less than the Closing Date fair market
value of such Company Shares and that the transaction is fair, from a financial
point of view, to the ESOT.
(d) No Litigation. There shall have been no determination by
Buyer, acting in good faith, that the consummation of the transactions
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by any person or any federal, state, or other
governmental authority of litigation, proceedings or other action against Buyer,
the Company, any Subsidiary or any Stockholder. The transactions contemplated
hereby shall not be in violation of any law or regulation and shall not be
subject to any injunction, stay or restraining order.
SECTION 7. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED.
7.1 Termination. At any time prior to the Closing, this Agreement may
be terminated as follows:
(a) by mutual written consent of all of the parties to this
Agreement;
(b) by Buyer, pursuant to written notice by Buyer to the
Company, if any of the conditions set forth in Section 6.1 of this Agreement
have not been satisfied at or prior to the Closing, or if it has become
reasonably and objectively certain that any of such conditions, other than a
condition within the control of Buyer, will not be satisfied at or prior to the
Closing, such written notice to set forth such conditions which have not been or
will not be so satisfied;
(c) by Company, pursuant to written notice by the Company to
Buyer, if any of the conditions set forth in Section 6.2 of this Agreement have
not been satisfied at or prior to the Closing, or if it has become reasonably
and objectively certain that any of such conditions, other than a condition
within the control of the Company, will not be satisfied at or
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prior to the Closing, such written notice to set forth such conditions which
have not been or will not be so satisfied;
(d) by Buyer in its sole discretion, if either the Company or
any representative of the Company solicits, encourages, entertains or discusses
any Acquisition Proposal from any person or any entity other than Buyer; or
(e) by Buyer or the Company, if the Closing has not occurred
on or prior to April 14, 2000 and all of the conditions set forth in Section 6.1
other than Sections 6.1(e), 6.1(f), 6.1(i), 6.1(l), 6.1(p) and 6.1(r) have been
satisfied at or prior to the Closing.
(f) by the Company in its sole discretion, if either Buyer or
any representative of Buyer solicits, encourages, entertains or discusses any
Competitor Proposal from any person or entity other than the Company.
7.2 Effect of Termination.
(a) All obligations of the parties hereunder shall cease upon
any termination pursuant to Section 7.1, provided, however, that (i) the
provisions of Section 3.8, Section 5.6 this Section 7, Section 11.1 and Section
11.9 hereof shall survive any termination of this Agreement.
(b) If this Agreement is terminated pursuant to Section 7.1(e)
hereof, Buyer shall concurrently pay to the Company an amount in cash equal to
$500,000 (the "Termination Fee"). Any payment required by this Section 7.2 (b)
shall be payable from the Escrow Deposit and paid to the Company by wire
transfer of immediately available funds to an account designated by the Company
in accordance with the terms of the Purchase Agreement Escrow.
7.3 Right to Proceed. Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in Section 6.1 hereof have
not been satisfied, Buyer shall have the right to proceed with the transactions
contemplated hereby without waiving any of its rights hereunder, and if any of
the conditions specified in Section 6.2 hereof have not been satisfied, the
Company shall have the right to proceed with the transactions contemplated
hereby without waiving any of their rights hereunder.
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SECTION 8. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
8.1 Survival of Warranties. Each of the representations, warranties,
agreements, covenants and obligations herein or in any Schedule, Exhibit,
certificate or financial statement delivered by any party to the other party
incident to the transactions contemplated hereby are material, shall be deemed
to have been relied upon by the other party and shall survive the Closing
regardless of any investigation and shall not merge in the performance of any
obligation by either party hereto.
SECTION 9. INDEMNIFICATION.
9.1 Indemnification by the Stockholders. The Stockholders jointly and
severally, subject to the last sentence of Section 9.6, agree subsequent to the
Closing to indemnify and hold the Company, the Subsidiaries, Buyer and their
respective subsidiaries and affiliates and persons serving as officers,
directors, partners or employees of any of the foregoing (individually a "Buyer
Indemnified Party" and collectively the "Buyer Indemnified Parties") harmless
from and against any damages, liabilities, losses, taxes, fines, penalties,
costs, and expenses (including, without limitation, reasonable fees of counsel)
of any kind or nature whatsoever (whether or not arising out of third-party
claims and including all amounts paid in investigation, defense or settlement of
the foregoing) which may be sustained or suffered by any of them arising out of
or based upon any of the following matters:
(a) fraud, intentional misrepresentation or a deliberate or
wilful breach by the Company or any Stockholder of any of their representations,
warranties, agreements or covenants under this Agreement or in any agreement,
document, instrument, certificate, schedule or exhibit delivered pursuant
hereto;
(b) any other breach of any representation or warranty of the
Company or any Stockholder under this Agreement or in any agreement, document,
instrument, certificate, schedule or exhibit delivered pursuant hereto, or by
reason of any claim, action or proceeding asserted or instituted arising out of
any matter or thing constituting a breach of such representations or warranties;
(c) any other breach of any agreement or covenant of the
Company or any Stockholder under this Agreement or in any agreement, document,
instrument, certificate, schedule or exhibit delivered pursuant hereto, or by
reason of any claim, action or proceeding asset or instituted arising out of any
matter or thing constituting a breach of any such agreement or covenant;
(d) any liability of the Company or any Subsidiary for Taxes
arising from an event or transaction prior to the Closing or as a result of the
Closing which have not been paid or provided for or adequately reserved against
by the Company or a Subsidiary, including the
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Spin-Off Sale and the Deliverance Liquidation, and including without limitation,
any increase in Taxes due to the unavailability of any loss or deduction claimed
by the Company or a Subsidiary;
(e) any liability relating to the operation, activities or
conduct of the business of the Company or any of its Subsidiaries on or prior to
the Closing Date, including the Spin-Off Sale and the Deliverance Liquidation,
other than (i) liabilities or obligations of the Company or any Subsidiary
reflected on the Base Balance Sheet or incurred thereafter in the ordinary
course of business (except for any such liability required to be disclosed on a
Schedule to this Agreement that is not so disclosed), (ii) liabilities under the
Contracts or any contract, agreement or arrangement not required to be disclosed
on any Schedule to this Agreement and (iii) other liabilities disclosed in this
Agreement or any Schedule furnished pursuant hereto; and
(f) any liability of the Company or any Subsidiary in respect
of any claim made by any third party and relating to, arising out of or in
connection with any event occurring on or prior to the Closing Date, including
the Spin-Off Sale and the Deliverance Liquidation.
(g) Each Stockholder hereby acknowledges and agrees that no
Stockholder shall have any right of indemnity or contribution from the Company
with respect to any breach of any representation, warranty, covenant or
agreement hereunder.
9.2 Limitations on Indemnification by the Stockholders.
(a) Threshold. Subject to the exceptions set forth in Section
9.2(b) below, no indemnification shall be payable by the Stockholders with
respect to claims except to the extent that the cumulative amount of all such
claims first exceed $310,000 in the aggregate (the "Threshold Amount"),
whereupon the Buyer Indemnified Parties shall be entitled to dollar-for-dollar
indemnification from the first dollar in accordance with the terms hereof.
(b) Maximum Indemnification. Subject to the exceptions set
forth in Section 9.2(c) and 9.2(e) below, the Stockholders shall not be
obligated to indemnify any Buyer Indemnified Party for any amount of otherwise
indemnifiable losses in excess of Three Million Five Hundred Thousand Dollars
($3,500,000) (the "Maximum Indemnification").
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(c) No Limitation on Certain Claims. Subject to the exceptions
set forth in Section 9.2(e) below, notwithstanding anything herein to the
contrary, Buyer Indemnified Parties (i) shall be entitled to dollar-for-dollar
indemnification from the first dollar, (ii) shall not be subject to the
Threshold Amount, and (iii) shall not be subject to the Maximum Indemnification
in seeking indemnification from the Stockholders with respect to any of the
following:
(i) Losses involving a breach by the Company or any
Stockholder of any of the representations and warranties contained in
Section 2.3, 2.5, 2.9, 2.27, 2.28 or 2.32; or
(ii) Losses described in Sections 9.1(a) or 9.1(d).
(d) Time Limitation. No indemnification shall be payable to a
Buyer Indemnified Party with respect to claims asserted pursuant to Subsection
9.1(b) (other than any claims for indemnification for Taxes or based upon or
related to a breach of any representation, warranty or covenant with respect to
title to the Company Shares, authorization, Taxes or tax related matters ERISA
or environmental matters after the date which is eighteen months after the
Closing Date (the "Indemnification Cut-Off Date"); provided that (i) any claim
as to which notice is given by a Buyer Indemnified Party to the Stockholders
prior to the Indemnification Cut-Off Date shall survive the Indemnification Cut-
Off Date until final resolution of such claim; (ii) claims based upon or related
to a breach of any representation or warranty contained in Sections 2.5, 2.8(b)
or (c), 2.9, 2.27 or 2.28 or in Sections 9.1(c)-9.1(f), inclusive may be
asserted until the 60th day following expiration of the statute of limitations
(if any) applicable to such claim; and (iii) claims based upon a breach of any
representation or warranty contained in Section 2.3 or pursuant to Section
9.1(a) shall continue without limitation as to time.
(e) Notwithstanding anything herein to the contrary, the ESOT
shall not be required to indemnify Buyer Indemnified Parties with respect to
claims asserted pursuant to Section 9.1 to the extent that such claims:
(i) are asserted after the Indemnification Cut-Off
Date or
(ii) in the aggregate exceed the Escrow Amount;
provided, however, with respect to any indemnification obligation of the ESOT
under this Agreement, Buyer shall be entitled to proceed against the Escrow
Amount, only as provided in and subject to the terms and conditions set forth in
the Indemnification Escrow Agreement, and only to the extent of the ESOT's pro
rata share of any indemnification claim by Buyer which pro rata share shall be
equal to the percentage of the outstanding Company shares owned by the ESOT as
of the Closing Date multiplied by the total amount of such indemnification claim
with respect to all Stockholders in the aggregate.
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9.3 Indemnification by Buyer. Buyer agrees to indemnify and hold the
Stockholders (individually a "Stockholder Indemnified Party" and collectively
the "Stockholder Indemnified Parties") harmless from and against any damages,
liabilities, losses and expenses (including, without limitation, reasonable fees
of counsel) of any kind or nature whatsoever (whether or not arising out of
third-party claims and including all amounts paid in investigation, defense or
settlement of the foregoing) which may be sustained or suffered by any of them
arising out of or based upon any breach of any representation, warranty or
covenant made by Buyer in this Agreement or in any certificate delivered by
Buyer hereunder, or by reason of any claim, action or proceeding asserted or
instituted growing out of any matter or thing constituting such a breach.
9.4 Limitation on Indemnification by Buyer. Notwithstanding the
foregoing, no indemnification shall be payable to the Stockholders with respect
to claims asserted pursuant to Section 9.3 above after the Indemnification
Cut-Off Date.
9.5 Notice; Defense of Claims. An indemnified party may make claims for
indemnification hereunder by giving written notice thereof to the indemnifying
party within the period in which indemnification claims can be made hereunder.
If indemnification is sought for a claim or liability asserted by a third party,
the indemnified party shall also give written notice thereof to the indemnifying
party promptly after it receives notice of the claim or liability being
asserted, but the failure to do so shall not relieve the indemnifying party from
any liability except to the extent that it is prejudiced by the failure or delay
in giving such notice. Such notice shall summarize the bases for the claim for
indemnification and any claim or liability being asserted by a third party.
Within 20 days after receiving such notice the indemnifying party shall give
written notice to the indemnified party stating whether it disputes the claim
for indemnification and whether it will defend against any third party claim or
liability at its own cost and expense. If the indemnifying party fails to give
notice that it disputes an indemnification claim within 20 days after receipt of
notice thereof, it shall be deemed to have accepted and agreed to the claim,
which shall become immediately due and payable. The indemnifying party shall be
entitled to direct the defense against a third party claim or liability with
counsel selected by it (subject to the consent of the indemnified party, which
consent shall not be unreasonably withheld) as long as the indemnifying party is
conducting a good faith and diligent defense. The indemnified party shall at all
times have the right to fully participate in the defense of a third party claim
or liability at its own expense directly or through counsel; provided, however,
that if the named parties to the action or proceeding include both the
indemnifying party and the indemnified party and the indemnified party is
advised that representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct, the
indemnified party may engage separate counsel at the expense of the indemnifying
party. If no such notice of intent to dispute and defend a third party claim or
liability is given by the indemnifying party, or if such good faith and diligent
defense is not being or ceases to be conducted by the indemnifying party, the
indemnified party shall have the right, at the expense of the indemnifying
party, to undertake
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the defense of such claim or liability (with counsel selected by the indemnified
party), and to compromise or settle it, exercising reasonable business judgment.
If the third party claim or liability is one that by its nature cannot be
defended solely by the indemnifying party, then the indemnified party shall make
available such information and assistance as the indemnifying party may
reasonably request and shall cooperate with the indemnifying party in such
defense, at the expense of the indemnifying party.
9.6 Satisfaction of Stockholder Indemnification Obligations. In order
to satisfy the indemnification obligations of the Stockholders pursuant to
Section 9.1 above and without limiting any right of any Buyer Indemnified Party
with respect to any claim for indemnification thereunder, subject to the
limitations set forth in Section 9.2, a Buyer Indemnified Party shall have the
right (in addition to collecting directly from the Stockholders) to (i) proceed
directly against the Escrow Amount as further set forth in the Indemnification
Escrow Agreement, or (ii) set off its indemnification claims against any and all
amounts of interest and principal under the Notes (whether or not then due and
payable) (the "Setoff Right") in accordance with the terms of the Notes or (iii)
exercise both of such remedies. Any such setoff shall be pro-rated among the
Notes, based on the remaining principal of the Notes or replacement Notes at the
time of the setoff. Notwithstanding anything in this Agreement to the contrary,
with respect to any indemnification obligation of the ESOT under this Agreement,
Buyer shall be entitled to proceed against the Escrow Amount, only as provided
in and subject to the terms and conditions set forth in the Indemnification
Escrow Agreement, and only to the extent of the ESOT's pro rata share of any
indemnification claim by Buyer, which pro rata share shall be equal to the
percentage of the outstanding Company Shares owned by the ESOT as of the Closing
Date multiplied by the total amount of such indemnification claim with respect
to all Stockholders in the aggregate.
SECTION 10. DEFINITIONS.
For the purposes of this Agreement, the capitalized terms set forth
below shall have the meanings indicated.
"Accumulated Funding Deficiency" shall have the meaning set forth in
Section 2.27 hereof.
"Acquisition" shall have the meaning set forth in Section 2.4 hereof.
"Acquisition Proposal" shall have the meaning set forth in Section 3.6
hereof.
"Acquisition Rights" shall have the meaning set forth in Section 2.4
hereof.
"Affiliate" shall have the meaning set forth in Section 2.27 hereof.
"Affiliated Group" shall have the meaning set forth in Section 2.9
hereof.
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"Agreement" shall have the meaning set forth in the Recitals hereto.
"Approvals" shall have the meaning set forth in Section 2.24 hereof.
"Audited Financial Statements" shall have the meaning set forth in
Section 2.8 hereof.
"Base Balance Sheet" shall have the meaning set forth in Section 2.8
hereof.
"Blue Sky" shall have the meaning set forth in Section 2.27 hereof.
"Buyer" shall have the meaning set forth in the Recitals hereto.
"Buyer Indemnified Party" and "Buyer Indemnified Parties" shall have
the meaning set forth in Section 9.1 hereof.
"Buyer Reports" shall have the meaning set forth in Section 4.7 hereof.
"Buyer Representative" shall have the meaning set forth in Section 5.3
hereof.
"Closing" shall have the meaning set forth in Section 1.3 hereof.
"Closing Date" shall mean the date on which the Closing occurs.
"Code" shall have the meaning set forth in Section 2.9 hereof.
"Common Stock" shall have the meaning set forth in the Recitals hereto.
"Company" shall have the meaning set forth in the Recitals hereto.
"Company Shares" shall have the meaning set forth in the Recitals
hereto.
"Competitor" shall have the meaning set forth in Section 5.3 hereof.
"Competitor Proposal" shall have the meaning set forth in Section 5.3
hereof.
"Contract" and "Contracts" shall have the meaning set forth in Section
2.18 hereof.
"Controlled Group" shall have the meaning set forth in Section 2.27
hereof.
"CPR Rules" shall have the meaning set forth in Section 11.9 hereof.
"Credit Agreement" shall have the meaning set forth in Section 6.1
hereof.
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"Customers" shall have the meaning set forth in Section 2.12 hereof.
"Deferred Payment Obligation" shall have the meaning set forth in
Section 1.6 hereof.
"Deliverance" shall have the meaning set forth in Section 1.6 hereof.
"Deliverance Liquidation" shall have the meaning set forth in Section
1.6 hereof.
"Employee Program" shall have the meaning set forth in Section 2.27
hereof.
"Encumbrances" shall have the meaning set forth in Section 2.7 hereof.
"Environmental Law" shall have the meaning set forth in Section 2.28
hereof.
"ERISA" shall have the meaning set forth in Section 2.27 hereof.
"Escrow Agent" shall have the meaning set forth in Exhibit B to this
Agreement.
"Escrow Amount" shall have the meaning set forth in Section 1.2 hereof.
"Escrow Deposit" shall have the meaning set forth in Section 7.1
hereof.
"ESOT" shall have the meaning set forth in Section 1.2 hereof.
"Financial Statements" shall have the meaning set forth in Section 2.8
hereof.
"GAAP" shall have the meaning set forth in Section 2.8 hereof.
"Hazardous Material" shall have the meaning set forth in Section 2.28
hereof.
"Hazardous Waste" shall have the meaning set forth in Section 2.28
hereof.
"HSR Act" shall have the meaning set forth in Section 6.1 hereof.
"Indemnification Cut-Off Date" shall have the meaning set forth in
Section 9.2 hereof.
"Indemnification Escrow Agreement" shall have the meaning set forth in
Section 1.2 hereof.
"Intellectual Property" shall have the meaning set forth in Section
2.16 hereof.
"Interim Balance Sheet" shall have the meaning set forth in Section 2.8
hereof.
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<PAGE> 57
"Interim Financial Statements" shall have the meaning set forth in
Section 2.8 hereof.
"IRS" shall have the meaning set forth in Section 2.9 hereof.
"Key Manufacturers" shall have the meaning set forth in Section 2.17
hereof.
"Key Principals" shall have the meaning set forth in Section 2.17
hereof.
"Knowledge" shall have the meaning set forth in Section 2.7 hereof.
"Liabilities" shall have the meaning set forth in Section 1.2 hereof.
"Liens" shall have the meaning set forth in Section 2.3 hereof.
"Loss Customer Revenues" shall have the meaning set forth in Section
1.6 hereof.
"Maintains" shall have the meaning set forth in Section 2.27 hereof.
"Material Adverse Effect" shall have the meaning set forth in Section
2.2 hereof.
"Maximum Indemnification" shall have the meaning set forth in Section
9.2 hereof.
"Multiemployer Plan" shall have the meaning set forth in Section 2.27
hereof.
"Non-ESOT Stockholders' Representative" shall have the meaning set
forth in Section 1.8 hereof.
"Notes" shall have the meaning set forth in Section 1.2 hereof.
"Obligor" shall have the meaning set forth in Section 1.6 hereof.
"Permitted Encumbrances" shall have the meaning set forth in Section
2.7 hereof.
"PMG" shall have the meaning set forth in Section 1.6 hereof.
"Prism" shall have the meaning set forth in Section 1.6 hereof.
"Prism Customers" shall have the meaning set forth in Section 1.6
hereof.
"Prism Tax Reserve" shall have the meaning set forth in Section 1.7(h)
hereof.
"Principal" shall have the meaning set forth in Section 2.12.
"Products" shall have the meaning set forth in Section 2.16 hereof.
52
<PAGE> 58
"Prohibited Transaction" shall have the meaning set forth in Section
2.27 hereof.
"Purchase Price" shall have the meaning set forth in Section 1.2
hereof.
"Real Property" shall have the meaning set forth in Section 2.7 hereof.
"Redemption" shall have the meaning set forth in Section 1.6 hereof.
"Reportable Event" shall have the meaning set forth in Section 2.27
hereof.
"SEC" shall have the meaning set forth in Section 4.7 hereof.
"Setoff Right" shall have the meaning set forth in Section 9.6 hereof.
"Severance Pay" shall have the meaning set forth in Section 2.30
hereof.
"Spin-Off Sale" shall have the meaning set forth in Section 1.6 hereof.
"Stockholder" and "Stockholders" shall have the meaning set forth in
the Recitals hereto.
"Stockholder Indemnified Party and "Stockholder Indemnified Parties"
shall have the meaning set forth in Section 9.3 hereof.
"Subsidiary" and "Subsidiaries" shall have the meaning set forth in
Section 2.4 hereof.
"Taxes" shall have the meaning set forth in Section 2.9 hereof.
"Termination Fee" shall have the meaning set forth in Section 7.2
hereof.
"Threshold Amount" shall have the meaning set forth in Section 9.2
hereof.
"Transaction Documents" shall have the meaning set forth in Section 2.6
hereof.
"Unfunded Benefit Liabilities" shall have the meaning set forth in
Section 2.27 hereof.
"Working Capital" shall have the meaning set forth in Section 1.2
hereof.
"Year 2000 Compliant" shall have the meaning set forth in Section 2.17
hereof.
53
<PAGE> 59
SECTION 11. MISCELLANEOUS.
11.1 Fees and Expenses. Buyer and the Company shall each pay its own
expenses in connection with the transactions contemplated by this Agreement.
Each Stockholder other than the ESOT will pay all of its expenses in connection
with the transactions contemplated by this Agreement, whether or not the Closing
occurs. The Company shall pay the ESOT's expenses in accordance with Section
3.12 of this Agreement.
11.2 Governing Law. This Agreement shall be construed under and
governed by the internal laws of the Commonwealth of Massachusetts without
regard to its conflict of laws provisions.
11.3 Notices. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been given if delivered or sent by facsimile transmission, upon receipt, if sent
by a nationally recognized overnight courier for next day delivery, on the next
business day following delivery to such overnight courier, or if sent by
registered or certified mail, upon the sooner of the date on which receipt is
acknowledged or the expiration of three days after deposit in United States post
office facilities properly addressed with postage prepaid. All notices to a
party will be sent to the addresses set forth below or to such other address or
person as such party may designate by notice to each other party hereunder:
<TABLE>
<S> <C>
TO BUYER: Marketing Specialists Sales Company
17855 North Dallas Parkway, Suite 200
Dallas, Texas 75287
Attn: Chief Executive Officer
With a copy to: Marketing Specialists Sales Company
17855 North Dallas Parkway, Suite 200
Dallas, Texas 75287
Attn: Nancy K. Jagielski, Esq.
TO COMPANY: The Sales Force Companies, Inc.
180 Hansen Court
Wood Dale, IL 60191-8004
Attn: Chief Executive Officer
With a copy to: Schwartz & Freeman
401 North Michigan Avenue, Suite 1900
Chicago, IL 60611-4206
Attn: Stuart Duhl, Esq.
</TABLE>
54
<PAGE> 60
<TABLE>
<S> <C>
TO ANY STOCKHOLDER
OTHER THAN THE ESOT: William F. Lee
The Sales Force Companies, Inc.
180 Hansen Court
Wood Dale, IL 60191-8004
TO ESOT: Norman Rosson
First Bankers Trust Company, N.A.
1201 Broadway
Quincy, Illinois 62301
With a copy to: McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attn: William W. Merten, Esq.
</TABLE>
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
11.4 Entire Agreement. This Agreement, including the Schedules and
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby, is complete, reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous written
or oral negotiations, commitments and writings. No promises, representations,
understandings, warranties and agreements have been made by any of the parties
hereto except as referred to herein or in such Schedules and Exhibits or in such
other writings; and all inducements to the making of this Agreement relied upon
by either party hereto have been expressed herein or in such Schedules or
Exhibits or in such other writings.
11.5 Assignability; Binding Effect. This Agreement shall only be
assignable by Buyer to a corporation, partnership or other entity controlling,
controlled by or under common control with Buyer upon written notice to the
Company and the Stockholders. This Agreement may not be assigned by the
Stockholders or the Company without the prior written consent of Buyer. This
Agreement shall be binding upon and enforceable by, and shall inure to the
benefit of, the parties hereto and their respective successors and permitted
assigns.
11.6 Execution in Counterparts. For the convenience of the parties and
to facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
11.7 Amendments. This Agreement may not be amended or modified, nor may
compliance with any condition or covenant set forth herein be waived, except by
a writing duly and validly executed by Buyer, the Company and Stockholders
holding a majority of the Company Shares, or in the case of a waiver, the party
waiving compliance. The waiver by the Stockholders of any condition or covenant
contained herein shall require the consent of Stockholders holding a majority of
the Company Shares.
55
<PAGE> 61
11.8 Publicity and Disclosures. Except as otherwise required by law, no
press releases or public disclosure, either written or oral, of the transactions
contemplated by this Agreement, shall be made by a party to this Agreement
without the prior knowledge and written consent of Buyer and the Company.
Notwithstanding the foregoing sentence, the Company and each Stockholder
acknowledges that the Buyer issued a press release, a copy of which was
delivered to the Company, disclosing the existence but not the terms of the
proposed transaction.
11.9 Dispute Resolution; Consent to Jurisdiction.
(a) Except as provided below, any dispute arising out of or
relating to this Agreement or the breach, termination or validity hereof shall
be finally settled by arbitration conducted expeditiously in accordance with the
Center for Public Resources Rules for Nonadministered Arbitration of Business
Disputes (the "CPR Rules"). The Center for Public Resources shall appoint a
neutral advisor from its National CPR Panel. The arbitration shall be governed
by the United States Arbitration Act, 9 U.S.C. ss.ss.1-16, and judgment upon the
award rendered by the arbitrators may be entered by any court having
jurisdiction thereof. Such arbitration shall take place in: (A) Boston,
Massachusetts, if one or more Stockholders shall have made a claim against Buyer
under or with respect to this Agreement or (B) Chicago, Illinois, if Buyer shall
have made a claim against one or more Stockholders under or with respect to this
Agreement. Regardless of the location of such arbitration, the prevailing party
shall be entitled to enforce any award or decision of such proceeding in either
Chicago, Illinois or Boston, Massachusetts, in its sole discretion.
(b) Any such arbitration shall be conducted in accordance with
the following:
(i) The arbitrator shall be authorized, but not
required, award to the prevailing party the costs of arbitration,
including the reasonable fees and expenses of attorneys and
accountants.
(ii) The arbitrator shall not be authorized or empowered
to award damages in excess of compensatory damages.
(iii) The arbitrator shall enforce the following agreed
upon procedures: (A) mandatory exchange of all relevant documents to be
accomplished within 30 days of the initiation of the arbitration
procedure; (B) hearings before the arbitrator shall be limited to a
summary presentation by each party not to exceed three hours for each
party; (C) all hearings shall have concluded not more than 60 days
after the initiation of the arbitration procedure; and (D) the
arbitrator's decision shall be rendered not more than 10 days after the
conclusion of such hearings.
56
<PAGE> 62
(c) Notwithstanding anything to the contrary contained herein,
the provisions of this Section 11.9 shall not apply with regard to (i) any
equitable remedies to which any party may be entitled hereunder or (ii) any
dispute arising out of any failure by Buyer to pay when due any amount payable
under the Notes or the Replacement Notes except to the extent that Buyer
notifies the Stockholders that Buyer is exercising the Setoff Right.
(d) Each of the parties hereto (i) hereby irrevocably submits
to the jurisdiction of any state or federal court sitting in Boston,
Massachusetts or Chicago, Illinois for the purpose of enforcing the award or
decision in any such proceeding, (ii) hereby waives, and agrees not to assert,
by way of motion, as a defense, or otherwise, in any such suit, action or
proceeding, any claim that it is not subject personally to the jurisdiction of
the above-named courts, that its property is exempt or immune from attachment or
execution, that the suit, action or proceeding is brought in an inconvenient
forum, that the venue of the suit, action or proceeding is improper or that this
Agreement or the subject matter hereof may not be enforced in or by such court,
and (iii) hereby waives and agrees not to seek any review by any court of any
other jurisdiction which may be called upon to grant an enforcement of the
judgment of any such court. Each of the parties hereto hereby consents to
service of process by registered mail at the address to which notices are to be
given. Each of the parties hereto agrees that its submission to jurisdiction and
its consent to service of process by mail is made for the express benefit of the
other parties hereto. Final judgment against any party hereto in any such
action, suit or proceeding may be enforced in other jurisdictions by suit,
action or proceeding on the judgment, or in any other manner provided by or
pursuant to the laws of such other jurisdiction; provided, however, that any
party hereto may at its option bring suit, or institute other judicial
proceedings, in any state or federal court of the United States or of any
country or place where the other parties or their assets, may be found.
11.10 Consent to Jurisdiction. Each of the parties hereby consents to
the personal jurisdiction, service of process and venue in any federal or state
court sitting in Boston, Massachusetts or Chicago, Illinois for any claim, suit
or proceeding arising under this Agreement, or in the case of a third party
claim subject to indemnification hereunder, in the court where such claim is
brought.
11.11 Specific Performance. The parties agree that it would be
difficult to measure damages which might result from a breach of this Agreement
by the Company or the Stockholders and that money damages would be an inadequate
remedy for such a breach. Accordingly, if there is a breach or proposed breach
of any provision of this Agreement by the Company or the Stockholders, and Buyer
does not elect to terminate under Section 7, Buyer shall be entitled, in
addition to any other remedies which it may have, to an injunction or other
appropriate equitable relief to restrain such breach without having to show or
prove actual damage to Buyer.
57
<PAGE> 63
11.12 No Third-Party Beneficiaries. This Agreement is intended solely
for the benefit of the parties hereto. Neither this Agreement nor any of the
transactions contemplated hereby shall be deemed to create or enlarge any rights
in any party not a party hereto.
11.13 Severability. The parties agree that, in the event that any
provision of this Agreement or the application of any such provision to any
party is held by a court of competent jurisdiction to be contrary to law, the
provision in question shall be construed so as to be lawful and the remaining
provisions of this Agreement shall remain in full force and effect.
11.14 No Stock Restrictions. The Company and each Stockholder hereby
waives the application of any Stock Purchase Agreement or Voting Agreement or
similar agreement between the Company and such Stockholder to the transactions
contemplated hereby.
58
<PAGE> 64
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date first set forth above by their duly authorized
representatives.
MARKETING SPECIALISTS
SALES COMPANY
By:
-------------------------------
Name:
Title:
THE SALES FORCE COMPANIES,
INC.
By:
-------------------------------
Name:
Title:
TRUSTEE OF THE SALES FORCE
COMPANIES, INC. EMPLOYEE STOCK
OWNERSHIP TRUST
By: First Bankers Trust Company, N.A.,
By:
-------------------------------
Name:
Title:
STOCKHOLDERS:
------------------------------------
John Adrian
------------------------------------
Jim Bailey
------------------------------------
Joseph Berg
------------------------------------
Jack Carr
<PAGE> 65
------------------------------------
Ronald D Cordie
------------------------------------
Doug Daley
------------------------------------
Helmut Friz
------------------------------------
Thomas J. Gallagher
------------------------------------
Craig Goldford
------------------------------------
Bob Gostomski
------------------------------------
Charles Gross
------------------------------------
Gary Halls
------------------------------------
Jim Hoffman
------------------------------------
Susan Johnson
------------------------------------
Kenton M. Klein, Jr.
------------------------------------
William F. Lee
------------------------------------
James McArthur
------------------------------------
Doyle McCormick
<PAGE> 66
------------------------------------
Paul H. Mills
------------------------------------
Brad Morris
------------------------------------
Larry Murphy
------------------------------------
James B. Murray
------------------------------------
Laura Newman
------------------------------------
Kevin O'Shea
------------------------------------
Thomas Plechaty
------------------------------------
Jack Qualls
------------------------------------
Lee Rasmussen
------------------------------------
Brian Renfro
------------------------------------
Donn C. Robbins
------------------------------------
Mark L. Scissors
------------------------------------
Kevin Thompson
------------------------------------
Philip G. Tujo
<PAGE> 67
------------------------------------
Kenneth R. Weitz
------------------------------------
Rick Wineberg
------------------------------------
Michael Wollis
------------------------------------
Scot Woolley
------------------------------------
Reginald L. Zieska
<PAGE> 1
EXHIBIT 10.12
CONTRACT OF SALE
OF IMPROVED PROPERTY
THIS CONTRACT OF SALE OF IMPROVED PROPERTY (this "Contract") is made
and entered as of February 17, 2000 (the "Effective Date"), by and between
BROMAR, INC., a California corporation ("Seller"), and RCPI OFFICE PROPERTIES,
LLC, a Texas limited liability company ("Buyer").
For and in consideration of the mutual covenants and agreements
contained in this Contract and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Buyer and Seller agree
as follows:
1. PURCHASE AND SALE. Seller agrees to sell and convey to Buyer, and Buyer
agrees to buy from Seller, the Property (as hereinafter defined) for the
consideration and upon and subject to the terms, provisions and conditions
hereinafter set forth.
(a) DESCRIPTION OF THE PROPERTY. The "Property" means: the
improved tract of land (the "Land") situated in Maricopa County, Arizona, more
particularly described in the Exhibit A attached hereto, together with (i) all
buildings, structures and improvements thereon (collectively, the
"Improvements") including, without limitation, associated parking areas,
landscaping, storm water drainage systems and exterior lighting, all mechanical
systems, fixtures and equipment (including, but not limited to, compressors,
engines, elevators and escalators), electrical systems, fixtures and equipment,
heating fixtures, systems and equipment, air conditioning fixtures, systems and
equipment, and plumbing fixtures, systems and equipment, (ii) all of Seller's
right, title and interest in and to oil, gas, hydrocarbons and other minerals
(including, but not limited to, coal, lignite, iron and uranium) in, on, or
under or that may be produced from the Land, (iii) any and all rights, titles,
powers, privileges, easements, licenses, rights-of-way and interests appurtenant
to the Land, (iv) all and singular the rights, titles, benefits, privileges,
remainders, reversions, easements, tenements, hereditaments, interests and
appurtenances of Seller pertaining to the Land, including, without limitation,
any right, title and interest, if any, of Seller in and to adjacent strips or
gores, if any, between the Land and abutting properties, and in and to adjacent
streets, highways, roads, alleys or rights-of-way (except to the extent, if any,
that such streets, highways, roads, alleys or rights-of-way abut or provide
access to or benefit other properties owned by Seller), either at law or in
equity, in possession or expectancy, and (v) all rights, titles, powers,
privileges, interests, licenses, easements and rights-of-way appurtenant or
incident to any of the foregoing.
(b) AMENDMENTS TO PROPERTY DESCRIPTION. Intentionally deleted.
2. CONTRACT PURCHASE PRICE. Subject to the provisions of this Section 2,
the total purchase price for the Property (the "Sales Price") shall be
$2,375,000.00.
(a) PAYABLE IN TWO INSTALLMENTS. The Sales Price shall be payable
in two installments, with $2,137,500 (the "First Installment") payable in
Immediately Available Funds (as hereinafter defined) at the Closing (as defined
in Section 10.(a) below), and the remaining $237,500.00 (the "Second
Installment") payable in Immediately Available Funds on the sixtieth (60th) day
following the Closing (such day is herein referred to as the "Second Installment
Due Date"); provided, however, if, prior to the Second Installment Due Date,
Buyer has notified Seller in writing (the "Default Notice") that (i) a
representation or warranty of Seller in Section 6 hereof was false or inaccurate
in a material respect, or (ii) Seller has failed to perform any of its
obligations under this Contract that expressly survive the Closing, or (iii)
Buyer has discovered an Unacceptable Condition (as hereinafter defined), then
the Second Installment shall not be paid on the Second Installment Due Date and
shall only be payable as expressly provided in this Section 2. As used herein,
the term "Unacceptable Condition" shall mean any condition with respect to the
Property that a purchaser of the Property would reasonably deem to be so
unacceptable as to prevent such purchaser from purchasing the Property unless
such condition was remedied prior to closing or an appropriate purchase price
reduction was made available to such purchaser at closing.
(b) DEFAULT NOTICE. In any Default Notice, Buyer shall (1) set
forth in detail the basis on which Buyer claims that one or more of Seller's
representations or warranties is false or materially misleading, (2)
<PAGE> 2
reasonably estimate the financial loss incurred or to likely be incurred by
Buyer as a result of such Seller misrepresentation (a "Loss Due to Breach"),
and/or (3) identify with reasonable specificity any Unacceptable Condition
discovered by Buyer after the Closing Date and provide Seller with Buyer's
estimate of the amount necessary to repair and/or remedy such Unacceptable
Condition. If, within ten (10) days after Seller's receipt of the Default
Notice, Seller disputes any matter contained in the Default Notice, Seller shall
notify Buyer in writing of the same and Buyer and Seller shall thereafter
proceed to diligently and in good faith attempt to resolve such dispute and, if
the parties are unable to resolve the same within ten (10) days after Buyer's
receipt of the applicable dispute notice, such dispute shall be submitted for
resolution by binding arbitration in accordance with the terms, conditions and
provisions of the Exhibit G attached to this Contract.
(c) PAYMENT OF SECOND INSTALLMENT.
(1) If Seller does not dispute Buyer's claim for Loss Due
to Breach and/or claim of one or more Unacceptable Conditions within such ten
(10) day period, Buyer shall pay the Second Installment, reduced by the
applicable amount of the Loss Due to Breach and the amount of all Confirmed
Costs (as hereinafter defined), on the sixtieth (60th) day after the Second
Installment Due Date.
(2) If Seller does dispute Buyer's claim for Loss Due to
Breach and/or claim of one or more Unacceptable Conditions within such ten (10)
day period, Buyer shall pay the Second Installment, reduced by the disputed
amounts, as applicable, of the claimed Loss Due to Breach and/or the claimed
amount of Confirmed Costs (such amounts are herein collectively referred to as
"Disputed Amounts"), on the Second Installment Due Date. The Disputed Amounts
withheld from the Second Installment will be paid to Seller within ten (10) days
after either (A) the date the parties reach an agreement in writing with respect
to the amount of the Disputed Amounts, or (B) a determination is made upon the
completion of arbitration proceedings as to the amount of the Disputed Amounts.
(3) As used herein, the term "Immediately Available
Funds" shall mean funds paid by either a cashier's check or certified check
drawn on a national banking association acceptable to Seller or a wire transfer
of immediately available federal funds, and the term "Confirmed Costs" shall
mean (i) all costs actually incurred by Buyer to third-parties to repair and/or
remedy Unacceptable Conditions identified in the Default Notice (including,
without limitation, reasonable and necessary legal and consulting fees), or (ii)
all reasonable and necessary costs estimated in good faith by Buyer to repair
and/or remedy Unacceptable Conditions identified in the Default Notice that are
either (1) not disputed by Seller as provided above or are related to an
Unacceptable Condition that Seller does not elect to remedy and/or repair as
provided above, or (2) are disputed by Seller and are ultimately found by
arbitration proceedings to be reasonable and necessary with respect to the
applicable misrepresentation and/or Unacceptable Condition. When providing
Seller with written evidence of the payment of Confirmed Costs, Buyer shall
provide, as applicable, a reasonable breakdown of the components of the
applicable Confirmed Costs.
(d) ADDITIONAL PAYMENT UPON SALE. In the event that Buyer sells
the Property for an amount which is either (i) less than but approximately equal
to $2,559,000.00 or (ii) equal to or greater than $2,559,000.00 within one
hundred and twenty days after the Closing Date, Buyer agrees that
contemporaneously with the closing of any such re-sale, Buyer will pay Seller an
additional $125,000.
3. ESCROW. Intentionally deleted.
4. ENVIRONMENTAL REPORT. Seller has heretofore allowed Buyer's designated
agents to review and copy at Buyer's sole cost and expense the following that
certain environmental report (the "Environmental Report") prepared by Phase One
Inc. dated February 1, 2000, with respect to the Land and/or the Improvements.
2
<PAGE> 3
5. TITLE AND SURVEY APPROVAL.
(a) PRELIMINARY TITLE REPORT AND SURVEY DELIVERIES. Seller has
delivered to Buyer the following:
(1) Preliminary Title Report. A preliminary title report
(the "Preliminary Title Report") issued by Fidelity National Title Insurance
Company at 2390 East Camelback Road, #340, Phoenix, Arizona, Attention: Barbara
Teel (the "Title Company") with respect to the Property, together with copies of
all underlying title documents described therein.
(2) Survey. Intentionally deleted.
(b) BUYER'S TITLE POLICY. Intentionally deleted.
6. REPRESENTATIONS AND WARRANTIES OF SELLER.
(a) SELLER REPRESENTATIONS AND WARRANTIES. Seller hereby
represents and warrants to Buyer that Seller now has and on the Closing Date
will have and convey to Buyer good and indefeasible title to the Land and
Improvements subject only to the Permitted Exceptions (as defined in Section
10.(b)(2) below). Seller further represents and warrants to Buyer, which
representations and warranties shall be deemed made by Seller to Buyer as of the
Effective Date of this Contract and also as of the Closing Date, that:
(1) Parties in Possession; Matters Related to Leases. To
the best of Seller's knowledge, there are no parties in possession of any
portion of the Improvements or the Land except Seller and the adjacent property
owner as reflected on the Survey. There are no leases or other occupancy
agreements in effect with respect to the Land and/or Improvements.
(2) Power and Authority. Seller has, or on the Closing
Date will have, the power and authority to carry out Seller's obligations
hereunder. All requisite action necessary to authorize Seller to enter into this
Contract and to carry out Seller's obligations hereunder has been, or on the
Closing Date will have been, taken. The individual executing this Contract on
behalf of Seller has the full right, power and authority to do so. After the
discharge by Seller of all existing liens and encumbrances at or before the
Closing, Seller will have the power and authority to sell and convey the
Property in accordance with the terms of this Contract.
(3) No Suits or Tax Assessments. To the best of Seller's
knowledge, there are no suits (at law or in equity) or special tax assessments
pending or threatened that affect the Improvements or Land, or Seller's ability
to perform hereunder.
(4) Condemnation Proceedings. Seller has no knowledge,
nor has Seller received any actual written notice, of any condemnation or
eminent domain proceeding pending or threatened against any or all of the
Improvements or Land.
(5) Seller Is Not a "Foreign Person". Seller is not a
"foreign person" within the meaning of Section 1445 of the Internal Revenue
Code, as amended (i.e., Seller is not a foreign corporation, foreign
partnership, foreign trust, foreign estate or foreign person as those terms are
defined in the Internal Revenue Code and regulations promulgated thereunder).
(6) No Violations. Seller has no knowledge, nor has
Seller received written notice from any governmental agency since Seller
acquired the Property, of any existing or threatened violation which remains
uncured of (i) any statute, ordinance, code, rule or regulation of any
governmental entity applicable to the ownership, operation, use, maintenance or
condition of the Property or any part thereof, or (ii) any restrictive covenant
or deed restriction affecting the Property.
3
<PAGE> 4
(7) No Liens. The Property and the Personal Property are
free and clear of any mechanic's liens, liens, security interests, mortgages, or
encumbrances of any nature except for those which will be discharged by Seller
at the Closing. No work has been performed or is in progress by or on behalf of
Seller, and, to the best of Seller's knowledge, no materials have been furnished
to the Land or the Improvements or any portion thereof, which might give rise to
mechanic's, materialman's or other liens against the Land, the Improvements or
the Personal Property or any portion thereof except for those which will be
discharged or bonded around at the Closing.
(8) No Property Agreements. There are no management,
service, supply, license, maintenance or other contracts or agreements in effect
with respect to the Property other than those set forth in the Exhibit C
attached hereto (such listed contracts or agreements and any other contracts or
agreements with respect to the Property entered into by Seller prior to the
Closing Date in accordance with the terms of this Contract are herein
collectively referred to as the "Operating Agreements").
(9) Structural Condition. Seller has received no written
notice of any, and to the best of Seller's knowledge there is no, latent or
patent defect in (1) the Improvements or structural elements thereof or
mechanical systems therein (including, without limitation, the roof or roofs of
the Improvements and all heating, ventilating, air conditioning, plumbing,
electrical, utility and sprinkler systems therein), except the defects with
respect to the second floor of the building which Seller has heretofore brought
to Buyer's attention, or (2) the Utilities (as hereinafter defined) serving the
Property. As used herein, "Utilities" shall mean public sanitary and storm
sewers, natural gas, telephone, public water facilities, electrical facilities
and all other utility facilities and services necessary or appropriate for the
operation and occupancy of the Property.
(10) Applicable Laws. To the best of Seller's knowledge,
the location, construction, occupancy, operation, and use of the Property
(including all Improvements thereon) does not violate any applicable law,
statute, ordinance, rule, regulation, order or determination of any governmental
authority or any board of fire underwriters (or other body exercising similar
functions), or any restrictive covenant or deed restriction (recorded or
otherwise) affecting the Property, including without limitation all applicable
zoning ordinances, building codes, flood disaster laws, and health and
environmental laws (hereinafter sometimes collectively called "Applicable
Laws").
(11) Access to the Property. The Property has full and
free access to and from public highways, streets, and roads, and Seller has no
knowledge of any pending or threatened governmental proceeding or any other fact
or condition which would limit or result in the termination of such access.
(12) Utilities. The Improvements are connected to and
serviced by Utilities which connections are, to the best of Seller's knowledge,
in compliance with all Applicable Laws. To the best of Seller's knowledge, all
Utilities servicing the Improvements enter the Land through adjoining public
streets, or, if they pass through adjoining private land, do so in accordance
with valid recorded easements.
(13) Certificates of Occupancy. Permanent certificates of
occupancy required by all governmental authorities having jurisdiction have been
issued for the Improvements and are in full force and effect.
(14) Environmental Laws. To the best of Seller's
knowledge, the Property and the Improvements thereon do not violate any federal,
state, or local law, statute, ordinance, or regulation pertaining to health,
industrial hygiene, or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(42 U.S.C. Section 9601 et seq.) the Resource Conservation and Recovery Act of
1976 (42 U.S.C. Section 6901 et seq.), the Toxic Substances Control Act (15
U.S.C. Section 2601 et seq.), and all amendments of the foregoing laws, and all
regulations, rules, guidelines, and standards promulgated pursuant to such laws,
as such statutes, regulations, rules, guidelines, and standards are amended from
time to time, and all state laws, regulations, rules, guidelines, standards and
any state superlien or environmental clean-up or disclosure statutes
(collectively, the "Environmental Laws").
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<PAGE> 5
(b) ONE-YEAR WARRANTY. Seller hereby warrants against defects or
problems that may reduce the value of the Property below the Sales Price in (i)
all architectural/structural elements of and mechanical/electrical and related
systems in the Improvements, and (ii) the environmental condition of the
Property. This warranty shall apply to any claims made in writing by Buyer to
Seller during the period of time beginning on the Closing Date and ending on the
365th day thereafter.
(c) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The foregoing
representations and warranties shall not survive the Closing except as
specifically provided in Section 17.(g) below.
(d) WAIVER OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties contained in this Section are intended for the
benefit of Buyer, may not be assigned independently of this Contract, and may be
waived by Buyer, in whole or in part, by an instrument in writing signed by
Buyer or as otherwise expressly provided in this Contract.
7. COVENANTS OF SELLER.
(a) Seller covenants and agrees with Buyer that Seller will within
ten (10) days after the Closing, deliver the following documents to Buyer:
(1) copies of the Certificate(s) of Occupancy for the
Improvements as issued by the applicable governmental authority;
(2) a set of the final "as-built" plans and
specifications for the Improvements, if available, together with copies of any
and all executed change orders in Seller's possession, if any, and all
warranties and guarantees, if any, with respect thereto (in the event that
"as-built" plans and specifications are not available, Seller shall provide the
original set of plans and specifications for the Improvements if such plans and
specifications are in Seller's possession;
(3) copies of all geotechnical reports, inspection
reports, and other engineering reports related to the Land and/or Improvements
in Sellers possession; and
(4) copies of all Operating Agreements with respect to
the Property (accompanied by Seller's signed certificate that the copies
provided are true, correct, and complete).
(b) Seller further covenants and agrees to maintain in effect for
ten (10) days after the Closing Date the property damage insurance for the
Improvements that is in effect as of the Closing Date.
8. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF BUYER.
(a) BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer represents and
warrants to Seller, which representations and warranties shall be deemed made by
Buyer to Seller as of the Effective Date and also as of the Closing Date, as
follows:
(1) Power and Authority. Buyer has the full right, power
and authority to purchase the Property as provided in this Contract and to carry
out Buyer's obligations hereunder. All requisite action necessary to authorize
Buyer to enter into this Contract and to carry out Buyer's obligations hereunder
has been taken. The individual executing this Contract on behalf of Buyer has
the full right, power and authority to do so.
(2) No Suits. There is no suit (at law or in equity)
pending or known to Buyer to be threatened against or affecting Buyer which (i)
in any manner raises any question affecting the validity or enforceability of
this Contract or any other agreement or instrument to which Buyer is a party or
by which it is bound and that is to be used in connection with, or is
contemplated by, this Contract, or (ii) could materially and adversely affect
the ability of Buyer to perform Buyer's obligations hereunder, or under any
document to be delivered pursuant hereto.
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<PAGE> 6
(3) Environmental Report. It is Buyer's responsibility to
assure itself that the information contained in the Environmental Report and any
other engineering reports, building plans and specifications, engineering
drawings, leases, operating reports and other information related to the
Improvements and/or the Land which may be supplied by Seller or any of Seller's
Related Parties, or made available by Seller or any of Seller's Related Parties,
to Buyer is accurate, true and complete, and any reliance by Buyer on the
Environmental Report and such other reports, materials and information, which
reliance is hereby recognized by Seller, shall be undertaken at the risk of
Buyer.
(b) WAIVER OF REPRESENTATIONS OR WARRANTIES. Each of the
representations and warranties contained in this Section are intended for the
benefit of Seller, may not be assigned independently of this Contract by Seller,
and may be waived in whole or in part, by Seller, but only by an instrument in
writing signed by Seller or as otherwise expressly provided in this Contract.
9. LIMITATION OF SELLER'S REPRESENTATIONS AND WARRANTIES.
(a) ACKNOWLEDGEMENTS AND AGREEMENTS OF BUYER. Buyer acknowledges
and agrees as follows:
(1) Disclaimer of Express Warranties. That, except for
Seller's representations and warranties in Section 6 of this Contract and except
for the special warranty of title in the Deed, Seller has not made, and Seller
hereby specifically disclaims, any warranty, guaranty or representation, oral or
written, past, present or future, of, as to, or concerning (i) the nature and
condition of the Property, including, without limitation, the water, soil and
geology, and the suitability thereof and of the Property for any and all
activities and uses which Buyer may elect to conduct thereon; and (ii) the
compliance of the Property or its operation with any laws, ordinances, orders,
rules or regulations of any governmental or other body. Buyer acknowledges that
having been given the opportunity to inspect the Property, Buyer is relying
solely on Buyer's own investigation of the Property and has not relied on, and
is not relying on (and Seller shall have no liability or obligation whatsoever
for any inaccuracy in or omission from), any information, documents, sales
brochures, or other literature, maps or sketches, projections, pro formas,
statements, representations, guarantees, or warranties (whether express or
implied, or oral or written, or material or immaterial), if any, that may have
been given, made or made available by or on behalf of Seller or any of Seller's
Related Parties other than the special warranty of title contained in the Deed
and the representations and warranties set forth in Section 6 of this Contract.
Any information heretofore provided or made available to, and to be provided and
made available to, Buyer or any of Buyer's Related Parties (as hereinafter
defined) by or on behalf of Seller with respect to the Property was obtained
from a variety of sources and Seller (A) has not made any independent
investigation or verification of such information; and (B) makes no
representations, guarantees or warranties as to the truth, accuracy or
completeness of such information. Except as specifically set forth in the Deed
and in Section 6 of this Contract, Buyer is purchasing the Property, and the
Property shall be conveyed and transferred to Buyer, without any warranties,
representations, or guarantees, either express or implied, of any kind, nature,
or type whatsoever from or on behalf of Seller or any of Seller's Related
Parties. Buyer expressly acknowledges that, in consideration of the agreements
of Seller herein, except as otherwise specified in this Contract, Seller makes
no warranty or representation, express or implied, or arising by operation of
law, including, but not limited to, any warranty of condition, habitability,
merchantability, tenantability or fitness for a particular use or purpose, or
with respect to the value, profitability or marketability of the Property, or
with regard to compliance with any environmental protection, pollution or land
use laws, rules, regulations, orders, or requirements including, but not limited
to, those pertaining to the handling, generating, treating, storing, or
disposing of any hazardous waste or substance with respect to the Property. As
used herein, the term "Buyer's Related Parties" shall mean any of Buyer's
agents, officers, partners, contractors, attorneys, servants, employees,
lenders, accountants and representatives.
(2) Hazardous Substances Disclaimer. Intentionally
deleted.
(3) Disclaimer of Implied Warranties. Seller hereby
expressly disclaims any and all implied warranties (including, without
limitation, implied warranties of condition, merchantability, habitability,
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<PAGE> 7
fitness for a particular purpose, and implied warranties with respect to the
value, profitability or marketability of the Property) and, except as
specifically set forth in the Deed or Section 6 of this Contract, Seller hereby
disclaims any representation or warranty with regard to compliance with any
environmental protection, pollution or land use laws, rules, regulations,
orders, or requirements including, but not limited to, those pertaining to the
handling, generating, treating, storing, or disposing of any hazardous waste or
substance.
(b) LIMITATION ON LIABILITY. Except as otherwise specifically
stated in this Contract (including, without limitation, the provisions of
Section 2 above), Buyer agrees that Seller shall not be responsible or liable to
Buyer for any defects, errors, omissions, contamination, pollution, or on
account of any other conditions affecting the Improvements or the Land. Buyer,
by its execution hereof, accepts the Improvements and the Land in their physical
condition as of the Effective Date (reasonable wear and tear and damage by fire
or other casualty excepted), "and acknowledges that Buyer has no recourse
whatsoever against Seller in the event of discovery of any defects, errors,
omissions, contamination, pollution, or conditions of any kind, latent or
patent, therein, thereon or thereunder except as expressly provided to the
contrary in this Contract. The terms of this Section 9.(b) are subject to the
representations and warranties contained in Section 6 of this Contract. The
disclaimers, waivers and releases of claims set forth in subsection 9(a) above
shall survive the Closing.
10. CLOSING.
(a) DATE AND PLACE. Subject to the satisfaction of all conditions
precedent set forth in Sections 10.(g) and 10.(h) below, the closing of the sale
of the Property to Buyer (the "Closing") shall take place at the offices of the
Escrow Holder on the Effective Date. As used herein, the term "Closing Date"
shall mean the actual date of the Closing as provided in this Contract. The
conditions precedent to Buyer's obligations hereunder are set forth in Section
10.(g) of this Contract. The conditions precedent to Seller's obligations
hereunder are set forth in Section 10.(h) of this Contract.
(b) SELLER'S OBLIGATIONS AT CLOSING. At the Closing, Seller has
executed (if appropriate) and delivered to Buyer, at Seller's sole cost and
expense (except as otherwise provided in this Section), the following:
(1) a duly executed and acknowledged Grant Deed (the
"Deed") substantially in the form of that attached hereto as Exhibit E;
(2) a commitment (in the form of a Pro-Forma Title
Policy) by the Title Company to issue an ALTA Extended Coverage Owner's Policy
of Title Insurance (the "ALTA Title Policy") which shall have an insured amount
at least equal to the full amount of the Sales Price, shall be dated as of the
Closing Date, shall include the endorsements set forth in the Exhibit G attached
hereto, and shall insure Buyer's fee simple title to the Land and Improvements
to be good and indefeasible subject only to the following exceptions (the
"Permitted Exceptions"): (i) the standard printed exceptions set forth in the
ALTA Title Policy; (ii) general and special real property taxes and assessments
for the current tax year; and (iii) the exceptions identified on Exhibit H
attached hereto;
(3) possession of the Improvements and Land, subject only
to the Permitted Exceptions and Seller's rights under the Lease (as defined
below);
(4) four (4) original counterparts of a lease agreement
(the "Lease") by and between Seller, as tenant, and Buyer, as landlord, pursuant
to which Seller will lease all of the current buildings located on the Land (the
form of the Lease is attached hereto as Exhibit B);
(5) a non-foreign affidavit in substantially the form of
that attached hereto as Exhibit D;
(6) to the extent in Seller's possession or under its
control, any and all then existing keys, access cards and combinations necessary
to gain access to all portions of the Improvements and Land; and
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<PAGE> 8
(7) such other documents as may be reasonably required to
close this transaction, duly executed; provided, however, any other conveyance
documents reasonably requested by Buyer shall be without recourse or warranty
and without any representations with respect to the subject matter thereof.
(c) BUYER'S OBLIGATIONS AT CLOSING. At Closing, Buyer has
executed, acknowledged and delivered, at Buyer's sole cost and expense, the
following:
(1) the First Installment of the Sales Price in
Immediately Available Funds, increased or reduced by the net amount of
prorations owed by or to Buyer, as appropriate;
(2) four (4) multiple counterparts of the Lease; and
(3) such other documents as may be reasonably required to
close this transaction, duly executed.
(d) PRORATIONS OF REVENUES AND EXPENSES. Because the Lease is a
net lease, there shall be no proration of revenues and expenses with respect to
the Property and which are applicable to the period of time before and after the
Closing Date.
(e) TAX PRORATIONS. Because the Lease is a net lease, there shall
be no proration of any standby fees, taxes and assessments for the Property for
the year of the Closing.
(f) PRORATION TIMING. Intentionally deleted.
(g) CONDITIONS PRECEDENT TO BUYER'S CLOSING OBLIGATIONS.
Intentionally deleted.
(h) CONDITIONS PRECEDENT TO SELLER'S CLOSING OBLIGATIONS.
Intentionally deleted.
(i) CLOSING COSTS. Seller shall pay: fees for preparation of the
conveyance documentation; all documentary transfer taxes, other taxes and/or
recording fees payable in connection with the transfer of the Property; Seller's
attorneys' fees; the premium for the ALTA Title Policy; and other expenses
stipulated to be paid by Seller under other provisions of this Contract. Buyer
shall pay: costs of tax certificates; Buyer's attorneys' fees; all costs and
expenses incurred in connection with any financing obtained by Buyer with
respect to transaction contemplated hereby recording fees for the deed of trust,
if any, and the Deed; and other expenses stipulated to be paid by Buyer under
other provisions of this Contract.
11. DEFAULT, REMEDIES, INDEMNIFICATION.
(a) REMEDIES FOR DEFAULT. If Seller fails to perform any of its
obligations hereunder that expressly survive the Closing or if any of Seller's
representations or warranties are false or inaccurate in a material respect,
Seller shall be in default, and Buyer shall have the right to enforce the
dispute resolution procedures set forth in Exhibit F attached to this Contract.
(b) INDEMNIFICATION. Seller agrees to indemnify and hold Buyer
harmless from and against, and to reimburse Buyer with respect to, any and all
claims, demands, causes of action, losses, damages, liabilities, costs and
expenses (including attorneys' fees and costs) of any and every kind or
character, known or unknown, fixed or contingent, asserted against or incurred
by Buyer, at any time and from time to time by reason of, in connection with or
arising out of (i) the fact that a representation or warranty of Seller set
forth in this Contract was false or inaccurate in a material respect, or (ii)
the failure of Seller to perform any of its obligations set forth herein within
the time period(s) required hereby. Seller further agrees to indemnify and hold
Buyer harmless from and against, and to reimburse Buyer with respect to, any and
all claims, demands, causes of action, losses, damages, liabilities, costs and
expenses (including attorneys' fees and costs) of any and every kind or
character, known or unknown, fixed or contingent, asserted against or incurred
by Buyer, at any time and from time to time by reason of, in connection with or
arising out of (1) any transfer of title to the Property by Seller after the
Closing Date, and/or (2) the granting by Seller after the
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Closing Date of any lien or other encumbrance to title to the Land and/or
Improvements.
12. BROKER'S FEE. Buyer and Seller represent, warrant and agree that no
real estate commissions, finders' fees, or brokers' fees have been or will be
incurred in connection with the sale of the Property by Seller to Buyer other
than a commission payable by Seller to Grubb & Ellis (the "Seller's Broker")
pursuant to a separate written agreement between Seller and the Seller's Broker.
Such commission shall be deemed earned and shall be due and payable only if, as
and when the sale contemplated by this Contract is consummated. Buyer shall
indemnify, defend and hold Seller and Seller's affiliates and its and their
respective agents, officers, contractors, servants, employees and
representatives harmless from any claim, liability, obligation, cost or expense
(including attorneys' fees and expenses) for fees or commissions relating to
Buyer's purchase of the Property asserted against Seller by any broker or other
person (other than the Seller's Broker) claiming by, through or under Buyer.
Seller shall indemnify, defend and hold Buyer and all of Buyer's Related Parties
harmless from any claim, liability, obligation, cost or expense (including
attorneys' fees and expenses) for fees or commissions relating to Buyer's
purchase of the Property asserted against Buyer by any broker or other person
(including, without limitation, the Seller's Broker) claiming by, through or
under Seller. The rights and obligations of the parties hereto set forth in this
Section shall survive the Closing.
13. ATTORNEYS' FEES. Any party to this Contract who is the prevailing party
in any legal proceeding against the other party brought under or with respect to
this Contract or the transaction contemplated hereby shall be additionally
entitled to recover court costs and reasonable attorneys' fees (at trial and on
appeal) from the non-prevailing party as awarded by court. The rights and
obligations of the parties hereto set forth in this Section shall survive the
Closing or any termination of this Contract.
14. CONDEMNATION. Intentionally deleted.
15. FIRE OR OTHER CASUALTY. Intentionally deleted.
16. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be (i) delivered by hand, (ii)
transmitted by facsimile transmission and confirmed by either (a) Federal
Express (or comparable overnight delivery service) with signature required, or
(b) certified mail, return receipt requested, (iii) sent prepaid by Federal
Express (or a comparable overnight delivery service) with signature required, or
(iv) sent by the United States mail, certified, postage prepaid, return receipt
requested, at the addresses and with such copies as designated below. Any
notice, request, demand or other communication delivered or sent in the manner
aforesaid shall be deemed given and received (as the case may be) when actually
delivered by hand delivery, facsimile transmission (and confirmed as provided
above), or overnight courier, or, when sent by United States mail, postage
prepaid, certified mail, return receipt requested, the earlier of (a) the date
of actual delivery, or (b) three (3) business days after deposit in the United
States mail.
If to Seller: Bromar, Inc.
17855 Dallas Parkway, Suite 200
Dallas, Texas 75287
Attention: Ronald D. Pederson and
Nancy K. Jagielski
FAX No.: (972) 349-6448
Telephone No.: (972) 349-6200
With a copy to: Mark T. Mitchell, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
FAX No.: (214) 969-4343
Telephone No.: (214) 969-2800
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<PAGE> 10
If to Buyer: RCPI Office Properties, LLC
16251 Dallas Parkway, 7th Floor
Addison, Texas 75001
Attention: Alan W. Tompkins
FAX No.: (972) 687-1688
Telephone No.: (972) 687-4036
With a copy to: Raleigh W. Newsam, Esq.
8117 Preston Road, Suite 800
Dallas, Texas 75225
FAX No.: (214) 696-5971
Telephone No.: (214) 696-3200
or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Holder in a manner described in this Section; provided,
however, that such changes will only become effective five (5) business days
after a party's receipt of written notice of such address change.
17. MISCELLANEOUS.
(a) APPLICABLE LAW. This Contract shall be construed under and in
accordance with the laws of the State of California, and all obligations of the
parties created hereunder are performable in county where the Land is located.
(b) PARTIES BOUND. This Contract shall be binding upon and inure
to the benefit of the parties hereto, their respective heirs, executors,
administrators, legal representatives, successors, and permitted assigns.
(c) LEGAL CONSTRUCTION. In case any one or more of the provisions
contained in this Contract shall for any reason be held to be invalid, illegal,
or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this Contract
shall be construed as if such invalid, illegal, or unenforceable provision had
never been contained herein. Furthermore, in lieu of any such invalid, illegal
or unenforceable provision, there shall be automatically added to this Contract
a provision as similar to such illegal, invalid or unenforceable provision as
may be possible and be legal, valid and enforceable.
(d) ENTIRE AGREEMENT; AMENDMENTS. This Contract constitutes the
only agreement of the parties hereto with respect to the subject matter hereof
and supersedes any and all prior negotiations, understandings and written or
oral agreements between the parties respecting the subject matter hereof. This
Contract can be modified only by a written instrument duly executed by the
parties hereto.
(e) TIME OF ESSENCE. Time is of the essence in the performance of
the undertakings and obligations of the parties under this Contract.
(f) GENDER AND NUMBER. Words of any gender used in this Contract
shall be held and construed to include any other gender, and words in the
singular number shall be held to include the plural and vice versa, unless the
context requires otherwise.
(g) MERGER. Any and all rights of action of Buyer for any breach
by Seller of any representation, warranty or covenant contained in this Contract
shall survive the Closing for one (1) year after the Closing Date.
(h) MULTIPLE COUNTERPARTS. The parties may execute this Contract
in one or more identical counterparts, all of which when taken together will
constitute one and the same instrument.
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(i) CONSTRUCTION. The parties hereto acknowledge that the parties
and their respective counsel have each reviewed and revised this Contract, and
that the normal rule of construction to the effect that any ambiguities are to
be resolved against the drafting party shall not be employed in the
interpretation of this Contract or any amendments or exhibits hereto.
(j) SATURDAYS, SUNDAYS AND HOLIDAYS. Whenever any determination is
to be made or action to be taken on a date specified in this Contract (other
than the determinations of the Effective Date), if such date shall fall upon a
Saturday, Sunday or holiday observed by federal savings banks in the State of
California, the date for such determination or action shall be extended to the
first business day immediately thereafter. Except as expressly noted herein to
the contrary, time periods herein referred to shall mean Pacific Standard Time.
(k) NO RECORDATION. Seller and Buyer agree that neither this
Contract nor any memorandum, affidavit or other evidence thereof shall be
recorded of public record in the County in which the Land is located. Should
Buyer ever record or attempt to record this Contract or a memorandum, affidavit
or other evidence thereof in violation of this Section 17.(k), such recordation
or attempted recordation shall constitute a default by Buyer hereunder and, in
addition to the other remedies provided hereunder, Seller shall have the right
to terminate this Contract by filing a notice of said termination of record in
the County or Counties in which the Land is located. In the event of such a
termination, the parties hereto shall be released from all further liabilities
and obligations hereunder except those that expressly survive a termination of
this Contract.
(l) FURTHER ASSURANCES. Seller and Buyer each covenant and agree
to sign, execute and deliver, or cause to be signed, executed and delivered, and
to do or make, or cause to be done or made, upon the written request of the
other party, any and all agreements, instruments, papers, deeds, acts or things,
supplemental, confirmatory or otherwise, as may be reasonably required by either
party hereto for the purpose of or in connection with consummating the
transactions described herein.
(m) NO PARTNERSHIP. This Contract does not and shall not be
construed to create a partnership, joint venture or any other relationship
between the parties hereto except the relationship of seller and buyer
specifically established hereby.
(n) HEADINGS; INCORPORATION BY REFERENCE. The headings contained
herein are solely for convenience of reference and shall not constitute a part
of this Contract nor shall they affect its meaning, construction or effect. All
of the exhibits attached to this Contract are by this reference incorporated
herein and made a part hereof for all purposes.
(o) FACSIMILE TRANSMISSION. A telecopied facsimile of a duly
executed counterpart of this Contract shall be sufficient to evidence the
binding agreement of each party to the terms hereof. However, each party agrees
to promptly deliver at least four (4) multiple originals (or multiple original
counterparts, if applicable) of this Contract to the Escrow Holder following the
delivery of a telecopied facsimile thereof.
(p) REPORTING REQUIREMENTS. Seller and Buyer agree to comply with
any and all reporting requirements applicable to the transaction which is the
subject of this Contract which are set forth in any law, statute, ordinance,
rule, regulation, order or determination of any governmental authority
including, without limitation, The International Investment Survey Act of 1976,
The Foreign Investment in Real Property Tax Act of 1980 and Seller and Buyer
further agree upon request to furnish the other party with evidence of such
compliance.
(q) SIGNATORY EXCULPATION. The signatory(ies) for Buyer is/are
executing this Contract in his/their capacity as representative of Buyer and not
individually and, therefore, shall have no personal or individual liability of
any kind in connection with this Contract and the transactions contemplated by
it. The signatory(ies) for Seller is/are executing this Contract in his/their
capacity as representative of Seller and not individually and, therefore, shall
have no personal or individual liability of any kind in connection with this
Contract and the transactions contemplated by it.
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18. ASSIGNMENTS. Buyer shall not have the right to assign Buyer's interest
in this Contract without obtaining the prior written consent of Seller, which
consent may be withheld by Seller in Seller's sole and absolute discretion;
provided, however, Buyer shall have the right to assign Buyer's interest in this
Contract to an affiliate of Buyer or an entity controlled by either Buyer or an
affiliate of Buyer without the prior written consent of Seller. Buyer
acknowledges and agrees that (i) any assignment by Buyer in contravention of
this Section shall be void and shall not relieve Buyer of Buyer's obligations
and liabilities hereunder, and (ii) any assignment of this Contract permitted
hereby shall not relieve Buyer from its obligations set forth herein. To the
extent any assignment of Buyer's interest in this Contract is consented to in
writing by Seller, the term "Buyer" as used in this Contract shall include such
permitted assignee.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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EXECUTED in multiple originals as of the date or dates set forth below
and effective for all purposes as of the Effective Date.
SELLER:
BROMAR, INC., a California corporation
By:
------------------------------------------------------
Name:
-----------------------------------------------
Title:
---------------------------------------------
BUYER:
RCPI OFFICE PROPERTIES, LLC, a Texas limited liability
company
By: Richmont Capital Partners I, L.P., a Delaware limited
partnership, its sole member
By: J.R. Investments Corp., its managing general
partner
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
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EXHIBIT A
to Contract of Sale of Improved Property
DESCRIPTION OF LAND
[TO COME]
A-1
<PAGE> 15
EXHIBIT B
to Contract of Sale of Improved Property
LEASE
[To Come]
B - 1
<PAGE> 16
EXHIBIT C
to Contract of Sale of Improved Property
LIST OF CONTRACTS
[To Come]
C - 1
<PAGE> 17
EXHIBIT D
to Contract of Sale of Improved Property
NON-FOREIGN CERTIFICATE
CERTIFICATION OF NON-FOREIGN STATUS
[TO COME]
D - 1
<PAGE> 18
EXHIBIT E
SPECIAL WARRANTY DEED
For the consideration of the sum of Ten Dollars ($10.00) and other
valuable considerations received, Bromar, Inc., a California corporation
("Grantor"), does hereby convey to RCPI Office Properties, L.L.C., a Texas
limited liability company ("Grantee"), all of Grantor's right, title and
interest in and to the following described real property (the "Property")
situated in Maricopa County, Arizona, together with all improvements thereon and
all of Grantor's interest in any rights and privileges appurtenant thereto:
SEE EXHIBIT "A" ATTACHED HERETO AND BY THIS
REFERENCE MADE A PART HEREOF
SUBJECT TO: (i) the standard printed exceptions set forth in
the ALTA Title Policy; (ii) general and special property taxes and assessments
for the current tax year; and (iii) the exceptions identified on EXHIBIT "B"
attached hereto.
AND GRANTOR hereby binds itself and its successors to warrant
and defend the title against all of the acts of Grantor and no other, subject to
the matters set forth above.
IN WITNESS WHEREOF, Grantor has caused this Special Warranty
Deed to be executed this 17th day of February 2000.
GRANTOR:
BROMAR, INC., a California corporation
By:
----------------------------------
Name:
--------------------------------
Its:
---------------------------------
E-1
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STATE OF TEXAS )
) Section:
County of Dallas )
On this 17th day of February, 2000, before me, the undersigned, a
Notary Public, appeared ______________________, known by me to be the person who
executed the foregoing Special Warranty Deed in his capacity as
______________________ of BROMAR, INC., and acknowledged that he executed the
same as the free act and deed of BROMAR, INC.
------------------------------------
Notary Public in and for said County
And State
My commission expires:
- ----------------------------
E-2
<PAGE> 20
EXHIBIT F
ARBITRATION PROVISIONS
This Exhibit F is attached to that certain Contract of Sale of Improved
Property (the "CONTRACT") by and between Bromar, Inc., a California corporation
("SELLER"), and RCPI OFFICE PROPERTIES, LLC, a California limited partnership
("BUYER"). Capitalized terms not defined herein shall have the meanings given to
them in the Contract.
Any controversy or claim arising out of or relating to the Contract, or
the breach thereof, shall be submitted for resolution by binding arbitration
(herein referred to as "DISPUTES SUBJECT TO ARBITRATION") and shall be settled
by arbitration administered by the American Arbitration Association (the "AAA")
under its Construction Industry Arbitration Rules (the "RULES"), and judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof in Dallas County, Texas. Seller and Buyer agree as
follows: (1) all Disputes Subject to Arbitration which are not resolved by
informal negotiation between the parties shall be submitted to arbitration
(using three arbitrators selected as provided below) administered by the AAA
under the Rules; and (2) both Seller and Buyer will abide by and perform any
award rendered by the arbitrators. The arbitrators shall have the right to
award any form of relief permitted to be awarded by any court of law having
jurisdiction. Any decision or award by the arbitrators shall be enforceable in
any court having jurisdiction in Dallas County, Texas.
In the event of a need for the submission of any Disputes Subject to
Arbitration to arbitration, the initiating party shall (1) give written notice
to the other party of its intention to arbitrate, which notice must contain a
statement setting forth the nature of the dispute, the amount involved, if any,
and the remedy sought, and (2) file at the Dallas, Texas regional office of the
AAA three copies of such written notice, three copies of the applicable
arbitration provisions of the Contract, and the appropriate filing fee as
provided by the Rules. The arbitration proceedings shall thereafter take place
as provided by the Rules, except as provided herein. As provided in the
Contract, the unsuccessful party in the arbitration proceedings shall promptly
pay to the successful party all costs and expenses (including, without
limitation, court costs and attorneys' fees) incurred therein; provided,
however, Seller and Buyer shall each be responsible for 50% of (i) all filing
fees related to such arbitration proceedings, and (ii) all fees payable to one
or more of the arbitrators.
The Parties agree to arbitrate in accordance with the Rules with the
following exceptions:
(1) Three arbitrators shall be selected from the AAA's "Blue Ribbon
National Panel" within thirty (30) days from the date of demand for
arbitration. Each Party shall select one arbitrator and these two arbitrators
shall select the third.
(2) The Parties agree to engage in document production pursuant to the
Federal Rules of Civil Procedure. In the event of any dispute over document
production, such will be resolved by the arbitrators. The amount of depositions
will be limited to five (5) per Party, with no deposition lasting longer than
eight (8) hours, unless otherwise agreed.
(3) The arbitration hearings shall be continuous on a daily basis, with
each day of hearings to consist of eight (8) hours of presentation of evidence,
not to exceed five (5) days of hearings for each Party, subject to adjournment
for weekends, holidays or other days to be mutually agreed.
(4) The arbitrator(s) shall render a decision no later than thirty (30)
days after the conclusion of the hearings, which decision shall be in writing
and give the reasons for the decision reached.
(5) The submittal of legal briefs shall be subject to mutual agreement
of the Parties, but in no event shall the briefs delay the decision in this
matter.
F - 1
<PAGE> 21
EXHIBIT G
This Exhibit G is attached to that certain Contract of Sale of Improved
Property by and between Bromar, Inc., a California corporation, and RCPI Office
Properties, LLC, a Texas limited liability company
TITLE POLICY ENDORSEMENTS
1. CLTA END. 103.7
2. LTAA END. 17
3. END. 7 - PROPERTY SAME AS SURVEY
4. SPECIAL END. 5
5. END. 7 -SURFACE RIGHTS TO EXTRACT WATER
6. SPECIAL END. 2
7. LTAA END. 7
G - 1
<PAGE> 22
EXHIBIT H
This Exhibit H is attached to that certain Contract of Sale of Improved
Property by and between Bromar, Inc., a California corporation, and RCPI Office
Properties, LLC, a Texas limited liability company
PERMITTED EXCEPTIONS
This Exhibit H is attached to that certain Contract of Sale of Improved
Property (the "CONTRACT") by and between Bromar, Inc., a California corporation
("SELLER"), and RCPI OFFICE PROPERTIES, LLC, a California limited partnership
("BUYER"). Capitalized terms not defined herein shall have the meanings given to
them in the Contract.
[TO COME]
Document #318283 v1
Client Matter 012966-0000
H - 1
<PAGE> 1
EXHIBIT 10.13
LEASE
BETWEEN
RCPI OFFICE PROPERTIES, LLC, a
Texas limited liability company
Landlord
AND
MARKETING SPECIALISTS SALES COMPANY, a Texas corporation
Tenant
Dated: February 17, 2000
Premises: 2801 S. 35th Street
Phoenix, Arizona 85034-4920
- --------------------------------------------------------------------------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
ARTICLE HEADING PAGE
- ------- ------- ----
<S> <C> <C>
ARTICLE 1 PREMISES AND TERM.......................................................................................5
ARTICLE 2 FIXED RENT AND ADDITIONAL RENT..........................................................................5
ARTICLE 3 IMPOSITIONS.............................................................................................6
ARTICLE 4 USE AND OPERATION OF PREMISES...........................................................................7
ARTICLE 5 CONDITION OF PREMISES, ALTERATIONS AND REPAIRS..........................................................8
ARTICLE 6 INSURANCE...............................................................................................9
ARTICLE 7 DAMAGE OR DESTRUCTION..................................................................................11
ARTICLE 8 CONDEMNATION...........................................................................................13
ARTICLE 9 ASSIGNMENT AND SUBLETTING..............................................................................13
ARTICLE 10 SUBORDINATION.........................................................................................16
ARTICLE 11 OBLIGATIONS OF TENANT.................................................................................18
ARTICLE 12 DEFAULT BY TENANT; REMEDIES...........................................................................20
ARTICLE 13 NO WAIVER.............................................................................................24
ARTICLE 14 ESTOPPEL CERTIFICATE..................................................................................24
ARTICLE 15 QUIET ENJOYMENT.......................................................................................25
ARTICLE 16 SURRENDER.............................................................................................25
ARTICLE 17 ACCESS ...............................................................................................26
ARTICLE 18 ENVIRONMENTAL MATTERS.................................................................................26
ARTICLE 19 MISCELLANEOUS PROVISIONS..............................................................................29
ARTICLE 20 LANDLORD'S ADDITIONAL TERMINATION RIGHT...............................................................31
ARTICLE 21 SUBORDINATION TO SENIOR DEBT..........................................................................31
</TABLE>
i
<PAGE> 3
EXHIBITS
Exhibit "A" - Description of the Land
Exhibit "B" - Memorandum of Lease
ii
<PAGE> 4
LEASE
THIS LEASE is made as of the 17th day of February, 2000 (the
"EFFECTIVE DATE"), between RCPI Office Properties, LLC, a Texas limited
liability company, as "LANDLORD", and MARKETING SPECIALISTS SALES COMPANY, a
Texas corporation, as "TENANT".
W I T N E S S E T H:
- - - - - - - - - -
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
ARTICLE A
CERTAIN LEASE PROVISIONS
1. Address for 2801 S. 35th Street
the Premises: Phoenix, Arizona 85034-4920
2. (a) Primary Term: Approximately one (1) year,
beginning on the Commencement Date
and ending on the Expiration Date.
As used in this Lease, the term
"TERM" shall mean the Primary Term
together with any renewal thereof.
(b) Commencement
Date: February 17, 2000.
(c) Expiration
Date: February 28, 2001, unless sooner
terminated pursuant to this Lease.
(d) Renewal
Options: None.
3. Fixed Rent: Tenant agrees to pay to Landlord as
monthly rental for the Premises
(such monthly rental is herein
referred to as "FIXED RENT") in
lawful money of the United States of
America, at _______________________,
or to such other person or entity
and at such other place as Landlord
may from time to time designate in
writing, as follows:
From the Commencement Date through
the Expiration Date, Tenant shall
pay Fixed Rent in the amount of
$20,414.17 ($9.35 per rentable
square foot on an annual basis for
the Premises) in advance on the
first day of each and every
successive calendar month during
such period of time.
4. Use of Premises: For general office use and uses
incidental thereto and for no other
purpose without the prior written
consent of Landlord.
5. Address for Notices:
For Landlord: RCPI Office Properties LLC.
16251 Dallas Parkway, 7th Floor
1
<PAGE> 5
Addison, Texas 75001
Attention: Alan W. Tompkins
For Tenant: Marketing Specialists Sales Company
17855 Dallas Parkway
Dallas, Texas 75287
Attention: Gage W. Hunt and Nancy K. Jagielski
2
<PAGE> 6
ARTICLE B
CERTAIN DEFINITIONS
"ADDITIONAL RENT" is defined in Section 2.2.
"ALTERATIONS" is defined in Section 5.4.
"BANKRUPTCY CODE" means the provisions of 11 U.S.C. Section 101 et seq.
or any statute of similar purpose or nature as more particularly set forth in
Section 9.10.
"BASE BUILDING COMPONENTS" means the foundation, the roof and the
structural walls of the Building.
"BUILDING" means the buildings, building equipment and improvements now
or hereinafter erected on the Land.
"BUSINESS DAY" is every day which most commercial banks based in New
York, New York are open for the ordinary conduct of business.
"CLAIMS" is defined in Section 11.3.
"CONTRACT OF SALE" is defined in Section 21.1.
"COMMENCEMENT DATE" is set forth in Article A, Section 2(b).
"DEFAULT RATE" means three percent (3%) over the prime reference rate
announced from time to time by Citibank, N.A. in New York, New York, as such
prime reference rate may be adjusted and announced from time to time, or if
unavailable, the parties shall use the prime reference rate of any New York
regional bank selected by Landlord.
"DEFICIENCY" is defined in Section 12.3(c).
"ENVIRONMENTAL LAWS" is defined in Section 18.9.
"EVENT OF DEFAULT" is defined in Section 12.1.
"EXPIRATION DATE" is defined in Article A, Section 2(c).
"FIXED RENT" is defined in Article A, Section 3.
"FORCE MAJEURE DELAYS" is defined in Section 19.16.
"HAZARDOUS SUBSTANCES" is defined in Section 18.10.
"IMPOSITIONS" is defined in Section 3.1.
"INDEMNIFIED PARTIES" is defined in Section 11.3.
"INSURANCE COSTS" is defined in Section 7.3.
"LAND" means that certain real property described on Exhibit "A"
attached hereto and incorporated herein by this reference.
"LANDLORD" is defined in the introductory paragraph to this Lease.
3
<PAGE> 7
"LANDLORD PARTIES" is defined in Section 6.2.
"LANDLORD'S AWARD" is defined in Section 8.1.
"LEASE" means this lease made between Landlord, as landlord, and
Tenant, as tenant.
"MAINTENANCE AND REPAIR OBLIGATIONS" is defined in Section 5.2.
"MORTGAGE" is defined in Section 3.2.
"MORTGAGEE" is defined in Section 3.2.
""SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT" is defined
in Section 10.1.
"PERMITTED TRANSFER" shall mean either (i) a Transfer after Tenant's
receipt of Landlord's prior written consent thereto, or (ii) a Permitted
Transfer Without Landlord Consent.
"PERMITTED TRANSFER WITHOUT LANDLORD CONSENT" is defined in Section 9.1
below.
"PREMISES" means the Land and the Building.
"PREMISES DELIVERY DATE" is defined in Article A, Section 2(b) above.
"PROJECT EXPENSES is defined in Section 5.7.
"REMEDIAL WORK" is defined in Section 18.7.
"RENT" is defined in Section 2.3.
"REQUIREMENTS" is defined in Section 11.1.
"SUBTENANT" is defined in Section 9.5.
"TENANT" is defined in the introductory paragraph to this Lease.
"TENANT'S EXPENSE PAYMENT" is defined in Section 5.6.
"TERM" is defined in Article A, Section 2(a).
"TRANSFER" is defined in Section 9.1.
"TRANSFEREE" means any assignee or purchaser of Tenant's interest in
this Lease or any sublessee of all or any portion of the Premises.
"UTILITIES" is defined in Section 5.2.
4
<PAGE> 8
ARTICLE 1
PREMISES AND TERM
Section 1.1. During the Term, Landlord, in consideration of the rents
herein reserved and of the terms, provisions, covenants and agreements on the
part of Tenant to be kept, observed and performed, does hereby lease and demise
the Premises unto Tenant, and Tenant does hereby hire and take the Premises from
Landlord, subject to each and every matter affecting title to the Premises
including, without limitation, all of the following which are in effect as of
the Commencement Date: all easements, rights of way, covenants, conditions and
restrictions, liens, encumbrances, encroachments, licenses, notices of pendency,
charges, zoning laws, ordinances, regulations, building codes and other
governmental laws, rules and orders affecting the Premises, and other exceptions
to Landlord's title, whether or not the same are of public record.
Section 1.2. Tenant shall lease the Premises for the Term, unless
sooner terminated as hereinafter provided or pursuant to law.
ARTICLE 2
FIXED RENT AND ADDITIONAL RENT
Section 2.1. Tenant shall pay to Landlord as Fixed Rent for the
Premises during the Term the amounts stated in Article A, Section 3. Fixed Rent
shall be payable in equal monthly installments in advance on the first day of
each and every month during the Term, without previous demand therefor and
without offset or deduction of any kind whatsoever. Notwithstanding the
foregoing, Tenant shall pay the partial month's installment of Fixed Rent (with
respect to the remaining days of the month in which this Lease is executed) upon
the execution of this Lease.
Section 2.2. Tenant shall also pay and discharge, as additional rent,
all other amounts, liabilities and obligations of whatsoever nature relating to
the Premises, including, without limitation, all Impositions (as defined in
Section 3.1 below), all Project Expenses (as defined in Section 5.9 below) those
arising under any common area maintenance agreements however denominated,
easements, declarations, restrictions, or other similar agreements affecting the
Premises or any adjoining property thereto, and all interest and penalties that
may accrue thereon in the event of Tenant's failure to pay such amounts when
due, and all damages, costs and expenses which Landlord may incur by reason of
any default of Tenant or failure on Tenant's part to comply with the terms of
this Lease, all of which Tenant hereby agrees to pay upon demand or as is
otherwise provided herein (all of the foregoing together with any other amounts
and charges payable by Tenant under this Lease in addition to Fixed Rent are
herein collectively called "ADDITIONAL RENT"). Upon any failure by Tenant to pay
any of the Additional Rent, Landlord shall have all legal, equitable and
contractual rights, powers and remedies provided either in this Lease or by
statute or otherwise in the case of non-payment of the Fixed Rent. The term
Additional Rent shall be deemed rent for all purposes hereunder other than with
respect to Tenant's internal accounting procedures.
Section 2.3. All Fixed Rent and Additional Rent payable hereunder
(collectively, "RENT") shall be payable when due by wire transfer of immediately
available funds to an account designated from time to time by Landlord. At
Landlord's option upon Landlord's request, Rent shall be made in United States
currency which shall be legal tender for all debts, public and private, payable
to Landlord and sent to Landlord's address set forth in Article A, or to such
other person or persons or at such other place as may be designated by notice
from Landlord to Tenant, from time to time. Notwithstanding the foregoing,
Impositions shall be payable to the parties to whom they are due, except as
otherwise provided herein.
5
<PAGE> 9
ARTICLE 3
IMPOSITIONS
Section 3.1. From and after the Commencement Date and throughout the
Term, Tenant shall pay and discharge not later than twenty (20) days before any
fine, penalty, interest or cost may be added thereto for the non-payment
thereof, all taxes, assessments, water rents, sewer rents and charges, duties,
impositions, license and permit fees, charges for public utilities of any kind,
payments and other charges of every kind and nature whatsoever, ordinary or
extraordinary, foreseen or unforeseen, general or special, in said categories,
together with any interest or penalties imposed upon the late payment thereof,
which, pursuant to past, present or future law, during, prior to or after (but
attributable to a period within) the Term, shall have been or shall be levied,
charged, assessed, imposed upon or grow or become due and payable out of or for
or have become a lien on the Premises or any part thereof, any improvements or
personal property in or on the Premises, the Rent and income payable by Tenant
or on account of any use of the Premises and such franchises as may be
appurtenant to the use and occupation of the Premises (all of the foregoing
being hereinafter referred to as "IMPOSITIONS"). Tenant, upon request from
Landlord, shall submit to Landlord the proper and sufficient receipts or other
evidence of payment and discharge of the same. If any Impositions are not paid
when due under this Lease, Landlord shall have the right but shall not be
obligated to pay the same following written notice to Tenant of such payment,
provided Tenant does not contest the same as herein provided. If Landlord shall
make such payment, Landlord shall thereupon be entitled to repayment by Tenant
on demand as Additional Rent hereunder.
Section 3.2. Tenant shall have the right to protest and contest any
Impositions imposed against the Premises or any part thereof, provided (i) the
same is done at Tenant's sole cost and expense, (ii) nonpayment will not subject
the Premises or any part thereof to sale or other liability by reason of such
nonpayment, (iii) such contest shall not subject Landlord or the holder (the
"MORTGAGEE") of any mortgage or deed of trust (a "MORTGAGE") encumbering all or
any part of the Premises to the risk of any criminal or civil liability, and
(iv) Tenant shall provide such security as may reasonably be required by
Landlord or any Mortgagee or under the terms of any Mortgage to ensure payment
of such contested Imposition. Landlord agrees to execute and deliver to Tenant
any and all documents reasonably required for such purpose and to cooperate with
Tenant in every reasonable respect in such contest, but without any cost or
expense to Landlord.
Section 3.3. To the extent permitted by law, Tenant shall have the
right to apply for the conversion of any Impositions to make the same payable in
annual installments over a period of years, and upon such conversion Tenant
shall pay and discharge said annual installments as they shall become due and
payable. Tenant shall pay all such deferred installments prior to the expiration
or sooner termination of the Term, notwithstanding that such installments shall
not then be due and payable; provided, however, that any Impositions (other than
one converted by Tenant so as to be payable in annual installments as aforesaid)
relating to a fiscal period of the taxing authority, a part of which is included
in a period of time after the Expiration Date, shall (whether or not such
Impositions shall be assessed, levied, confirmed, imposed or become payable,
during the Term) be adjusted between Landlord and Tenant as of the Expiration
Date, so that Landlord shall pay that portion of such Impositions which relate
to that part of such fiscal period included in the period of time after the
Expiration Date, and Tenant shall pay the remainder thereof.
Section 3.4. If at any time during the Term, a tax or excise on Rent or
other tax, however described, is levied or assessed with respect to the Rent or
any part thereof (as opposed to the income of Landlord) or against Landlord as a
substitute in whole or in part for any Impositions theretofore payable by
Tenant, Tenant shall pay and discharge such tax or excise on Rent or other tax
before it becomes delinquent, and the same shall be deemed to be an Imposition
levied against the Premises.
Section 3.5. Except as set forth in Section 3.4 above, Tenant shall not
be obligated to pay any franchise, excise, corporate, estate, inheritance,
succession, capital, levy or transfer tax of Landlord or any income, profits or
revenue tax upon the income of Landlord.
6
<PAGE> 10
Section 3.6. In the event that Landlord is required pursuant to the
terms of any Mortgage to make monthly or other tax escrow payments to any
Mortgagee or if an Event of Default shall occur and be continuing, Tenant agrees
that, on demand made by Landlord, it shall: (i) deposit with Landlord or
Mortgagee, on the day of demand and on the same day of each month thereafter
until thirty (30) days prior to the date when the next installment of
Impositions is due to the authority or other person to whom the same is paid, an
amount equal to said next installment of Impositions divided by the number of
months over which such deposits are to be made; and (ii) thereafter during the
Term deposit with Landlord or Mortgagee an amount each month estimated by
Landlord or Mortgagee to be adequate to create a fund which, as each succeeding
installment of Impositions becomes due, will be sufficient, thirty (30) days
prior to such due date, to pay such installment in full. Landlord or Mortgagee
shall use reasonable efforts to cause the monthly deposits to be equal in
amount, but neither of them shall be liable in the event that such required
deposits are unequal. If at any time the amount of any Imposition is increased
or Landlord or Mortgagee believes that it will be, said monthly deposits shall
be increased upon demand by Landlord or Mortgagee so that, thirty (30) days
prior to the due date for each installment of Impositions, there will be
deposits on hand with Landlord or Mortgagee sufficient to pay such installments
in full. To the extent permitted by applicable law, Landlord or Mortgagee shall
not be required to deposit any such amounts in an interest bearing account. For
the purpose of determining whether Landlord or Mortgagee has on hand sufficient
moneys to pay any particular Imposition at least thirty (30) days prior to the
due date therefor, deposits for each category of Imposition shall be treated
separately, it being the intention that Landlord shall not be obligated to use
moneys deposited for the payment of an item not yet due and payable to the
payment of an item that is due and payable. Notwithstanding the foregoing, it is
understood and agreed that (a) to the extent permitted by applicable law,
deposits provided for hereunder may be held by Landlord or Mortgagee in a single
bank account and commingled with other funds of Landlord or Mortgagee, and (b)
Landlord or Mortgagee, may, if Tenant fails to make any deposit required
hereunder, use deposits made for any one item for the payment of the same or any
other item of Rent. If this Lease shall be terminated by reason of any Event of
Default, all deposits then held by Landlord shall be applied by Landlord on
account of any and all sums due under this Lease; if there is a resulting
deficiency, Tenant shall pay the same, and if there is a surplus, Tenant shall
be entitled to a refund of the surplus.
Section 3.7. If Landlord ceases to have any interest in the Premises,
Landlord shall transfer to the person or entity who owns or acquires such
interest in the Premises from Landlord and is the transferee of this Lease, the
deposits made pursuant to Section 3.6 hereof, subject, however, to the
provisions thereof. Upon such transfer of the Premises, the transferor shall be
deemed to be released from all liability with respect thereto and Tenant agrees
to look to the transferee solely with respect thereto, and the provisions hereof
shall apply to each successive transfer of the said deposits; provided, however,
that transferor shall not be released from liability unless Tenant either
receives said deposits or said deposits continue to be held by Mortgagee for the
benefit of transferee and Tenant.
Section 3.8. The provisions of this Article 3 shall survive the
expiration or earlier termination of this Lease.
ARTICLE 4
USE AND OPERATION OF PREMISES
Section 4.1. The Premises may be used and occupied only for the
purposes set forth in Article A, Section 4. Tenant shall not create or suffer to
exist any public or private nuisance, hazardous or illegal condition or waste on
or with respect to the Premises.
Section 4.2. Except as expressly provided in this Lease, in no event
shall Tenant use any area outside the Building other than for pedestrian and
vehicular ingress and egress to and from the Building, other than for parking in
the areas currently designated for parking, and other than to perform any of
Tenant's obligations under this Lease requiring the use of such area. Tenant and
its employees shall have access to the Premises 24 hours per day, 7 days per
week throughout the Term.
7
<PAGE> 11
ARTICLE 5
CONDITION OF PREMISES, ALTERATIONS AND REPAIRS
Section 5.1. Tenant has examined the Premises, is familiar with the
physical condition, expenses, operation and maintenance, zoning, status of title
and use that may be made of the Premises and every other matter or thing
affecting or related to the Premises, and is leasing the same in its "AS IS"
condition. Except as expressly provided to the contrary in this Lease, Landlord
has not made and does not make any representations or warranties whatsoever with
respect to the Premises or otherwise with respect to this Lease. Tenant assumes
all risks resulting from any defects (patent or latent) in the Premises or from
any failure of the same to comply with any governmental law or regulation
applicable to the Premises or the uses or purposes for which the same may be
occupied.
Section 5.2. Tenant shall be solely responsible for obtaining any
services and/or utilities used, consumed or provided in, furnished to or
attributable to the Premises that Landlord has not expressly agreed to provide
to Tenant pursuant to this Lease (all such services and/or utilities are
collectively referred to as "UTILITIES"). Subject to Landlord's right of
reimbursement as provided in Section 5.8 below, Landlord shall keep the Premises
clean and in good condition and repair and Landlord shall make all repairs and
replacements, structural and non-structural, ordinary and extraordinary,
foreseen and unforeseen, and shall perform all maintenance, necessary to
maintain the Premises in good condition and repair, ordinary wear and tear and
damage due to fire or other casualty excepted (the obligations of Landlord in
this sentence are herein referred to as "MAINTENANCE AND REPAIR OBLIGATIONS").
Section 5.3. To the extent not prohibited by law, Tenant hereby waives
and releases all rights now or hereinafter conferred by statute or otherwise
which would have the effect of limiting or modifying any of the provisions of
this Article 5.
Section 5.4. Tenant shall have the right at any time and from time to
time during the Term to make, at its sole cost and expense, changes,
alterations, additions or improvements (collectively, "ALTERATIONS") in or to
the Premises provided that Tenant first obtains Landlord's written consent
thereto, which consent shall not be unreasonably withheld or delayed. Landlord
will be able to withhold its consent, in its sole and absolute discretion, with
respect to any Alterations in or to the Premises which (i) are made to or affect
(A) the structural components of the Building, or (B) the systems of the
Building, (ii) are visible from the exterior of the Building, or (iii) adversely
affect the value of the Building.
Section 5.5. All fixtures, structures and other improvements installed
in or upon the Premises at any time during the Term (excluding, in any event,
Tenant's trade fixtures, furniture, equipment and other movable personal
property) shall become the property of Landlord and shall remain upon and be
surrendered with the Premises unless Landlord, by notice to Tenant no later than
ninety (90) days prior to the Expiration Date (or if this Lease is terminated
earlier, then within thirty (30) days after the effective date of such
termination), elects to have the same removed or demolished by Tenant, in which
event, the same shall be removed from the Premises by Tenant by the Expiration
Date (or if this Lease is terminated earlier, then within thirty (30) days after
the effective date of such termination) at Tenant's expense. Prior to the
commencement of any Work, Landlord will, upon written request by Tenant, notify
Tenant in writing whether Landlord will require such Alterations to be removed
from the Premises prior to the Expiration Date or earlier termination of this
Lease. All property permitted or required to be removed by Tenant at the end of
the Term remaining in the Premises after Tenant's removal shall be deemed
abandoned and may, at the election of Landlord, either be retained as Landlord's
property or may be removed from the Premises by Landlord at Tenant's expense.
Tenant shall be responsible for, and shall reimburse Landlord immediately after
written demand therefor, any damage to the Premises caused in whole or in part
by the removal or demolition of Tenant's fixtures, structures or other
improvements which Tenant is required to remove pursuant to this Section 5.7 or
which Tenant elects under the provisions of this Lease to remove. The provisions
of this Section 5.7 shall survive the expiration or earlier termination of the
Term.
8
<PAGE> 12
Section 5.6. In addition to Fixed Rent, Tenant shall pay as Additional
Rent, all Project Expenses (as defined in Section 5.7 below) incurred by
Landlord during the Term. Such payment shall hereafter be referred to as
"TENANT'S EXPENSE PAYMENT". Landlord may, if it elects, either deliver to Tenant
periodic statements of Tenant's Expense Payment or Landlord may estimate the
amount of Tenant's Expense Payment payable by Tenant for any calendar year or
any portion thereof. In the event Landlord elects to estimate Tenant's Expense
Payment for any calendar year, Landlord shall provide written notice of the
estimate of Tenant's Expense Payment for the applicable calendar year and the
monthly installment due for each month during such calendar year at least thirty
(30) days prior to the date such installments become due and payable. Tenant
shall pay to Landlord, on the first day of each calendar month during any
calendar year Landlord elects to estimate Tenant's Expense Payment, the amount
of the applicable monthly installments, without demand. Landlord shall, on or
before the first day of July of each calendar year, determine the actual
Tenant's Expense Payment for the preceding calendar year and provide Tenant with
written notice thereof. If Tenant's actual payments of estimated Tenant's
Expense Payment are less than the actual Project Expenses for such year, then
Tenant shall pay to Landlord the amount of the deficiency within thirty (30)
days from the date of Landlord's notice of deficiency. Alternatively, if
Tenant's actual payments of estimated Tenant's Expense Payments are greater than
the actual Project Expenses for such year, then Landlord shall credit the amount
of the surplus against the next accruing installments of Tenant's Expense
Payment.
Section 5.7. As used in this Lease, the term "PROJECT EXPENSES" shall
mean all direct costs and expenses of ownership (excluding, however, any
Impositions which are payable by Tenant as provided in Article 3 above),
operation, security, protection, replacement, repair and maintenance of the
Premises incurred by Landlord, as determined by sound, accrual basis, accounting
principles consistently applied, and shall include all costs incurred in
connection with the ownership and operation of the parking areas; all Insurance
Costs (as defined in Section 7.3 below); accounting and legal fees; and dues,
taxes and/or assessments imposed by any applicable property owners' association
if any, excepting only those specific costs and expenses that Landlord has
specifically agreed to bear with no reimbursement from Tenant and these costs
and expenses described in the immediately following sentence. Project Expenses
do not include any of the following: (a) interest and principal payments on
loans secured by mortgages or deeds of trust covering all or any portion of the
Premises, and other debt costs, if any, and rental under any ground lease or
other underlying lease, if any, covering all or any portion of the Premises; (b)
real estate broker's commissions payable in connection with this Lease; (c) any
cost or expenditure (or portion thereof) for which Landlord is reimbursed,
whether by insurance proceeds or otherwise (Tenant's Expense Payments are not
reimbursements); (d) all costs incurred by Landlord in connection with the
satisfaction of the Maintenance and Repair Obligations; (e) costs and expenses
incurred in the management of the Premises and/or the administration of
Landlord's rights and obligations under this Lease; (f) costs of improvements
to, or alterations of, the Premises; (g) depreciation; (h) that portion of any
cost or expense which is allocated by Landlord to, or is performed solely for
the benefit of, any property owned or operated by Landlord other than the
Premises; (i) legal, accounting and similar or related costs paid or incurred in
connection with any sale, syndication, financing or refinancing involving the
Building and/or the Premises or any of Landlord's interest therein; (j) any
fees, fines, penalties and/or interest incurred by Landlord as a result of
Landlord's noncompliance with any applicable laws; (k) any costs (including,
without limitation, legal fees and expenses), fees, fines, penalties and/or
interest incurred by Landlord as a result of Landlord's failure to pay any
obligations of Landlord; (l) costs of disputes between Landlord and any third
party regarding matters not related to the Premises; (m) costs of defending any
lawsuits with Mortgagees or ground lessors of Landlord; (n) any debt losses,
rent losses or reserves for bad debt; and (o) costs or expenses related to
Landlord's cleaning, removal, remediation or compliance required due to the
existence of any hazardous or toxic materials in, on or affecting the Building
and/or Land (including, without limitation, Hazardous Substances) unless such
existence is caused by Tenant or its employees, sublessees or contractors.
ARTICLE 6
INSURANCE
Section 6.1. Throughout the Term, Tenant shall, at its own cost and
expense, provide and keep in force, for the benefit of Landlord, Tenant and any
Mortgagee:
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(a) broad form commercial general liability insurance (including
protective liability coverage on operations of independent contractors engaged
in construction and blanket contractual liability insurance) protecting and
indemnifying Landlord, Tenant and any Mortgagee against all claims for damages
to person or property or for loss of life or of property occurring upon, in, or
about the Premises, if any, written on a per-occurrence basis with an aggregate
limit of not less than $2,000,000 and a per-occurrence limit of not less than
$1,000,000, or such greater limits as may be required from time to time by any
Mortgagee or as may be reasonably required from time to time by Landlord
consistent with insurance coverage on properties similarly constructed, occupied
and maintained. Such coverage shall contain endorsements: (i) including
employees of Tenant as additional insureds; (ii) including cross-liability; and
(iii) waiving the insurer's rights of subrogation against Landlord for events of
which Landlord is not, but Tenant is, covered;
(b) property insurance in respect of Tenant's property located at the
Premises, insuring against loss or damage by fire and such other risks as are
now or hereafter embraced by "extended coverage" policy in an amount sufficient
to prevent Landlord and Tenant from becoming co-insurers and in any event in an
amount not less than one hundred percent (100%) of the actual replacement value
thereof as reasonably determined by Tenant from time to time.
(c) worker's compensation insurance (including employers' liability
insurance) covering all persons employed at the Premises by Tenant to the extent
required by the laws of the State in which the Premises are located; and
(d) such other or further insurance, in such amounts and in such form,
as is customarily obtained by tenants at properties similarly constructed,
occupied and maintained and that is available at commercially reasonable rates,
or as otherwise reasonably required by any Mortgagee.
Section 6.2. Whenever under the terms of this Lease Tenant is required
to maintain insurance for the benefit of Landlord, (i) all Landlord Parties (as
defined below) shall be an additional insured in all such liability insurance
policies, and (ii) either Landlord or Mortgagee, as specified in Section 6.3,
shall be named as loss payee in all such casualty insurance policies. In the
event that the Premises shall be subject to a Mortgage, the commercial general
liability insurance shall name the Mortgagee (together with any trustee or
servicer therefor) as an additional insured and all other insurance provided
hereunder shall name the Mortgagee as an additional insured or, as provided in
Section 6.3, loss payee under a standard "non-contributory mortgagee"
endorsement or its equivalent. All policies of insurance shall provide that such
coverage shall be primary and that any insurance maintained separately by
Landlord or the Mortgagee shall be excess insurance only. The original
certificates and legible copies of the original policies (or binders therefor if
the policies have not yet been prepared) shall be delivered to Landlord and any
Mortgagee. All insurance shall contain endorsements to the effect that the act
or omission of Tenant or Mortgagee, any occupancy or use of the Premises for
purposes more hazardous than permitted by such policy, any foreclosure or other
proceedings relating to the Premises or any change in title to or ownership of
the Premises will not invalidate the policy as to Landlord or such Mortgagee. As
used in this Lease, the term "LANDLORD PARTIES" shall mean (i) Landlord, (ii)
any Mortgagee that has been identified to Tenant in a writing sent by Landlord
or its agent or property manager, (iii) their respective shareholders, members,
partners, affiliates and subsidiaries, and (iv) any directors, officers,
employees, agents or contractors of such persons or entities.
Section 6.3. INTENTIONALLY DELETED.
Section 6.4. All of the above-mentioned insurance policies and/or
certificates shall be obtained by Tenant and delivered to Landlord on or prior
to the date hereof, and thereafter as provided for herein, and shall be written
by insurance companies: (i) rated B+/X or better in "Best's Insurance Guide" (or
any substitute guide acceptable to Landlord); (ii) authorized to do business in
the state where the Premises are located; and (iii) of recognized responsibility
and which are satisfactory to Landlord and any Mortgagee. Any deductible amounts
under any casualty insurance policy hereunder shall not exceed $25,000.00 per
occurrence.
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Section 6.5. At least thirty (30) days prior to the expiration of any
policy or policies of such insurance, Tenant shall renew such insurance, by
delivering to Landlord or Mortgagee, within the said period of time, the
original policies or certificates of insurance, endorsed in accordance with
Section 6.2 hereof, together with insurance binders evidencing the coverage
described in this Article 6. All coverage described in this Article 6 shall be
endorsed to provide Landlord and Mortgagee with at least thirty (30) days'
notice of change in terms and at least ten (10) days' notice of cancellation or
termination. If Tenant shall fail to procure the insurance required under this
Article 6 in a timely fashion or to deliver such policies or certificates to
Landlord, Landlord may, at its option, upon written notice to Tenant, procure
the same for the account of Tenant, and the cost thereof shall be paid to
Landlord as Additional Rent.
Section 6.6. Tenant shall not violate, or permit to be violated, any of
the conditions of any of the said policies of insurance, and Tenant shall
perform and satisfy the requirements of the companies writing such policies so
that companies of good standing, reasonably satisfactory to Landlord, shall be
willing to write and/or continue such insurance.
Section 6.7. Tenant shall not carry separate or additional insurance
affecting the coverage described in this Article 6, concurrent in form and
contributing in the event of any loss or damage to the Premises with any
insurance required to be obtained by Tenant under this Lease, unless such
separate or additional insurance shall comply with and conform to all of the
provisions and conditions of this Article. Tenant shall promptly give notice to
Landlord of such separate or additional insurance.
Section 6.8. The insurance required by this Lease, at the option of
Tenant, may be effected by blanket and/or umbrella policies issued to Tenant
covering the Premises and other properties owned or leased by Tenant, provided
that the policies otherwise comply with the provisions of this Lease and
allocate to the Premises the specified coverage, without possibility of
reduction or coinsurance by reason of, or damage to, any other premises named
therein, and if the insurance required by this Lease shall be effected by any
such blanket or umbrella policies, Tenant shall furnish to Landlord or Mortgagee
certified copies or duplicate originals of such policies in place of the
originals, with schedules thereto attached showing the amount of insurance
afforded by such policies applicable to the Premises.
ARTICLE 7
DAMAGE OR DESTRUCTION
Section 7.1. In the event the Building is damaged by fire or other
insured casualty and the insurance proceeds have been made available therefor by
the holder or holders of any mortgages or deeds of trust covering the Building,
the damage shall be repaired by and at the expense of Landlord to the extent of
such insurance proceeds available therefor, provided such repairs can, in
Landlord's sole opinion be made within one hundred eighty (180) days after the
occurrence of such damage without the payment of overtime or other premiums.
Until such repairs are completed, Fixed Rent shall be abated effective as of the
date of such fire or other casualty in proportion to the part of the Building
which is unusable by Tenant in the conduct of its business; provided, however,
if the damage is due to the fault or neglect of Tenant or its employees, agents
or invitees, there shall be no abatement of Fixed Rent unless Landlord has
received loss of rental insurance proceeds intended to replace the Fixed Rent
due hereunder. If repairs cannot, in Landlord's sole opinion reasonably
exercised, be made within one hundred eighty (180) days after the occurrence of
such damage, Landlord may, at its option, make them within a reasonable time,
and in such event, this Lease shall continue in effect and Fixed Rent shall be
abated in the manner provided in the immediately preceding sentence. In the case
of repairs which, in Landlord's opinion reasonably exercised, cannot be made
within such one hundred eighty (180) day period, Landlord shall notify Tenant
within sixty (60) days of the date of occurrence of such damage as to whether or
not Landlord will make such repairs. If (a) Landlord elects not to make such
repairs which cannot be made within such one hundred eighty (180) day period,
(b) Landlord fails to give Tenant written notice of Landlord's intention to make
or not to make such repairs and such failure continues for ten (10) days after
Landlord's receipt of written notice of such failure, or (c) such damage occurs
during the last eighteen (18) months of the Term, then either party may, by
written notice to the other, terminate this Lease as of the date of
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the occurrence of such damage, and Landlord shall have no liability to Tenant
for failure to make such repairs except for abatement of Fixed Rent. Except as
provided in this Section 7.1, there shall be no abatement of Fixed Rent and no
liability of Landlord by reason of any injury to or interference with Tenant's
business or property arising from the making of any repairs, alterations or
improvements in or to any portion of the Building, or in or to fixtures,
appurtenances and equipment located therein, and, in any event, there shall be
no liability of Landlord should repairs require more than one hundred eighty
(180) days for completion. Tenant acknowledges and agrees that (i) Landlord will
not carry insurance of any kind on (1) Tenant's furnishings or furniture, or (2)
any fixtures or equipment removable by Tenant under the provisions of this
Lease, and (ii) Landlord shall not be required to repair any injury or damage
caused by fire or other cause, or to make any repairs or replacements to or of
improvements installed in the Building by or for Tenant, all of which shall be
the sole responsibility of Tenant.
Section 7.2. If Landlord is obligated to repair damage to the Building
pursuant to Section 7.1, Landlord shall use reasonable efforts to complete or
cause the completion of the repairs to the same on or before the expiration of
the Casualty Repair Delivery Period (as defined below in this paragraph).
Notwithstanding anything else to the contrary contained in this Lease, if
Landlord, for any reason whatsoever, cannot complete or cause the completion of
the repair of the applicable damage to the Building such that the Building is
usable by Tenant for the purposes identified in Article A, Section 4 above on or
before the last day of the Casualty Repair Delivery Period, then Landlord shall
not be liable to Tenant for any loss or damage resulting therefrom, but Tenant
shall, as its sole and exclusive remedy, have the right to terminate this Lease
by giving Landlord written notice thereof within thirty (30) days after the
expiration of the Casualty Repair Delivery Period and in any event prior to
Landlord's delivery of possession of the Building to Tenant in such a usable
condition. As used herein, the term "Casualty Repair Delivery Period" shall mean
the period of time beginning on the date the Building has been damaged by fire
or other insured casualty and ending on the last day of the ninth (9th) calendar
month following the date of such damage.
Section 7.3. Landlord covenants and agrees that throughout the Term it
will insure the Building (excluding excavation, foundation, footings and
underground flues and drains) and the machinery, boilers and equipment contained
therein owned by Landlord (excluding any property with respect to which Tenant
is obligated to insure pursuant to the provisions of Article 6 above) against
damage by fire and extended perils coverage in an amount equal to the full
replacement value of such insured portions of the Building. Tenant shall
reimburse Landlord for the costs of such insurance (herein referred to as
"Insurance Costs") within thirty (30) days after Tenant's receipt of written
evidence of the amount of such costs paid by Landlord. Notwithstanding Tenant's
payment of the cost of insurance premiums as provided herein, Tenant
acknowledges that it has no right to receive any proceeds from any such
insurance policies carried by Landlord and that such insurance will be for the
sole benefit of Landlord with no coverage for Tenant for any risk against which
insurance has been obtained.
Section 7.4. All fire, extended coverage and/or damage insurance which
must be carried by Landlord and Tenant shall be endorsed with a subrogation
clause substantially as follows: "This insurance shall not be invalidated should
the insured waive in writing, prior to a loss, any or all right of recovery
against any party for loss occurring to the property described herein." Landlord
and Tenant each hereby waives any rights it may have against the other
(including, but not limited to, a direct action for damages) on account of any
loss or damage occasioned to Landlord or Tenant, as the case may be (WHETHER OR
NOT SUCH LOSS OR DAMAGE IS CAUSED BY THE FAULT, NEGLIGENCE OR OTHER TORTIOUS
CONDUCT, ACTS OR OMISSIONS OF LANDLORD OR TENANT OR THEIR RESPECTIVE OFFICERS,
PARTNERS, DIRECTORS, EMPLOYEES, SERVANTS AGENTS OR INVITEES), to their
respective property, the Premises or its contents arising from any risk covered
by any insurance required to be carried by Tenant and Landlord, respectively,
pursuant to this Lease. Without in any way limiting the foregoing waivers and to
the extent permitted by applicable law, the parties hereto each, on behalf of
their respective insurance companies insuring the property of either Landlord or
Tenant against any such loss, waive any right of subrogation that Landlord or
Tenant or their respective insurers may have against the other party or their
respective officers, directors, employees, agents or invitees and all rights of
their respective insurance companies based upon an assignment from its insured.
Each party to this Lease agrees immediately to give to each such insurance
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company written notification of the terms of the mutual waivers contained in
this Section and to have said insurance policies properly endorsed, if
necessary, to prevent the invalidation of said insurance coverage by reason of
said waivers. The foregoing waivers shall be effective whether or not the
parties maintain the required insurance.
ARTICLE 8
CONDEMNATION
Section 8.1. If the Premises, or a substantial part thereof, shall be
lawfully taken or condemned (or conveyed under threat of such taking or
condemnation) for any public or quasi-public use or purpose, then (i) the term
of this Lease shall terminate on, and not before, the date of the taking of
possession by the condemning authority, and without apportionment of the award,
and (ii) current Rent due hereunder shall be apportioned as of the date of such
termination. In the event a taking or condemnation results in a permanent loss
of adequate parking on the Land or a permanent deprivation of access to the
Premises, then this Lease may be terminated at the election of Tenant, which
election shall be made by Tenant's delivery of written notice thereof to
Landlord within thirty (30) days after the date of such taking or condemnation.
No money or other consideration shall be payable by Landlord to Tenant for the
right of termination, and Tenant hereby waives any right Tenant may have to
share in, and assigns to Landlord Tenant's interest, if any, in, any (1)
condemnation award as a result of such taking or condemnation, (2) judgment for
damages based on such taking or condemnation, or (3) proceeds of any sale made
under any threat of condemnation or taking (the award, damages or proceeds
described in subparts (1) through (3) of this paragraph are herein collectively
referred to as "Landlord's Award").
Section 8.2. If any part of the Premises not constituting a substantial
part of the Premises shall be so taken or condemned (or conveyed under threat of
such taking or condemnation), or if the grade of any street adjacent to the
Building is changed by any competent authority and such taking or change of
grade makes it necessary or desirable to substantially remodel or restore the
Building, Landlord shall have the right to terminate this Lease upon not less
than ninety (90) days notice prior to the date of termination designated in the
notice. In the event this Lease is not terminated by Landlord pursuant to the
preceding sentence, then (a) this Lease shall continue in full force and effect
without abatement or reduction of rental due hereunder except in the event a
portion of the Premises has been taken or condemned, in which case Fixed Rent
shall be equitably adjusted, and (b) Landlord shall, within a reasonable time
and at the sole cost and expense of Landlord to the extent of the applicable
Landlord's Award, restore or remodel the Building and, if applicable, the
Premises.
Section 8.3. Except as provided in this Article 8, there shall be no
reduction of Fixed Rent and no liability of Landlord by reason of any injury to,
or interference with, Tenant's business or property arising from the making of
any repairs, alterations or improvements in or to any portion of the Premises
following a taking or condemnation of the same, or in or to fixtures,
appurtenances and equipment located therein. Notwithstanding anything to the
contrary contained herein, Tenant shall have the right to recover from any
condemning authority, through a separate award which does not reduce Landlord's
Award, any compensation as may be awarded to Tenant on account of moving and
relocation expenses and depreciation to and removal of Tenant's physical
property from the Premises.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
Section 9.1. Except in strict accordance with the provisions of this
Article 9, Tenant shall not sell, assign, sublease or otherwise transfer,
directly or indirectly (each a "TRANSFER"), all or any portion of Tenant's
interest in this Lease or the Premises without Landlord's prior written consent,
which written consent shall not be unreasonably withheld or delayed. Landlord
and Tenant agree that no corporate reorganization of Tenant, or any merger,
consolidation, take-over, buy-out or other change in the corporate structure or
effective voting control of Tenant shall be deemed a prohibited Transfer under
this Section 9.1 so long as (y) Tenant has
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at least the amount of net worth immediately after the transaction as Tenant has
immediately prior to the transaction and (z) Tenant provides written notice to
Landlord describing in reasonable detail the nature of such transaction, the
name, address and state of formation of the surviving entity and the ownership
of Tenant. Any assignment or subletting permitted without Landlord's prior
written consent as provided above (a "PERMITTED TRANSFER WITHOUT LANDLORD
CONSENT") shall not release Tenant from any of its obligations under this Lease.
If the common stock of Tenant or of any corporation which controls Tenant ever
becomes the subject of a public offering, such issuance of shares and/or
subsequent trading of stock in Tenant shall not be deemed a prohibited transfer
under this Section 9.1. For purposes of this Article 9, the terms "CONTROL" or
"CONTROLS" shall mean possession, direct or indirect, of the power to direct or
to cause the direction of, the management and policies of any person or entity,
whether through the ownership of voting securities, or partnership interest, by
contract or otherwise. Without limiting in any way Landlord's right to withhold
its consent on any reasonable grounds, it is agreed that Landlord will not be
acting unreasonably in refusing to consent to an assignment or sublease if, (a)
the proposed assignment or sublease involves a change of use of the Premises
from that specified herein, (b) the proposed assignee or subtenant is not, in
Landlord's reasonable opinion, of reputable or good character (for the purposes
of this Lease, Landlord shall be conclusively deemed to have reasonably
exercised its discretion to withhold its consent to an assignment or subletting
to a person or entity that is not of the character, quality or financial
strength of a tenant to whom Landlord would generally lease space of a
comparable size and quality as the Premises), (c) a Mortgagee does not approve
such assignment or sublease after being requested to approve the same, or (d) in
the case of a subletting, the subletting shall not be expressly subject to all
of the provisions of this Lease and the obligations of Tenant hereunder and
shall not further provide that if Landlord shall recover or come into possession
of the Premises before the expiration of this Lease, Landlord shall have the
right to take over the sublease and to have it become a direct lease with
Landlord, in which case Landlord shall succeed to all of the rights of Tenant,
as sublessor, thereunder and that in such case subtenant shall be bound to
Landlord for the balance of the term of the sublease and shall attorn to and
recognize Landlord as its landlord under the sublease under all of the then
executory terms of the sublease, except that Landlord will not (i) be liable for
any previous acts or omissions of Tenant, as sublessor, (ii) be subject to any
claims of subtenant not expressly set forth in the sublease, (iii) be bound by
any modification of the sublease for which Landlord shall have not expressly
consented, or (iv) be obligated to perform any repairs or other work beyond
Landlord's obligations under this Lease. Tenant acknowledges and agrees (again
without in any way limiting Landlord's right to withhold its consent on
reasonable grounds) that Landlord may also withhold its consent to a Transfer
based on any one or more of the following: (1) Tenant's failure to satisfy its
obligations in Section 9.3 below; (2) at the time thereof an Event of Default
has occurred and is continuing; or (3) the fact that the instrument effecting
the proposed Transfer is not in form and content reasonably satisfactory to
Landlord.
Section 9.2. Notwithstanding the provisions of Section 9.1 above,
Tenant shall not be required to obtain the prior consent of Landlord for any
sublease of a part (but not all) of the Premises, which sublease is ordinary and
incidental to Tenant's business as such business has been run prior to the
inception of this Lease. In the event of a proposed sublease which is either
inconsistent with the ordinary and incidental operations of Tenant's business,
or which does not fall within the foregoing parameters of this Section 9.2, such
shall not be allowed without Landlord's prior written consent in each instance,
which consent shall not be unreasonably withheld or delayed.
Section 9.3. If Tenant shall desire Landlord's consent to a Transfer,
Landlord shall be given not less than thirty (30) days' advance written notice
of the proposed effective date of such Transfer, which notice shall be delivered
to Landlord together with (i) either an executed counterpart or, if unavailable,
a copy of the proposed instrument(s) of the Transfer and (ii) such other
documents and information as Landlord may reasonably request.
Section 9.4. Any consent by Landlord under this Article 9 shall apply
only to the specific transaction thereby authorized and shall not relieve Tenant
from the requirement of obtaining the prior written consent of Landlord to any
further Transfer of this Lease. No Transfer of all or a portion of this Lease
shall release or relieve the transferor from any obligations of Tenant
hereunder, and the transferor shall remain liable for the performance of all
obligations of Tenant hereunder.
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Section 9.5. Tenant shall cause each subtenant permitted pursuant to
this Article 9 (a "SUBTENANT") to comply with its obligations under its
respective sublease, and Tenant shall diligently enforce all of its rights as
the landlord thereunder in accordance with the terms of such sublease and this
Lease.
Section 9.6. The fact that a violation or breach of any of the terms,
provisions or conditions of this Lease results from or is caused by an act or
omission by any of the Subtenants shall not relieve Tenant of Tenant's
obligation to cure the same. Tenant shall take all necessary steps to prevent
any such violation or breach.
Section 9.7. If this Lease is assigned, or if the Premises or any part
thereof is subleased or occupied by anybody other than Tenant, Landlord may,
after the occurrence and during the continuance of an Event of Default by
Tenant, collect Rent from the assignee or Subtenants, and apply the net amount
collected to the Rent herein reserved, but no such assignment, sublease,
occupancy or collection shall be deemed a waiver of this covenant, or the
acceptance of the assignee or Subtenant as tenant, or a release of Tenant from
the further performance by Tenant of the terms, covenants, and conditions on the
part of Tenant to be observed or performed hereunder. After any assignment or
subletting, Tenant's liability hereunder shall continue notwithstanding any
subsequent modification or amendment hereof or the release of any subsequent
tenant hereunder from any liability, to all of which Tenant hereby consents in
advance. The consent by Landlord to any Transfer shall not in any way be
construed to relieve Tenant from obtaining the express written consent of
Landlord to any further Transfer.
Section 9.8. To secure the prompt and full payment by Tenant of the
Rent and the faithful performance by Tenant of all the other terms and
conditions herein contained on its part to be kept and performed, Tenant hereby
assigns, transfers and sets over unto Landlord, subject to the conditions
hereinafter set forth, all of Tenant's right, title and interest in and to all
Subleases and hereby confers upon Landlord, its agents and representatives, a
right of entry in, and sufficient possession of, the Premises to permit and
insure the collection by Landlord of the rentals and other sums payable under
the Subleases, and further agrees that the exercise of said right of entry and
qualified possession by Landlord shall not constitute an eviction of Tenant from
the Premises or any portion thereof and that should said right of entry and
possession be denied Landlord, its agent or representative, Landlord, in the
exercise of said right, may use all requisite force to gain and enjoy the same
without responsibility or liability to Tenant, its servants, employees, guests
or invitees, or any Person whomsoever; provided, however that such assignment
shall become operative and effective only if (a) an Event of Default shall occur
or (b) this Lease and the Term shall be canceled or terminated pursuant to the
terms, covenants and conditions hereof or (c) there occurs repossession under a
dispossess warrant or other re-entry or repossession by Landlord under the
provisions hereof or (d) a receiver for the Premises is appointed, and then only
as to such of the subleases that Landlord may elect to take over and assume. At
any time and from time to time upon Landlord's demand, Tenant promptly shall
deliver to Landlord a schedule of all subleases, setting forth the names of all
Subtenants, with a photostatic copy of each of the subleases. Upon reasonable
request of Landlord, Tenant shall permit Landlord and its agents and
representatives to inspect all subleases affecting the Premises. Tenant
covenants that each sublease shall provide that the Subtenant thereunder shall
be required from time to time, upon request of Landlord or Tenant, to execute,
acknowledge and deliver, to and for the benefit of Landlord, an estoppel
certificate confirming with respect to such sublease the information set forth
in Section 14.1 hereof.
Section 9.9. Tenant covenants and agrees that all subleases hereafter
entered into affecting the Premises shall provide that (a) they are subject to
this Lease, (b) the term thereof should end not less than one (1) day prior to
the Expiration Date hereof, unless Landlord shall consent otherwise, which
consent may be withheld in Landlord's sole discretion, (c) the Subtenants will
not do, authorize or execute any act, deed or thing whatsoever or fail to take
any such action which will or may cause Tenant to be in violation of any of its
obligations under this Lease, (d) the Subtenants will not pay rent or other sums
under the subleases with Tenant for more than one (1) month in advance, (e) the
Subtenants shall give to Landlord at the address and otherwise in the manner
specified in Section 19.8 hereof, a copy of any notice of default by Tenant as
the landlord under the subleases at the same time as, and whenever, any such
notice of default shall be given by the Subtenants to Tenant, and (f) in the
event of the termination or expiration of this Lease prior to the Expiration
Date hereof, any
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such Subtenant, at Landlord's election, shall be obligated to attorn to and
recognize Landlord as the lessor under such Sublease, in which event such
Sublease shall continue in full force and effect as a direct lease between
Landlord and the Subtenant upon all the terms and conditions of such Sublease,
except as hereinafter provided. Any attornment required by Landlord of such
Subtenant shall be effective and self-operative as of the date of any such
termination or expiration of this Lease without the execution of any further
instrument; provided, however, that such Subtenant shall agree, upon the request
of Landlord, to execute and deliver any such instruments in recordable form and
otherwise in form and substance satisfactory to Landlord to evidence such
attornment. With respect to any attornment required by Landlord of any Subtenant
hereunder, (i) at the option of Landlord, Landlord shall recognize all rights of
Tenant as the lessor under such sublease and the Subtenant thereunder shall be
obligated to Landlord to perform all of the obligations of the Subtenant under
such sublease and (ii) Landlord shall have no liability, prior to its becoming
lessor under such Sublease, to such Subtenant nor shall the performance by such
Subtenant of its obligations under the sublease, whether prior to or after any
such attornment, be subject to any defense, counterclaim or setoff by reason of
any default by Tenant in the performance of any obligation to be performed by
Tenant as lessor under such sublease, nor shall Landlord be bound by any
prepayment of more than one (1) month's rent unless such prepayment shall have
been expressly approved in writing by Landlord. The provisions of this Section
9.9 shall survive the expiration or earlier termination of the Term.
Section 9.10. If Tenant assumes this Lease and proposes to assign the
same pursuant to the provisions of Title 11 of the United States Code or any
statute of similar purpose or nature (the "BANKRUPTCY CODE") to any person or
entity who shall have made a bona fide offer to accept an assignment of this
Lease on terms acceptable to Tenant, then notice of such proposed assignment
shall be given to Landlord by Tenant no later than twenty (20) days after
receipt of such offer by Tenant, but in any event no later than ten (10) days
prior to the date that Tenant shall file any application or motion with a court
of competent jurisdiction for authority and approval to enter into such
assumption and assignment. Such notice shall set forth (a) the name and address
of the assignee, (b) all of the terms and conditions of such offer, and (c) the
proposal for providing adequate assurance of future performance by such person
under the Lease, including, without limitation, the assurance referred to in
Section 365 of the Bankruptcy Code. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed
without further act or deed to have assumed all of the obligations arising under
this Lease from and after the date of such assignment. Any such assignee shall
execute and deliver to Landlord upon demand an instrument confirming such
assumption.
Section 9.11. The provisions of Sections 9.8, 9.9 and 9.10 hereof shall
survive the expiration or earlier termination of this Lease.
Section 9.12. In no event shall Tenant mortgage, encumber, pledge, grant a
security interest in, collaterally assign or conditionally transfer this Lease
or removable trade fixtures incorporated in or used in connection with the
Premises or any Subleases or any of the rents, issues and profits therefrom,
other than the grant of a security interest in Tenant's leasehold interest.
ARTICLE 10
SUBORDINATION
Section 10.1. This Lease shall be subject and subordinate to all
Mortgages now or hereinafter in effect and to all renewals, modifications,
consolidations, replacements and extensions of any such Mortgages; provided,
however, that the Mortgagee of such Mortgage shall execute and deliver to Tenant
an agreement to the effect that, if there shall be a foreclosure of its
Mortgage, such Mortgagee will not make Tenant a party defendant to such
foreclosure, unless necessary under applicable law for the Mortgagee to
foreclose, or if there shall be a foreclosure of such Mortgage, such Mortgagee
shall not evict Tenant, disturb Tenant's leasehold estate or rights hereunder,
in all events provided that no Event of Default then exists (any such agreement,
or any agreement of similar import, from a Mortgagee being hereinafter called a
"SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT" or "SNDA"), and
Tenant shall attorn to the Mortgagee or any successor-in-interest to Landlord or
the Mortgagee. This Section 10.1 shall be self-operative and no further
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instrument of subordination other than an SNDA shall be required to make the
interest of any Mortgagee superior to the interest of Tenant hereunder.
Notwithstanding the previous sentence, however, Tenant shall, together with the
Mortgagee, execute and deliver promptly each SNDA that Landlord may request to
effect such subordination. If Tenant fails to execute and deliver to Landlord
any SNDA delivered to Tenant for Tenant's execution within ten (10) days after
Tenant's receipt of the same, (1) such failure shall constitute an Event of
Default hereunder until such time as it has been delivered to Landlord, (2)
Tenant shall be deemed to have agreed to all of the terms and provisions of such
SNDA, and (3) Tenant shall thereafter be estopped from disclaiming any of the
obligations, benefits and burdens set forth therein including, without
limitation, (i) the subordination of this Lease to any deed of trust, mortgage,
ground lease or similar instruments, (ii) any non-disturbance rights provided to
Tenant therein, and (iii) any attornment agreements of Tenant set forth therein.
If, in connection with the financing of the Premises, any lending institution or
Landlord shall request reasonable modifications of this Lease that do not
increase the monetary obligations of Tenant under this Lease or materially
increase the other obligations of Tenant under this Lease or materially and
adversely affect the rights of Tenant under this Lease, Tenant shall make such
modifications. The standards (i.e., time and manner of giving such consent and
standard of reasonableness, if applicable) of a Mortgagee's consent with respect
to this Lease shall be materially consistent with those to which Landlord is
subject under this Lease. Any Non-Disturbance Agreement may be made on the
condition that neither the Mortgagee nor anyone claiming by, through or under
such Mortgagee shall be:
(a) liable for any act or omission of any prior Landlord (including,
without limitation, the then defaulting Landlord);
(b) subject to any defense or offsets which Tenant may have against any
prior Landlord (including, without limitation, the then defaulting Landlord)
which arise prior to the date such Mortgagee (or someone acquiring at a
foreclosure sale related to the Mortgagee's Mortgage) acquires title to the
Premises;
(c) bound by any payment of Rent which Tenant might have paid for more
than the current month to any prior Landlord (including, without limitation, the
then defaulting Landlord);
(d) bound by any obligation to make any payment to Tenant which was
required to be made prior to the time such Landlord succeeded to any prior
Landlord's interest;
(e) bound by any obligation to perform any work or to make improvements
to the Premises;
(f) bound by any modification, amendment or supplement to this Lease
made without the prior written consent of the Mortgagee; or
(g) bound by any security deposit for Tenant's obligations under this
Lease unless such deposit is actually received by Mortgagee.
If required by any Mortgagee, Tenant promptly shall join in any
Non-Disturbance Agreement to indicate its concurrence with the provisions
thereof and its agreement, in the event of a foreclosure of any Mortgage to
attorn to such Mortgagee, as Tenant's landlord hereunder. Tenant shall promptly
so accept, execute and deliver any Non-Disturbance Agreement proposed by any
Mortgagee which conforms with the provisions of this Section 10.1. Any
Non-Disturbance Agreement may also contain other terms and conditions as may
otherwise be required by any Mortgagee which do not increase Tenant's monetary
obligations or materially and adversely affect the rights or obligations of
Tenant under this Lease.
Section 10.2. Tenant hereby agrees to give to any Mortgagee copies of
all notices given by Tenant of default by Landlord under this Lease at the same
time and in the same manner as, and whenever, Tenant shall give any such notice
of default to Landlord. Such Mortgagee shall have the right to remedy any
default under this Lease, or to cause any default of Landlord under this Lease
to be remedied, and for such purpose Tenant hereby grants such Mortgagee such
period of time as may be reasonable to enable such
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Mortgagee to remedy, or cause to be remedied, any such default in addition to
the period given to Landlord for remedying, or causing to be remedied, any such
default which is a default. Tenant shall accept performance by such Mortgagee of
any term, covenant, condition or agreement to be performed by Landlord under the
Lease with the same force and effect as though performed by Landlord. No default
under the Lease shall exist or shall be deemed to exist (i) as long as such
Mortgagee, in good faith, shall have commenced to cure such default and shall be
prosecuting the same to completion with reasonable diligence, subject to force
majeure, or (ii) if possession of the Premises is required in order to cure such
default, or if such default is not susceptible of being cured by such Mortgagee,
as long as such Mortgagee, in good faith, shall have notified Tenant that such
Mortgagee intends to institute proceedings under the Mortgage and, thereafter,
as long as such proceedings shall have been instituted and shall prosecute the
same with reasonable diligence and, after having obtained possession, prosecutes
the cure to completion with reasonable diligence. The Lease shall not be
assigned (subject to the provisions of Article 9) by Tenant or modified, amended
or terminated without such Mortgagee's prior written consent in each instance.
In the event of the termination of the Lease by reason of any default thereunder
or for any other reason whatsoever except the expiration thereof, upon such
Mortgagee's written request, given within thirty (30) days after any such
termination, Tenant, within fifteen (15) days after receipt of such request,
shall execute and deliver to such Mortgagee or its designee or nominee a new
lease of the Premises for the remainder of the Term of the Lease upon all of the
terms, covenants and conditions of this Lease. Neither such Mortgagee nor its
designee or nominee shall become liable under the Lease unless and until such
Mortgagee or its designee or nominee becomes, and then only for so long as such
Mortgagee or its designee or nominee remains, the fee owner of the Premises.
Such Mortgagee shall have the right, without Tenant's consent, to foreclose the
Mortgage or to accept a deed in lieu of foreclosure of such Mortgage.
ARTICLE 11
OBLIGATIONS OF TENANT
Section 11.1. Tenant shall promptly comply with all laws, ordinances,
orders, rules, regulations, and requirements of all Federal, state, municipal or
other governmental or quasi-governmental authorities or bodies then having
jurisdiction over the Premises (or any part thereof) and/or the use and
occupation thereof by Tenant, whether any of the same relate to or require (i)
structural changes to or in and about the Premises, or (ii) changes or
requirements incident to or as the result of any use or occupation thereof or
otherwise (collectively, the "REQUIREMENTS"), and subject to Article 7, Tenant
shall so perform and comply, whether or not such laws, ordinances, orders,
rules, regulations or requirements shall now exist or shall hereafter be enacted
or promulgated and whether or not the same may be said to be within the present
contemplation of the parties hereto.
Section 11.2. Tenant agrees to give Landlord notice of any law,
ordinance, rule, regulation or requirement enacted, passed, promulgated, made,
issued or adopted by any of the governmental departments or agencies or
authorities hereinbefore mentioned affecting in a material adverse manner (i)
the Premises, (ii) Tenant's use thereof or (iii) the financial condition of
Tenant, a copy of which is served upon or received by Tenant, or a copy of which
is posted on, or fastened or attached to the Premises, or otherwise brought to
the attention of Tenant, by mailing within five (5) business days after such
service, receipt, posting, fastening or attaching or after the same otherwise
comes to the attention of Tenant, a copy of each and every one thereof to
Landlord. At the same time, Tenant will inform Landlord as to the Work which
Tenant proposes to do or take in order to comply therewith. Notwithstanding the
foregoing, however, if such Work would require any Alterations which would, in
Landlord's opinion, reduce the value of the Premises or change the general
character, design or use of the Building or other improvements thereon, and if
Tenant does not desire to contest the same, Tenant shall, if Landlord so
requests, defer compliance therewith in order that Landlord may, if Landlord
wishes, contest or seek modification of or other relief with respect to such
Requirements, so long as Tenant is not put in violation of any law, ordinance,
rule, regulation or requirement enacted, passed, promulgated, made, issued or
adopted by any such governmental departments or agencies or authorities, but
nothing herein shall relieve Tenant of the duty and obligation, at Tenant's
expense, to comply with such Requirements, or such Requirements as modified,
whenever Landlord shall so direct.
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Section 11.3. Except in the case of the gross negligence or willful
misconduct of Landlord or its agents, BUT SPECIFICALLY INCLUDING SUCH PARTY'S
NEGLIGENCE OTHER THAN GROSS NEGLIGENCE, Tenant shall defend, indemnify and save
harmless Landlord, any partners of Landlord, any partners of any partners of
Landlord and any officers, stockholders, directors or employees of any of the
foregoing (collectively, "INDEMNIFIED PARTIES"), from (a) any and all
liabilities, claims, causes of actions, suits, damages and expenses
(collectively, "CLAIMS") arising from or under this Lease or Tenant's use,
occupancy and operations of, in or about the Premises prior to or during the
Term; and (b) all costs, expenses and liabilities incurred, including actual and
customary attorney's fees and disbursements through and including appellate
proceedings, in or in connection with any of such Claims. If any action or
proceeding shall be brought against any of the Indemnified Parties by reason of
any such Claims, Tenant, upon notice from any of the Indemnified Parties, shall
resist and defend such action or proceeding, at its sole cost and expense by
counsel to be selected by Tenant but otherwise satisfactory to such Indemnified
Party in its reasonable discretion. Tenant or its counsel shall keep each
Indemnified Party fully informed at all times of the status of such defense.
Notwithstanding the foregoing, an Indemnified Party may retain its own attorneys
to defend or assist in defending any claim, action or proceeding involving
potential liability in excess of Five Million Dollars ($5,000,000), and Tenant
shall pay the actual and customary fees and disbursements of such attorneys. The
provisions of this Section 11.3 shall survive the expiration or earlier
termination of this Lease.
Section 11.4. If at any time prior to or during the Term (or within the
statutory period thereafter if attributable to Tenant), any mechanic's or other
lien or order for payment of money, which shall have been either created by,
caused (directly or indirectly) by, or suffered against Tenant, shall be filed
against the Premises or any part thereof, Tenant, at its sole cost and expense,
shall cause the same to be discharged by payment, bonding or otherwise, within
ten (10) days after the filing thereof unless such lien or order is contested by
Tenant in good faith and Tenant provides sufficient security or evidence of
financial ability, in each case to the reasonable satisfaction of Landlord, to
pay the amount of such lien or order. Tenant shall, upon notice and request in
writing by Landlord, defend for Landlord, at Tenant's sole cost and expense, any
action or proceeding which may be brought on or for the enforcement of any such
lien or order for payment of money, and will pay any damages and satisfy and
discharge any judgment entered in such action or proceeding and save harmless
Landlord from any liability, claim or damage resulting therefrom. In default of
Tenant's procuring the discharge of any such lien as aforesaid Landlord may,
without notice, and without prejudice to its other remedies hereunder, procure
the discharge thereof by bonding or payment or otherwise, and all cost and
expense which Landlord shall incur shall be paid by Tenant to Landlord as
Additional Rent forthwith.
Section 11.5. Landlord shall not under any circumstances be liable to
pay for any work, labor or services rendered or materials furnished to or for
the account of Tenant upon or in connection with the Premises, and no mechanic's
or other lien for such work, labor or services or material furnished shall,
under any circumstances, attach to or affect the reversionary interest of
Landlord in and to the Premises or any alterations, repairs, or improvements to
be erected or made thereon. Nothing contained in this Lease shall be deemed or
construed in any way as constituting the request or consent of Landlord, either
express or implied, to any contractor, subcontractor, laborer or materialman for
the performance of any labor or the furnishing of any materials for any specific
improvement, alteration to or repair of the Premises or any part thereof, nor as
giving Tenant any right, power or authority to contract for or permit the
rendering of any services or the furnishing of any materials on behalf of
Landlord that would give rise to the filing of any lien against the Premises.
Section 11.6. Neither Landlord nor its agents shall be liable for any
loss of or damage to the property of Tenant or others by reason of casualty,
theft or otherwise, or for any injury or damage to persons or property resulting
from any cause of whatsoever nature, INCLUDING THAT WHICH IS CAUSED BY OR ARISES
BY THE NEGLIGENCE OF LANDLORD OR ITS AGENTS OTHER THAN THEIR GROSS NEGLIGENCE,
unless caused by or due to the gross negligence or willful misconduct of
Landlord, its agents, servants or employees.
Section 11.7. Landlord shall not be required to furnish to Tenant any
facilities or services of any kind whatsoever, including, but not limited to,
water, steam, heat, gas, oil, hot water, and/or electricity, all of which Tenant
represents and warrants that Tenant has obtained from the public utility
supplying the same, at
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Tenant's sole cost and expense. Upon Tenant's written request, however, Landlord
agrees to cooperate with Tenant (at no cost to Landlord) with respect to such
services.
ARTICLE 12
DEFAULT BY TENANT; REMEDIES
Section 12.1. Each of the following shall be deemed an event of default
(an "EVENT OF DEFAULT") and a breach of this Lease by Tenant:
(a) If Tenant shall fail to pay the Fixed Rent or any Tenant's Expense
Payment as and when due hereunder and such failure continues for a period of
five (5) days after written notice of such failure has been delivered to Tenant
(provided, however, that Landlord shall not be required to send more than two
(2) such notices to Tenant during any consecutive twelve (12) month period, and
thereafter it shall be an Event of Default if Tenant shall fail to pay the Fixed
Rent or any Tenant Expense payment when due).
(b) If Tenant shall fail to pay any Additional Rent required to be paid
by Tenant hereunder and such failure continues for a period of five (5) days
after written notice of such failure has been delivered to Tenant (provided,
however, that Landlord shall not be required to send more than two (2) such
notices to Tenant during any consecutive twelve (12) month period, and
thereafter it shall be an Event of Default if Tenant shall fail to pay any
Additional Rent when due).
(c) If Tenant shall default in the performance or observance of any of
the other agreements, conditions, covenants or terms herein contained, or if
such default is of such a nature that it can be remedied, then if such default
shall continue for thirty (30) days after written notice by Landlord to Tenant
(or if such default is of such a nature that it cannot be completely remedied
within said thirty (30) day period, then if Tenant does not agree in writing
within such thirty (30) day period to cure the same, commence and thereafter
diligently prosecute the cure and complete the cure within a reasonable period
of time under the circumstances after such original written notice of default by
Landlord to Tenant, but in any event prior to the time such failure would result
in a violation of applicable laws or a default by Landlord under any Mortgage).
(d) The occurrence and continuance of a Vacation of the Premises (as
hereinafter defined) or a Material Abandonment of the Premises (as hereinafter
defined).
(e) If Tenant shall transfer all or any of its interest in this Lease
without compliance with the provisions of this Lease applicable thereto.
(f) Tenant fails or refuses to execute any subordination agreement
required pursuant to Article 10 or estoppel certificate required pursuant to
Article 14 within ten (10) business days after Tenant's receipt thereof.
(g) Tenant shall fail to maintain any insurance that this Lease
requires Tenant to maintain.
(h) Tenant shall do or permit to be done any act which results in a
lien being filed against the Premises or any improvements of part thereof if
such lien is not released, bonded or otherwise provided for by indemnification
satisfactory to Landlord within thirty (30) days after Tenant first obtains
actual knowledge of such lien.
As used in this Lease, the phrase "VACATION OF THE PREMISES" shall mean vacating
the Premises without providing a reasonable level of security to minimize the
potential for vandalism, or where the coverage of the property insurance under
either or both of Sections 6.1(a) or 6.1(b) is jeopardized as a result thereof,
and the phrase "MATERIAL ABANDONMENT OF THE PREMISES" shall mean the abandonment
by Tenant of the Premises for ten (10) business days during any period of time
in which an Event of Default has occurred and is continuing.
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Section 12.2.
(a) If an Event of Default (i) described in Sections 12.1(c) or (e)
hereof shall occur and Landlord, at any time thereafter, at its option, gives
written notice to Tenant stating that this Lease shall terminate on the date
specified in such notice, which date shall be not less than three (3) days after
the giving of such notice, and if, on the date specified in such notice, Tenant
shall have failed to cure the default which was the basis for the Event of
Default, or (ii) described in Sections 12.1(a), (b), (d) or (f) hereof shall
occur, then all rights of Tenant under this Lease shall terminate and Tenant
immediately shall quit and surrender the Premises, which termination shall not
relieve Tenant from any liability then or thereafter accruing hereunder.
(b) If an Event of Default described in Sections 12.1(a) or (b) hereof
shall occur, or this Lease shall be terminated as provided in Section 12.2(a)
hereof, Landlord, without notice, and with or without court proceedings, (i) may
re-enter and repossess the Premises using such force for that purpose as may be
necessary without being liable to indictment, prosecution or damages therefor or
(ii) may dispossess Tenant by summary proceedings or otherwise, which re-entry
and repossession by Landlord shall not relieve Tenant from any liability then or
thereafter accruing hereunder, except that Tenant shall be entitled to any
credit for rent received from any reletting of the Premises or the value of the
Premises pursuant to Section 12.3(c) or (d).
Section 12.3. If this Lease shall be terminated as provided in Section
12.2(a) hereof and/or Tenant shall be dispossessed by summary proceedings or
otherwise as provided in Section 12.2(b) hereof:
(a) Tenant shall pay to Landlord all Rent payable under this Lease by
Tenant to Landlord to the date upon which this Lease shall have been terminated
or to the date of re-entry upon the Premises Landlord, as the case may be.
(b) Landlord may repair and alter the Premises in such manner as
Landlord may deem necessary or advisable without relieving Tenant of any
liability under this Lease or otherwise affecting any such liability, and/or let
or relet the Premises or any parts thereof for the whole or any part of the
remainder of the Term or for a longer period, in Landlord's name or as agent of
Tenant, and out of any rent and other sums collected or received as a result of
such reletting Landlord shall: (i) first, pay to itself the cost and expense of
terminating this Lease, re-entering, retaking, repossessing, repairing and/or
altering the Premises, or any part thereof, and the cost and expense of removing
all persons and property therefrom, including in such costs, market rate
brokerage commissions, actual and customary legal expenses and attorneys' fees
and disbursements, (ii) second, pay to itself the cost and expense sustained in
securing any new tenants and other occupants, including in such costs, market
rate brokerage commissions, actual and customary legal expenses and attorneys'
fees and disbursements and other expenses of preparing the Premises for
reletting, and, if Landlord shall maintain and operate the Premises, the cost
and expense of operating and maintaining the Premises, and (iii) third, pay to
itself any balance remaining on account of the liability of Tenant to Landlord.
Landlord in no way shall be responsible or liable for any failure to relet the
Premises or any part thereof, or for any failure to collect any rent due on any
such reletting, and no such failure to relet or to collect rent shall operate to
relieve Tenant of any liability under this Lease or to otherwise affect any such
liability;
(c) Tenant shall be liable for and shall pay to Landlord, as damages,
any deficiency (referred to as "DEFICIENCY"), between the Rent reserved in this
Lease for the period which otherwise would have constituted the unexpired
portion of the Term and the net amount, if any, of rents collected under any
reletting effected pursuant to the provisions of Section 12.3(b) hereof for any
part of such period, first deducting from the rents collected under any such
reletting all of the payments to Landlord described in Section 12.3(b) hereof;
any such Deficiency shall be paid in installments by Tenant on the days
specified in this Lease for payment of installments of Rent, and Landlord shall
be entitled to recover from Tenant each Deficiency installment as the same shall
arise, and no suit to collect the amount of the Deficiency for any installment
period shall prejudice Landlord's right to collect the Deficiency for any
subsequent installment period by a similar proceeding; and
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(d) whether or not Landlord shall have collected any Deficiency
installments as aforesaid, Landlord shall be entitled to recover from Tenant,
and Tenant shall pay to Landlord, on demand, in lieu of any further
Deficiencies, as and for liquidated and agreed final damages (it being agreed
that it would be impracticable or extremely difficult to fix the actual damage),
a sum equal to the amount by which the Rent reserved in this Lease for the
period which otherwise would have constituted the unexpired portion of the Term
exceeds the then fair and reasonable rent value of the Premises for the same
period, both discounted present worth at the rate of the then applicable rate of
interest on United States Treasury Securities having terms to maturity most
closely matching the unexpired portion of the Term, less the aggregate amount of
Deficiencies theretofore collected by Landlord pursuant to the provisions of
Section 12.3(c) hereof for the same period; it being agreed that before
presentation of proof of such liquidated damages to any court, commission or
tribunal, if the Premises, or any part thereof, shall have been relet by
Landlord for the period which otherwise would have constituted the unexpired
portion of the Term, or any part thereof, the amount of rent reserved upon such
reletting shall be deemed, prima facie, to be the fair and reasonable rental
value for the part or the whole of the Premises so relet during the term of the
reletting.
Section 12.4. Subject to credits pursuant to Section 12.3(c) and (d)
above, no termination of this Lease pursuant to Section 12.2(a) hereof, and no
taking possession of and/or reletting the Premises, or any part thereof,
pursuant to Sections 12.2(b) and 12.3(b) hereof, shall relieve Tenant of its
liabilities and obligations hereunder, all of which shall survive such
expiration, termination, repossession or reletting.
Section 12.5. To the extent not prohibited by law, Tenant hereby waives
and releases all rights now or hereafter conferred by statute or otherwise which
would have the effect of limiting or modifying any of the provisions of this
Article 12. Tenant shall execute, acknowledge and deliver any instruments which
Landlord may request, whether before or after the occurrence of an Event of
Default, evidencing such waiver or release.
Section 12.6. The Rent payable by Tenant hereunder and each and every
installment thereof, and all costs, actual and customary attorneys' fees and
disbursements and other expenses which may be incurred by Landlord in enforcing
the provisions of this Lease on account of any delinquency of Tenant in carrying
out the provisions of this Lease shall be and they hereby are declared to
constitute a valid lien upon the interest of Tenant in this Lease and in the
Premises.
Section 12.7. Suit or suits for the recovery of damages, or for a sum
equal to any installment or installments of Rent payable hereunder or any
Deficiencies or other sums payable by Tenant to Landlord pursuant to this
Article 12, may be brought by Landlord from time to time at Landlord's election,
and nothing herein contained shall be deemed to require Landlord to await the
date whereon this Lease or the Term would have expired by limitation had there
been no Event of Default by Tenant and termination.
Section 12.8. Nothing contained in this Article 12 shall limit or
prejudice the right of Landlord to prove and obtain as liquidated damages in any
bankruptcy, insolvency, receivership, reorganization or dissolution proceeding
an amount equal to the maximum allowed by a statute or rule of law governing
such proceeding and in effect at the time when such damages are to be proved,
whether or not such amount shall be greater than, equal to or less than the
amount of the damages referred to in any of the preceding Sections of this
Article 12.
Section 12.9. No receipt of moneys by Landlord from Tenant after
termination of this Lease, or after the giving of any notice of the termination
of this Lease shall reinstate, continue or extend the Term or affect any of the
right of Landlord to enforce the payment of Rent payable by Tenant hereunder or
thereafter falling due, or operate as a waiver of the right of Landlord to
recover possession of the Premises by proper remedy, except as herein otherwise
expressly provided, it being agreed that after the service of notice to
terminate this Lease or the commencement of any suit or summary proceedings, or
after a final order or judgment for the possession of the Premises, Landlord may
demand, receive and collect any monies due or thereafter falling due without in
any manner affecting such notice, proceedings, order, suit or judgment, all such
monies collected being deemed payments on account of tenant's liability
hereunder.
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Section 12.10. Except as otherwise expressly provided herein or as
prohibited by applicable law, Tenant hereby expressly waives the service of any
notice of intention to re-enter provided for in any statute, or of the
institution of legal proceedings to that end, and Tenant, for and on behalf of
itself and all persons claiming through or under Tenant, also waives any and all
right of redemption provided by any law or statute now in force or hereafter
enacted or otherwise, or re-entry or repossession or to restore the operation of
this Lease in case Tenant shall be dispossessed by a judgment or by warrant of
any court or judge or in case of re-entry or repossession by Landlord or in case
of any expiration or termination of this Lease, and Landlord and Tenant waive
and shall waive trial by jury in any action, proceeding or counterclaim brought
by either of the parties hereto against the other on any matter whatsoever
arising out of or in any way connected with this Lease, the relationship of
Landlord and Tenant, Tenant's use or occupancy of the Premises, or any claim of
injury or damage.
Section 12.11. No failure by Landlord to insist upon the strict
performance of any covenant, agreement, term or condition of this Lease or to
exercise any right or remedy consequent upon a breach thereof, and no acceptance
of full or partial Rent during the continuance of any such breach, shall
constitute a waiver of any such breach or of such covenant, agreement, term or
condition. No covenant, agreement, term or condition of this Lease to be
performed or complied with by Tenant, and no breach thereof, shall be waived,
altered or modified except by a written instrument executed by Landlord. No
waiver of any breach shall affect or alter this Lease, but each and every
covenant, agreement, term and condition of this Lease shall continue in full
force and effect with respect to any other then existing or subsequent breach
thereof.
Section 12.12. In the event of any breach or threatened breach by
Tenant of any of the covenants, agreements, terms or conditions contained in
this Lease, Landlord shall be entitled to a decree compelling performance of any
of the provisions hereof, and shall have the right to invoke any rights and
remedies allowed at law or in equity or by statute or otherwise as though
re-entry, summary proceedings, and other remedies were not provided for in this
Lease.
Section 12.13. Tenant shall pay to Landlord all costs and expenses,
including, without limitation, attorneys' fees and disbursements, incurred by
Landlord in any action or proceeding to which Landlord may be made a party by
reason of any act or omission of Tenant. Tenant also shall pay to Landlord all
costs and expenses, including, without limitation, actual and customary
attorneys' fees and disbursements, incurred by Landlord in enforcing any of the
covenants and provisions of this Lease and incurred in any action brought by
Landlord against Tenant on account of the provisions hereof, and all such costs,
expenses and attorneys' fees and disbursements may be included in and form a
part of any judgment entered in any proceeding brought by Landlord against
Tenant on or under this Lease. All of the sums paid or obligations incurred by
Landlord as aforesaid, with interest and costs, shall be paid by Tenant to
Landlord on demand.
Section 12.14. If an Event of Default shall occur under this Lease and
Tenant shall fail to cure the same, Landlord may (a) perform the same for the
account of Tenant and/or (b) make any expenditure or incur any obligation for
the payment of money in connection with any obligation owed to Landlord,
including, but not limited to, reasonable attorneys' fees and disbursements in
instituting, prosecuting or defending any action or proceeding, with interest
thereon at the Default Rate and such amounts shall be deemed to be Additional
Rent hereunder and shall be paid by Tenant to Landlord immediately upon demand
therefor. Default Rate shall have the meaning ascribed to it in Article B of
this Lease; provided, however, that for purposes of this Article 12, such
Default Rate shall never exceed the maximum non-usurious rate permitted by
applicable law.
Section 12.15. If Tenant shall fail to pay any installment of Fixed
Rent when due or any Additional Rent within ten (10) days after the date when
such payment is due, Tenant shall pay to Landlord, in addition to such
installment of Fixed rent or such Additional Rent, as the case may be, interest
on the amount unpaid at the Default Rate, computed from the date such payment
was due to and including the date of payment. If an Event of Default shall
occur, Tenant agrees that Landlord shall not be liable for any damages suffered
by Tenant as a result of Landlord's exercising its remedies under Section 12.2
CAUSED BY THE NEGLIGENCE OF LANDLORD OR OTHERWISE.
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ARTICLE 13
NO WAIVER
Section 13.1. No receipt of moneys by Landlord from Tenant after the
termination or cancellation of this Lease shall reinstate, continue or extend
the term, or affect any notice theretofore given to Tenant, or operate as a
waiver of the right of Landlord to enforce the payment of Fixed Rent or
Additional Rent then due, or thereafter falling due, or operate as a waiver of
the right of Landlord to recover possession of the Premises by proper suit,
action, proceeding or remedy; it being agreed that, after the service of notice
to terminate or cancel this Lease, or the commencement of suit, action or
summary proceedings, or any other remedy, or after a final order or judgment for
the possession of the Premises, Landlord may demand, receive and collect any
moneys due, or thereafter falling due, without, in any manner whatsoever,
affecting such notice, proceeding, suit, action, order or judgment; and any and
all such moneys collected shall be deemed to be payments on account of the use
and occupation of the Premises or, at the election of Landlord, on account of
Tenant's liability hereunder.
Section 13.2. The failure of Landlord or Tenant to enforce any
agreement, condition, covenant or term, by reason of its breach by Tenant or
Landlord, as the case may be, shall not be deemed to void, waive or affect the
right of Landlord or Tenant to enforce the same agreement, condition, covenant
or term on the occasion of a subsequent default or breach.
Section 13.3. The specific remedies to which Landlord may resort under
the terms of this Lease are cumulative and are not intended to be exclusive of
any other remedies or means of redress to which Landlord may be lawfully
entitled in case of any breach or threatened breach by Tenant of any of the
terms, covenants and conditions of this Lease. The failure of Landlord or Tenant
to insist in any one or more cases upon the strict performance of any of the
terms, covenants and conditions of this Lease, or to exercise any right or
remedy herein contained, shall not be construed as a waiver or relinquishment
for the future performance of such terms, covenants and conditions. The receipt
by Landlord, or payment by Tenant, of Rent with knowledge of the breach of any
of such terms, covenants and conditions shall not be deemed a waiver of such
breach. The acceptance of any check or payment bearing or accompanied by any
endorsement, legend or statements shall not, of itself, constitute any change in
or termination of this Lease. No surrender of the Premises by Tenant (prior to
any termination of this Lease) shall be valid unless consented to in writing by
Landlord. In addition to the other remedies in this Lease provided, Landlord or
Tenant shall be entitled to the restraint by injunction of the violation or
attempted or threatened violation of any of the terms, covenants and conditions
of this Lease or to a decree compelling performance of any of such terms,
covenants and conditions.
ARTICLE 14
ESTOPPEL CERTIFICATE
Section 14.1. Tenant agrees that it shall, at any time and from time to
time upon not less than ten (10) days' prior notice by Landlord execute,
acknowledge and deliver to Landlord a statement in writing certifying that this
Lease is unmodified and in full force and effect (or if there have been any
modifications, that the Lease is in full force and effect as modified and
stating the modifications), the dates to which the Fixed Rent and Additional
Rent have been paid, and stating whether or not Landlord is in default in
keeping, observing or performing any term, covenant, agreement, provision,
condition or limitation contained in this Lease and, if in default, specifying
each such default, the Commencement Date and Expiration Date for the current
Term and any other matters reasonably requested by Landlord; it being intended
that any such statement delivered pursuant to this Article 14 may be relied upon
by Landlord or any prospective purchaser of the Premises or any Mortgagee
thereof or any assignee of any Mortgage upon the Premises.
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ARTICLE 15
QUIET ENJOYMENT
Section 15.1. Tenant, upon payment of the Rent herein reserved and upon
the due performance and observance of all the covenants, conditions and
agreements herein contained on Tenant's part to be performed and observed, shall
and may at all times during the Term peaceably and quietly have, hold and enjoy
the Premises without any manner of suit, trouble or hindrance of and from any
person claiming by, through or under Landlord, subject, nevertheless, to the
terms and provisions of this Lease. No failure by Landlord to comply with the
foregoing covenant shall give Tenant any right to cancel or terminate this Lease
or to abate, reduce or make a deduction from or offset against the Fixed Rent or
any Additional Rent, or to fail to perform any other obligation of Tenant
hereunder.
ARTICLE 16
SURRENDER
Section 16.1. Tenant shall, on the last day of the Term, or upon the
sooner termination of the Term, quit and surrender to Landlord the Premises
vacant, free of all equipment, furniture and other movable personal property of
Tenant, and in the same good order and condition as on the Commencement Date,
and Tenant shall remove or demolish all of the fixtures, structures and other
improvements which Landlord shall have elected to cause Tenant to remove
pursuant to and in accordance with Section 5.7 hereof. Tenant's obligation to
observe and perform this covenant shall survive the expiration or earlier
termination of the Term.
Section 16.2. Upon the expiration of the Term, all Fixed Rent and
Additional Rent and other items payable by Tenant under this Lease shall be
apportioned to the date of termination.
Section 16.3. Tenant acknowledges that possession of the Premises must
be surrendered to Landlord at the expiration or sooner termination of the term
of this Lease. Tenant agrees to indemnify Landlord against and save Landlord
harmless from all costs, claims, loss or liability excluding consequential
damages) resulting from the failure or delay by Tenant in so surrendering the
Premises, including, without limitation, any claims made by any succeeding
tenant founded on such failure or delay. The parties recognize and agree that
the damage to Landlord resulting from any failure by Tenant to timely surrender
possession of the Premises as aforesaid will be extremely substantial, will
exceed the amount of the Fixed Rent theretofore payable hereunder, and will be
impossible to accurately measure. Tenant therefore agrees that if possession of
the Premises is not surrendered to Landlord upon the expiration or sooner
termination of the Term, then Tenant shall pay to Landlord, as liquidated
damages for each month and for each portion of any month during which Tenant
holds over in the Premises after the expiration or sooner termination of the
Term, in addition to any sums payable pursuant to the foregoing indemnity, a sum
equal to the higher of the then fair market rental value of the Premises, taking
into account the effect of all material factors reasonably relevant to such
determination, or one and one-half (1 1/2) times the aggregate of the Fixed Rent
which was payable under this Lease with respect to the last month of the Term
hereof. Nothing herein contained shall be deemed to permit Tenant to retain
possession of the Premises after the expiration or sooner termination of the
Term. If Tenant holds over in possession after the expiration or termination of
the Term, such holding over shall not be deemed to extend the Term or renew this
Lease, but the tenancy thereafter shall continue as a tenancy from month to
month upon the terms and conditions of this Lease at the Fixed Rent as herein
increased. Tenant hereby waives the benefit of any law or statute in effect in
the state where the Premises is located which would contravene or limit the
provisions set forth in this Section 16.3. This provision shall survive the
expiration or earlier termination of this Lease.
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ARTICLE 17
ACCESS
Section 17.1. Landlord shall at all times during the Term have the
right and privilege to enter the Premises at reasonable times during business
hours for the purpose of inspecting the same or for the purpose of showing the
same to prospective purchasers or Mortgagees thereof. Landlord shall also have
the right and privilege at all times during the Term to post notices of
nonresponsibility for work performed by or on behalf of Tenant.
Section 17.2. Landlord shall at all times during the Term have the
right to enter the Premises or any part thereof, following reasonable notice
from Landlord and so long as Landlord uses its reasonable best efforts to not
unduly interfere with Tenant's normal business operations, for the purpose of
making such repairs or Alterations therein as Landlord deems necessary or
advisable, but such right of access shall not be construed as obligating
Landlord to make any repairs to or replacements to the Premises or as obligating
Landlord to make any inspection or examination of the Building. Notwithstanding
the foregoing, in the event of an emergency, Landlord shall have the right to
enter the Premises or any part thereof without prior notice to Tenant.
ARTICLE 18
ENVIRONMENTAL MATTERS
Section 18.1. Tenant will not use, generate, manufacture, produce,
store, release, discharge or dispose of on, under, from or about the Premises or
transport to or from the Premises any Hazardous Substance and will use its best
efforts not to allow or suffer any other person or entity to do so.
Section 18.2. Tenant shall keep and maintain the Premises in compliance
with, and shall use its best efforts not to cause, permit or suffer the Premises
to be in violation of any Environmental Law (as defined below). Landlord
represents and warrants to Tenant that Landlord has no knowledge, nor has
Landlord received written notice from any governmental authority since Landlord
acquired the Premises, of any existing or threatened violation of any
Environmental Laws relating to the Premises.
Section 18.3. Tenant shall give prompt written notice to Landlord of:
(a) becoming aware of any use, generation, manufacture, production,
storage, release, discharge or disposal of any Hazardous Substance on, under,
from or about the Premises or the migration thereof to or from other property;
(b) the commencement, institution or threat of any proceeding, inquiry
or action by or notice from any local, state or federal governmental authority
with respect to the use or presence of any Hazardous Substance on the Premises
or the migration thereof from or to other property;
(c) all claims made or threatened by any third party against Tenant or
the Premises relating to any damage, contribution, cost recovery, compensation,
loss or injury resulting from any Hazardous Substance;
(d) Tenant's discovery of any occurrence or condition on any real
property adjoining or in the vicinity of the Premises that could cause the
Premises or any part thereof to be subject to any restrictions on the ownership,
occupancy, transferability or use of the Premises under any Environmental Law,
or any regulation adopted in accordance therewith, or to be otherwise subject to
any restrictions on the ownership, occupancy, transferability or use of the
Premises under any Environmental Law; and
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(e) obtaining knowledge of any incurrence of expense by any
governmental authority or others in connection with the assessment, containment
or removal of any Hazardous Substance located on, under, from or about the
Premises or any property adjoining or in the vicinity of the Premises.
Section 18.4. Landlord shall have the right, but not the obligation, to
join and participate in, as a party if it so elects, any legal proceedings or
actions initiated with respect to the Premises in connection with any
Environmental Law and have its actual and customary attorneys' fees in
connection therewith paid by Tenant or be defended by Tenant from and against
any such proceedings or actions with counsel chosen by Landlord (provided that
Landlord and Tenant shall attempt, in good faith, to agree on one counsel to
represent both Landlord and Tenant, if in Landlord's good faith determination
such joint representation is feasible or appropriate under the circumstances),
and shall have the right to make inquiry of and disclose all information to
appropriate governmental authorities when advised by counsel that such
disclosure may be required under applicable law.
Section 18.5. Without Landlord's prior written consent, which consent
shall not be unreasonably withheld or delayed, Tenant shall not take any
remedial action in response to the presence of any Hazardous Substance on,
under, from or about the Premises, nor enter into any settlement, consent or
compromise which might, in Landlord's reasonable judgment, impair the value of
Landlord's interest in the Premises under this Lease; provided, however, that
Landlord's prior consent shall not be necessary if the presence of Hazardous
Substance on, under, from or about the Premises either poses an immediate threat
to the health, safety or welfare of any individual or is of such a nature that
an immediate remedial response is necessary and it is not practical or possible
to obtain Landlord's consent before taking such action. In such event Tenant
shall notify Landlord as soon as practicable of any action so taken. Landlord
agrees not to withhold its consent, where such consent is required hereunder, if
either (i) a particular remedial action is ordered by a court or any agency of
competent jurisdiction, or (ii) Tenant establishes to the reasonable
satisfaction of Landlord that there is no reasonable alternative to such
remedial action which would result in less impairment of Landlord's security
hereunder.
Section 18.6. Tenant shall protect, indemnify and hold harmless
Landlord and each Mortgagee, their respective directors, officers, partners
employees, agents, successors and assigns from and against any and all claim,
loss, damage, cost, expense, liability, fines, penalties, charges,
administrative and judicial proceedings and orders, judgments, remedial action
requirements, enforcement actions of any kind (including, without limitation,
attorneys' fees and costs) directly or indirectly arising out of or attributable
to, in whole or in part, the breach of any of the covenants, representations and
warranties of this Article 18 or the use, generation, manufacture, production,
storage, release, threatened release, discharge, disposal, or presence of a
Hazardous Substance on, under, from or about the Premises caused by Tenant or
any employees, agents, licensees, sublessees, contractors or subcontractors of
Tenant during the Term, or any other activity carried on or undertaken on or off
the Premises during the Term by Tenant, any employees, agents, licensees,
sublessees, contractors or subcontractors of Tenant, in connection with the
handling, treatment, removal, storage, decontamination, clean-up, transport or
disposal of any Hazardous Substance at any time located or present on, under,
from or about the Premises, including, without limitation: (i) all consequential
damages; (ii) the costs of any required or necessary repair, cleanup or
detoxification of the Premises and the preparation and implementation of any
closure, remedial or other required plans including, without limitation: (A) the
costs of removal or remedial action incurred by the United States Government or
the state in which the Premises are located, or response costs incurred by any
other person, or damages from injury to, destruction of, or loss of natural
resources, including the costs of assessing such injury, destruction or loss,
incurred pursuant any Environmental Law; (B) the clean-up costs, fines, damages
or penalties incurred pursuant to the provisions of applicable state law; and
(C) the cost and expenses of abatement, correction or clean-up, fines, damages,
response costs or penalties which arise from the provisions of any other
statute, state or federal; and (iii) liability for personal injury or property
damage, including damages assessed for the maintenance of the public or private
nuisance, response costs or for the carrying on of an abnormally dangerous
activity.
The foregoing indemnity shall further apply to any residual
contamination on, under, from or about the Premises, or affecting any natural
resources arising in connection with the use, generation,
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manufacturing, production, handling, storage, transport, discharge or disposal
of any such Hazardous Substance, and irrespective of whether any of such
activities were or will be undertaken in accordance with Environmental Law or
other applicable laws, regulations, codes and ordinances. This indemnity is
intended to be operable under 42 U.S.C. Section 9607(e)(1), and any successor
section thereof and shall survive expiration or earlier termination of this
Lease and any transfer of all or a portion of the Premises by Tenant.
The foregoing indemnity shall in no manner be construed to limit or
adversely affect Landlord's rights under this Article 18, including, without
limitation, Landlord's rights to approve any Remedial Work (as defined below) or
the contractors and consulting engineers retained in connection therewith.
Notwithstanding anything to the contrary contained in this Lease, in no event
will Tenant have any liability or obligation under this Lease or with respect to
the Premises for Hazardous Substances existing in, on, under or about the
Premises on the Commencement Date or any violation of Environmental Laws prior
to or existing on the Commencement Date.
Section 18.7. In the event that any investigation, site monitoring,
containment, cleanup, removal, restoration or other remedial work of any kind or
nature (the "REMEDIAL WORK") is required by any applicable local, state or
federal law or regulation, any judicial order, or by any governmental entity or
person because of, or in connection with, the current or future presence,
suspected presence, release or suspected release of a Hazardous Substance in or
into the air, soil, groundwater, surface water or soil vapor at, on, about,
under or within the Premises (or any portion thereof), Tenant shall within
thirty (30) days after written demand for performance thereof by Landlord (or
such shorter period of time as may be required under any applicable law,
regulation, order or agreement), commence to perform, or cause to be commenced,
and thereafter diligently prosecute to completion within such period of time as
may be required under any applicable law, regulation, order or agreement, all
such Remedial Work at Tenant's sole expense in accordance with the requirements
of any applicable governmental authority or Environmental Law. All Remedial Work
shall be performed by one or more contractors, approved in advance in writing by
Landlord, and under the supervision of a consulting engineer approved in advance
in writing by Landlord. All costs and expenses of such Remedial Work shall be
paid by Tenant, including, without limitation, the charges of such contractor(s)
and/or the consulting engineer, and Landlord's actual and customary attorneys'
fees and costs incurred in connection with monitoring or review of such Remedial
Work. In the event Tenant shall fail to timely commence, or cause to be
commenced, or fail to complete the Remedial Work within the time required above,
Landlord may, but shall not be required to, cause such Remedial Work to be
performed and all costs and expenses thereof, or incurred in connection
therewith shall become part of the indebtedness secured hereby.
Section 18.8. All costs and expenses incurred by Landlord under this
Article 18 shall be immediately due and payable as Additional Rent upon demand
and shall bear interest at the Default Rate from the date of notice of such
payment by Landlord and the expiration of any grace period provided herein until
repaid.
Section 18.9. "ENVIRONMENTAL LAWS" shall mean any federal, state or
local law, statute, ordinance or regulation pertaining to health, industrial
hygiene, hazardous waste or the environmental conditions on, under, from or
about the Premises, including, without limitation, the laws listed in the
definition of Hazardous Substances below.
Section 18.10. "HAZARDOUS SUBSTANCES" shall mean any element, compound,
chemical mixture, contaminant, pollutant, material, waste or other substance
which is defined, determined or identified as a "hazardous substance",
"hazardous waste" or "hazardous material" under any federal, state or local
statute, regulation or ordinance applicable to a Real Property, as well as any
amendments and successors to such statutes and regulations, as may be enacted
and promulgated from time to time, including, without limitation, the following:
(i) the Comprehensive Environmental Response, Compensation and Liability Act of
1980 (codified in scattered sections of 26 U.S.C., 33 U.S.C., 42 U.S.C. and 42
U.S.C. Section 9601 et seq.); (ii) the Resource Conservation and Recovery Act of
1976 (42 U.S.C. Section 6901 et. seq.); (iii) the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et. seq.); (vi) the Toxic Substances
Control Act (15 U.S.C. Section 2601 et. seq.); (v) the Clean Air Act (33 U.S.C.
Section 1251 et. seq.); (vi) the Clean Air Act (42 U.S.C.Section 7401 et. seq.);
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(vii) the Safe Drinking Water Act (21 U.S.C. Section 349; 42 U.S.C. Section 201
and Section 300f et. seq.); (viii) the National Environmental Policy Act of 1969
(42 U.S.C. Section 3421); (ix) the Superfund Amendment and Reauthorization Act
of 1986 (codified in scattered sections of 10 U.S.C., 29 U.S.C., 33 U.S.C. and
42 U.S.C.); and (x) Title III of the Superfund Amendment and Reauthorization Act
(40 U.S.C. Section 1101 et. seq.).
Section 18.11. All representations, warranties, covenants and
indemnities of Tenant in this Article 18 shall continue to be binding upon
Tenant, and its successors and assigns, after the expiration or earlier
termination of this Lease.
ARTICLE 19
MISCELLANEOUS PROVISIONS
Section 19.1. It is mutually agreed by and between Landlord and Tenant
that the respective parties shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, Tenant's use or occupancy of the Premises, and/or any
claim of injury or damage excluding any claim for personal injury or property
damage.
Section 19.2. Tenant and the other parties occupying a part of the
Premises pursuant to a lease or license arrangement with Tenant may place a sign
on the Premises to indicate the nature of the business of Tenant and such
parties. The sign shall be lawful under applicable sign codes and subdivision
covenants.
Section 19.3.
(a) The term "LANDLORD" as used herein shall mean only the owner or the
mortgagee in possession for the time being of the Premises, so that in the event
of any sale, transfer or conveyance of the Premises Landlord shall be and hereby
is entirely freed and relieved of all agreements, covenants and obligations of
Landlord thereafter accruing hereunder, and it shall be deemed and construed
without further agreement between the parties or their successors in interest or
between the parties and the purchaser, transferee or grantee at any such sale,
transfer or conveyance that such purchaser, transferee or grantee has assumed
and agreed to carry out any and all agreements, covenants and obligations of
Landlord hereunder.
(b) The term "TENANT" as used herein shall mean the tenant named
herein, and from and after any valid assignment or transfer in whole of said
Tenant's interest under this Lease pursuant to the provisions of Article 9,
shall mean only the assignee or transferee thereof; but the foregoing shall not
release the assignor or transferor from liability under this Lease.
(c) The words "ENTER", "RE-ENTER", "ENTRY" and "RE-ENTRY" as used in
this Lease shall not be restricted to their technical legal meaning.
(d) The use herein of the neuter pronoun in any reference to Landlord
or Tenant shall be deemed to include any individual Landlord or Tenant, and the
use herein of the words "SUCCESSOR AND ASSIGNS" or "SUCCESSORS OR ASSIGNS" of
Landlord or Tenant shall be deemed to include the heirs, executors,
administrators, representatives and assigns of any individual Landlord or
Tenant.
Section 19.4. The headings herein are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
or intent of this Lease nor in any way affect this Lease.
Section 19.5. This Lease shall be governed by and construed in
accordance with the laws of the state in which the Premises are located.
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Section 19.6. This Lease contains the entire agreement between the
parties and may not be extended, renewed, terminated or otherwise modified in
any manner except by an instrument in writing executed by the party against whom
enforcement of any such modification is sought. All prior understandings and
agreements between the parties and all prior working drafts of this Lease are
merged in this Lease, which alone expresses the agreement of the parties. The
parties agree that no inferences shall be drawn from matters deleted from any
working drafts of this Lease.
Section 19.7. The agreements, terms, covenants and conditions herein
shall bind and inure to the benefit of Landlord and Tenant and their respective
heirs, personal representatives, successors and, except as is otherwise provided
herein, their assigns.
Section 19.8. Notice whenever provided for herein shall be in writing
and shall be given either by personal delivery, overnight express mail or by
certified or registered mail, return receipt requested, to Landlord and Tenant
at their respective addresses set forth in Article A above, or to such other
persons or at such other addresses as may be designated from time to time by
written notice from either party to the other. Notices shall be deemed given (i)
when delivered personally if delivered on a business day (or if the same is not
a business day, then the next business day after delivery), (ii) three (3)
business days after being sent by United States mail, registered or certified
mail, postage prepaid, return receipt requested or (iii) if delivery is made by
Federal Express or a similar, nationally recognized overnight courier service
for 9:00 a.m. delivery, then on the date of delivery (or if the same is not a
business day, then the next business day after delivery), if properly sent and
addressed in accordance with the terms of this Section 19.8.
Section 19.9. If any provision of this Lease shall be invalid or
unenforceable, the remainder of the provisions of this Lease shall not be
affected thereby and each and every provision of this Lease shall be enforceable
to the fullest extent permitted by law.
Section 19.10. Tenant represents and warrants to Landlord that Tenant
has not dealt with any real estate broker in connection with this Lease. Tenant
agrees to indemnify Landlord and save Landlord harmless from any and all claims
for brokerage commissions by any other person, firm, corporation or other entity
claiming to have brought about this Lease transaction. Landlord represents and
warrants to Tenant that Landlord has not dealt with any real estate broker in
connection with this Lease. Landlord agrees to indemnify Tenant and save Tenant
harmless from any and all claims for brokerage commissions by any other person,
firm, corporation or other entity claiming to have brought about this Lease
transaction. The provisions of this Section 19.10 shall survive the expiration
or earlier termination of this Lease.
Section 19.11. Tenant is and shall be in exclusive control and
possession of the Premises, and Landlord shall not, in any event whatsoever, be
liable for any injury or damage to any property or to any person happening in,
on or about the Premises, nor for any injury or damage to any property of
Tenant, or of any other person or persons contained therein unless the same is
caused by Landlord's negligent acts or omissions. The provisions hereof,
including without limitation Article 17, permitting Landlord to enter and
inspect the Premises are made for the purpose of enabling Landlord to be
informed as to whether Tenant is complying with the agreements, terms, covenants
and conditions hereof, and if Landlord so desires, to do such acts as Tenant
shall fail to do.
Section 19.12. A memorandum of this Lease as set forth on Exhibit "B"
attached hereto and incorporated herein by this reference shall be recorded. The
memorandum of lease shall incorporate the basic terms and conditions hereof but
shall delete any statement or mention of the rental payments.
Section 19.13. The parties took equal part in drafting this Lease and
no rule of construction that would cause any of the terms hereof to be construed
against the drafter shall be applicable to the interpretation of this Lease.
Section 19.14. In the event of a default by Tenant, following the
expiration of the applicable cure period, if any, Tenant shall and hereby does
appoint Landlord the attorney-in-fact of Tenant, irrevocably, to
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<PAGE> 34
execute and deliver any documents provided for in Section 14.1 for and in the
name of Tenant, such power, being coupled with an interest, being irrevocable.
Section 19.15. Time is strictly of the essence with respect to each and
every term and provision of this Lease.
Section 19.16. The time within which either party hereto shall be
required to perform any act under this Lease, other than the payment of money,
shall be extended by a period of time equal to the number of days during which
performance of such act is delayed by strikes, lockouts, acts of God,
governmental restrictions, failure or inability to secure materials or labor by
reason of priority or similar regulation or order of any governmental or
regulatory body, enemy action, civil disturbance, fire, unavoidable causalities
or any other cause beyond the reasonable control of either party hereto (but
excluding delays due to financial inability) (all of the foregoing are herein
collectively called "FORCE MAJEURE DELAYS"). The provisions of this Section
shall not apply to nor operate to excuse Tenant from the payment of Rent
strictly in accordance with this Lease. If Landlord shall be in default under
this Lease and, if as a consequence of such default, Tenant shall recover a
money judgement against Landlord, such judgment shall be satisfied only out of
right, title and interest of Landlord in the Premises as the same may then be
encumbered and neither Landlord nor any person or entity comprising Landlord
shall be liable for any deficiency. In no event shall Tenant have the right to
levy execution against any property of Landlord nor any person or entity
comprising Landlord other than its interests in the Premises as herein expressly
provided. Notwithstanding anything to the contrary contained herein, in no event
shall Landlord be liable for consequential or special damages for a breach of or
default under this Lease.
Section 19.17.
ARTICLE 20
LANDLORD'S ADDITIONAL TERMINATION RIGHT
Section 20.1. If, during the Term, Landlord intends to sell the
Premises to third party that will occupy the Building after the closing of such
sale, Landlord may terminate this Lease by giving Tenant at least six (6) months
advanced written notice thereof (the "TERMINATION NOTICE"). In the Termination
Notice, Landlord shall identify the date on which this Lease shall terminate,
and such date shall become the Expiration Date. After any termination of this
Lease by Landlord pursuant to this Section 21.1, the parties hereto shall have
no further rights or obligations under this Lease after the revised Expiration
Date except those that expressly survive a termination of this Lease.
ARTICLE 21
SUBORDINATION TO SENIOR DEBT
Section 21.1. Tenant's obligations under this Lease are and at all
times hereafter will be junior and subordinate in right of payment and exercise
of remedies to the indefeasible prior payment in full in cash of all obligations
owed in respect of the Senior Debt (as defined in Section 22.2 below). The
subordination of the obligations under this Lease is for the benefit of all
holders of Senior Debt from time to time, whether such Senior Debt is
outstanding on the date hereof or incurred, created or arising hereafter. Upon
the occurrence and during the continuance of any default or event of default
under any Senior Debt, Tenant will have no obligation to make, and Landlord will
not accept or receive or take any action to collect, any payment of any portion
of the obligations under this Lease until all obligations with respect to such
Senior Debt have been indefeasibly discharged in full in cash. Should any
payment, distribution, security, or proceeds thereof be received by Landlord
contrary to the terms hereof, Landlord shall immediately deliver the same to the
holders of the Senior Debt in precisely the form received (except for
endorsement or assignment of Landlord where necessary), for application on or to
secure the Senior Debt, whether it is due or not due, and until so delivered the
same shall be held in trust by Landlord as property of the holders of the Senior
Debt. Nothing in this section shall prohibit Landlord from receiving and
retaining amounts due to Landlord hereunder, provided that at the
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<PAGE> 35
time such amount is paid to Landlord there shall not have occurred or be
continuing any default or event of default of which Landlord has received notice
under any Senior Debt.
Section 21.2. For purposes hereof, "SENIOR DEBT" means (i) all
indebtedness and obligations of Marketing Specialists Corporation, a Delaware
corporation ("MSC"), or Tenant in favor of any bank, trust company, insurance
company or other institutional lender providing financing to MSC or Tenant or
entering into swap or hedging agreements with MSC or Tenant, including without
limitation all indebtedness and obligations under that certain Amended and
Restated Credit Agreement dated August 18, 1999 among MSC, the lenders party
thereto and First Union National Bank, as agent for the lenders, including any
guaranty thereof by Tenant, as the same may be amended, restated, refinanced,
supplemented or otherwise modified from time to time (the "FIRST UNION CREDIT
AGREEMENT"), and all Senior Obligations as defined under the First Union Credit
Agreement, (ii) if so elected by Tenant, all indebtedness and obligations under
that certain Indenture dated as of December 19, 1997, among MSC, as successor by
merger to Richmont Marketing Specialists, Inc., the subsidiaries of MSC party
thereto and Chase Bank of Texas, N.A., as successor-in-interest to Texas
Commerce Bank National Association, as trustee, including any guaranty thereof
by Tenant, as the same may be amended, restated, refinanced, supplemented or
otherwise modified from time to time (the "INDENTURE"), and (iii) if so elected
by Tenant, any other Senior Indebtedness as defined in the Indenture.
LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE PREMISES
ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL PURPOSE AND, EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED IN THIS LEASE, TENANT'S OBLIGATION TO PAY RENT HEREUNDER IS
NOT DEPENDENT UPON THE CONDITION OF THE PREMISES OR THE PERFORMANCE BY LANDLORD
OF ITS OBLIGATIONS HEREUNDER, AND, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
THIS LEASE, TENANT SHALL CONTINUE TO PAY FIXED RENT AND ALL ADDITIONAL RENT,
WITHOUT ABATEMENT, SETOFF OR DEDUCTION NOTWITHSTANDING ANY BREACH BY LANDLORD OF
ITS DUTIES OR OBLIGATIONS HEREUNDER, WHETHER EXPRESS OR IMPLIED.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
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<PAGE> 36
The parties hereto have executed this Lease as of the day and year
first above set forth.
TENANT:
MARKETING SPECIALISTS SALES COMPANY,
a Texas corporation
By:
----------------------------------------
Name:
---------------------------------
Title:
--------------------------------
LANDLORD:
RCPI OFFICE PROPERTIES, LLC, a Texas
limited liability company
By: Richmont Capital Partners I, L.P., a
Delaware limited partnership, its
sole member
By: J.R. Investments Corp., its managing
general partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
33
<PAGE> 37
EXHIBIT "A"
DESCRIPTION OF THE LAND
[to be attached]
A-1
<PAGE> 38
EXHIBIT "B"
RCPI OFFICE PROPERTIES, LLC, a Delaware limited liability company
("LANDLORD"), and MARKETING SPECIALISTS SALES COMPANY, a Texas corporation
("TENANT"), have entered into that certain Lease (the "LEASE") dated as of
February 17, 2000, for the lease of property located at 2801 S. 35th Street,
Phoenix, Arizona 85034-4920. This Exhibit "B" (this "EXHIBIT") is attached to
the Lease. Except to the extent otherwise indicated herein, the initially
capitalized terms used in this Exhibit shall have the meanings assigned to them
in the Lease.
MEMORANDUM OF LEASE
The Lease is for a term of twelve (12) months and will commence on
February 17, 2000.
The Premises includes the real property located in Maricopa County,
Arizona and more particularly described in the Exhibit A attached hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Memorandum of
Lease on the 17th day of February, 2000.
TENANT:
MARKETING SPECIALISTS SALES COMPANY,
a Texas corporation
By:
----------------------------------------
Name:
---------------------------------
Title:
--------------------------------
LANDLORD:
RCPI OFFICE PROPERTIES, LLC, a Texas
limited liability company
By: Richmont Capital Partners I, L.P., a
Delaware limited partnership, its
sole member
By: J.R. Investments Corp., its managing
general partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
C-1
<PAGE> 1
EXHIBIT 10.14
CONTRACT OF SALE
OF IMPROVED PROPERTY
THIS CONTRACT OF SALE OF IMPROVED PROPERTY (this "Contract") is made
and entered as of February 17, 2000 (the "Effective Date"), by and between
BROMAR, INC., a California corporation ("Seller"), and RCPI OFFICE PROPERTIES,
LLC, a Texas limited liability company ("Buyer").
For and in consideration of the mutual covenants and agreements
contained in this Contract and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Buyer and Seller agree
as follows:
1. PURCHASE AND SALE. Seller agrees to sell and convey to Buyer, and
Buyer agrees to buy from Seller, the Property (as hereinafter defined) for the
consideration and upon and subject to the terms, provisions and conditions
hereinafter set forth.
(a) DESCRIPTION OF THE PROPERTY. The "Property" means: the improved
tract of land (the "Land") situated in Orange County, California, more
particularly described in the Exhibit A attached hereto and containing
approximately 3.47 acres, more or less, together with (i) all buildings,
structures and improvements thereon (collectively, the "Improvements")
including, without limitation, associated parking areas, landscaping, storm
water drainage systems and exterior lighting, all mechanical systems, fixtures
and equipment (including, but not limited to, compressors, engines, elevators
and escalators), electrical systems, fixtures and equipment, heating fixtures,
systems and equipment, air conditioning fixtures, systems and equipment, and
plumbing fixtures, systems and equipment, (ii) all of Seller's right, title and
interest in and to oil, gas, hydrocarbons and other minerals (including, but not
limited to, coal, lignite, iron and uranium) in, on, or under or that may be
produced from the Land, (iii) any and all rights, titles, powers, privileges,
easements, licenses, rights-of-way and interests appurtenant to the Land, (iv)
all and singular the rights, titles, benefits, privileges, remainders,
reversions, easements, tenements, hereditaments, interests and appurtenances of
Seller pertaining to the Land, including, without limitation, any right, title
and interest, if any, of Seller in and to adjacent strips or gores, if any,
between the Land and abutting properties, and in and to adjacent streets,
highways, roads, alleys or rights-of-way (except to the extent, if any, that
such streets, highways, roads, alleys or rights-of-way abut or provide access to
or benefit other properties owned by Seller), either at law or in equity, in
possession or expectancy, and (v) all rights, titles, powers, privileges,
interests, licenses, easements and rights-of-way appurtenant or incident to any
of the foregoing.
(b) AMENDMENTS TO PROPERTY DESCRIPTION. Intentionally deleted.
2. CONTRACT PURCHASE PRICE. Subject to the provisions of this Section 2,
the total purchase price for the Property (the "Sales Price") shall be
$4,888,000.00.
(a) PAYABLE IN TWO INSTALLMENTS. The Sales Price shall be payable in
two installments, with $4,399,200.00 (the "First Installment") payable in
Immediately Available Funds (as hereinafter defined) at the Closing (as defined
in Section 10.(a) below), and the remaining $488,800.00 (the "Second
Installment") payable in Immediately Available Funds on the sixtieth (60th) day
following the Closing (such day is herein referred to as the "Second Installment
Due Date"); provided, however, if, prior to the Second Installment Due Date,
Buyer has notified Seller in writing (the "Default Notice") that (i) a
representation or warranty of Seller in Section 6 hereof was false or inaccurate
in a material respect, or (ii) Seller has failed to perform any of its
obligations under this Contract that expressly survive the Closing, or (iii)
Buyer has discovered an Unacceptable Condition (as hereinafter defined), then
the Second Installment shall not be paid on the Second Installment Due Date and
shall only be payable as expressly provided in this Section 2. As used herein,
the term "Unacceptable Condition" shall mean any condition with respect to the
Property that a purchaser of the Property would reasonably deem to be so
unacceptable as to prevent such purchaser from purchasing the Property unless
such condition was remedied prior to closing or an appropriate purchase price
reduction was made available to such purchaser at closing.
<PAGE> 2
(b) DEFAULT NOTICE. In any Default Notice, Buyer shall (1) set forth in
detail the basis on which Buyer claims that one or more of Seller's
representations or warranties is false or materially misleading, (2) reasonably
estimate the financial loss incurred or to likely be incurred by Buyer as a
result of such Seller misrepresentation (a "Loss Due to Breach"), and/or (3)
identify with reasonable specificity any Unacceptable Condition discovered by
Buyer after the Closing Date and provide Seller with Buyer's estimate of the
amount necessary to repair and/or remedy such Unacceptable Condition. If, within
ten (10) days after Seller's receipt of the Default Notice, Seller disputes any
matter contained in the Default Notice, Seller shall notify Buyer in writing of
the same and Buyer and Seller shall thereafter proceed to diligently and in good
faith attempt to resolve such dispute and, if the parties are unable to resolve
the same within ten (10) days after Buyer's receipt of the applicable dispute
notice, such dispute shall be submitted for resolution by binding arbitration in
accordance with the terms, conditions and provisions of the Exhibit G attached
to this Contract.
(c) PAYMENT OF SECOND INSTALLMENT.
(1) If Seller does not dispute Buyer's claim for Loss Due to
Breach and/or claim of one or more Unacceptable Conditions within such ten (10)
day period, Buyer shall pay the Second Installment, reduced by the applicable
amount of the Loss Due to Breach and the amount of all Confirmed Costs (as
hereinafter defined), on the sixtieth (60th) day after the Second Installment
Due Date.
(2) If Seller does dispute Buyer's claim for Loss Due to
Breach and/or claim of one or more Unacceptable Conditions within such ten (10)
day period, Buyer shall pay the Second Installment, reduced by the disputed
amounts, as applicable, of the claimed Loss Due to Breach and/or the claimed
amount of Confirmed Costs (such amounts are herein collectively referred to as
"Disputed Amounts"), on the Second Installment Due Date. The Disputed Amounts
withheld from the Second Installment will be paid to Seller within ten (10) days
after either (A) the date the parties reach an agreement in writing with respect
to the amount of the Disputed Amounts, or (B) a determination is made upon the
completion of arbitration proceedings as to the amount of the Disputed Amounts.
(3) As used herein, the term "Immediately Available Funds"
shall mean funds paid by either a cashier's check or certified check drawn on a
national banking association acceptable to Seller or a wire transfer of
immediately available federal funds, and the term "Confirmed Costs" shall mean
(i) all costs actually incurred by Buyer to third-parties to repair and/or
remedy Unacceptable Conditions identified in the Default Notice (including,
without limitation, reasonable and necessary legal and consulting fees), or (ii)
all reasonable and necessary costs estimated in good faith by Buyer to repair
and/or remedy Unacceptable Conditions identified in the Default Notice that are
either (1) not disputed by Seller as provided above or are related to an
Unacceptable Condition that Seller does not elect to remedy and/or repair as
provided above, or (2) are disputed by Seller and are ultimately found by
arbitration proceedings to be reasonable and necessary with respect to the
applicable misrepresentation and/or Unacceptable Condition. When providing
Seller with written evidence of the payment of Confirmed Costs, Buyer shall
provide, as applicable, a reasonable breakdown of the components of the
applicable Confirmed Costs.
3. ESCROW. Intentionally deleted.
4. ENVIRONMENTAL REPORT. Seller has heretofore allowed Buyer's designated
agents to review and copy at Buyer's sole cost and expense the following that
certain environmental report (the "Environmental Report") prepared by Phase One
Inc. dated February 1, 2000, with respect to the Land and/or the Improvements.
5. TITLE AND SURVEY APPROVAL.
(a) PRELIMINARY TITLE REPORT AND SURVEY DELIVERIES. Seller has
delivered to Buyer the following:
(1) Preliminary Title Report. A preliminary title report (the
"Preliminary Title Report") issued by Chicago Title Company at 16969
Von Karman, Irvine, California, Attention: Susie Calwell
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<PAGE> 3
(the "Title Company") with respect to the Property, together with
copies of all underlying title documents described therein.
(2) Survey. A survey of the Land and Improvements (the
"Survey") prepared by Development Resource Consultants, Inc. (Warren W.
Williams, Jr., PLS) and dated February 4, 2000.
(b) BUYER'S TITLE POLICY. Intentionally deleted.
6. REPRESENTATIONS AND WARRANTIES OF SELLER.
(a) SELLER REPRESENTATIONS AND WARRANTIES. Seller hereby represents and
warrants to Buyer that Seller now has and on the Closing Date will have and
convey to Buyer good and indefeasible title to the Land and Improvements subject
only to the Permitted Exceptions (as defined in Section 10.(b)(2) below). Seller
further represents and warrants to Buyer, which representations and warranties
shall be deemed made by Seller to Buyer as of the Effective Date of this
Contract and also as of the Closing Date, that:
(1) Parties in Possession; Matters Related to Leases. To the
best of Seller's knowledge, there are no parties in possession of any portion of
the Improvements or the Land except Seller and the adjacent property owner to
the north as reflected on the Survey. There are no leases or other occupancy
agreements in effect with respect to the Land and/or Improvements.
(2) Power and Authority. Seller has, or on the Closing Date
will have, the power and authority to carry out Seller's obligations hereunder.
All requisite action necessary to authorize Seller to enter into this Contract
and to carry out Seller's obligations hereunder has been, or on the Closing Date
will have been, taken. The individual executing this Contract on behalf of
Seller has the full right, power and authority to do so. After the discharge by
Seller of all existing liens and encumbrances at or before the Closing, Seller
will have the power and authority to sell and convey the Property in accordance
with the terms of this Contract.
(3) No Suits or Tax Assessments. To the best of Seller's
knowledge, there are no suits (at law or in equity) or special tax assessments
pending or threatened that affect the Improvements or Land, or Seller's ability
to perform hereunder.
(4) Condemnation Proceedings. Seller has no knowledge, nor has
Seller received any actual written notice, of any condemnation or eminent domain
proceeding pending or threatened against any or all of the Improvements or Land.
(5) Seller Is Not a "Foreign Person". Seller is not a "foreign
person" within the meaning of Section 1445 of the Internal Revenue Code, as
amended (i.e., Seller is not a foreign corporation, foreign partnership, foreign
trust, foreign estate or foreign person as those terms are defined in the
Internal Revenue Code and regulations promulgated thereunder).
(6) No Violations. Seller has no knowledge, nor has Seller
received written notice from any governmental agency since Seller acquired the
Property, of any existing or threatened violation which remains uncured of (i)
any statute, ordinance, code, rule or regulation of any governmental entity
applicable to the ownership, operation, use, maintenance or condition of the
Property or any part thereof, or (ii) any restrictive covenant or deed
restriction affecting the Property.
(7) No Liens. The Property and the Personal Property are free
and clear of any mechanic's liens, liens, security interests, mortgages, or
encumbrances of any nature except for those which will be discharged by Seller
at the Closing. No work has been performed or is in progress by or on behalf of
Seller, and, to the best of Seller's knowledge, no materials have been furnished
to the Land or the Improvements or any portion thereof, which might give rise to
mechanic's, materialman's or other liens against the Land, the
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<PAGE> 4
Improvements or the Personal Property or any portion thereof except for those
which will be discharged or bonded around at the Closing.
(8) No Property Agreements. There are no management, service,
supply, license, maintenance or other contracts or agreements in effect with
respect to the Property other than those set forth in the Exhibit C attached
hereto (such listed contracts or agreements and any other contracts or
agreements with respect to the Property entered into by Seller prior to the
Closing Date in accordance with the terms of this Contract are herein
collectively referred to as the "Operating Agreements").
(9) Structural Condition. Seller has received no written
notice of any, and to the best of Seller's knowledge there is no, latent or
patent defect in (1) the Improvements or structural elements thereof or
mechanical systems therein (including, without limitation, the roof or roofs of
the Improvements and all heating, ventilating, air conditioning, plumbing,
electrical, utility and sprinkler systems therein) except the defects with
respect to the second floor of the building which Seller has heretofore brought
to Buyer's attention, or (2) the Utilities (as hereinafter defined) serving the
Property. As used herein, "Utilities" shall mean public sanitary and storm
sewers, natural gas, telephone, public water facilities, electrical facilities
and all other utility facilities and services necessary or appropriate for the
operation and occupancy of the Property.
(10) Applicable Laws. To the best of Seller's knowledge, the
location, construction, occupancy, operation, and use of the Property (including
all Improvements thereon) does not violate any applicable law, statute,
ordinance, rule, regulation, order or determination of any governmental
authority or any board of fire underwriters (or other body exercising similar
functions), or any restrictive covenant or deed restriction (recorded or
otherwise) affecting the Property, including without limitation all applicable
zoning ordinances, building codes, flood disaster laws, and health and
environmental laws (hereinafter sometimes collectively called "Applicable
Laws").
(11) Access to the Property. The Property has full and free
access to and from public highways, streets, and roads, and Seller has no
knowledge of any pending or threatened governmental proceeding or any other fact
or condition which would limit or result in the termination of such access.
(12) Utilities. The Improvements are connected to and serviced
by Utilities which connections are, to the best of Seller's knowledge, in
compliance with all Applicable Laws. To the best of Seller's knowledge, all
Utilities servicing the Improvements enter the Land through adjoining public
streets, or, if they pass through adjoining private land, do so in accordance
with valid recorded easements.
(13) Certificates of Occupancy. Permanent certificates of
occupancy required by all governmental authorities having jurisdiction have been
issued for the Improvements and are in full force and effect.
(14) Environmental Laws. To the best of Seller's knowledge,
the Property and the Improvements thereon do not violate any federal, state, or
local law, statute, ordinance, or regulation pertaining to health, industrial
hygiene, or the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C.
Section 9601 et seq.) the Resource Conservation and Recovery Act of 1976 (42
U.S.C. Section 6901 et seq.), the Toxic Substances Control Act (15 U.S.C.
Section 2601 et seq.), and all amendments of the foregoing laws, and all
regulations, rules, guidelines, and standards promulgated pursuant to such laws,
as such statutes, regulations, rules, guidelines, and standards are amended from
time to time, and all state laws, regulations, rules, guidelines, standards and
any state superlien or environmental clean-up or disclosure statutes
(collectively, the "Environmental Laws").
(b) ONE-YEAR WARRANTY. Seller hereby warrants against defects or
problems that may reduce the value of the Property below the Sales Price in (i)
all architectural/structural elements of and mechanical/electrical and related
systems in the Improvements, and (ii) the environmental condition of the
Property. This warranty shall apply to any claims made in writing by Buyer to
Seller during the period of time beginning on the Closing Date and ending on the
365th day thereafter.
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<PAGE> 5
(c) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The foregoing
representations and warranties shall not survive the Closing except as
specifically provided in Section 17.(g) below.
(d) WAIVER OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties contained in this Section are intended for the
benefit of Buyer, may not be assigned independently of this Contract, and may be
waived by Buyer, in whole or in part, by an instrument in writing signed by
Buyer or as otherwise expressly provided in this Contract.
7. COVENANTS OF SELLER.
(a) Seller covenants and agrees with Buyer that Seller will within ten
(10) days after the Closing, deliver the following documents to Buyer:
(1) copies of the Certificate(s) of Occupancy for the
Improvements as issued by the applicable governmental authority;
(2) a set of the final "as-built" plans and specifications for
the Improvements, if available, together with copies of any and all executed
change orders in Seller's possession, if any, and all warranties and guarantees,
if any, with respect thereto (in the event that "as-built" plans and
specifications are not available, Seller shall provide the original set of plans
and specifications for the Improvements if such plans and specifications are in
Seller's possession);
(3) copies of all geotechnical reports, inspection reports,
and other engineering reports related to the Land and/or Improvements in Sellers
possession; and
(4) copies of all Operating Agreements with respect to the
Property (accompanied by Seller's signed certificate that the copies provided
are true, correct, and complete).
(b) Seller further covenants and agrees to maintain in effect for ten
(10) days after the Closing Date the property damage insurance for the
Improvements that is in effect as of the Closing Date.
8. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF BUYER.
(a) BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer represents and
warrants to Seller, which representations and warranties shall be deemed made by
Buyer to Seller as of the Effective Date and also as of the Closing Date, as
follows:
(1) Power and Authority. Buyer has the full right, power and
authority to purchase the Property as provided in this Contract and to carry out
Buyer's obligations hereunder. All requisite action necessary to authorize Buyer
to enter into this Contract and to carry out Buyer's obligations hereunder has
been taken. The individual executing this Contract on behalf of Buyer has the
full right, power and authority to do so.
(2) No Suits. There is no suit (at law or in equity) pending
or known to Buyer to be threatened against or affecting Buyer which (i) in any
manner raises any question affecting the validity or enforceability of this
Contract or any other agreement or instrument to which Buyer is a party or by
which it is bound and that is to be used in connection with, or is contemplated
by, this Contract, or (ii) could materially and adversely affect the ability of
Buyer to perform Buyer's obligations hereunder, or under any document to be
delivered pursuant hereto.
(3) Environmental Report. It is Buyer's responsibility to
assure itself that the information contained in the Environmental Report and any
other engineering reports, building plans and specifications, engineering
drawings, leases, operating reports and other information related to the
Improvements and/or the Land which may be supplied by Seller or any of Seller's
Related Parties, or made available by Seller or any of
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<PAGE> 6
Seller's Related Parties, to Buyer is accurate, true and complete, and any
reliance by Buyer on the Environmental Report and such other reports, materials
and information, which reliance is hereby recognized by Seller, shall be
undertaken at the risk of Buyer.
(b) WAIVER OF REPRESENTATIONS OR WARRANTIES. Each of the
representations and warranties contained in this Section are intended for the
benefit of Seller, may not be assigned independently of this Contract by Seller,
and may be waived in whole or in part, by Seller, but only by an instrument in
writing signed by Seller or as otherwise expressly provided in this Contract.
9. LIMITATION OF SELLER'S REPRESENTATIONS AND WARRANTIES.
(a) ACKNOWLEDGEMENTS AND AGREEMENTS OF BUYER. Buyer acknowledges and
agrees as follows:
(1) Disclaimer of Express Warranties. That, except for
Seller's representations and warranties in Section 6 of this Contract and except
for the special warranty of title in the Deed, Seller has not made, and Seller
hereby specifically disclaims, any warranty, guaranty or representation, oral or
written, past, present or future, of, as to, or concerning (i) the nature and
condition of the Property, including, without limitation, the water, soil and
geology, and the suitability thereof and of the Property for any and all
activities and uses which Buyer may elect to conduct thereon; and (ii) the
compliance of the Property or its operation with any laws, ordinances, orders,
rules or regulations of any governmental or other body. Buyer acknowledges that
having been given the opportunity to inspect the Property, Buyer is relying
solely on Buyer's own investigation of the Property and has not relied on, and
is not relying on (and Seller shall have no liability or obligation whatsoever
for any inaccuracy in or omission from), any information, documents, sales
brochures, or other literature, maps or sketches, projections, pro formas,
statements, representations, guarantees, or warranties (whether express or
implied, or oral or written, or material or immaterial), if any, that may have
been given, made or made available by or on behalf of Seller or any of Seller's
Related Parties other than the special warranty of title contained in the Deed
and the representations and warranties set forth in Section 6 of this Contract.
Any information heretofore provided or made available to, and to be provided and
made available to, Buyer or any of Buyer's Related Parties (as hereinafter
defined) by or on behalf of Seller with respect to the Property was obtained
from a variety of sources and Seller (A) has not made any independent
investigation or verification of such information; and (B) makes no
representations, guarantees or warranties as to the truth, accuracy or
completeness of such information. Except as specifically set forth in the Deed
and in Section 6 of this Contract, Buyer is purchasing the Property, and the
Property shall be conveyed and transferred to Buyer, without any warranties,
representations, or guarantees, either express or implied, of any kind, nature,
or type whatsoever from or on behalf of Seller or any of Seller's Related
Parties. Buyer expressly acknowledges that, in consideration of the agreements
of Seller herein, except as otherwise specified in this Contract, Seller makes
no warranty or representation, express or implied, or arising by operation of
law, including, but not limited to, any warranty of condition, habitability,
merchantability, tenantability or fitness for a particular use or purpose, or
with respect to the value, profitability or marketability of the Property, or
with regard to compliance with any environmental protection, pollution or land
use laws, rules, regulations, orders, or requirements including, but not limited
to, those pertaining to the handling, generating, treating, storing, or
disposing of any hazardous waste or substance with respect to the Property. As
used herein, the term "Buyer's Related Parties" shall mean any of Buyer's
agents, officers, partners, contractors, attorneys, servants, employees,
lenders, accountants and representatives.
(2) Hazardous Substances Disclaimer. Intentionally deleted.
(3) Disclaimer of Implied Warranties. Seller hereby expressly
disclaims any and all implied warranties (including, without limitation, implied
warranties of condition, merchantability, habitability, fitness for a particular
purpose, and implied warranties with respect to the value, profitability or
marketability of the Property) and, except as specifically set forth in the Deed
or Section 6 of this Contract, Seller hereby disclaims any representation or
warranty with regard to compliance with any environmental protection, pollution
or land use laws, rules, regulations, orders, or requirements including, but not
limited to, those pertaining to the handling, generating, treating, storing, or
disposing of any hazardous waste or substance.
6
<PAGE> 7
(b) LIMITATION ON LIABILITY. Except as otherwise specifically stated in
this Contract (including, without limitation, the provisions of Section 2
above), Buyer agrees that Seller shall not be responsible or liable to Buyer for
any defects, errors, omissions, contamination, pollution, or on account of any
other conditions affecting the Improvements or the Land. Buyer, by its execution
hereof, accepts the Improvements and the Land in their physical condition as of
the Effective Date (reasonable wear and tear and damage by fire or other
casualty excepted), "and acknowledges that Buyer has no recourse whatsoever
against Seller in the event of discovery of any defects, errors, omissions,
contamination, pollution, or conditions of any kind, latent or patent, therein,
thereon or thereunder except as expressly provided to the contrary in this
Contract. The terms of this Section 9.(b) are subject to the representations and
warranties contained in Section 6 of this Contract. The disclaimers, waivers and
releases of claims set forth in subsection 9(a) above shall survive the Closing.
10. CLOSING.
(a) DATE AND PLACE. Subject to the satisfaction of all conditions
precedent set forth in Sections 10.(g) and 10.(h) below, the closing of the sale
of the Property to Buyer (the "Closing") shall take place at the offices of the
Escrow Holder on the Effective Date. As used herein, the term "Closing Date"
shall mean the actual date of the Closing as provided in this Contract. The
conditions precedent to Buyer's obligations hereunder are set forth in Section
10.(g) of this Contract. The conditions precedent to Seller's obligations
hereunder are set forth in Section 10.(h) of this Contract.
(b) SELLER'S OBLIGATIONS AT CLOSING. At the Closing, Seller has
executed (if appropriate) and delivered to Buyer, at Seller's sole cost and
expense (except as otherwise provided in this Section), the following:
(1) a duly executed and acknowledged Grant Deed (the "Deed")
substantially in the form of that attached hereto as Exhibit E;
(2) a commitment (in the form of a Pro-Forma Title Policy) by
the Title Company to issue an ALTA Extended Coverage Owner's Policy of Title
Insurance (the "ALTA Title Policy") which shall have an insured amount at least
equal to the full amount of the Sales Price, shall be dated as of the Closing
Date, shall include the endorsements set forth in the Exhibit G attached hereto,
and shall insure Buyer's fee simple title to the Land and Improvements to be
good and indefeasible subject only to the following exceptions (the "Permitted
Exceptions"): (i) the standard printed exceptions set forth in the ALTA Title
Policy; (ii) general and special real property taxes and assessments for the
current tax year; and (iii) the exceptions identified on Exhibit H attached
hereto;
(3) possession of the Improvements and Land, subject only to
the Permitted Exceptions and Seller's rights under the Lease (as defined below);
(4) four (4) original counterparts of a lease agreement (the
"Lease") by and between Seller, as tenant, and Buyer, as landlord, pursuant to
which Seller will lease all of the current buildings located on the Land (the
form of the Lease is attached hereto as Exhibit B);
(5) a non-foreign affidavit in substantially the form of that
attached hereto as Exhibit D;
(6) to the extent in Seller's possession or under its control,
any and all then existing keys, access cards and combinations necessary to gain
access to all portions of the Improvements and Land; and
(7) such other documents as may be reasonably required to
close this transaction, duly executed; provided, however, any other conveyance
documents reasonably requested by Buyer shall be without recourse or warranty
and without any representations with respect to the subject matter thereof.
7
<PAGE> 8
(c) BUYER'S OBLIGATIONS AT CLOSING. At Closing, Buyer has executed,
acknowledged and delivered, at Buyer's sole cost and expense, the following:
(1) the First Installment of the Sales Price in Immediately
Available Funds, increased or reduced by the net amount of prorations owed by or
to Buyer, as appropriate;
(2) four (4) multiple counterparts of the Lease; and
(3) such other documents as may be reasonably required to
close this transaction, duly executed.
(d) PRORATIONS OF REVENUES AND EXPENSES. Because the Lease is a net
lease, there shall be no proration of revenues and expenses with respect to the
Property and which are applicable to the period of time before and after the
Closing Date.
(e) TAX PRORATIONS. Because the Lease is a net lease, there shall be no
proration of any standby fees, taxes and assessments for the Property for the
year of the Closing.
(f) PRORATION TIMING. Intentionally deleted.
(g) CONDITIONS PRECEDENT TO BUYER'S CLOSING OBLIGATIONS. Intentionally
deleted.
(h) CONDITIONS PRECEDENT TO SELLER'S CLOSING OBLIGATIONS. Intentionally
deleted.
(i) CLOSING COSTS. Seller shall pay: fees for preparation of the
conveyance documentation; all documentary transfer taxes, other taxes and/or
recording fees payable in connection with the transfer of the Property; Seller's
attorneys' fees; the premium for the ALTA Title Policy; and other expenses
stipulated to be paid by Seller under other provisions of this Contract. Buyer
shall pay: costs of tax certificates; Buyer's attorneys' fees; all costs and
expenses incurred in connection with any financing obtained by Buyer with
respect to transaction contemplated hereby recording fees for the deed of trust,
if any, and the Deed; and other expenses stipulated to be paid by Buyer under
other provisions of this Contract.
11. DEFAULT, REMEDIES, INDEMNIFICATION.
(a) REMEDIES FOR DEFAULT. If Seller fails to perform any of its
obligations hereunder that expressly survive the Closing or if any of Seller's
representations or warranties are false or inaccurate in a material respect,
Seller shall be in default, and Buyer shall have the right to enforce the
dispute resolution procedures set forth in Exhibit F attached to this Contract.
(b) INDEMNIFICATION. Seller agrees to indemnify and hold Buyer harmless
from and against, and to reimburse Buyer with respect to, any and all claims,
demands, causes of action, losses, damages, liabilities, costs and expenses
(including attorneys' fees and costs) of any and every kind or character, known
or unknown, fixed or contingent, asserted against or incurred by Buyer, at any
time and from time to time by reason of, in connection with or arising out of
(i) the fact that a representation or warranty of Seller set forth in this
Contract was false or inaccurate in a material respect, or (ii) the failure of
Seller to perform any of its obligations set forth herein within the time
period(s) required hereby. Seller further agrees to indemnify and hold Buyer
harmless from and against, and to reimburse Buyer with respect to, any and all
claims, demands, causes of action, losses, damages, liabilities, costs and
expenses (including attorneys' fees and costs) of any and every kind or
character, known or unknown, fixed or contingent, asserted against or incurred
by Buyer, at any time and from time to time by reason of, in connection with or
arising out of (1) any transfer of title to the Property by Seller after the
Closing Date, and/or (2) the granting by Seller after the Closing Date of any
lien or other encumbrance to title to the Land and/or Improvements.
8
<PAGE> 9
12. BROKER'S FEE. Buyer and Seller represent, warrant and agree that no
real estate commissions, finders' fees, or brokers' fees have been or will be
incurred in connection with the sale of the Property by Seller to Buyer other
than a commission payable by Seller to [The Staubach Company] (the "Seller's
Broker") pursuant to a separate written agreement between Seller and the
Seller's Broker. Such commission shall be deemed earned and shall be due and
payable only if, as and when the sale contemplated by this Contract is
consummated. Buyer shall indemnify, defend and hold Seller and Seller's
affiliates and its and their respective agents, officers, contractors, servants,
employees and representatives harmless from any claim, liability, obligation,
cost or expense (including attorneys' fees and expenses) for fees or commissions
relating to Buyer's purchase of the Property asserted against Seller by any
broker or other person (other than the Seller's Broker) claiming by, through or
under Buyer. Seller shall indemnify, defend and hold Buyer and all of Buyer's
Related Parties harmless from any claim, liability, obligation, cost or expense
(including attorneys' fees and expenses) for fees or commissions relating to
Buyer's purchase of the Property asserted against Buyer by any broker or other
person (including, without limitation, the Seller's Broker) claiming by, through
or under Seller. The rights and obligations of the parties hereto set forth in
this Section shall survive the Closing.
13. ATTORNEYS' FEES. Any party to this Contract who is the prevailing party
in any legal proceeding against the other party brought under or with respect to
this Contract or the transaction contemplated hereby shall be additionally
entitled to recover court costs and reasonable attorneys' fees (at trial and on
appeal) from the non-prevailing party as awarded by court. The rights and
obligations of the parties hereto set forth in this Section shall survive the
Closing or any termination of this Contract.
14. CONDEMNATION. Intentionally deleted.
15. FIRE OR OTHER CASUALTY. Intentionally deleted.
16. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be (i) delivered by hand, (ii)
transmitted by facsimile transmission and confirmed by either (a) Federal
Express (or comparable overnight delivery service) with signature required, or
(b) certified mail, return receipt requested, (iii) sent prepaid by Federal
Express (or a comparable overnight delivery service) with signature required, or
(iv) sent by the United States mail, certified, postage prepaid, return receipt
requested, at the addresses and with such copies as designated below. Any
notice, request, demand or other communication delivered or sent in the manner
aforesaid shall be deemed given and received (as the case may be) when actually
delivered by hand delivery, facsimile transmission (and confirmed as provided
above), or overnight courier, or, when sent by United States mail, postage
prepaid, certified mail, return receipt requested, the earlier of (a) the date
of actual delivery, or (b) three (3) business days after deposit in the United
States mail.
<TABLE>
<S> <C>
If to Seller: Bromar, Inc.
17855 Dallas Parkway, Suite 200
Dallas, Texas 75287
Attention: Ronald D. Pederson and Nancy K. Jagielski
FAX No.: (972) 349-6448
Telephone No.: (972) 349-6200
With a copy to: Mark T. Mitchell, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
FAX No.: (214) 969-4343
Telephone No.: (214) 969-2800
</TABLE>
9
<PAGE> 10
<TABLE>
<S> <C>
If to Buyer: RCPI Office Properties, LLC
16251 Dallas Parkway, 7th Floor
Addison, Texas 75001
Attention: Alan W. Tompkins
FAX No.: (972) 687-1688
Telephone No.: (972) 687-4036
With a copy to: Raleigh W. Newsam, Esq.
8117 Preston Road, Suite 800
Dallas, Texas 75225
FAX No.: (214) 696-5971
Telephone No.: (214) 696-3200
</TABLE>
or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Holder in a manner described in this Section; provided,
however, that such changes will only become effective five (5) business days
after a party's receipt of written notice of such address change.
17. MISCELLANEOUS.
(a) APPLICABLE LAW. This Contract shall be construed under and in
accordance with the laws of the State of California, and all obligations of the
parties created hereunder are performable in county where the Land is located.
(b) PARTIES BOUND. This Contract shall be binding upon and inure to the
benefit of the parties hereto, their respective heirs, executors,
administrators, legal representatives, successors, and permitted assigns.
(c) LEGAL CONSTRUCTION. In case any one or more of the provisions
contained in this Contract shall for any reason be held to be invalid, illegal,
or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this Contract
shall be construed as if such invalid, illegal, or unenforceable provision had
never been contained herein. Furthermore, in lieu of any such invalid, illegal
or unenforceable provision, there shall be automatically added to this Contract
a provision as similar to such illegal, invalid or unenforceable provision as
may be possible and be legal, valid and enforceable.
(d) ENTIRE AGREEMENT; AMENDMENTS. This Contract constitutes the only
agreement of the parties hereto with respect to the subject matter hereof and
supersedes any and all prior negotiations, understandings and written or oral
agreements between the parties respecting the subject matter hereof. This
Contract can be modified only by a written instrument duly executed by the
parties hereto.
(e) TIME OF ESSENCE. Time is of the essence in the performance of the
undertakings and obligations of the parties under this Contract.
(f) GENDER AND NUMBER. Words of any gender used in this Contract shall
be held and construed to include any other gender, and words in the singular
number shall be held to include the plural and vice versa, unless the context
requires otherwise.
(g) MERGER. Any and all rights of action of Buyer for any breach by
Seller of any representation, warranty or covenant contained in this Contract
shall survive the Closing for one (1) year after the Closing Date.
(h) MULTIPLE COUNTERPARTS. The parties may execute this Contract in one
or more identical counterparts, all of which when taken together will constitute
one and the same instrument.
10
<PAGE> 11
(i) CONSTRUCTION. The parties hereto acknowledge that the parties and
their respective counsel have each reviewed and revised this Contract, and that
the normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Contract or any amendments or exhibits hereto.
(j) SATURDAYS, SUNDAYS AND HOLIDAYS. Whenever any determination is to
be made or action to be taken on a date specified in this Contract (other than
the determinations of the Effective Date), if such date shall fall upon a
Saturday, Sunday or holiday observed by federal savings banks in the State of
California, the date for such determination or action shall be extended to the
first business day immediately thereafter. Except as expressly noted herein to
the contrary, time periods herein referred to shall mean Pacific Standard Time.
(k) NO RECORDATION. Seller and Buyer agree that neither this Contract
nor any memorandum, affidavit or other evidence thereof shall be recorded of
public record in the County in which the Land is located. Should Buyer ever
record or attempt to record this Contract or a memorandum, affidavit or other
evidence thereof in violation of this Section 17.(k), such recordation or
attempted recordation shall constitute a default by Buyer hereunder and, in
addition to the other remedies provided hereunder, Seller shall have the right
to terminate this Contract by filing a notice of said termination of record in
the County or Counties in which the Land is located. In the event of such a
termination, the parties hereto shall be released from all further liabilities
and obligations hereunder except those that expressly survive a termination of
this Contract.
(l) FURTHER ASSURANCES. Seller and Buyer each covenant and agree to
sign, execute and deliver, or cause to be signed, executed and delivered, and to
do or make, or cause to be done or made, upon the written request of the other
party, any and all agreements, instruments, papers, deeds, acts or things,
supplemental, confirmatory or otherwise, as may be reasonably required by either
party hereto for the purpose of or in connection with consummating the
transactions described herein.
(m) NO PARTNERSHIP. This Contract does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of seller and buyer specifically
established hereby.
(n) HEADINGS; INCORPORATION BY REFERENCE. The headings contained herein
are solely for convenience of reference and shall not constitute a part of this
Contract nor shall they affect its meaning, construction or effect. All of the
exhibits attached to this Contract are by this reference incorporated herein and
made a part hereof for all purposes.
(o) FACSIMILE TRANSMISSION. A telecopied facsimile of a duly executed
counterpart of this Contract shall be sufficient to evidence the binding
agreement of each party to the terms hereof. However, each party agrees to
promptly deliver at least four (4) multiple originals (or multiple original
counterparts, if applicable) of this Contract to the Escrow Holder following the
delivery of a telecopied facsimile thereof.
(p) REPORTING REQUIREMENTS. Seller and Buyer agree to comply with any
and all reporting requirements applicable to the transaction which is the
subject of this Contract which are set forth in any law, statute, ordinance,
rule, regulation, order or determination of any governmental authority
including, without limitation, The International Investment Survey Act of 1976,
The Foreign Investment in Real Property Tax Act of 1980 and Seller and Buyer
further agree upon request to furnish the other party with evidence of such
compliance.
(q) SIGNATORY EXCULPATION. The signatory(ies) for Buyer is/are
executing this Contract in his/their capacity as representative of Buyer and not
individually and, therefore, shall have no personal or individual liability of
any kind in connection with this Contract and the transactions contemplated by
it. The signatory(ies) for Seller is/are executing this Contract in his/their
capacity as representative of Seller and not individually and, therefore, shall
have no personal or individual liability of any kind in connection with this
Contract and the transactions contemplated by it.
11
<PAGE> 12
18. ASSIGNMENTS. Buyer shall not have the right to assign Buyer's interest
in this Contract without obtaining the prior written consent of Seller, which
consent may be withheld by Seller in Seller's sole and absolute discretion;
provided, however, Buyer shall have the right to assign Buyer's interest in this
Contract to an affiliate of Buyer or an entity controlled by either Buyer or an
affiliate of Buyer without the prior written consent of Seller. Buyer
acknowledges and agrees that (i) any assignment by Buyer in contravention of
this Section shall be void and shall not relieve Buyer of Buyer's obligations
and liabilities hereunder, and (ii) any assignment of this Contract permitted
hereby shall not relieve Buyer from its obligations set forth herein. To the
extent any assignment of Buyer's interest in this Contract is consented to in
writing by Seller, the term "Buyer" as used in this Contract shall include such
permitted assignee.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
12
<PAGE> 13
EXECUTED in multiple originals as of the date or dates set forth below
and effective for all purposes as of the Effective Date.
SELLER:
BROMAR, INC., a California corporation
By:
---------------------------------------
Name:
-----------------------------------------------
Title:
----------------------------------------------
BUYER:
RCPI OFFICE PROPERTIES, LLC, a Texas limited liability
company
By: Richmont Capital Partners I, L.P., a Delaware
limited partnership, its sole member
By: J.R. Investments Corp., its managing
general partner
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
13
<PAGE> 14
EXHIBIT A
to Contract of Sale of Improved Property
DESCRIPTION OF LAND
[TO COME]
A-1
<PAGE> 15
EXHIBIT B
to Contract of Sale of Improved Property
LEASE
[To Come]
B - 1
<PAGE> 16
EXHIBIT C
to Contract of Sale of Improved Property
LIST OF CONTRACTS
[To Come]
C - 1
<PAGE> 17
EXHIBIT D
to Contract of Sale of Improved Property
NON-FOREIGN CERTIFICATE
CERTIFICATION OF NON-FOREIGN STATUS
A. FEDERAL FIRPTA CERTIFICATE. To inform RCPI OFFICE PROPERTIES, LLC, a
Texas limited liability company ("TRANSFEREE"), that withholding of tax under
Section 1445 of the Internal Revenue Code of 1986, as amended (the "CODE"), will
not be required upon the transfer of certain real property located in Orange
County by BROMAR, INC., a California corporation ("TRANSFEROR"), Transferor
hereby certifies to Transferee:
1. Transferor is not a foreign corporation, foreign
partnership, foreign trust, or foreign estate (as those terms are defined in the
Code and the Income Tax Regulations promulgated thereunder);
2. Transferor's U.S. tax identification number is 94-0650800;
and
3. Transferor's office address is 17855 North Dallas Parkway,
Suite 200, Dallas, Texas 75287.
Transferor understands that this Certification may be disclosed to the
Internal Revenue Service by Transferee and that any false statement contained
herein could be punished by fine, imprisonment, or both.
Transferor understands that Transferee is relying on this Certification
in determining whether withholding is required upon said transfer.
B. STATE OF CALIFORNIA - CALIFORNIA RESIDENT/NON-RESIDENT AFFIDAVIT.
Sections 18805 and 26131 of the Revenue and Taxation Code provide that a buyer
may be required to withhold 3 1/3% of the sales price of the California real
property sold by a non-resident Seller, unless the sales price of the property
is less than $100,000.00.
Transferor hereby certifies that Transferor is a California resident
and not subject to the above mentioned withholding and that its California
residence address is the same as in "3" above.
Transferor understands that this certificate may be disclosed to the
Franchise Tax Board of California by Transferee and that any false statement
contained herein could be punished by fine, imprisonment, or both.
Under penalty of perjury the undersigned declare it has have examined
this Certification and to the best of its knowledge and belief it is true,
correct and complete, and they further declare that it has authority to sign
this Certification on behalf of Transferor.
IN WITNESS WHEREOF, the undersigned has executed this certificate as of
February 17, 2000.
SELLER:
BROMAR, INC., a California corporation
By:
---------------------------------------
Its:
--------------------------------------
D - 1
<PAGE> 18
EXHIBIT E
to Contract of Sale of Improved Property
GRANT DEED
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
- ------------------------
- ------------------------
- ------------------------
- --------------------------------------------------------------------------------
The UNDERSIGNED GRANTOR DECLARES DOCUMENTARY TRANSFER TAX IS
$4,888,000.00 computed on the full value of property conveyed.
- --------------------------------------------------------------------------------
FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
BROMAR, INC., a California corporation ("GRANTOR") hereby grants to RCPI OFFICE
PROPERTIES, LLC, a Texas limited liability company ("Grantee") that certain real
property located in the City of Orange, County of Orange, State of California,
as more particularly described in SCHEDULE "1" attached hereto.
IN WITNESS WHEREOF, Grantor has executed this Grant Deed as of February
17, 2000.
GRANTOR:
BROMAR, INC., a California corporation
By:
---------------------------------------
Its:
--------------------------------------
E - 1
<PAGE> 19
STATE OF )
---------------------------
)
COUNTY OF )
--------------------------
On February __, 2000, before me, the undersigned, personally appeared
__________________________________, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) show name(s) is/are
subscribed to the within instrument and acknowledge to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person's acted, executed the instrument.
WITNESS my hand and official seal.__________________________ (SEAL)
-----------------------------------------
Notary Public in and for said
County and State
E-2
<PAGE> 20
SCHEDULE 1
TO GRANT DEED
LEGAL DESCRIPTION
E-3
<PAGE> 21
EXHIBIT F
ARBITRATION PROVISIONS
This Exhibit F is attached to that certain Contract of Sale of Improved
Property (the "CONTRACT") by and between Bromar, Inc., a California corporation
("SELLER"), and RCPI OFFICE PROPERTIES, LLC, a California limited partnership
("BUYER"). Capitalized terms not defined herein shall have the meanings given to
them in the Contract.
Any controversy or claim arising out of or relating to the Contract, or
the breach thereof, shall be submitted for resolution by binding arbitration
(herein referred to as "DISPUTES SUBJECT TO ARBITRATION") and shall be settled
by arbitration administered by the American Arbitration Association (the "AAA")
under its Construction Industry Arbitration Rules (the "RULES"), and judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof in Dallas County, Texas. Seller and Buyer agree as
follows: (1) all Disputes Subject to Arbitration which are not resolved by
informal negotiation between the parties shall be submitted to arbitration
(using three arbitrators selected as provided below) administered by the AAA
under the Rules; and (2) both Seller and Buyer (collectively, the "PARTIES")
will abide by and perform any award rendered by the arbitrators. The
arbitrators shall have the right to award any form of relief permitted to be
awarded by any court of law having jurisdiction. Any decision or award by the
arbitrators shall be enforceable in any court having jurisdiction in Dallas
County, Texas.
In the event of a need for the submission of any Disputes Subject to
Arbitration to arbitration, the initiating party shall (1) give written notice
to the other party of its intention to arbitrate, which notice must contain a
statement setting forth the nature of the dispute, the amount involved, if any,
and the remedy sought, and (2) file at the Dallas, Texas regional office of the
AAA three copies of such written notice, three copies of the applicable
arbitration provisions of the Contract, and the appropriate filing fee as
provided by the Rules. The arbitration proceedings shall thereafter take place
as provided by the Rules, except as provided herein. As provided in the
Contract, the unsuccessful party in the arbitration proceedings shall promptly
pay to the successful party all costs and expenses (including, without
limitation, court costs and attorneys' fees) incurred therein; provided,
however, Seller and Buyer shall each be responsible for 50% of (i) all filing
fees related to such arbitration proceedings, and (ii) all fees payable to one
or more of the arbitrators.
The Parties agree to arbitrate in accordance with the Rules with the
following exceptions:
(1) Three arbitrators shall be selected from the AAA's "Blue Ribbon
National Panel" within thirty (30) days from the date of demand for
arbitration. Each Party shall select one arbitrator and these two arbitrators
shall select the third.
(2) The Parties agree to engage in document production pursuant to the
Federal Rules of Civil Procedure. In the event of any dispute over document
production, such will be resolved by the arbitrators. The amount of depositions
will be limited to five (5) per Party, with no deposition lasting longer than
eight (8) hours, unless otherwise agreed.
(3) The arbitration hearings shall be continuous on a daily basis, with
each day of hearings to consist of eight (8) hours of presentation of evidence,
not to exceed five (5) days of hearings for each Party, subject to adjournment
for weekends, holidays or other days to be mutually agreed.
(4) The arbitrator(s) shall render a decision no later than thirty (30)
days after the conclusion of the hearings, which decision shall be in writing
and give the reasons for the decision reached.
(5) The submittal of legal briefs shall be subject to mutual agreement
of the Parties, but in no event shall the briefs delay the decision in this
matter.
F-1
<PAGE> 22
EXHIBIT G
This Exhibit G is attached to that certain Contract of Sale of Improved
Property by and between Bromar, Inc., a California corporation, and RCPI OFFICE
PROPERTIES, LLC, a Texas limited liability company.
TITLE POLICY ENDORSEMENTS
1. Form 100 (modified)
2. CLTA Form 123.2
3. CLTA Form 103.4
4. CLTA Form 116.1
5. CLTA Form 103.7
G-1
<PAGE> 23
EXHIBIT H
This Exhibit H is attached to that certain Contract of Sale of Improved
Property by and between Bromar, Inc., a California corporation, and RCPI OFFICE
PROPERTIES, LLC, a Texas limited liability company.
PERMITTED EXCEPTIONS
[TO COME]
H-1
<PAGE> 1
EXHIBIT 10.15
LEASE
BETWEEN
RCPI OFFICE PROPERTIES, LLC, a
Texas limited liability company
Landlord
AND
MARKETING SPECIALISTS SALES COMPANY, a Texas corporation
Tenant
Dated: February 17, 2000
Premises: 744 and 746 Eckhoff Street
Orange, California 92868
- -------------------------------------------------------------------------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
ARTICLE HEADING PAGE
- ------- ------- ----
<S> <C>
ARTICLE 1 PREMISES AND TERM............................................................5
ARTICLE 2 FIXED RENT AND ADDITIONAL RENT...............................................5
ARTICLE 3 IMPOSITIONS..................................................................6
ARTICLE 4 USE AND OPERATION OF PREMISES................................................7
ARTICLE 5 CONDITION OF PREMISES, ALTERATIONS AND REPAIRS...............................8
ARTICLE 6 INSURANCE....................................................................9
ARTICLE 7 DAMAGE OR DESTRUCTION.......................................................11
ARTICLE 8 CONDEMNATION................................................................13
ARTICLE 9 ASSIGNMENT AND SUBLETTING...................................................13
ARTICLE 10 SUBORDINATION..............................................................16
ARTICLE 11 OBLIGATIONS OF TENANT......................................................18
ARTICLE 12 DEFAULT BY TENANT; REMEDIES................................................20
ARTICLE 13 NO WAIVER..................................................................24
ARTICLE 14 ESTOPPEL CERTIFICATE.......................................................24
ARTICLE 15 QUIET ENJOYMENT............................................................25
ARTICLE 16 SURRENDER..................................................................25
ARTICLE 17 ACCESS.....................................................................26
ARTICLE 18 ENVIRONMENTAL MATTERS......................................................26
ARTICLE 19 MISCELLANEOUS PROVISIONS...................................................29
ARTICLE 20 RENEWAL OPTIONS............................................................31
ARTICLE 21 LANDLORD'S ADDITIONAL TERMINATION RIGHT....................................31
ARTICLE 22 SUBORDINATION TO SENIOR DEBT...............................................31
</TABLE>
i
<PAGE> 3
EXHIBITS
Exhibit "A" - Description of the Land
Exhibit "B" - Memorandum of Lease
Exhibit "C" - Renewal Options
ii
<PAGE> 4
LEASE
THIS LEASE is made as of the 17th day of February, 2000 (the
"EFFECTIVE DATE"), between RCPI Office Properties, LLC, a Texas limited
liability company, as "LANDLORD", and MARKETING SPECIALISTS SALES COMPANY, a
Texas corporation, as "TENANT".
W I T N E S S E T H:
- - - - - - - - - -
The parties hereto, for themselves, their heirs,
distributees, executors, administrators, legal representatives, successors and
assigns, hereby covenant as follows:
ARTICLE A
CERTAIN LEASE PROVISIONS
1. Address for 744 and 746 Eckoff Street
the Premises: Orange, California 92868
2. (a) Primary Term: Approximately four (4) years,
beginning on the Commencement Date
and ending on the Expiration Date.
As used in this Lease, the term
"TERM" shall mean the Primary Term
together with any renewal thereof.
(b) Commencement
Date: February 17, 2000.
(c) Expiration
Date: February 28, 2004, unless sooner
terminated pursuant to this Lease.
(d) Renewal
Options: Two (2) three year options.
3. Fixed Rent: Tenant agrees to pay to Landlord as
monthly rental for the Premises
(such monthly rental is herein
referred to as "FIXED RENT") in
lawful money of the United States
of America, at ___________________,
or to such other person or entity
and at such other place as Landlord
may from time to time designate in
writing, as follows:
For the Office Space:
From the Commencement Date through
the Expiration Date, Tenant shall
pay Fixed Rent in the amount of
$37,350.00 ($12.00 per rentable
square foot on an annual basis for
the Office Space) in advance on the
first day of each and every
successive calendar month during
such period of time.
For the Warehouse Space:
From the Commencement Date through
the Expiration Date, Tenant shall
pay Fixed Rent in the amount of
$5,210.00 ($6.00 per rentable
square foot on an annual basis for
the Warehouse Space) in advance on
1
<PAGE> 5
the first day of each and every
successive calendar month during
such period of time.
4. Use of Premises: For general office and warehouse
use and uses incidental thereto and
for no other purpose without the
prior written consent of Landlord.
5. Address for Notices:
For Landlord: RCPI Office Properties LLC.
16251 Dallas Parkway, 7th Floor
Addison, Texas 75001
Attention: Alan W. Tompkins
For Tenant: Marketing Specialists Sales Company
17855 Dallas Parkway
Dallas, Texas 75287
Attention: Gage W. Hunt and
Nancy K. Jagielski
2
<PAGE> 6
ARTICLE B
CERTAIN DEFINITIONS
"ADDITIONAL RENT" is defined in Section 2.2.
"ALTERATIONS" is defined in Section 5.4.
"BANKRUPTCY CODE" means the provisions of 11 U.S.C. Section 101 et
seq. or any statute of similar purpose or nature as more particularly set forth
in Section 9.10.
"BASE BUILDING COMPONENTS" means the foundation, the roof and the
structural walls of the Building.
"BUILDING" means the buildings, building equipment and improvements
now or hereinafter erected on the Land.
"BUSINESS DAY" is every day which most commercial banks based in New
York, New York are open for the ordinary conduct of business.
"CLAIMS" is defined in Section 11.3.
"CONTRACT OF SALE" is defined in Section 21.1.
"COMMENCEMENT DATE" is set forth in Article A, Section 2(b).
"DEFAULT RATE" means three percent (3%) over the prime reference rate
announced from time to time by Citibank, N.A. in New York, New York, as such
prime reference rate may be adjusted and announced from time to time, or if
unavailable, the parties shall use the prime reference rate of any New York
regional bank selected by Landlord.
"DEFICIENCY" is defined in Section 12.3(c).
"ENVIRONMENTAL LAWS" is defined in Section 18.9.
"EVENT OF DEFAULT" is defined in Section 12.1.
"EXPIRATION DATE" is defined in Article A, Section 2(c).
"FIXED RENT" is defined in Article A, Section 3.
"FORCE MAJEURE DELAYS" is defined in Section 19.16.
"HAZARDOUS SUBSTANCES" is defined in Section 18.10.
"IMPOSITIONS" is defined in Section 3.1.
"INDEMNIFIED PARTIES" is defined in Section 11.3.
"INSURANCE COSTS" is defined in Section 7.3.
"LAND" means that certain real property described on Exhibit "A"
attached hereto and incorporated herein by this reference.
"LANDLORD" is defined in the introductory paragraph to this Lease.
3
<PAGE> 7
"LANDLORD PARTIES" is defined in Section 6.2.
"LANDLORD'S AWARD" is defined in Section 8.1.
"LEASE" means this lease made between Landlord, as landlord, and
Tenant, as tenant.
"MAINTENANCE AND REPAIR OBLIGATIONS" is defined in Section 5.2.
"MORTGAGE" is defined in Section 3.2.
"MORTGAGEE" is defined in Section 3.2.
"SUBORDINATION, "NON-DISTURBANCE, AND ATTORNMENT AGREEMENT" is defined
in Section 10.1.
"OFFICE SPACE" shall mean the office space portion of the Building
containing 37,350 net rentable square feet of space.
"PERMITTED TRANSFER" shall mean either (i) a Transfer after Tenant's
receipt of Landlord's prior written consent thereto, or (ii) a Permitted
Transfer Without Landlord Consent.
"PERMITTED TRANSFER WITHOUT LANDLORD CONSENT" is defined in Section
9.1 below.
"PREMISES" means the Land and the Building.
"PREMISES DELIVERY DATE" is defined in Article A, Section 2(b) above.
"PROJECT EXPENSES is defined in Section 5.7.
"REMEDIAL WORK" is defined in Section 18.7.
"RENT" is defined in Section 2.3.
"REQUIREMENTS" is defined in Section 11.1.
"SUBTENANT" is defined in Section 9.5.
"TENANT" is defined in the introductory paragraph to this Lease.
"TENANT'S EXPENSE PAYMENT" is defined in Section 5.6.
"TERM" is defined in Article A, Section 2(a).
"TRANSFER" is defined in Section 9.1.
"TRANSFEREE" means any assignee or purchaser of Tenant's interest in
this Lease or any sublessee of all or any portion of the Premises.
"UTILITIES" is defined in Section 5.2.
"WAREHOUSE SPACE" shall mean the warehouse portion of the Building
containing 10,420 net rentable square feet of space.
4
<PAGE> 8
ARTICLE 1
PREMISES AND TERM
Section 1.1. During the Term, Landlord, in consideration of the rents
herein reserved and of the terms, provisions, covenants and agreements on the
part of Tenant to be kept, observed and performed, does hereby lease and demise
the Premises unto Tenant, and Tenant does hereby hire and take the Premises
from Landlord, subject to each and every matter affecting title to the Premises
including, without limitation, all of the following which are in effect as of
the Commencement Date: all easements, rights of way, covenants, conditions and
restrictions, liens, encumbrances, encroachments, licenses, notices of
pendency, charges, zoning laws, ordinances, regulations, building codes and
other governmental laws, rules and orders affecting the Premises, and other
exceptions to Landlord's title, whether or not the same are of public record.
Section 1.2. Tenant shall lease the Premises for the Term, unless
sooner terminated as hereinafter provided or pursuant to law.
ARTICLE 2
FIXED RENT AND ADDITIONAL RENT
Section 2.1. Tenant shall pay to Landlord as Fixed Rent for the
Premises during the Term the amounts stated in Article A, Section 3. Fixed Rent
shall be payable in equal monthly installments in advance on the first day of
each and every month during the Term, without previous demand therefor and
without offset or deduction of any kind whatsoever. Notwithstanding the
foregoing, Tenant shall pay the partial month's installment of Fixed Rent (with
respect to the remaining days of the month in which this Lease is executed)
upon the execution of this Lease.
Section 2.2. Tenant shall also pay and discharge, as additional rent,
all other amounts, liabilities and obligations of whatsoever nature relating to
the Premises, including, without limitation, all Impositions (as defined in
Section 3.1 below), all Project Expenses (as defined in Section 5.9 below)
those arising under any common area maintenance agreements however denominated,
easements, declarations, restrictions, or other similar agreements affecting
the Premises or any adjoining property thereto, and all interest and penalties
that may accrue thereon in the event of Tenant's failure to pay such amounts
when due, and all damages, costs and expenses which Landlord may incur by
reason of any default of Tenant or failure on Tenant's part to comply with the
terms of this Lease, all of which Tenant hereby agrees to pay upon demand or as
is otherwise provided herein (all of the foregoing together with any other
amounts and charges payable by Tenant under this Lease in addition to Fixed
Rent are herein collectively called "ADDITIONAL RENT"). Upon any failure by
Tenant to pay any of the Additional Rent, Landlord shall have all legal,
equitable and contractual rights, powers and remedies provided either in this
Lease or by statute or otherwise in the case of non-payment of the Fixed Rent.
The term Additional Rent shall be deemed rent for all purposes hereunder other
than with respect to Tenant's internal accounting procedures.
Section 2.3. All Fixed Rent and Additional Rent payable hereunder
(collectively, "RENT") shall be payable when due by wire transfer of
immediately available funds to an account designated from time to time by
Landlord. At Landlord's option upon Landlord's request, Rent shall be made in
United States currency which shall be legal tender for all debts, public and
private, payable to Landlord and sent to Landlord's address set forth in
Article A, or to such other person or persons or at such other place as may be
designated by notice from Landlord to Tenant, from time to time.
Notwithstanding the foregoing, Impositions shall be payable to the parties to
whom they are due, except as otherwise provided herein.
5
<PAGE> 9
ARTICLE 3
IMPOSITIONS
Section 3.1. From and after the Commencement Date and throughout the
Term, Tenant shall pay and discharge not later than twenty (20) days before any
fine, penalty, interest or cost may be added thereto for the non-payment
thereof, all taxes, assessments, water rents, sewer rents and charges, duties,
impositions, license and permit fees, charges for public utilities of any kind,
payments and other charges of every kind and nature whatsoever, ordinary or
extraordinary, foreseen or unforeseen, general or special, in said categories,
together with any interest or penalties imposed upon the late payment thereof,
which, pursuant to past, present or future law, during, prior to or after (but
attributable to a period within) the Term, shall have been or shall be levied,
charged, assessed, imposed upon or grow or become due and payable out of or for
or have become a lien on the Premises or any part thereof, any improvements or
personal property in or on the Premises, the Rent and income payable by Tenant
or on account of any use of the Premises and such franchises as may be
appurtenant to the use and occupation of the Premises (all of the foregoing
being hereinafter referred to as "IMPOSITIONS"). Tenant, upon request from
Landlord, shall submit to Landlord the proper and sufficient receipts or other
evidence of payment and discharge of the same. If any Impositions are not paid
when due under this Lease, Landlord shall have the right but shall not be
obligated to pay the same following written notice to Tenant of such payment,
provided Tenant does not contest the same as herein provided. If Landlord shall
make such payment, Landlord shall thereupon be entitled to repayment by Tenant
on demand as Additional Rent hereunder.
Section 3.2. Tenant shall have the right to protest and contest any
Impositions imposed against the Premises or any part thereof, provided (i) the
same is done at Tenant's sole cost and expense, (ii) nonpayment will not
subject the Premises or any part thereof to sale or other liability by reason
of such nonpayment, (iii) such contest shall not subject Landlord or the holder
(the "MORTGAGEE") of any mortgage or deed of trust (a "MORTGAGE") encumbering
all or any part of the Premises to the risk of any criminal or civil liability,
and (iv) Tenant shall provide such security as may reasonably be required by
Landlord or any Mortgagee or under the terms of any Mortgage to ensure payment
of such contested Imposition. Landlord agrees to execute and deliver to Tenant
any and all documents reasonably required for such purpose and to cooperate
with Tenant in every reasonable respect in such contest, but without any cost
or expense to Landlord.
Section 3.3. To the extent permitted by law, Tenant shall have the
right to apply for the conversion of any Impositions to make the same payable
in annual installments over a period of years, and upon such conversion Tenant
shall pay and discharge said annual installments as they shall become due and
payable. Tenant shall pay all such deferred installments prior to the
expiration or sooner termination of the Term, notwithstanding that such
installments shall not then be due and payable; provided, however, that any
Impositions (other than one converted by Tenant so as to be payable in annual
installments as aforesaid) relating to a fiscal period of the taxing authority,
a part of which is included in a period of time after the Expiration Date,
shall (whether or not such Impositions shall be assessed, levied, confirmed,
imposed or become payable, during the Term) be adjusted between Landlord and
Tenant as of the Expiration Date, so that Landlord shall pay that portion of
such Impositions which relate to that part of such fiscal period included in
the period of time after the Expiration Date, and Tenant shall pay the
remainder thereof.
Section 3.4. If at any time during the Term, a tax or excise on Rent
or other tax, however described, is levied or assessed with respect to the Rent
or any part thereof (as opposed to the income of Landlord) or against Landlord
as a substitute in whole or in part for any Impositions theretofore payable by
Tenant, Tenant shall pay and discharge such tax or excise on Rent or other tax
before it becomes delinquent, and the same shall be deemed to be an Imposition
levied against the Premises.
Section 3.5. Except as set forth in Section 3.4 above, Tenant shall
not be obligated to pay any franchise, excise, corporate, estate, inheritance,
succession, capital, levy or transfer tax of Landlord or any income, profits or
revenue tax upon the income of Landlord.
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<PAGE> 10
Section 3.6. In the event that Landlord is required pursuant to the
terms of any Mortgage to make monthly or other tax escrow payments to any
Mortgagee or if an Event of Default shall occur and be continuing, Tenant
agrees that, on demand made by Landlord, it shall: (i) deposit with Landlord or
Mortgagee, on the day of demand and on the same day of each month thereafter
until thirty (30) days prior to the date when the next installment of
Impositions is due to the authority or other person to whom the same is paid,
an amount equal to said next installment of Impositions divided by the number
of months over which such deposits are to be made; and (ii) thereafter during
the Term deposit with Landlord or Mortgagee an amount each month estimated by
Landlord or Mortgagee to be adequate to create a fund which, as each succeeding
installment of Impositions becomes due, will be sufficient, thirty (30) days
prior to such due date, to pay such installment in full. Landlord or Mortgagee
shall use reasonable efforts to cause the monthly deposits to be equal in
amount, but neither of them shall be liable in the event that such required
deposits are unequal. If at any time the amount of any Imposition is increased
or Landlord or Mortgagee believes that it will be, said monthly deposits shall
be increased upon demand by Landlord or Mortgagee so that, thirty (30) days
prior to the due date for each installment of Impositions, there will be
deposits on hand with Landlord or Mortgagee sufficient to pay such installments
in full. To the extent permitted by applicable law, Landlord or Mortgagee shall
not be required to deposit any such amounts in an interest bearing account. For
the purpose of determining whether Landlord or Mortgagee has on hand sufficient
moneys to pay any particular Imposition at least thirty (30) days prior to the
due date therefor, deposits for each category of Imposition shall be treated
separately, it being the intention that Landlord shall not be obligated to use
moneys deposited for the payment of an item not yet due and payable to the
payment of an item that is due and payable. Notwithstanding the foregoing, it
is understood and agreed that (a) to the extent permitted by applicable law,
deposits provided for hereunder may be held by Landlord or Mortgagee in a
single bank account and commingled with other funds of Landlord or Mortgagee,
and (b) Landlord or Mortgagee, may, if Tenant fails to make any deposit
required hereunder, use deposits made for any one item for the payment of the
same or any other item of Rent. If this Lease shall be terminated by reason of
any Event of Default, all deposits then held by Landlord shall be applied by
Landlord on account of any and all sums due under this Lease; if there is a
resulting deficiency, Tenant shall pay the same, and if there is a surplus,
Tenant shall be entitled to a refund of the surplus.
Section 3.7. If Landlord ceases to have any interest in the Premises,
Landlord shall transfer to the person or entity who owns or acquires such
interest in the Premises from Landlord and is the transferee of this Lease, the
deposits made pursuant to Section 3.6 hereof, subject, however, to the
provisions thereof. Upon such transfer of the Premises, the transferor shall be
deemed to be released from all liability with respect thereto and Tenant agrees
to look to the transferee solely with respect thereto, and the provisions
hereof shall apply to each successive transfer of the said deposits; provided,
however, that transferor shall not be released from liability unless Tenant
either receives said deposits or said deposits continue to be held by Mortgagee
for the benefit of transferee and Tenant.
Section 3.8. The provisions of this Article 3 shall survive the
expiration or earlier termination of this Lease.
ARTICLE 4
USE AND OPERATION OF PREMISES
Section 4.1. The Premises may be used and occupied only for the
purposes set forth in Article A, Section 4. Tenant shall not create or suffer
to exist any public or private nuisance, hazardous or illegal condition or
waste on or with respect to the Premises.
Section 4.2. Except as expressly provided in this Lease, in no event
shall Tenant use any area outside the Building other than for pedestrian and
vehicular ingress and egress to and from the Building, other than for parking
in the areas currently designated for parking, and other than to perform any of
Tenant's obligations under this Lease requiring the use of such area. Tenant
and its employees shall have access to the Premises 24 hours per day, 7 days
per week throughout the Term.
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<PAGE> 11
ARTICLE 5
CONDITION OF PREMISES, ALTERATIONS AND REPAIRS
Section 5.1. Tenant has examined the Premises, is familiar with the
physical condition, expenses, operation and maintenance, zoning, status of
title and use that may be made of the Premises and every other matter or thing
affecting or related to the Premises, and is leasing the same in its "AS IS"
condition. Except as expressly provided to the contrary in this Lease, Landlord
has not made and does not make any representations or warranties whatsoever
with respect to the Premises or otherwise with respect to this Lease. Tenant
assumes all risks resulting from any defects (patent or latent) in the Premises
or from any failure of the same to comply with any governmental law or
regulation applicable to the Premises or the uses or purposes for which the
same may be occupied.
Section 5.2. Tenant shall be solely responsible for obtaining any
services and/or utilities used, consumed or provided in, furnished to or
attributable to the Premises that Landlord has not expressly agreed to provide
to Tenant pursuant to this Lease (all such services and/or utilities are
collectively referred to as "UTILITIES"). Subject to Landlord's right of
reimbursement as provided in Section 5.8 below, Landlord shall keep the
Premises clean and in good condition and repair and Landlord shall make all
repairs and replacements, structural and non-structural, ordinary and
extraordinary, foreseen and unforeseen, and shall perform all maintenance,
necessary to maintain the Premises in good condition and repair, ordinary wear
and tear and damage due to fire or other casualty excepted (the obligations of
Landlord in this sentence are herein referred to as "MAINTENANCE AND REPAIR
OBLIGATIONS").
Section 5.3. To the extent not prohibited by law, Tenant hereby waives
and releases all rights now or hereinafter conferred by statute or otherwise
which would have the effect of limiting or modifying any of the provisions of
this Article 5.
Section 5.4. Tenant shall have the right at any time and from time to
time during the Term to make, at its sole cost and expense, changes,
alterations, additions or improvements (collectively, "ALTERATIONS") in or to
the Premises provided that Tenant first obtains Landlord's written consent
thereto, which consent shall not be unreasonably withheld or delayed. Landlord
will be able to withhold its consent, in its sole and absolute discretion, with
respect to any Alterations in or to the Premises which (i) are made to or
affect (A) the structural components of the Building, or (B) the systems of the
Building, (ii) are visible from the exterior of the Building, or (iii)
adversely affect the value of the Building.
Section 5.5. All fixtures, structures and other improvements installed
in or upon the Premises at any time during the Term (excluding, in any event,
Tenant's trade fixtures, furniture, equipment and other movable personal
property) shall become the property of Landlord and shall remain upon and be
surrendered with the Premises unless Landlord, by notice to Tenant no later
than ninety (90) days prior to the Expiration Date (or if this Lease is
terminated earlier, then within thirty (30) days after the effective date of
such termination), elects to have the same removed or demolished by Tenant, in
which event, the same shall be removed from the Premises by Tenant by the
Expiration Date (or if this Lease is terminated earlier, then within thirty
(30) days after the effective date of such termination) at Tenant's expense.
Prior to the commencement of any Work, Landlord will, upon written request by
Tenant, notify Tenant in writing whether Landlord will require such Alterations
to be removed from the Premises prior to the Expiration Date or earlier
termination of this Lease. All property permitted or required to be removed by
Tenant at the end of the Term remaining in the Premises after Tenant's removal
shall be deemed abandoned and may, at the election of Landlord, either be
retained as Landlord's property or may be removed from the Premises by Landlord
at Tenant's expense. Tenant shall be responsible for, and shall reimburse
Landlord immediately after written demand therefor, any damage to the Premises
caused in whole or in part by the removal or demolition of Tenant's fixtures,
structures or other improvements which Tenant is required to remove pursuant to
this Section 5.7 or which Tenant elects under the provisions of this Lease to
remove. The provisions of this Section 5.7 shall survive the expiration or
earlier termination of the Term.
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<PAGE> 12
Section 5.6. In addition to Fixed Rent, Tenant shall pay as Additional
Rent, all Project Expenses (as defined in Section 5.7 below) incurred by
Landlord during the Term. Such payment shall hereafter be referred to as
"TENANT'S EXPENSE PAYMENT". Landlord may, if it elects, either deliver to
Tenant periodic statements of Tenant's Expense Payment or Landlord may estimate
the amount of Tenant's Expense Payment payable by Tenant for any calendar year
or any portion thereof. In the event Landlord elects to estimate Tenant's
Expense Payment for any calendar year, Landlord shall provide written notice of
the estimate of Tenant's Expense Payment for the applicable calendar year and
the monthly installment due for each month during such calendar year at least
thirty (30) days prior to the date such installments become due and payable.
Tenant shall pay to Landlord, on the first day of each calendar month during
any calendar year Landlord elects to estimate Tenant's Expense Payment, the
amount of the applicable monthly installments, without demand. Landlord shall,
on or before the first day of July of each calendar year, determine the actual
Tenant's Expense Payment for the preceding calendar year and provide Tenant
with written notice thereof. If Tenant's actual payments of estimated Tenant's
Expense Payment are less than the actual Project Expenses for such year, then
Tenant shall pay to Landlord the amount of the deficiency within thirty (30)
days from the date of Landlord's notice of deficiency. Alternatively, if
Tenant's actual payments of estimated Tenant's Expense Payments are greater
than the actual Project Expenses for such year, then Landlord shall credit the
amount of the surplus against the next accruing installments of Tenant's
Expense Payment.
Section 5.7. As used in this Lease, the term "PROJECT EXPENSES" shall
mean all direct costs and expenses of ownership (excluding, however, any
Impositions which are payable by Tenant as provided in Article 3 above),
operation, security, protection, replacement, repair and maintenance of the
Premises incurred by Landlord, as determined by sound, accrual basis,
accounting principles consistently applied, and shall include all costs
incurred in connection with the ownership and operation of the parking areas;
all Insurance Costs (as defined in Section 7.3 below); accounting and legal
fees; and dues, taxes and/or assessments imposed by any applicable property
owners' association if any, excepting only those specific costs and expenses
that Landlord has specifically agreed to bear with no reimbursement from Tenant
and these costs and expenses described in the immediately following sentence.
Project Expenses do not include any of the following: (a) interest and
principal payments on loans secured by mortgages or deeds of trust covering all
or any portion of the Premises, and other debt costs, if any, and rental under
any ground lease or other underlying lease, if any, covering all or any portion
of the Premises; (b) real estate broker's commissions payable in connection
with this Lease; (c) any cost or expenditure (or portion thereof) for which
Landlord is reimbursed, whether by insurance proceeds or otherwise (Tenant's
Expense Payments are not reimbursements); (d) all costs incurred by Landlord in
connection with the satisfaction of the Maintenance and Repair Obligations; (e)
costs and expenses incurred in the management of the Premises and/or the
administration of Landlord's rights and obligations under this Lease; (f) costs
of improvements to, or alterations of, the Premises; (g) depreciation; (h) that
portion of any cost or expense which is allocated by Landlord to, or is
performed solely for the benefit of, any property owned or operated by Landlord
other than the Premises; (i) legal, accounting and similar or related costs
paid or incurred in connection with any sale, syndication, financing or
refinancing involving the Building and/or the Premises or any of Landlord's
interest therein; (j) any fees, fines, penalties and/or interest incurred by
Landlord as a result of Landlord's noncompliance with any applicable laws; (k)
any costs (including, without limitation, legal fees and expenses), fees,
fines, penalties and/or interest incurred by Landlord as a result of Landlord's
failure to pay any obligations of Landlord; (l) costs of disputes between
Landlord and any third party regarding matters not related to the Premises; (m)
costs of defending any lawsuits with Mortgagees or ground lessors of Landlord;
(n) any debt losses, rent losses or reserves for bad debt; and (o) costs or
expenses related to Landlord's cleaning, removal, remediation or compliance
required due to the existence of any hazardous or toxic materials in, on or
affecting the Building and/or Land (including, without limitation, Hazardous
Substances) unless such existence is caused by Tenant or its employees,
sublessees or contractors.
ARTICLE 6
INSURANCE
Section 6.1. Throughout the Term, Tenant shall, at its own cost and
expense, provide and keep in force, for the benefit of Landlord, Tenant and any
Mortgagee:
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(a) broad form commercial general liability insurance (including
protective liability coverage on operations of independent contractors engaged
in construction and blanket contractual liability insurance) protecting and
indemnifying Landlord, Tenant and any Mortgagee against all claims for damages
to person or property or for loss of life or of property occurring upon, in, or
about the Premises, if any, written on a per-occurrence basis with an aggregate
limit of not less than $2,000,000 and a per-occurrence limit of not less than
$1,000,000, or such greater limits as may be required from time to time by any
Mortgagee or as may be reasonably required from time to time by Landlord
consistent with insurance coverage on properties similarly constructed,
occupied and maintained. Such coverage shall contain endorsements: (i)
including employees of Tenant as additional insureds; (ii) including
cross-liability; and (iii) waiving the insurer's rights of subrogation against
Landlord for events of which Landlord is not, but Tenant is, covered;
(b) property insurance in respect of Tenant's property located at the
Premises, insuring against loss or damage by fire and such other risks as are
now or hereafter embraced by "extended coverage" policy in an amount sufficient
to prevent Landlord and Tenant from becoming co-insurers and in any event in an
amount not less than one hundred percent (100%) of the actual replacement value
thereof as reasonably determined by Tenant from time to time.
(c) worker's compensation insurance (including employers' liability
insurance) covering all persons employed at the Premises by Tenant to the
extent required by the laws of the State in which the Premises are located; and
(d) such other or further insurance, in such amounts and in such form,
as is customarily obtained by tenants at properties similarly constructed,
occupied and maintained and that is available at commercially reasonable rates,
or as otherwise reasonably required by any Mortgagee.
Section 6.2. Whenever under the terms of this Lease Tenant is required
to maintain insurance for the benefit of Landlord, (i) all Landlord Parties (as
defined below) shall be an additional insured in all such liability insurance
policies, and (ii) either Landlord or Mortgagee, as specified in Section 6.3,
shall be named as loss payee in all such casualty insurance policies. In the
event that the Premises shall be subject to a Mortgage, the commercial general
liability insurance shall name the Mortgagee (together with any trustee or
servicer therefor) as an additional insured and all other insurance provided
hereunder shall name the Mortgagee as an additional insured or, as provided in
Section 6.3, loss payee under a standard "non-contributory mortgagee"
endorsement or its equivalent. All policies of insurance shall provide that
such coverage shall be primary and that any insurance maintained separately by
Landlord or the Mortgagee shall be excess insurance only. The original
certificates and legible copies of the original policies (or binders therefor
if the policies have not yet been prepared) shall be delivered to Landlord and
any Mortgagee. All insurance shall contain endorsements to the effect that the
act or omission of Tenant or Mortgagee, any occupancy or use of the Premises
for purposes more hazardous than permitted by such policy, any foreclosure or
other proceedings relating to the Premises or any change in title to or
ownership of the Premises will not invalidate the policy as to Landlord or such
Mortgagee. As used in this Lease, the term "LANDLORD PARTIES" shall mean (i)
Landlord, (ii) any Mortgagee that has been identified to Tenant in a writing
sent by Landlord or its agent or property manager, (iii) their respective
shareholders, members, partners, affiliates and subsidiaries, and (iv) any
directors, officers, employees, agents or contractors of such persons or
entities.
Section 6.3. INTENTIONALLY DELETED.
Section 6.4. All of the above-mentioned insurance policies and/or
certificates shall be obtained by Tenant and delivered to Landlord on or prior
to the date hereof, and thereafter as provided for herein, and shall be written
by insurance companies: (i) rated B+/X or better in "Best's Insurance Guide"
(or any substitute guide acceptable to Landlord); (ii) authorized to do
business in the state where the Premises are located; and (iii) of recognized
responsibility and which are satisfactory to Landlord and any Mortgagee. Any
deductible amounts under any casualty insurance policy hereunder shall not
exceed $25,000.00 per occurrence.
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Section 6.5. At least thirty (30) days prior to the expiration of any
policy or policies of such insurance, Tenant shall renew such insurance, by
delivering to Landlord or Mortgagee, within the said period of time, the
original policies or certificates of insurance, endorsed in accordance with
Section 6.2 hereof, together with insurance binders evidencing the coverage
described in this Article 6. All coverage described in this Article 6 shall be
endorsed to provide Landlord and Mortgagee with at least thirty (30) days'
notice of change in terms and at least ten (10) days' notice of cancellation or
termination. If Tenant shall fail to procure the insurance required under this
Article 6 in a timely fashion or to deliver such policies or certificates to
Landlord, Landlord may, at its option, upon written notice to Tenant, procure
the same for the account of Tenant, and the cost thereof shall be paid to
Landlord as Additional Rent.
Section 6.6. Tenant shall not violate, or permit to be violated, any
of the conditions of any of the said policies of insurance, and Tenant shall
perform and satisfy the requirements of the companies writing such policies so
that companies of good standing, reasonably satisfactory to Landlord, shall be
willing to write and/or continue such insurance.
Section 6.7. Tenant shall not carry separate or additional insurance
affecting the coverage described in this Article 6, concurrent in form and
contributing in the event of any loss or damage to the Premises with any
insurance required to be obtained by Tenant under this Lease, unless such
separate or additional insurance shall comply with and conform to all of the
provisions and conditions of this Article. Tenant shall promptly give notice to
Landlord of such separate or additional insurance.
Section 6.8. The insurance required by this Lease, at the option of
Tenant, may be effected by blanket and/or umbrella policies issued to Tenant
covering the Premises and other properties owned or leased by Tenant, provided
that the policies otherwise comply with the provisions of this Lease and
allocate to the Premises the specified coverage, without possibility of
reduction or coinsurance by reason of, or damage to, any other premises named
therein, and if the insurance required by this Lease shall be effected by any
such blanket or umbrella policies, Tenant shall furnish to Landlord or
Mortgagee certified copies or duplicate originals of such policies in place of
the originals, with schedules thereto attached showing the amount of insurance
afforded by such policies applicable to the Premises.
ARTICLE 7
DAMAGE OR DESTRUCTION
Section 7.1. In the event the Building is damaged by fire or other
insured casualty and the insurance proceeds have been made available therefor
by the holder or holders of any mortgages or deeds of trust covering the
Building, the damage shall be repaired by and at the expense of Landlord to the
extent of such insurance proceeds available therefor, provided such repairs
can, in Landlord's sole opinion be made within one hundred eighty (180) days
after the occurrence of such damage without the payment of overtime or other
premiums. Until such repairs are completed, Fixed Rent shall be abated
effective as of the date of such fire or other casualty in proportion to the
part of the Building which is unusable by Tenant in the conduct of its
business; provided, however, if the damage is due to the fault or neglect of
Tenant or its employees, agents or invitees, there shall be no abatement of
Fixed Rent unless Landlord has received loss of rental insurance proceeds
intended to replace the Fixed Rent due hereunder. If repairs cannot, in
Landlord's sole opinion reasonably exercised, be made within one hundred eighty
(180) days after the occurrence of such damage, Landlord may, at its option,
make them within a reasonable time, and in such event, this Lease shall
continue in effect and Fixed Rent shall be abated in the manner provided in the
immediately preceding sentence. In the case of repairs which, in Landlord's
opinion reasonably exercised, cannot be made within such one hundred eighty
(180) day period, Landlord shall notify Tenant within sixty (60) days of the
date of occurrence of such damage as to whether or not Landlord will make such
repairs. If (a) Landlord elects not to make such repairs which cannot be made
within such one hundred eighty (180) day period, (b) Landlord fails to give
Tenant written notice of Landlord's intention to make or not to make such
repairs and such failure continues for ten (10) days after Landlord's receipt
of written notice of such failure, or (c) such damage occurs during the last
eighteen (18) months of the Term, then either party may, by written notice to
the other, terminate this Lease as of the date of
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the occurrence of such damage, and Landlord shall have no liability to Tenant
for failure to make such repairs except for abatement of Fixed Rent. Except as
provided in this Section 7.1, there shall be no abatement of Fixed Rent and no
liability of Landlord by reason of any injury to or interference with Tenant's
business or property arising from the making of any repairs, alterations or
improvements in or to any portion of the Building, or in or to fixtures,
appurtenances and equipment located therein, and, in any event, there shall be
no liability of Landlord should repairs require more than one hundred eighty
(180) days for completion. Tenant acknowledges and agrees that (i) Landlord
will not carry insurance of any kind on (1) Tenant's furnishings or furniture,
or (2) any fixtures or equipment removable by Tenant under the provisions of
this Lease, and (ii) Landlord shall not be required to repair any injury or
damage caused by fire or other cause, or to make any repairs or replacements to
or of improvements installed in the Building by or for Tenant, all of which
shall be the sole responsibility of Tenant.
Section 7.2. If Landlord is obligated to repair damage to the Building
pursuant to Section 7.1, Landlord shall use reasonable efforts to complete or
cause the completion of the repairs to the same on or before the expiration of
the Casualty Repair Delivery Period (as defined below in this paragraph).
Notwithstanding anything else to the contrary contained in this Lease, if
Landlord, for any reason whatsoever, cannot complete or cause the completion of
the repair of the applicable damage to the Building such that the Building is
usable by Tenant for the purposes identified in Article A, Section 4 above on
or before the last day of the Casualty Repair Delivery Period, then Landlord
shall not be liable to Tenant for any loss or damage resulting therefrom, but
Tenant shall, as its sole and exclusive remedy, have the right to terminate
this Lease by giving Landlord written notice thereof within thirty (30) days
after the expiration of the Casualty Repair Delivery Period and in any event
prior to Landlord's delivery of possession of the Building to Tenant in such a
usable condition. As used herein, the term "Casualty Repair Delivery Period"
shall mean the period of time beginning on the date the Building has been
damaged by fire or other insured casualty and ending on the last day of the
ninth (9th) calendar month following the date of such damage.
Section 7.3. Landlord covenants and agrees that throughout the Term it
will insure the Building (excluding excavation, foundation, footings and
underground flues and drains) and the machinery, boilers and equipment
contained therein owned by Landlord (excluding any property with respect to
which Tenant is obligated to insure pursuant to the provisions of Article 6
above) against damage by fire and extended perils coverage in an amount equal
to the full replacement value of such insured portions of the Building. Tenant
shall reimburse Landlord for the costs of such insurance (herein referred to as
"Insurance Costs") within thirty (30) days after Tenant's receipt of written
evidence of the amount of such costs paid by Landlord. Notwithstanding Tenant's
payment of the cost of insurance premiums as provided herein, Tenant
acknowledges that it has no right to receive any proceeds from any such
insurance policies carried by Landlord and that such insurance will be for the
sole benefit of Landlord with no coverage for Tenant for any risk against which
insurance has been obtained.
Section 7.4. All fire, extended coverage and/or damage insurance which
must be carried by Landlord and Tenant shall be endorsed with a subrogation
clause substantially as follows: "This insurance shall not be invalidated
should the insured waive in writing, prior to a loss, any or all right of
recovery against any party for loss occurring to the property described
herein." Landlord and Tenant each hereby waives any rights it may have against
the other (including, but not limited to, a direct action for damages) on
account of any loss or damage occasioned to Landlord or Tenant, as the case may
be (WHETHER OR NOT SUCH LOSS OR DAMAGE IS CAUSED BY THE FAULT, NEGLIGENCE OR
OTHER TORTIOUS CONDUCT, ACTS OR OMISSIONS OF LANDLORD OR TENANT OR THEIR
RESPECTIVE OFFICERS, PARTNERS, DIRECTORS, EMPLOYEES, SERVANTS AGENTS OR
INVITEES), to their respective property, the Premises or its contents arising
from any risk covered by any insurance required to be carried by Tenant and
Landlord, respectively, pursuant to this Lease. Without in any way limiting the
foregoing waivers and to the extent permitted by applicable law, the parties
hereto each, on behalf of their respective insurance companies insuring the
property of either Landlord or Tenant against any such loss, waive any right of
subrogation that Landlord or Tenant or their respective insurers may have
against the other party or their respective officers, directors, employees,
agents or invitees and all rights of their respective insurance companies based
upon an assignment from its insured. Each party to this Lease agrees
immediately to give to each such insurance
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company written notification of the terms of the mutual waivers contained in
this Section and to have said insurance policies properly endorsed, if
necessary, to prevent the invalidation of said insurance coverage by reason of
said waivers. The foregoing waivers shall be effective whether or not the
parties maintain the required insurance.
ARTICLE 8
CONDEMNATION
Section 8.1. If the Premises, or a substantial part thereof, shall be
lawfully taken or condemned (or conveyed under threat of such taking or
condemnation) for any public or quasi-public use or purpose, then (i) the term
of this Lease shall terminate on, and not before, the date of the taking of
possession by the condemning authority, and without apportionment of the award,
and (ii) current Rent due hereunder shall be apportioned as of the date of such
termination. In the event a taking or condemnation results in a permanent loss
of adequate parking on the Land or a permanent deprivation of access to the
Premises, then this Lease may be terminated at the election of Tenant, which
election shall be made by Tenant's delivery of written notice thereof to
Landlord within thirty (30) days after the date of such taking or condemnation.
No money or other consideration shall be payable by Landlord to Tenant for the
right of termination, and Tenant hereby waives any right Tenant may have to
share in, and assigns to Landlord Tenant's interest, if any, in, any (1)
condemnation award as a result of such taking or condemnation, (2) judgment for
damages based on such taking or condemnation, or (3) proceeds of any sale made
under any threat of condemnation or taking (the award, damages or proceeds
described in subparts (1) through (3) of this paragraph are herein collectively
referred to as "Landlord's Award").
Section 8.2. If any part of the Premises not constituting a
substantial part of the Premises shall be so taken or condemned (or conveyed
under threat of such taking or condemnation), or if the grade of any street
adjacent to the Building is changed by any competent authority and such taking
or change of grade makes it necessary or desirable to substantially remodel or
restore the Building, Landlord shall have the right to terminate this Lease
upon not less than ninety (90) days notice prior to the date of termination
designated in the notice. In the event this Lease is not terminated by Landlord
pursuant to the preceding sentence, then (a) this Lease shall continue in full
force and effect without abatement or reduction of rental due hereunder except
in the event a portion of the Premises has been taken or condemned, in which
case Fixed Rent shall be equitably adjusted, and (b) Landlord shall, within a
reasonable time and at the sole cost and expense of Landlord to the extent of
the applicable Landlord's Award, restore or remodel the Building and, if
applicable, the Premises.
Section 8.3. Except as provided in this Article 8, there shall be no
reduction of Fixed Rent and no liability of Landlord by reason of any injury
to, or interference with, Tenant's business or property arising from the making
of any repairs, alterations or improvements in or to any portion of the
Premises following a taking or condemnation of the same, or in or to fixtures,
appurtenances and equipment located therein. Notwithstanding anything to the
contrary contained herein, Tenant shall have the right to recover from any
condemning authority, through a separate award which does not reduce Landlord's
Award, any compensation as may be awarded to Tenant on account of moving and
relocation expenses and depreciation to and removal of Tenant's physical
property from the Premises.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
Section 9.1. Except in strict accordance with the provisions of this
Article 9, Tenant shall not sell, assign, sublease or otherwise transfer,
directly or indirectly (each a "TRANSFER"), all or any portion of Tenant's
interest in this Lease or the Premises without Landlord's prior written
consent, which written consent shall not be unreasonably withheld or delayed.
Landlord and Tenant agree that no corporate reorganization of Tenant, or any
merger, consolidation, take-over, buy-out or other change in the corporate
structure or effective voting control of Tenant shall be deemed a prohibited
Transfer under this Section 9.1 so long as (y) Tenant has
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at least the amount of net worth immediately after the transaction as Tenant
has immediately prior to the transaction and (z) Tenant provides written notice
to Landlord describing in reasonable detail the nature of such transaction, the
name, address and state of formation of the surviving entity and the ownership
of Tenant. Any assignment or subletting permitted without Landlord's prior
written consent as provided above (a "PERMITTED TRANSFER WITHOUT LANDLORD
CONSENT") shall not release Tenant from any of its obligations under this
Lease. If the common stock of Tenant or of any corporation which controls
Tenant ever becomes the subject of a public offering, such issuance of shares
and/or subsequent trading of stock in Tenant shall not be deemed a prohibited
transfer under this Section 9.1. For purposes of this Article 9, the terms
"CONTROL" or "CONTROLS" shall mean possession, direct or indirect, of the power
to direct or to cause the direction of, the management and policies of any
person or entity, whether through the ownership of voting securities, or
partnership interest, by contract or otherwise. Without limiting in any way
Landlord's right to withhold its consent on any reasonable grounds, it is
agreed that Landlord will not be acting unreasonably in refusing to consent to
an assignment or sublease if, (a) the proposed assignment or sublease involves
a change of use of the Premises from that specified herein, (b) the proposed
assignee or subtenant is not, in Landlord's reasonable opinion, of reputable or
good character (for the purposes of this Lease, Landlord shall be conclusively
deemed to have reasonably exercised its discretion to withhold its consent to
an assignment or subletting to a person or entity that is not of the character,
quality or financial strength of a tenant to whom Landlord would generally
lease space of a comparable size and quality as the Premises), (c) a Mortgagee
does not approve such assignment or sublease after being requested to approve
the same, or (d) in the case of a subletting, the subletting shall not be
expressly subject to all of the provisions of this Lease and the obligations of
Tenant hereunder and shall not further provide that if Landlord shall recover
or come into possession of the Premises before the expiration of this Lease,
Landlord shall have the right to take over the sublease and to have it become a
direct lease with Landlord, in which case Landlord shall succeed to all of the
rights of Tenant, as sublessor, thereunder and that in such case subtenant
shall be bound to Landlord for the balance of the term of the sublease and
shall attorn to and recognize Landlord as its landlord under the sublease under
all of the then executory terms of the sublease, except that Landlord will not
(i) be liable for any previous acts or omissions of Tenant, as sublessor, (ii)
be subject to any claims of subtenant not expressly set forth in the sublease,
(iii) be bound by any modification of the sublease for which Landlord shall
have not expressly consented, or (iv) be obligated to perform any repairs or
other work beyond Landlord's obligations under this Lease. Tenant acknowledges
and agrees (again without in any way limiting Landlord's right to withhold its
consent on reasonable grounds) that Landlord may also withhold its consent to a
Transfer based on any one or more of the following: (1) Tenant's failure to
satisfy its obligations in Section 9.3 below; (2) at the time thereof an Event
of Default has occurred and is continuing; or (3) the fact that the instrument
effecting the proposed Transfer is not in form and content reasonably
satisfactory to Landlord.
Section 9.2. Notwithstanding the provisions of Section 9.1 above,
Tenant shall not be required to obtain the prior consent of Landlord for any
sublease of a part (but not all) of the Premises, which sublease is ordinary
and incidental to Tenant's business as such business has been run prior to the
inception of this Lease. In the event of a proposed sublease which is either
inconsistent with the ordinary and incidental operations of Tenant's business,
or which does not fall within the foregoing parameters of this Section 9.2,
such shall not be allowed without Landlord's prior written consent in each
instance, which consent shall not be unreasonably withheld or delayed.
Section 9.3. If Tenant shall desire Landlord's consent to a Transfer,
Landlord shall be given not less than thirty (30) days' advance written notice
of the proposed effective date of such Transfer, which notice shall be
delivered to Landlord together with (i) either an executed counterpart or, if
unavailable, a copy of the proposed instrument(s) of the Transfer and (ii) such
other documents and information as Landlord may reasonably request.
Section 9.4. Any consent by Landlord under this Article 9 shall apply
only to the specific transaction thereby authorized and shall not relieve
Tenant from the requirement of obtaining the prior written consent of Landlord
to any further Transfer of this Lease. No Transfer of all or a portion of this
Lease shall release or relieve the transferor from any obligations of Tenant
hereunder, and the transferor shall remain liable for the performance of all
obligations of Tenant hereunder.
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Section 9.5. Tenant shall cause each subtenant permitted pursuant to
this Article 9 (a "SUBTENANT") to comply with its obligations under its
respective sublease, and Tenant shall diligently enforce all of its rights as
the landlord thereunder in accordance with the terms of such sublease and this
Lease.
Section 9.6. The fact that a violation or breach of any of the terms,
provisions or conditions of this Lease results from or is caused by an act or
omission by any of the Subtenants shall not relieve Tenant of Tenant's
obligation to cure the same. Tenant shall take all necessary steps to prevent
any such violation or breach.
Section 9.7. If this Lease is assigned, or if the Premises or any part
thereof is subleased or occupied by anybody other than Tenant, Landlord may,
after the occurrence and during the continuance of an Event of Default by
Tenant, collect Rent from the assignee or Subtenants, and apply the net amount
collected to the Rent herein reserved, but no such assignment, sublease,
occupancy or collection shall be deemed a waiver of this covenant, or the
acceptance of the assignee or Subtenant as tenant, or a release of Tenant from
the further performance by Tenant of the terms, covenants, and conditions on
the part of Tenant to be observed or performed hereunder. After any assignment
or subletting, Tenant's liability hereunder shall continue notwithstanding any
subsequent modification or amendment hereof or the release of any subsequent
tenant hereunder from any liability, to all of which Tenant hereby consents in
advance. The consent by Landlord to any Transfer shall not in any way be
construed to relieve Tenant from obtaining the express written consent of
Landlord to any further Transfer.
Section 9.8. To secure the prompt and full payment by Tenant of the
Rent and the faithful performance by Tenant of all the other terms and
conditions herein contained on its part to be kept and performed, Tenant hereby
assigns, transfers and sets over unto Landlord, subject to the conditions
hereinafter set forth, all of Tenant's right, title and interest in and to all
Subleases and hereby confers upon Landlord, its agents and representatives, a
right of entry in, and sufficient possession of, the Premises to permit and
insure the collection by Landlord of the rentals and other sums payable under
the Subleases, and further agrees that the exercise of said right of entry and
qualified possession by Landlord shall not constitute an eviction of Tenant
from the Premises or any portion thereof and that should said right of entry
and possession be denied Landlord, its agent or representative, Landlord, in
the exercise of said right, may use all requisite force to gain and enjoy the
same without responsibility or liability to Tenant, its servants, employees,
guests or invitees, or any Person whomsoever; provided, however that such
assignment shall become operative and effective only if (a) an Event of Default
shall occur or (b) this Lease and the Term shall be canceled or terminated
pursuant to the terms, covenants and conditions hereof or (c) there occurs
repossession under a dispossess warrant or other re-entry or repossession by
Landlord under the provisions hereof or (d) a receiver for the Premises is
appointed, and then only as to such of the subleases that Landlord may elect to
take over and assume. At any time and from time to time upon Landlord's demand,
Tenant promptly shall deliver to Landlord a schedule of all subleases, setting
forth the names of all Subtenants, with a photostatic copy of each of the
subleases. Upon reasonable request of Landlord, Tenant shall permit Landlord
and its agents and representatives to inspect all subleases affecting the
Premises. Tenant covenants that each sublease shall provide that the Subtenant
thereunder shall be required from time to time, upon request of Landlord or
Tenant, to execute, acknowledge and deliver, to and for the benefit of
Landlord, an estoppel certificate confirming with respect to such sublease the
information set forth in Section 14.1 hereof.
Section 9.9. Tenant covenants and agrees that all subleases hereafter
entered into affecting the Premises shall provide that (a) they are subject to
this Lease, (b) the term thereof should end not less than one (1) day prior to
the Expiration Date hereof, unless Landlord shall consent otherwise, which
consent may be withheld in Landlord's sole discretion, (c) the Subtenants will
not do, authorize or execute any act, deed or thing whatsoever or fail to take
any such action which will or may cause Tenant to be in violation of any of its
obligations under this Lease, (d) the Subtenants will not pay rent or other
sums under the subleases with Tenant for more than one (1) month in advance,
(e) the Subtenants shall give to Landlord at the address and otherwise in the
manner specified in Section 19.8 hereof, a copy of any notice of default by
Tenant as the landlord under the subleases at the same time as, and whenever,
any such notice of default shall be given by the Subtenants to Tenant, and (f)
in the event of the termination or expiration of this Lease prior to the
Expiration Date hereof, any
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such Subtenant, at Landlord's election, shall be obligated to attorn to and
recognize Landlord as the lessor under such Sublease, in which event such
Sublease shall continue in full force and effect as a direct lease between
Landlord and the Subtenant upon all the terms and conditions of such Sublease,
except as hereinafter provided. Any attornment required by Landlord of such
Subtenant shall be effective and self-operative as of the date of any such
termination or expiration of this Lease without the execution of any further
instrument; provided, however, that such Subtenant shall agree, upon the
request of Landlord, to execute and deliver any such instruments in recordable
form and otherwise in form and substance satisfactory to Landlord to evidence
such attornment. With respect to any attornment required by Landlord of any
Subtenant hereunder, (i) at the option of Landlord, Landlord shall recognize
all rights of Tenant as the lessor under such sublease and the Subtenant
thereunder shall be obligated to Landlord to perform all of the obligations of
the Subtenant under such sublease and (ii) Landlord shall have no liability,
prior to its becoming lessor under such Sublease, to such Subtenant nor shall
the performance by such Subtenant of its obligations under the sublease,
whether prior to or after any such attornment, be subject to any defense,
counterclaim or setoff by reason of any default by Tenant in the performance of
any obligation to be performed by Tenant as lessor under such sublease, nor
shall Landlord be bound by any prepayment of more than one (1) month's rent
unless such prepayment shall have been expressly approved in writing by
Landlord. The provisions of this Section 9.9 shall survive the expiration or
earlier termination of the Term.
Section 9.10. If Tenant assumes this Lease and proposes to assign the
same pursuant to the provisions of Title 11 of the United States Code or any
statute of similar purpose or nature (the "BANKRUPTCY CODE") to any person or
entity who shall have made a bona fide offer to accept an assignment of this
Lease on terms acceptable to Tenant, then notice of such proposed assignment
shall be given to Landlord by Tenant no later than twenty (20) days after
receipt of such offer by Tenant, but in any event no later than ten (10) days
prior to the date that Tenant shall file any application or motion with a court
of competent jurisdiction for authority and approval to enter into such
assumption and assignment. Such notice shall set forth (a) the name and address
of the assignee, (b) all of the terms and conditions of such offer, and (c) the
proposal for providing adequate assurance of future performance by such person
under the Lease, including, without limitation, the assurance referred to in
Section 365 of the Bankruptcy Code. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed
without further act or deed to have assumed all of the obligations arising
under this Lease from and after the date of such assignment. Any such assignee
shall execute and deliver to Landlord upon demand an instrument confirming such
assumption.
Section 9.11. The provisions of Sections 9.8, 9.9 and 9.10 hereof
shall survive the expiration or earlier termination of this Lease.
Section 9.12. In no event shall Tenant mortgage, encumber, pledge,
grant a security interest in, collaterally assign or conditionally transfer
this Lease or removable trade fixtures incorporated in or used in connection
with the Premises or any Subleases or any of the rents, issues and profits
therefrom, other than the grant of a security interest in Tenant's leasehold
interest.
ARTICLE 10
SUBORDINATION
Section 10.1. This Lease shall be subject and subordinate to all
Mortgages now or hereinafter in effect and to all renewals, modifications,
consolidations, replacements and extensions of any such Mortgages; provided,
however, that the Mortgagee of such Mortgage shall execute and deliver to
Tenant an agreement to the effect that, if there shall be a foreclosure of its
Mortgage, such Mortgagee will not make Tenant a party defendant to such
foreclosure, unless necessary under applicable law for the Mortgagee to
foreclose, or if there shall be a foreclosure of such Mortgage, such Mortgagee
shall not evict Tenant, disturb Tenant's leasehold estate or rights hereunder,
in all events provided that no Event of Default then exists (any such
agreement, or any agreement of similar import, from a Mortgagee being
hereinafter called a "SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT"
or "SNDA"), and Tenant shall attorn to the Mortgagee or any
successor-in-interest to Landlord or the Mortgagee. This Section 10.1 shall be
self-operative and no further
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instrument of subordination other than an SNDA shall be required to make the
interest of any Mortgagee superior to the interest of Tenant hereunder.
Notwithstanding the previous sentence, however, Tenant shall, together with the
Mortgagee, execute and deliver promptly each SNDA that Landlord may request to
effect such subordination. If Tenant fails to execute and deliver to Landlord
any SNDA delivered to Tenant for Tenant's execution within ten (10) days after
Tenant's receipt of the same, (1) such failure shall constitute an Event of
Default hereunder until such time as it has been delivered to Landlord, (2)
Tenant shall be deemed to have agreed to all of the terms and provisions of
such SNDA, and (3) Tenant shall thereafter be estopped from disclaiming any of
the obligations, benefits and burdens set forth therein including, without
limitation, (i) the subordination of this Lease to any deed of trust, mortgage,
ground lease or similar instruments, (ii) any non-disturbance rights provided
to Tenant therein, and (iii) any attornment agreements of Tenant set forth
therein If, in connection with the financing of the Premises, any lending
institution or Landlord shall request reasonable modifications of this Lease
that do not increase the monetary obligations of Tenant under this Lease or
materially increase the other obligations of Tenant under this Lease or
materially and adversely affect the rights of Tenant under this Lease, Tenant
shall make such modifications. The standards (i.e., time and manner of giving
such consent and standard of reasonableness, if applicable) of a Mortgagee's
consent with respect to this Lease shall be materially consistent with those to
which Landlord is subject under this Lease. Any Non-Disturbance Agreement may
be made on the condition that neither the Mortgagee nor anyone claiming by,
through or under such Mortgagee shall be:
(a) liable for any act or omission of any prior Landlord (including,
without limitation, the then defaulting Landlord);
(b) subject to any defense or offsets which Tenant may have against
any prior Landlord (including, without limitation, the then defaulting
Landlord) which arise prior to the date such Mortgagee (or someone acquiring at
a foreclosure sale related to the Mortgagee's Mortgage) acquires title to the
Premises;
(c) bound by any payment of Rent which Tenant might have paid for more
than the current month to any prior Landlord (including, without limitation,
the then defaulting Landlord);
(d) bound by any obligation to make any payment to Tenant which was
required to be made prior to the time such Landlord succeeded to any prior
Landlord's interest;
(e) bound by any obligation to perform any work or to make
improvements to the Premises;
(f) bound by any modification, amendment or supplement to this Lease
made without the prior written consent of the Mortgagee; or
(g) bound by any security deposit for Tenant's obligations under this
Lease unless such deposit is actually received by Mortgagee.
If required by any Mortgagee, Tenant promptly shall join in any
Non-Disturbance Agreement to indicate its concurrence with the provisions
thereof and its agreement, in the event of a foreclosure of any Mortgage to
attorn to such Mortgagee, as Tenant's landlord hereunder. Tenant shall promptly
so accept, execute and deliver any Non-Disturbance Agreement proposed by any
Mortgagee which conforms with the provisions of this Section 10.1. Any
Non-Disturbance Agreement may also contain other terms and conditions as may
otherwise be required by any Mortgagee which do not increase Tenant's monetary
obligations or materially and adversely affect the rights or obligations of
Tenant under this Lease.
Section 10.2. Tenant hereby agrees to give to any Mortgagee copies of
all notices given by Tenant of default by Landlord under this Lease at the same
time and in the same manner as, and whenever, Tenant shall give any such notice
of default to Landlord. Such Mortgagee shall have the right to remedy any
default under this Lease, or to cause any default of Landlord under this Lease
to be remedied, and for such purpose Tenant hereby grants such Mortgagee such
period of time as may be reasonable to enable such
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Mortgagee to remedy, or cause to be remedied, any such default in addition to
the period given to Landlord for remedying, or causing to be remedied, any such
default which is a default. Tenant shall accept performance by such Mortgagee
of any term, covenant, condition or agreement to be performed by Landlord under
the Lease with the same force and effect as though performed by Landlord. No
default under the Lease shall exist or shall be deemed to exist (i) as long as
such Mortgagee, in good faith, shall have commenced to cure such default and
shall be prosecuting the same to completion with reasonable diligence, subject
to force majeure, or (ii) if possession of the Premises is required in order to
cure such default, or if such default is not susceptible of being cured by such
Mortgagee, as long as such Mortgagee, in good faith, shall have notified Tenant
that such Mortgagee intends to institute proceedings under the Mortgage and,
thereafter, as long as such proceedings shall have been instituted and shall
prosecute the same with reasonable diligence and, after having obtained
possession, prosecutes the cure to completion with reasonable diligence. The
Lease shall not be assigned (subject to the provisions of Article 9) by Tenant
or modified, amended or terminated without such Mortgagee's prior written
consent in each instance. In the event of the termination of the Lease by
reason of any default thereunder or for any other reason whatsoever except the
expiration thereof, upon such Mortgagee's written request, given within thirty
(30) days after any such termination, Tenant, within fifteen (15) days after
receipt of such request, shall execute and deliver to such Mortgagee or its
designee or nominee a new lease of the Premises for the remainder of the Term
of the Lease upon all of the terms, covenants and conditions of this Lease.
Neither such Mortgagee nor its designee or nominee shall become liable under
the Lease unless and until such Mortgagee or its designee or nominee becomes,
and then only for so long as such Mortgagee or its designee or nominee remains,
the fee owner of the Premises. Such Mortgagee shall have the right, without
Tenant's consent, to foreclose the Mortgage or to accept a deed in lieu of
foreclosure of such Mortgage.
ARTICLE 11
OBLIGATIONS OF TENANT
Section 11.1. Tenant shall promptly comply with all laws, ordinances,
orders, rules, regulations, and requirements of all Federal, state, municipal
or other governmental or quasi-governmental authorities or bodies then having
jurisdiction over the Premises (or any part thereof) and/or the use and
occupation thereof by Tenant, whether any of the same relate to or require (i)
structural changes to or in and about the Premises, or (ii) changes or
requirements incident to or as the result of any use or occupation thereof or
otherwise (collectively, the "REQUIREMENTS"), and subject to Article 7, Tenant
shall so perform and comply, whether or not such laws, ordinances, orders,
rules, regulations or requirements shall now exist or shall hereafter be
enacted or promulgated and whether or not the same may be said to be within the
present contemplation of the parties hereto.
Section 11.2. Tenant agrees to give Landlord notice of any law,
ordinance, rule, regulation or requirement enacted, passed, promulgated, made,
issued or adopted by any of the governmental departments or agencies or
authorities hereinbefore mentioned affecting in a material adverse manner (i)
the Premises, (ii) Tenant's use thereof or (iii) the financial condition of
Tenant, a copy of which is served upon or received by Tenant, or a copy of
which is posted on, or fastened or attached to the Premises, or otherwise
brought to the attention of Tenant, by mailing within five (5) business days
after such service, receipt, posting, fastening or attaching or after the same
otherwise comes to the attention of Tenant, a copy of each and every one
thereof to Landlord. At the same time, Tenant will inform Landlord as to the
Work which Tenant proposes to do or take in order to comply therewith.
Notwithstanding the foregoing, however, if such Work would require any
Alterations which would, in Landlord's opinion, reduce the value of the
Premises or change the general character, design or use of the Building or
other improvements thereon, and if Tenant does not desire to contest the same,
Tenant shall, if Landlord so requests, defer compliance therewith in order that
Landlord may, if Landlord wishes, contest or seek modification of or other
relief with respect to such Requirements, so long as Tenant is not put in
violation of any law, ordinance, rule, regulation or requirement enacted,
passed, promulgated, made, issued or adopted by any such governmental
departments or agencies or authorities, but nothing herein shall relieve Tenant
of the duty and obligation, at Tenant's expense, to comply with such
Requirements, or such Requirements as modified, whenever Landlord shall so
direct.
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Section 11.3. Except in the case of the gross negligence or willful
misconduct of Landlord or its agents, BUT SPECIFICALLY INCLUDING SUCH PARTY'S
NEGLIGENCE OTHER THAN GROSS NEGLIGENCE, Tenant shall defend, indemnify and save
harmless Landlord, any partners of Landlord, any partners of any partners of
Landlord and any officers, stockholders, directors or employees of any of the
foregoing (collectively, "INDEMNIFIED PARTIES"), from (a) any and all
liabilities, claims, causes of actions, suits, damages and expenses
(collectively, "CLAIMS") arising from or under this Lease or Tenant's use,
occupancy and operations of, in or about the Premises prior to or during the
Term; and (b) all costs, expenses and liabilities incurred, including actual
and customary attorney's fees and disbursements through and including appellate
proceedings, in or in connection with any of such Claims. If any action or
proceeding shall be brought against any of the Indemnified Parties by reason of
any such Claims, Tenant, upon notice from any of the Indemnified Parties, shall
resist and defend such action or proceeding, at its sole cost and expense by
counsel to be selected by Tenant but otherwise satisfactory to such Indemnified
Party in its reasonable discretion. Tenant or its counsel shall keep each
Indemnified Party fully informed at all times of the status of such defense.
Notwithstanding the foregoing, an Indemnified Party may retain its own
attorneys to defend or assist in defending any claim, action or proceeding
involving potential liability in excess of Five Million Dollars ($5,000,000),
and Tenant shall pay the actual and customary fees and disbursements of such
attorneys. The provisions of this Section 11.3 shall survive the expiration or
earlier termination of this Lease.
Section 11.4. If at any time prior to or during the Term (or within
the statutory period thereafter if attributable to Tenant), any mechanic's or
other lien or order for payment of money, which shall have been either created
by, caused (directly or indirectly) by, or suffered against Tenant, shall be
filed against the Premises or any part thereof, Tenant, at its sole cost and
expense, shall cause the same to be discharged by payment, bonding or
otherwise, within ten (10) days after the filing thereof unless such lien or
order is contested by Tenant in good faith and Tenant provides sufficient
security or evidence of financial ability, in each case to the reasonable
satisfaction of Landlord, to pay the amount of such lien or order. Tenant
shall, upon notice and request in writing by Landlord, defend for Landlord, at
Tenant's sole cost and expense, any action or proceeding which may be brought
on or for the enforcement of any such lien or order for payment of money, and
will pay any damages and satisfy and discharge any judgment entered in such
action or proceeding and save harmless Landlord from any liability, claim or
damage resulting therefrom. In default of Tenant's procuring the discharge of
any such lien as aforesaid Landlord may, without notice, and without prejudice
to its other remedies hereunder, procure the discharge thereof by bonding or
payment or otherwise, and all cost and expense which Landlord shall incur shall
be paid by Tenant to Landlord as Additional Rent forthwith.
Section 11.5. Landlord shall not under any circumstances be liable to
pay for any work, labor or services rendered or materials furnished to or for
the account of Tenant upon or in connection with the Premises, and no
mechanic's or other lien for such work, labor or services or material furnished
shall, under any circumstances, attach to or affect the reversionary interest
of Landlord in and to the Premises or any alterations, repairs, or improvements
to be erected or made thereon. Nothing contained in this Lease shall be deemed
or construed in any way as constituting the request or consent of Landlord,
either express or implied, to any contractor, subcontractor, laborer or
materialman for the performance of any labor or the furnishing of any materials
for any specific improvement, alteration to or repair of the Premises or any
part thereof, nor as giving Tenant any right, power or authority to contract
for or permit the rendering of any services or the furnishing of any materials
on behalf of Landlord that would give rise to the filing of any lien against
the Premises.
Section 11.6. Neither Landlord nor its agents shall be liable for any
loss of or damage to the property of Tenant or others by reason of casualty,
theft or otherwise, or for any injury or damage to persons or property
resulting from any cause of whatsoever nature, INCLUDING THAT WHICH IS CAUSED
BY OR ARISES BY THE NEGLIGENCE OF LANDLORD OR ITS AGENTS OTHER THAN THEIR GROSS
NEGLIGENCE, unless caused by or due to the gross negligence or willful
misconduct of Landlord, its agents, servants or employees.
Section 11.7. Landlord shall not be required to furnish to Tenant any
facilities or services of any kind whatsoever, including, but not limited to,
water, steam, heat, gas, oil, hot water, and/or electricity, all of which
Tenant represents and warrants that Tenant has obtained from the public utility
supplying the same, at
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Tenant's sole cost and expense. Upon Tenant's written request, however,
Landlord agrees to cooperate with Tenant (at no cost to Landlord) with respect
to such services.
ARTICLE 12
DEFAULT BY TENANT; REMEDIES
Section 12.1. Each of the following shall be deemed an event of
default (an "EVENT OF DEFAULT") and a breach of this Lease by Tenant:
(a) If Tenant shall fail to pay the Fixed Rent or any Tenant's Expense
Payment as and when due hereunder and such failure continues for a period of
five (5) days after written notice of such failure has been delivered to Tenant
(provided, however, that Landlord shall not be required to send more than two
(2) such notices to Tenant during any consecutive twelve (12) month period, and
thereafter it shall be an Event of Default if Tenant shall fail to pay the
Fixed Rent or any Tenant Expense payment when due).
(b) If Tenant shall fail to pay any Additional Rent required to be
paid by Tenant hereunder and such failure continues for a period of five (5)
days after written notice of such failure has been delivered to Tenant
(provided, however, that Landlord shall not be required to send more than two
(2) such notices to Tenant during any consecutive twelve (12) month period, and
thereafter it shall be an Event of Default if Tenant shall fail to pay any
Additional Rent when due).
(c) If Tenant shall default in the performance or observance of any of
the other agreements, conditions, covenants or terms herein contained, or if
such default is of such a nature that it can be remedied, then if such default
shall continue for thirty (30) days after written notice by Landlord to Tenant
(or if such default is of such a nature that it cannot be completely remedied
within said thirty (30) day period, then if Tenant does not agree in writing
within such thirty (30) day period to cure the same, commence and thereafter
diligently prosecute the cure and complete the cure within a reasonable period
of time under the circumstances after such original written notice of default
by Landlord to Tenant, but in any event prior to the time such failure would
result in a violation of applicable laws or a default by Landlord under any
Mortgage).
(d) The occurrence and continuance of a Vacation of the Premises (as
hereinafter defined) or a Material Abandonment of the Premises (as hereinafter
defined).
(e) If Tenant shall transfer all or any of its interest in this Lease
without compliance with the provisions of this Lease applicable thereto.
(f) Tenant fails or refuses to execute any subordination agreement
required pursuant to Article 10 or estoppel certificate required pursuant to
Article 14 within ten (10) business days after Tenant's receipt thereof.
(g) Tenant shall fail to maintain any insurance that this Lease
requires Tenant to maintain.
(h) Tenant shall do or permit to be done any act which results in a
lien being filed against the Premises or any improvements of part thereof if
such lien is not released, bonded or otherwise provided for by indemnification
satisfactory to Landlord within thirty (30) days after Tenant first obtains
actual knowledge of such lien.
As used in this Lease, the phrase "VACATION OF THE PREMISES" shall mean
vacating the Premises without providing a reasonable level of security to
minimize the potential for vandalism, or where the coverage of the property
insurance under either or both of Sections 6.1(a) or 6.1(b) is jeopardized as a
result thereof, and the phrase "MATERIAL ABANDONMENT OF THE PREMISES" shall
mean the abandonment by Tenant of the Premises for ten (10) business days
during any period of time in which an Event of Default has occurred and is
continuing.
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Section 12.2.
(a) If an Event of Default (i) described in Sections 12.1(c) or (e)
hereof shall occur and Landlord, at any time thereafter, at its option, gives
written notice to Tenant stating that this Lease shall terminate on the date
specified in such notice, which date shall be not less than three (3) days
after the giving of such notice, and if, on the date specified in such notice,
Tenant shall have failed to cure the default which was the basis for the Event
of Default, or (ii) described in Sections 12.1(a), (b), (d) or (f) hereof shall
occur, then all rights of Tenant under this Lease shall terminate and Tenant
immediately shall quit and surrender the Premises, which termination shall not
relieve Tenant from any liability then or thereafter accruing hereunder.
(b) If an Event of Default described in Sections 12.1(a) or (b) hereof
shall occur, or this Lease shall be terminated as provided in Section 12.2(a)
hereof, Landlord, without notice, and with or without court proceedings, (i)
may re-enter and repossess the Premises using such force for that purpose as
may be necessary without being liable to indictment, prosecution or damages
therefor or (ii) may dispossess Tenant by summary proceedings or otherwise,
which re-entry and repossession by Landlord shall not relieve Tenant from any
liability then or thereafter accruing hereunder, except that Tenant shall be
entitled to any credit for rent received from any reletting of the Premises or
the value of the Premises pursuant to Section 12.3(c) or (d).
Section 12.3. If this Lease shall be terminated as provided in Section
12.2(a) hereof and/or Tenant shall be dispossessed by summary proceedings or
otherwise as provided in Section 12.2(b) hereof:
(a) Tenant shall pay to Landlord all Rent payable under this Lease by
Tenant to Landlord to the date upon which this Lease shall have been terminated
or to the date of re-entry upon the Premises Landlord, as the case may be.
(b) Landlord may repair and alter the Premises in such manner as
Landlord may deem necessary or advisable without relieving Tenant of any
liability under this Lease or otherwise affecting any such liability, and/or
let or relet the Premises or any parts thereof for the whole or any part of the
remainder of the Term or for a longer period, in Landlord's name or as agent of
Tenant, and out of any rent and other sums collected or received as a result of
such reletting Landlord shall: (i) first, pay to itself the cost and expense of
terminating this Lease, re-entering, retaking, repossessing, repairing and/or
altering the Premises, or any part thereof, and the cost and expense of
removing all persons and property therefrom, including in such costs, market
rate brokerage commissions, actual and customary legal expenses and attorneys'
fees and disbursements, (ii) second, pay to itself the cost and expense
sustained in securing any new tenants and other occupants, including in such
costs, market rate brokerage commissions, actual and customary legal expenses
and attorneys' fees and disbursements and other expenses of preparing the
Premises for reletting, and, if Landlord shall maintain and operate the
Premises, the cost and expense of operating and maintaining the Premises, and
(iii) third, pay to itself any balance remaining on account of the liability of
Tenant to Landlord. Landlord in no way shall be responsible or liable for any
failure to relet the Premises or any part thereof, or for any failure to
collect any rent due on any such reletting, and no such failure to relet or to
collect rent shall operate to relieve Tenant of any liability under this Lease
or to otherwise affect any such liability;
(c) Tenant shall be liable for and shall pay to Landlord, as damages,
any deficiency (referred to as "DEFICIENCY"), between the Rent reserved in this
Lease for the period which otherwise would have constituted the unexpired
portion of the Term and the net amount, if any, of rents collected under any
reletting effected pursuant to the provisions of Section 12.3(b) hereof for any
part of such period, first deducting from the rents collected under any such
reletting all of the payments to Landlord described in Section 12.3(b) hereof;
any such Deficiency shall be paid in installments by Tenant on the days
specified in this Lease for payment of installments of Rent, and Landlord shall
be entitled to recover from Tenant each Deficiency installment as the same
shall arise, and no suit to collect the amount of the Deficiency for any
installment period shall prejudice Landlord's right to collect the Deficiency
for any subsequent installment period by a similar proceeding; and
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(d) whether or not Landlord shall have collected any Deficiency
installments as aforesaid, Landlord shall be entitled to recover from Tenant,
and Tenant shall pay to Landlord, on demand, in lieu of any further
Deficiencies, as and for liquidated and agreed final damages (it being agreed
that it would be impracticable or extremely difficult to fix the actual
damage), a sum equal to the amount by which the Rent reserved in this Lease for
the period which otherwise would have constituted the unexpired portion of the
Term exceeds the then fair and reasonable rent value of the Premises for the
same period, both discounted present worth at the rate of the then applicable
rate of interest on United States Treasury Securities having terms to maturity
most closely matching the unexpired portion of the Term, less the aggregate
amount of Deficiencies theretofore collected by Landlord pursuant to the
provisions of Section 12.3(c) hereof for the same period; it being agreed that
before presentation of proof of such liquidated damages to any court,
commission or tribunal, if the Premises, or any part thereof, shall have been
relet by Landlord for the period which otherwise would have constituted the
unexpired portion of the Term, or any part thereof, the amount of rent reserved
upon such reletting shall be deemed, prima facie, to be the fair and reasonable
rental value for the part or the whole of the Premises so relet during the term
of the reletting.
Section 12.4. Subject to credits pursuant to Section 12.3(c) and (d)
above, no termination of this Lease pursuant to Section 12.2(a) hereof, and no
taking possession of and/or reletting the Premises, or any part thereof,
pursuant to Sections 12.2(b) and 12.3(b) hereof, shall relieve Tenant of its
liabilities and obligations hereunder, all of which shall survive such
expiration, termination, repossession or reletting.
Section 12.5. To the extent not prohibited by law, Tenant hereby
waives and releases all rights now or hereafter conferred by statute or
otherwise which would have the effect of limiting or modifying any of the
provisions of this Article 12. Tenant shall execute, acknowledge and deliver
any instruments which Landlord may request, whether before or after the
occurrence of an Event of Default, evidencing such waiver or release.
Section 12.6. The Rent payable by Tenant hereunder and each and every
installment thereof, and all costs, actual and customary attorneys' fees and
disbursements and other expenses which may be incurred by Landlord in enforcing
the provisions of this Lease on account of any delinquency of Tenant in
carrying out the provisions of this Lease shall be and they hereby are declared
to constitute a valid lien upon the interest of Tenant in this Lease and in the
Premises.
Section 12.7. Suit or suits for the recovery of damages, or for a sum
equal to any installment or installments of Rent payable hereunder or any
Deficiencies or other sums payable by Tenant to Landlord pursuant to this
Article 12, may be brought by Landlord from time to time at Landlord's
election, and nothing herein contained shall be deemed to require Landlord to
await the date whereon this Lease or the Term would have expired by limitation
had there been no Event of Default by Tenant and termination.
Section 12.8. Nothing contained in this Article 12 shall limit or
prejudice the right of Landlord to prove and obtain as liquidated damages in
any bankruptcy, insolvency, receivership, reorganization or dissolution
proceeding an amount equal to the maximum allowed by a statute or rule of law
governing such proceeding and in effect at the time when such damages are to be
proved, whether or not such amount shall be greater than, equal to or less than
the amount of the damages referred to in any of the preceding Sections of this
Article 12.
Section 12.9. No receipt of moneys by Landlord from Tenant after
termination of this Lease, or after the giving of any notice of the termination
of this Lease shall reinstate, continue or extend the Term or affect any of the
right of Landlord to enforce the payment of Rent payable by Tenant hereunder or
thereafter falling due, or operate as a waiver of the right of Landlord to
recover possession of the Premises by proper remedy, except as herein otherwise
expressly provided, it being agreed that after the service of notice to
terminate this Lease or the commencement of any suit or summary proceedings, or
after a final order or judgment for the possession of the Premises, Landlord
may demand, receive and collect any monies due or thereafter falling due
without in any manner affecting such notice, proceedings, order, suit or
judgment, all such monies collected being deemed payments on account of
tenant's liability hereunder.
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Section 12.10. Except as otherwise expressly provided herein or as
prohibited by applicable law, Tenant hereby expressly waives the service of any
notice of intention to re-enter provided for in any statute, or of the
institution of legal proceedings to that end, and Tenant, for and on behalf of
itself and all persons claiming through or under Tenant, also waives any and
all right of redemption provided by any law or statute now in force or
hereafter enacted or otherwise, or re-entry or repossession or to restore the
operation of this Lease in case Tenant shall be dispossessed by a judgment or
by warrant of any court or judge or in case of re-entry or repossession by
Landlord or in case of any expiration or termination of this Lease, and
Landlord and Tenant waive and shall waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other on any matter whatsoever arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of
the Premises, or any claim of injury or damage.
Section 12.11. No failure by Landlord to insist upon the strict
performance of any covenant, agreement, term or condition of this Lease or to
exercise any right or remedy consequent upon a breach thereof, and no
acceptance of full or partial Rent during the continuance of any such breach,
shall constitute a waiver of any such breach or of such covenant, agreement,
term or condition. No covenant, agreement, term or condition of this Lease to
be performed or complied with by Tenant, and no breach thereof, shall be
waived, altered or modified except by a written instrument executed by
Landlord. No waiver of any breach shall affect or alter this Lease, but each
and every covenant, agreement, term and condition of this Lease shall continue
in full force and effect with respect to any other then existing or subsequent
breach thereof.
Section 12.12. In the event of any breach or threatened breach by
Tenant of any of the covenants, agreements, terms or conditions contained in
this Lease, Landlord shall be entitled to a decree compelling performance of
any of the provisions hereof, and shall have the right to invoke any rights and
remedies allowed at law or in equity or by statute or otherwise as though
re-entry, summary proceedings, and other remedies were not provided for in this
Lease.
Section 12.13. Tenant shall pay to Landlord all costs and expenses,
including, without limitation, attorneys' fees and disbursements, incurred by
Landlord in any action or proceeding to which Landlord may be made a party by
reason of any act or omission of Tenant. Tenant also shall pay to Landlord all
costs and expenses, including, without limitation, actual and customary
attorneys' fees and disbursements, incurred by Landlord in enforcing any of the
covenants and provisions of this Lease and incurred in any action brought by
Landlord against Tenant on account of the provisions hereof, and all such
costs, expenses and attorneys' fees and disbursements may be included in and
form a part of any judgment entered in any proceeding brought by Landlord
against Tenant on or under this Lease. All of the sums paid or obligations
incurred by Landlord as aforesaid, with interest and costs, shall be paid by
Tenant to Landlord on demand.
Section 12.14. If an Event of Default shall occur under this Lease and
Tenant shall fail to cure the same, Landlord may (a) perform the same for the
account of Tenant and/or (b) make any expenditure or incur any obligation for
the payment of money in connection with any obligation owed to Landlord,
including, but not limited to, reasonable attorneys' fees and disbursements in
instituting, prosecuting or defending any action or proceeding, with interest
thereon at the Default Rate and such amounts shall be deemed to be Additional
Rent hereunder and shall be paid by Tenant to Landlord immediately upon demand
therefor. Default Rate shall have the meaning ascribed to it in Article B of
this Lease; provided, however, that for purposes of this Article 12, such
Default Rate shall never exceed the maximum non-usurious rate permitted by
applicable law.
Section 12.15. If Tenant shall fail to pay any installment of Fixed
Rent when due or any Additional Rent within ten (10) days after the date when
such payment is due, Tenant shall pay to Landlord, in addition to such
installment of Fixed rent or such Additional Rent, as the case may be, interest
on the amount unpaid at the Default Rate, computed from the date such payment
was due to and including the date of payment. If an Event of Default shall
occur, Tenant agrees that Landlord shall not be liable for any damages suffered
by Tenant as a result of Landlord's exercising its remedies under Section 12.2
CAUSED BY THE NEGLIGENCE OF LANDLORD OR OTHERWISE.
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ARTICLE 13
NO WAIVER
Section 13.1. No receipt of moneys by Landlord from Tenant after the
termination or cancellation of this Lease shall reinstate, continue or extend
the term, or affect any notice theretofore given to Tenant, or operate as a
waiver of the right of Landlord to enforce the payment of Fixed Rent or
Additional Rent then due, or thereafter falling due, or operate as a waiver of
the right of Landlord to recover possession of the Premises by proper suit,
action, proceeding or remedy; it being agreed that, after the service of notice
to terminate or cancel this Lease, or the commencement of suit, action or
summary proceedings, or any other remedy, or after a final order or judgment
for the possession of the Premises, Landlord may demand, receive and collect
any moneys due, or thereafter falling due, without, in any manner whatsoever,
affecting such notice, proceeding, suit, action, order or judgment; and any and
all such moneys collected shall be deemed to be payments on account of the use
and occupation of the Premises or, at the election of Landlord, on account of
Tenant's liability hereunder.
Section 13.2. The failure of Landlord or Tenant to enforce any
agreement, condition, covenant or term, by reason of its breach by Tenant or
Landlord, as the case may be, shall not be deemed to void, waive or affect the
right of Landlord or Tenant to enforce the same agreement, condition, covenant
or term on the occasion of a subsequent default or breach.
Section 13.3. The specific remedies to which Landlord may resort under
the terms of this Lease are cumulative and are not intended to be exclusive of
any other remedies or means of redress to which Landlord may be lawfully
entitled in case of any breach or threatened breach by Tenant of any of the
terms, covenants and conditions of this Lease. The failure of Landlord or
Tenant to insist in any one or more cases upon the strict performance of any of
the terms, covenants and conditions of this Lease, or to exercise any right or
remedy herein contained, shall not be construed as a waiver or relinquishment
for the future performance of such terms, covenants and conditions. The receipt
by Landlord, or payment by Tenant, of Rent with knowledge of the breach of any
of such terms, covenants and conditions shall not be deemed a waiver of such
breach. The acceptance of any check or payment bearing or accompanied by any
endorsement, legend or statements shall not, of itself, constitute any change
in or termination of this Lease. No surrender of the Premises by Tenant (prior
to any termination of this Lease) shall be valid unless consented to in writing
by Landlord. In addition to the other remedies in this Lease provided, Landlord
or Tenant shall be entitled to the restraint by injunction of the violation or
attempted or threatened violation of any of the terms, covenants and conditions
of this Lease or to a decree compelling performance of any of such terms,
covenants and conditions.
ARTICLE 14
ESTOPPEL CERTIFICATE
Section 14.1. Tenant agrees that it shall, at any time and from time
to time upon not less than ten (10) days' prior notice by Landlord execute,
acknowledge and deliver to Landlord a statement in writing certifying that this
Lease is unmodified and in full force and effect (or if there have been any
modifications, that the Lease is in full force and effect as modified and
stating the modifications), the dates to which the Fixed Rent and Additional
Rent have been paid, and stating whether or not Landlord is in default in
keeping, observing or performing any term, covenant, agreement, provision,
condition or limitation contained in this Lease and, if in default, specifying
each such default, the Commencement Date and Expiration Date for the current
Term and any other matters reasonably requested by Landlord; it being intended
that any such statement delivered pursuant to this Article 14 may be relied
upon by Landlord or any prospective purchaser of the Premises or any Mortgagee
thereof or any assignee of any Mortgage upon the Premises.
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ARTICLE 15
QUIET ENJOYMENT
Section 15.1. Tenant, upon payment of the Rent herein reserved and
upon the due performance and observance of all the covenants, conditions and
agreements herein contained on Tenant's part to be performed and observed,
shall and may at all times during the Term peaceably and quietly have, hold and
enjoy the Premises without any manner of suit, trouble or hindrance of and from
any person claiming by, through or under Landlord, subject, nevertheless, to
the terms and provisions of this Lease. No failure by Landlord to comply with
the foregoing covenant shall give Tenant any right to cancel or terminate this
Lease or to abate, reduce or make a deduction from or offset against the Fixed
Rent or any Additional Rent, or to fail to perform any other obligation of
Tenant hereunder.
ARTICLE 16
SURRENDER
Section 16.1. Tenant shall, on the last day of the Term, or upon the
sooner termination of the Term, quit and surrender to Landlord the Premises
vacant, free of all equipment, furniture and other movable personal property of
Tenant, and in the same good order and condition as on the Commencement Date,
and Tenant shall remove or demolish all of the fixtures, structures and other
improvements which Landlord shall have elected to cause Tenant to remove
pursuant to and in accordance with Section 5.7 hereof. Tenant's obligation to
observe and perform this covenant shall survive the expiration or earlier
termination of the Term.
Section 16.2. Upon the expiration of the Term, all Fixed Rent and
Additional Rent and other items payable by Tenant under this Lease shall be
apportioned to the date of termination.
Section 16.3. Tenant acknowledges that possession of the Premises must
be surrendered to Landlord at the expiration or sooner termination of the term
of this Lease. Tenant agrees to indemnify Landlord against and save Landlord
harmless from all costs, claims, loss or liability excluding consequential
damages) resulting from the failure or delay by Tenant in so surrendering the
Premises, including, without limitation, any claims made by any succeeding
tenant founded on such failure or delay. The parties recognize and agree that
the damage to Landlord resulting from any failure by Tenant to timely surrender
possession of the Premises as aforesaid will be extremely substantial, will
exceed the amount of the Fixed Rent theretofore payable hereunder, and will be
impossible to accurately measure. Tenant therefore agrees that if possession of
the Premises is not surrendered to Landlord upon the expiration or sooner
termination of the Term, then Tenant shall pay to Landlord, as liquidated
damages for each month and for each portion of any month during which Tenant
holds over in the Premises after the expiration or sooner termination of the
Term, in addition to any sums payable pursuant to the foregoing indemnity, a
sum equal to the higher of the then fair market rental value of the Premises,
taking into account the effect of all material factors reasonably relevant to
such determination, or one and one-half (1 1/2) times the aggregate of the
Fixed Rent which was payable under this Lease with respect to the last month of
the Term hereof. Nothing herein contained shall be deemed to permit Tenant to
retain possession of the Premises after the expiration or sooner termination of
the Term. If Tenant holds over in possession after the expiration or
termination of the Term, such holding over shall not be deemed to extend the
Term or renew this Lease, but the tenancy thereafter shall continue as a
tenancy from month to month upon the terms and conditions of this Lease at the
Fixed Rent as herein increased. Tenant hereby waives the benefit of any law or
statute in effect in the state where the Premises is located which would
contravene or limit the provisions set forth in this Section 16.3. This
provision shall survive the expiration or earlier termination of this Lease.
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ARTICLE 17
ACCESS
Section 17.1. Landlord shall at all times during the Term have the
right and privilege to enter the Premises at reasonable times during business
hours for the purpose of inspecting the same or for the purpose of showing the
same to prospective purchasers or Mortgagees thereof. Landlord shall also have
the right and privilege at all times during the Term to post notices of
nonresponsibility for work performed by or on behalf of Tenant.
Section 17.2. Landlord shall at all times during the Term have the
right to enter the Premises or any part thereof, following reasonable notice
from Landlord and so long as Landlord uses its reasonable best efforts to not
unduly interfere with Tenant's normal business operations, for the purpose of
making such repairs or Alterations therein as Landlord deems necessary or
advisable, but such right of access shall not be construed as obligating
Landlord to make any repairs to or replacements to the Premises or as
obligating Landlord to make any inspection or examination of the Building.
Notwithstanding the foregoing, in the event of an emergency, Landlord shall
have the right to enter the Premises or any part thereof without prior notice
to Tenant.
ARTICLE 18
ENVIRONMENTAL MATTERS
Section 18.1. Tenant will not use, generate, manufacture, produce,
store, release, discharge or dispose of on, under, from or about the Premises
or transport to or from the Premises any Hazardous Substance and will use its
best efforts not to allow or suffer any other person or entity to do so.
Section 18.2. Tenant shall keep and maintain the Premises in
compliance with, and shall use its best efforts not to cause, permit or suffer
the Premises to be in violation of any Environmental Law (as defined below).
Landlord represents and warrants to Tenant that Landlord has no knowledge, nor
has Landlord received written notice from any governmental authority since
Landlord acquired the Premises, of any existing or threatened violation of any
Environmental Laws relating to the Premises.
Section 18.3. Tenant shall give prompt written notice to Landlord of:
(a) becoming aware of any use, generation, manufacture, production,
storage, release, discharge or disposal of any Hazardous Substance on, under,
from or about the Premises or the migration thereof to or from other property;
(b) the commencement, institution or threat of any proceeding, inquiry
or action by or notice from any local, state or federal governmental authority
with respect to the use or presence of any Hazardous Substance on the Premises
or the migration thereof from or to other property;
(c) all claims made or threatened by any third party against Tenant or
the Premises relating to any damage, contribution, cost recovery, compensation,
loss or injury resulting from any Hazardous Substance;
(d) Tenant's discovery of any occurrence or condition on any real
property adjoining or in the vicinity of the Premises that could cause the
Premises or any part thereof to be subject to any restrictions on the
ownership, occupancy, transferability or use of the Premises under any
Environmental Law, or any regulation adopted in accordance therewith, or to be
otherwise subject to any restrictions on the ownership, occupancy,
transferability or use of the Premises under any Environmental Law; and
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(e) obtaining knowledge of any incurrence of expense by any
governmental authority or others in connection with the assessment, containment
or removal of any Hazardous Substance located on, under, from or about the
Premises or any property adjoining or in the vicinity of the Premises.
Section 18.4. Landlord shall have the right, but not the obligation,
to join and participate in, as a party if it so elects, any legal proceedings
or actions initiated with respect to the Premises in connection with any
Environmental Law and have its actual and customary attorneys' fees in
connection therewith paid by Tenant or be defended by Tenant from and against
any such proceedings or actions with counsel chosen by Landlord (provided that
Landlord and Tenant shall attempt, in good faith, to agree on one counsel to
represent both Landlord and Tenant, if in Landlord's good faith determination
such joint representation is feasible or appropriate under the circumstances),
and shall have the right to make inquiry of and disclose all information to
appropriate governmental authorities when advised by counsel that such
disclosure may be required under applicable law.
Section 18.5. Without Landlord's prior written consent, which consent
shall not be unreasonably withheld or delayed, Tenant shall not take any
remedial action in response to the presence of any Hazardous Substance on,
under, from or about the Premises, nor enter into any settlement, consent or
compromise which might, in Landlord's reasonable judgment, impair the value of
Landlord's interest in the Premises under this Lease; provided, however, that
Landlord's prior consent shall not be necessary if the presence of Hazardous
Substance on, under, from or about the Premises either poses an immediate
threat to the health, safety or welfare of any individual or is of such a
nature that an immediate remedial response is necessary and it is not practical
or possible to obtain Landlord's consent before taking such action. In such
event Tenant shall notify Landlord as soon as practicable of any action so
taken. Landlord agrees not to withhold its consent, where such consent is
required hereunder, if either (i) a particular remedial action is ordered by a
court or any agency of competent jurisdiction, or (ii) Tenant establishes to
the reasonable satisfaction of Landlord that there is no reasonable alternative
to such remedial action which would result in less impairment of Landlord's
security hereunder.
Section 18.6. Tenant shall protect, indemnify and hold harmless
Landlord and each Mortgagee, their respective directors, officers, partners
employees, agents, successors and assigns from and against any and all claim,
loss, damage, cost, expense, liability, fines, penalties, charges,
administrative and judicial proceedings and orders, judgments, remedial action
requirements, enforcement actions of any kind (including, without limitation,
attorneys' fees and costs) directly or indirectly arising out of or
attributable to, in whole or in part, the breach of any of the covenants,
representations and warranties of this Article 18 or the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal, or presence of a Hazardous Substance on, under, from or about the
Premises caused by Tenant or any employees, agents, licensees, sublessees,
contractors or subcontractors of Tenant during the Term, or any other activity
carried on or undertaken on or off the Premises during the Term by Tenant, any
employees, agents, licensees, sublessees, contractors or subcontractors of
Tenant, in connection with the handling, treatment, removal, storage,
decontamination, clean-up, transport or disposal of any Hazardous Substance at
any time located or present on, under, from or about the Premises, including,
without limitation: (i) all consequential damages; (ii) the costs of any
required or necessary repair, cleanup or detoxification of the Premises and the
preparation and implementation of any closure, remedial or other required plans
including, without limitation: (A) the costs of removal or remedial action
incurred by the United States Government or the state in which the Premises are
located, or response costs incurred by any other person, or damages from injury
to, destruction of, or loss of natural resources, including the costs of
assessing such injury, destruction or loss, incurred pursuant any Environmental
Law; (B) the clean-up costs, fines, damages or penalties incurred pursuant to
the provisions of applicable state law; and (C) the cost and expenses of
abatement, correction or clean-up, fines, damages, response costs or penalties
which arise from the provisions of any other statute, state or federal; and
(iii) liability for personal injury or property damage, including damages
assessed for the maintenance of the public or private nuisance, response costs
or for the carrying on of an abnormally dangerous activity.
The foregoing indemnity shall further apply to any residual
contamination on, under, from or about the Premises, or affecting any natural
resources arising in connection with the use, generation,
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manufacturing, production, handling, storage, transport, discharge or disposal
of any such Hazardous Substance, and irrespective of whether any of such
activities were or will be undertaken in accordance with Environmental Law or
other applicable laws, regulations, codes and ordinances. This indemnity is
intended to be operable under 42 U.S.C. Section 9607(e)(1), and any successor
section thereof and shall survive expiration or earlier termination of this
Lease and any transfer of all or a portion of the Premises by Tenant.
The foregoing indemnity shall in no manner be construed to limit or
adversely affect Landlord's rights under this Article 18, including, without
limitation, Landlord's rights to approve any Remedial Work (as defined below)
or the contractors and consulting engineers retained in connection therewith.
Notwithstanding anything to the contrary contained in this Lease, in no event
will Tenant have any liability or obligation under this Lease or with respect
to the Premises for Hazardous Substances existing in, on, under or about the
Premises on the Commencement Date or any violation of Environmental Laws prior
to or existing on the Commencement Date.
Section 18.7. In the event that any investigation, site monitoring,
containment, cleanup, removal, restoration or other remedial work of any kind
or nature (the "REMEDIAL WORK") is required by any applicable local, state or
federal law or regulation, any judicial order, or by any governmental entity or
person because of, or in connection with, the current or future presence,
suspected presence, release or suspected release of a Hazardous Substance in or
into the air, soil, groundwater, surface water or soil vapor at, on, about,
under or within the Premises (or any portion thereof), Tenant shall within
thirty (30) days after written demand for performance thereof by Landlord (or
such shorter period of time as may be required under any applicable law,
regulation, order or agreement), commence to perform, or cause to be commenced,
and thereafter diligently prosecute to completion within such period of time as
may be required under any applicable law, regulation, order or agreement, all
such Remedial Work at Tenant's sole expense in accordance with the requirements
of any applicable governmental authority or Environmental Law. All Remedial
Work shall be performed by one or more contractors, approved in advance in
writing by Landlord, and under the supervision of a consulting engineer
approved in advance in writing by Landlord. All costs and expenses of such
Remedial Work shall be paid by Tenant, including, without limitation, the
charges of such contractor(s) and/or the consulting engineer, and Landlord's
actual and customary attorneys' fees and costs incurred in connection with
monitoring or review of such Remedial Work. In the event Tenant shall fail to
timely commence, or cause to be commenced, or fail to complete the Remedial
Work within the time required above, Landlord may, but shall not be required
to, cause such Remedial Work to be performed and all costs and expenses
thereof, or incurred in connection therewith shall become part of the
indebtedness secured hereby.
Section 18.8. All costs and expenses incurred by Landlord under this
Article 18 shall be immediately due and payable as Additional Rent upon demand
and shall bear interest at the Default Rate from the date of notice of such
payment by Landlord and the expiration of any grace period provided herein
until repaid.
Section 18.9. "ENVIRONMENTAL LAWS" shall mean any federal, state or
local law, statute, ordinance or regulation pertaining to health, industrial
hygiene, hazardous waste or the environmental conditions on, under, from or
about the Premises, including, without limitation, the laws listed in the
definition of Hazardous Substances below.
Section 18.10. "HAZARDOUS SUBSTANCES" shall mean any element, compound,
chemical mixture, contaminant, pollutant, material, waste or other substance
which is defined, determined or identified as a "hazardous substance",
"hazardous waste" or "hazardous material" under any federal, state or local
statute, regulation or ordinance applicable to a Real Property, as well as any
amendments and successors to such statutes and regulations, as may be enacted
and promulgated from time to time, including, without limitation, the following:
(i) the Comprehensive Environmental Response, Compensation and Liability Act of
1980 (codified in scattered sections of 26 U.S.C., 33 U.S.C., 42 U.S.C. and 42
U.S.C. Section 9601 et seq.); (ii) the Resource Conservation and Recovery Act of
1976 (42 U.S.C. Section 6901 et. seq.); (iii) the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et. seq.); (vi) the Toxic Substances
Control Act (15 U.S.C. Section 2601 et. seq.); (v) the Clean Air Act (33 U.S.C.
Section 1251 et. seq.); (vi) the Clean Air Act (42 U.S.C. Section 7401 et.
seq.);
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(vii) the Safe Drinking Water Act (21 U.S.C. Section 349; 42 U.S.C. Section 201
and Section 300f et. seq.); (viii) the National Environmental Policy Act of
1969 (42 U.S.C. Section 3421); (ix) the Superfund Amendment and Reauthorization
Act of 1986 (codified in scattered sections of 10 U.S.C., 29 U.S.C., 33 U.S.C.
and 42 U.S.C.); and (x) Title III of the Superfund Amendment and
Reauthorization Act (40 U.S.C. Section 1101 et. seq.).
Section 18.11. All representations, warranties, covenants and
indemnities of Tenant in this Article 18 shall continue to be binding upon
Tenant, and its successors and assigns, after the expiration or earlier
termination of this Lease.
ARTICLE 19
MISCELLANEOUS PROVISIONS
Section 19.1. It is mutually agreed by and between Landlord and Tenant
that the respective parties shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, Tenant's use or occupancy of the Premises, and/or
any claim of injury or damage excluding any claim for personal injury or
property damage.
Section 19.2. Tenant and the other parties occupying a part of the
Premises pursuant to a lease or license arrangement with Tenant may place a
sign on the Premises to indicate the nature of the business of Tenant and such
parties. The sign shall be lawful under applicable sign codes and subdivision
covenants.
Section 19.3.
(a) The term "LANDLORD" as used herein shall mean only the owner or
the mortgagee in possession for the time being of the Premises, so that in the
event of any sale, transfer or conveyance of the Premises Landlord shall be and
hereby is entirely freed and relieved of all agreements, covenants and
obligations of Landlord thereafter accruing hereunder, and it shall be deemed
and construed without further agreement between the parties or their successors
in interest or between the parties and the purchaser, transferee or grantee at
any such sale, transfer or conveyance that such purchaser, transferee or
grantee has assumed and agreed to carry out any and all agreements, covenants
and obligations of Landlord hereunder.
(b) The term "TENANT" as used herein shall mean the tenant named
herein, and from and after any valid assignment or transfer in whole of said
Tenant's interest under this Lease pursuant to the provisions of Article 9,
shall mean only the assignee or transferee thereof; but the foregoing shall not
release the assignor or transferor from liability under this Lease.
(c) The words "ENTER", "RE-ENTER", "ENTRY" and "RE-ENTRY" as used in
this Lease shall not be restricted to their technical legal meaning.
(d) The use herein of the neuter pronoun in any reference to Landlord
or Tenant shall be deemed to include any individual Landlord or Tenant, and the
use herein of the words "SUCCESSOR AND ASSIGNS" or "SUCCESSORS OR ASSIGNS" of
Landlord or Tenant shall be deemed to include the heirs, executors,
administrators, representatives and assigns of any individual Landlord or
Tenant.
Section 19.4. The headings herein are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
or intent of this Lease nor in any way affect this Lease.
Section 19.5. This Lease shall be governed by and construed in
accordance with the laws of the state in which the Premises are located.
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Section 19.6. This Lease contains the entire agreement between the
parties and may not be extended, renewed, terminated or otherwise modified in
any manner except by an instrument in writing executed by the party against
whom enforcement of any such modification is sought. All prior understandings
and agreements between the parties and all prior working drafts of this Lease
are merged in this Lease, which alone expresses the agreement of the parties.
The parties agree that no inferences shall be drawn from matters deleted from
any working drafts of this Lease.
Section 19.7. The agreements, terms, covenants and conditions herein
shall bind and inure to the benefit of Landlord and Tenant and their respective
heirs, personal representatives, successors and, except as is otherwise
provided herein, their assigns.
Section 19.8. Notice whenever provided for herein shall be in writing
and shall be given either by personal delivery, overnight express mail or by
certified or registered mail, return receipt requested, to Landlord and Tenant
at their respective addresses set forth in Article A above, or to such other
persons or at such other addresses as may be designated from time to time by
written notice from either party to the other. Notices shall be deemed given
(i) when delivered personally if delivered on a business day (or if the same is
not a business day, then the next business day after delivery), (ii) three (3)
business days after being sent by United States mail, registered or certified
mail, postage prepaid, return receipt requested or (iii) if delivery is made by
Federal Express or a similar, nationally recognized overnight courier service
for 9:00 a.m. delivery, then on the date of delivery (or if the same is not a
business day, then the next business day after delivery), if properly sent and
addressed in accordance with the terms of this Section 19.8.
Section 19.9. If any provision of this Lease shall be invalid or
unenforceable, the remainder of the provisions of this Lease shall not be
affected thereby and each and every provision of this Lease shall be
enforceable to the fullest extent permitted by law.
Section 19.10. Tenant represents and warrants to Landlord that Tenant
has not dealt with any real estate broker in connection with this Lease. Tenant
agrees to indemnify Landlord and save Landlord harmless from any and all claims
for brokerage commissions by any other person, firm, corporation or other
entity claiming to have brought about this Lease transaction. Landlord
represents and warrants to Tenant that Landlord has not dealt with any real
estate broker in connection with this Lease. Landlord agrees to indemnify
Tenant and save Tenant harmless from any and all claims for brokerage
commissions by any other person, firm, corporation or other entity claiming to
have brought about this Lease transaction. The provisions of this Section 19.10
shall survive the expiration or earlier termination of this Lease.
Section 19.11. Tenant is and shall be in exclusive control and
possession of the Premises, and Landlord shall not, in any event whatsoever, be
liable for any injury or damage to any property or to any person happening in,
on or about the Premises, nor for any injury or damage to any property of
Tenant, or of any other person or persons contained therein unless the same is
caused by Landlord's negligent acts or omissions. The provisions hereof,
including without limitation Article 17, permitting Landlord to enter and
inspect the Premises are made for the purpose of enabling Landlord to be
informed as to whether Tenant is complying with the agreements, terms,
covenants and conditions hereof, and if Landlord so desires, to do such acts as
Tenant shall fail to do.
Section 19.12. A memorandum of this Lease as set forth on Exhibit "B"
attached hereto and incorporated herein by this reference shall be recorded.
The memorandum of lease shall incorporate the basic terms and conditions hereof
but shall delete any statement or mention of the rental payments.
Section 19.13. The parties took equal part in drafting this Lease and
no rule of construction that would cause any of the terms hereof to be
construed against the drafter shall be applicable to the interpretation of this
Lease.
Section 19.14. In the event of a default by Tenant, following the
expiration of the applicable cure period, if any, Tenant shall and hereby does
appoint Landlord the attorney-in-fact of Tenant, irrevocably, to
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execute and deliver any documents provided for in Section 14.1 for and in the
name of Tenant, such power, being coupled with an interest, being irrevocable.
Section 19.15. Time is strictly of the essence with respect to each
and every term and provision of this Lease.
Section 19.16. The time within which either party hereto shall be
required to perform any act under this Lease, other than the payment of money,
shall be extended by a period of time equal to the number of days during which
performance of such act is delayed by strikes, lockouts, acts of God,
governmental restrictions, failure or inability to secure materials or labor by
reason of priority or similar regulation or order of any governmental or
regulatory body, enemy action, civil disturbance, fire, unavoidable causalities
or any other cause beyond the reasonable control of either party hereto (but
excluding delays due to financial inability) (all of the foregoing are herein
collectively called "FORCE MAJEURE DELAYS"). The provisions of this Section
shall not apply to nor operate to excuse Tenant from the payment of Rent
strictly in accordance with this Lease. If Landlord shall be in default under
this Lease and, if as a consequence of such default, Tenant shall recover a
money judgement against Landlord, such judgment shall be satisfied only out of
right, title and interest of Landlord in the Premises as the same may then be
encumbered and neither Landlord nor any person or entity comprising Landlord
shall be liable for any deficiency. In no event shall Tenant have the right to
levy execution against any property of Landlord nor any person or entity
comprising Landlord other than its interests in the Premises as herein
expressly provided. Notwithstanding anything to the contrary contained herein,
in no event shall Landlord be liable for consequential or special damages for a
breach of or default under this Lease.
ARTICLE 20
RENEWAL OPTIONS
Section 20.1. Section 20.1. Subject to and upon terms and conditions
set forth herein, Landlord hereby grants to Tenant two (2) consecutive options
(the "RENEWAL OPTIONS") to extend the Primary Term and the Expiration Date for
a period (the "RENEWAL TERM") of three (3) years per option, each such period
commencing upon the then current Expiration Date upon the same terms and
conditions set forth in this Lease except for the amount of Fixed Rent payable
under this Lease (which amount shall be computed based on the FMV Renewal Rate
[as defined in Exhibit "C" attached hereto]). The provisions of the Renewal
Options are more particularly set forth in the Exhibit "C" attached hereto.
ARTICLE 21
LANDLORD'S ADDITIONAL TERMINATION RIGHT
Section 21.1. If, during the Term, Landlord intends to sell the
Premises to third party that will occupy the Building after the closing of such
sale, Landlord may terminate this Lease by giving Tenant at least six (6)
months advanced written notice thereof (the "TERMINATION NOTICE"). In the
Termination Notice, Landlord shall identify the date on which this Lease shall
terminate, and such date shall become the Expiration Date. After any
termination of this Lease by Landlord pursuant to this Section 21.1, the
parties hereto shall have no further rights or obligations under this Lease
after the revised Expiration Date except those that expressly survive a
termination of this Lease.
ARTICLE 22
SUBORDINATION TO SENIOR DEBT
Section 22.1. Tenant's obligations under this Lease are and at all
times hereafter will be junior and subordinate in right of payment and exercise
of remedies to the indefeasible prior payment in full in cash of all
obligations owed in respect of the Senior Debt (as defined in Section 22.2
below). The subordination of the obligations under this Lease is for the
benefit of all holders of Senior Debt from time to time, whether
31
<PAGE> 35
such Senior Debt is outstanding on the date hereof or incurred, created or
arising hereafter. Upon the occurrence and during the continuance of any
default or event of default under any Senior Debt, Tenant will have no
obligation to make, and Landlord will not accept or receive or take any action
to collect, any payment of any portion of the obligations under this Lease
until all obligations with respect to such Senior Debt have been indefeasibly
discharged in full in cash. Should any payment, distribution, security, or
proceeds thereof be received by Landlord contrary to the terms hereof, Landlord
shall immediately deliver the same to the holders of the Senior Debt in
precisely the form received (except for endorsement or assignment of Landlord
where necessary), for application on or to secure the Senior Debt, whether it
is due or not due, and until so delivered the same shall be held in trust by
Landlord as property of the holders of the Senior Debt. Nothing in this section
shall prohibit Landlord from receiving and retaining amounts due to Landlord
hereunder, provided that at the time such amount is paid to Landlord there
shall not have occurred or be continuing any default or event of default of
which Landlord has received notice under any Senior Debt.
Section 22.2. For purposes hereof, "SENIOR DEBT" means (i) all
indebtedness and obligations of Marketing Specialists Corporation, a Delaware
corporation ("MSC"), or Tenant in favor of any bank, trust company, insurance
company or other institutional lender providing financing to MSC or Tenant or
entering into swap or hedging agreements with MSC or Tenant, including without
limitation all indebtedness and obligations under that certain Amended and
Restated Credit Agreement dated August 18, 1999 among MSC, the lenders party
thereto and First Union National Bank, as agent for the lenders, including any
guaranty thereof by Tenant, as the same may be amended, restated, refinanced,
supplemented or otherwise modified from time to time (the "FIRST UNION CREDIT
AGREEMENT"), and all Senior Obligations as defined under the First Union Credit
Agreement, (ii) if so elected by Tenant, all indebtedness and obligations under
that certain Indenture dated as of December 19, 1997, among MSC, as successor
by merger to Richmont Marketing Specialists, Inc., the subsidiaries of MSC
party thereto and Chase Bank of Texas, N.A., as successor-in-interest to Texas
Commerce Bank National Association, as trustee, including any guaranty thereof
by Tenant, as the same may be amended, restated, refinanced, supplemented or
otherwise modified from time to time (the "INDENTURE"), and (iii) if so elected
by Tenant, any other Senior Indebtedness as defined in the Indenture.
LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE PREMISES
ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL PURPOSE AND, EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED IN THIS LEASE, TENANT'S OBLIGATION TO PAY RENT HEREUNDER IS
NOT DEPENDENT UPON THE CONDITION OF THE PREMISES OR THE PERFORMANCE BY LANDLORD
OF ITS OBLIGATIONS HEREUNDER, AND, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
THIS LEASE, TENANT SHALL CONTINUE TO PAY FIXED RENT AND ALL ADDITIONAL RENT,
WITHOUT ABATEMENT, SETOFF OR DEDUCTION NOTWITHSTANDING ANY BREACH BY LANDLORD
OF ITS DUTIES OR OBLIGATIONS HEREUNDER, WHETHER EXPRESS OR IMPLIED.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
32
<PAGE> 36
The parties hereto have executed this Lease as of the day and year
first above set forth.
TENANT:
MARKETING SPECIALISTS SALES COMPANY, a Texas
corporation
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
LANDLORD:
RCPI OFFICE PROPERTIES, LLC, a Texas limited
liability company
By: Richmont Capital Partners I, L.P., a
Delaware limited partnership, it sole
member
By: J.R. Investments Corp., its
managing general partner
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
33
<PAGE> 37
EXHIBIT "A"
DESCRIPTION OF THE LAND
[to be attached]
A-1
<PAGE> 38
EXHIBIT "B"
RCPI OFFICE PROPERTIES, LLC, a Delaware limited liability company
("LANDLORD"), and MARKETING SPECIALISTS SALES COMPANY, a Texas corporation
("TENANT"), have entered into that certain Lease (the "LEASE") dated as of
February 17, 2000, for the lease of property located at 744 and 746 Eckhoff
Street, Orange, California 92868. This Exhibit "B" (this "EXHIBIT") is attached
to the Lease. Except to the extent otherwise indicated herein, the initially
capitalized terms used in this Exhibit shall have the meanings assigned to them
in the Lease.
MEMORANDUM OF LEASE
The Lease is for a term of forty-eight (48) months and will commence
on February 17, 2000, . The Lease provides that Tenant may, under certain
circumstances, have a right to extend the Primary Term of the Lease for up to
two (2) additional three (3) year periods.
The Premises includes the real property located in ___________ County,
California and more particularly described in the Exhibit A attached hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Memorandum
of Lease on the 17th day of February, 2000.
TENANT:
MARKETING SPECIALISTS SALES COMPANY, a Texas
corporation
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
LANDLORD:
RCPI OFFICE PROPERTIES, LLC, a Texas limited
liability company
By: Richmont Capital Partners I, L.P., a
Delaware limited partnership, its sole
member
By: J.R. Investments Corp., its managing
general partner
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
B-1
<PAGE> 39
EXHIBIT "C"
RCPI OFFICE PROPERTIES, LLC, a Delaware limited liability company
("LANDLORD"), and MARKETING SPECIALISTS SALES COMPANY, a Texas corporation
("TENANT"), have entered into that certain Lease (the "LEASE") dated as of
February 17, 2000, for the lease of property located at 744 and 746 Eckhoff
Street, Orange, California 92868. This Exhibit "C" (this "EXHIBIT") is attached
to the Lease. Except to the extent otherwise indicated herein, the initially
capitalized terms used in this Exhibit shall have the meanings assigned to them
in the Lease.
RENEWAL OPTIONS
1. Tenant shall have the right to renew and extend the Initial
Term with respect to the Premises then subject to the Lease as of the
applicable Renewal Notice Date (as defined in Paragraph 2 below) upon and
subject to the terms and conditions set forth below.
2. Provided that, at such time, no Event of Default has occurred
and is continuing, Tenant may renew the term of the Lease for two (2)
additional periods of three (3) years each (each renewal term is herein
referred to as a "Renewal Term") on the same terms provided in the Lease
(except as set forth below), by delivering written notice of the exercise
thereof to Landlord ("Tenant's Notice of Exercise") not earlier than twelve
(12) months and not later than six (6) months prior to the expiration of the
Initial Term or, if applicable, the first Renewal Term (the date of Landlord's
receipt of the applicable Tenant's Notice of Exercise is herein referred to as
the "Renewal Notice Date"). If Tenant fails to deliver Tenant's Notice of
Exercise at least six (6) months prior to the expiration of the Initial Term,
Tenant's rights under this Exhibit shall terminate. The first Renewal Term
shall commence immediately upon the expiration of the Initial Term, and upon
Tenant's exercise of the renewal option set forth in this Exhibit, the date of
expiration of the Initial Term shall automatically become the last day of the
first Renewal Term and any second Renewal Term if Tenant timely exercises its
second renewal option set forth herein.
3. The exercise by Tenant of either of the renewal options set
forth herein must be made, if at all, by Tenant's timely delivery to Landlord
of Tenant's Notice of Exercise during the time period required by the preceding
paragraph. Once Tenant exercises either renewal option, Tenant may not
thereafter revoke such exercise. Tenant's failure, for any reason whatsoever,
to timely exercise either of the renewal options set forth herein shall
conclusively be deemed a waiver of the applicable renewal option, time being of
the essence with respect to Tenant's exercise of the same.
4. On or before the commencement date of the applicable Renewal
Term, Landlord and Tenant shall execute an amendment to the Lease extending the
Initial Term (or, if applicable, the first Renewal Term) on the same terms
provided in the Lease, except as follows:
(a) The Base Rent payable for each month during each Renewal Term
shall be the prevailing fair market rental rate and terms for renewals in the
Building and for renewals at comparable buildings in the Orange Area (as
hereinafter defined) at the commencement of each such Renewal Term (such rate
is herein referred to as the "FMV Renewal Rate") for space of equivalent
quality, size, utility and location, with the length of the Renewal Term and
the credit standing and financial condition of Tenant to be taken into account;
(b) Tenant shall have no further renewal options unless expressly
granted by Landlord in writing or otherwise provided by this Exhibit; and
(c) Landlord shall not provide to Tenant any allowances (e.g.,
moving allowance, construction allowance, and the like) or other tenant
inducements other than a tenant improvement allowance which Landlord, in its
sole discretion reasonably exercised, determines is appropriate taking into
account the applicable FMV Renewal Rate, the condition of the Premises at the
time of Tenant's exercise of the applicable renewal option and the financial
condition of Tenant at such time.
5. As used herein, the term "Orange Area" shall mean the area
within a ten (10) mile radius of the Building.
6. Within thirty (30) days after Landlord's receipt of Tenant's
Notice of Exercise, Landlord shall deliver to Tenant Landlord's determination
of the FMV Renewal Rate (such determination by Landlord of the
C-1
<PAGE> 40
FMV Renewal Rate is herein referred to as "Landlord's Assessment"). Tenant
shall, within thirty (30) days after Tenant's receipt of Landlord's Assessment,
notify Landlord in writing whether Tenant accepts or rejects Landlord's
Assessment. The failure of Tenant to so notify Landlord shall be deemed to be
an acceptance by Tenant of Landlord's Assessment and the same shall be the FMV
Renewal Rate. If Tenant timely delivers to Landlord written notice that Tenant
does not accept Landlord's Assessment ("Tenant's Objection Notice"), the FMV
Renewal Rate shall be determined as provided in the following paragraph.
Tenant's Objection Notice must identify Tenant's determination of the FMV
Renewal Rate ("Tenant's Assessment") to trigger the following appraisal
process.
7. If Tenant timely delivers to Landlord Tenant's Objection
Notice in which Tenant's Assessment has been identified, Landlord shall have
the right to accept Tenant's Assessment by giving Tenant written notice thereof
within five (5) days after Landlord's receipt of Tenant's Objection Notice. If
Landlord does not so accept Tenant's Assessment, then Landlord and Tenant
shall, within five (5) business days after the expiration of such five (5) day
period, jointly appoint an independent real estate broker or other person with
at least ten (10) years' commercial real estate experience in Orange County,
California, (an "Appraiser") to determine the FMV Renewal Rate. If the parties
are unable to agree upon an Appraiser within such five (5) business day period,
either party may request that the Orange County, California office of the
American Arbitration Association designate, within five (5) days of such
request, a broker with at least ten (10) years' commercial real estate
experience in Orange County, California to be the Appraiser for the purposes of
this paragraph; provided, however, in no event shall such designated Appraiser
be employed, or have been employed, by either Landlord or Tenant. Such
designation shall be binding on Landlord and Tenant. Within five (5) business
days after the selection of an Appraiser, each of Landlord and Tenant shall
submit to the Appraiser such party's determination of the FMV Renewal Rate
(revised, if applicable, from any earlier determination), together with such
supporting data used to make such determination. Within ten (10) business days
after the selection of the Appraiser, the Appraiser shall select the
determination of the FMV Renewal Rate for the Renewal Term which is closest to
such Appraiser's determination of the FMV Renewal Rate, and such determination
shall be the FMV Renewal Rate for the purpose of determining the Base Rent for
the applicable Renewal Term. The entire cost for the Appraiser's services shall
be borne equally by Landlord and Tenant.
8. Tenant's rights under this Exhibit shall terminate following
the occurrence of the following events: (a) a termination of Tenant's right to
possess all or any portion of the Premises; (b) the failure of Tenant to timely
exercise its right to renew the Initial Term as provided in this Exhibit, time
being of the essence with respect to Tenant's exercise thereof; (c) Tenant
assigns all or any of its interest in the Lease or sublets all or any portion
of the Premises (other than any Permitted Transferee); and/or (d) a termination
of the Lease.
C-2
<PAGE> 1
EXHIBIT 10.16
================================================================================
ASSET PURCHASE AGREEMENT
by and among
MARKETING SPECIALISTS SALES COMPANY
and
JOHNSON-LIEBER, INC.
regarding the sale of certain assets of Johnson-Lieber, Inc.
dated as of November 18, 1999
This Agreement is subject to arbitration under
the rules and regulations of the American
Arbitration Association as provided
in Article XII hereof.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
Preliminary Statements..........................................................1
Statement of Agreement....... ..................................................1
ARTICLE I. IDENTIFICATION OF ASSETS AND LIABILITIES.........................1
Section 1.1 Sale of Assets..............................................1
Section 1.2 Excluded Assets.............................................2
Section 1.3 Assignment of Rights by Seller..............................2
Section 1.4 Assumed Liabilities.........................................3
Section 1.5 Excluded Liabilities........................................3
ARTICLE II. PURCHASE PRICE AND RELATED TERMS.................................4
Section 2.1 Purchase Price..............................................4
Section 2.2 Payment of Purchase Price...................................4
ARTICLE III. THE CLOSING......................................................4
Section 3.1 The Closing.................................................4
Section 3.2 Deliveries by Seller........................................4
Section 3.3 Deliveries by Purchaser.....................................5
Section 3.4 Simultaneous Deliveries.....................................5
Section 3.5 Bulk Sale; Sales and Transfer Taxes.........................6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER.........................6
Section 4.1 Organization; Good Standing; Delivery of Charter Documents..6
Section 4.2 Articles of Incorporation and Bylaws........................6
Section 4.3 Power and Authority.........................................6
Section 4.4 Authorization; Execution and Validity.......................6
Section 4.5 No Conflict; Consents.......................................7
Section 4.6 Financial Statements........................................7
Section 4.7 No Undisclosed Liabilities..................................7
Section 4.8 Absence of Certain Changes..................................8
Section 4.9 Title to the Purchased Assets...............................8
Section 4.10 Compliance with Laws........................................8
Section 4.11 Insurance...................................................8
Section 4.12 Material Contracts..........................................8
Section 4.13 Litigation; Orders..........................................9
Section 4.14 Real Property...............................................9
Section 4.15 Environmental Matters.......................................9
Section 4.16 Permits....................................................10
Section 4.17 Intangible Assets..........................................11
Section 4.18 Employee Benefits..........................................11
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
Section 4.19 Taxes.......................................................13
Section 4.20 Relationship with Principals................................13
Section 4.21 Books and Records...........................................13
Section 4.22 Full Disclosure.............................................14
Section 4.23 Brokers.....................................................14
Section 4.24 Split Commission Arrangements...............................14
Section 4.25 Brokerage Agreements........................................14
Section 4.26 Market Development Fund Accounts............................14
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER......................14
Section 5.1 Organization; Good Standing.................................14
Section 5.2 Power and Authority.........................................15
Section 5.3 Authorization; Execution and Validity.......................15
Section 5.4 No Conflict; Purchaser Consents.............................15
Section 5.5 Reports and Financial Statements............................15
Section 5.6 Brokers.....................................................15
ARTICLE VI. COVENANTS OF SELLER..............................................15
Section 6.1 Cooperation of Seller.......................................15
Section 6.2 Pre-Closing Access to Information...........................16
Section 6.3 Conduct of Business.........................................16
Section 6.4 Supplements to Schedules....................................16
Section 6.5 Standstill..................................................16
Section 6.6 Discharge of Encumbrances...................................17
Section 6.7 Non-Disclosure; Non-Competition; Non-Solicitation...........17
Section 6.8 Name of Seller..............................................18
Section 6.9 Required Consents...........................................19
Section 6.10 Shareholder Approval........................................19
Section 6.11 U.S. Bank Breaches..........................................19
ARTICLE VII. COVENANTS OF PURCHASER...........................................19
Section 7.1 Cooperation by Purchaser....................................19
Section 7.2 Purchaser Indenture Obligations.............................19
Section 7.3 Purchaser Credit Agreement Obligations......................19
Section 7.4 Bonus Payments..............................................19
ARTICLE VIII. MUTUAL COVENANTS.................................................20
Section 8.1 Consents....................................................20
Section 8.2 Books and Records...........................................20
Section 8.3 Further Assurances..........................................20
ARTICLE IX. CONDITIONS PRECEDENT TO THE CLOSING..............................21
Section 9.1 Conditions Precedent to Purchaser's Obligations.............21
Section 9.2 Conditions Precedent to Seller's Obligations................22
Section 9.3 If Conditions Not Satisfied.................................23
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE X. TERMINATION PRIOR TO THE CLOSING.................................23
Section 10.1 Termination of Agreement....................................23
Section 10.2 Effect of Termination.......................................24
Section 10.3 Expenses....................................................24
Section 10.4 Procedure Upon Termination..................................24
ARTICLE XI. INDEMNIFICATION AND RELATED MATTERS..............................25
Section 11.1 Indemnification of Purchaser................................25
Section 11.2 Indemnification of Seller...................................25
Section 11.3 Indemnification Procedure...................................26
Section 11.4 Meritless Third Party Claims................................28
Section 11.5 Assignment of Claims........................................28
Section 11.6 Other Indemnitees...........................................28
Section 11.7 Contribution................................................29
Section 11.8 Damages Without Indemnification.............................29
Section 11.9 Maximum Liability...........................................29
Section 11.10 Interest....................................................29
Section 11.11 Notice of Breach............................................29
Section 11.12 Discovery of Breach.........................................29
Section 11.13 Survival of Terms...........................................30
Section 11.14 Negligence and Strict Liability.............................30
ARTICLE XII. ARBITRATION AND EQUITABLE REMEDIES...............................30
Section 12.1 Settlement Meeting..........................................30
Section 12.2 Arbitration Proceedings.....................................31
Section 12.3 Place of Arbitration........................................31
Section 12.4 Discovery...................................................31
Section 12.5 Equitable Remedies..........................................31
Section 12.6 Exclusive Jurisdiction......................................32
Section 12.7 Judgments...................................................32
Section 12.8 Expenses....................................................32
Section 12.9 Cost of the Arbitration.....................................32
Section 12.10 Exclusivity of Remedies.....................................32
ARTICLE XIII. MISCELLANEOUS....................................................32
Section 13.1 Amendment...................................................32
Section 13.2 Counterparts; Fax Signatures................................32
Section 13.3 Entire Agreement............................................33
Section 13.4 Governing Law...............................................33
Section 13.5 No Assignment...............................................33
Section 13.6 No Third Party Beneficiaries................................33
Section 13.7 Notices.....................................................33
Section 13.8 Public Announcements........................................34
Section 13.9 Representation by Legal Counsel.............................34
Section 13.10 Schedules...................................................34
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Section 13.11 Severability...........................................35
Section 13.12 Specific Performance...................................35
Section 13.13 Successors.............................................35
Section 13.14 Time of the Essence....................................35
Section 13.15 Waiver.................................................35
</TABLE>
iv
<PAGE> 6
SCHEDULES
<TABLE>
<CAPTION>
Schedule Description
- -------- ----------
<S> <C>
Schedule 1.1(d)..................................................Assumed Leases
Schedule 4.1.............................Jurisdictions of Foreign Qualification
Schedule 4.6(a)...................................Reviewed Financial Statements
Schedule 4.6(b)....................................Interim Financial Statements
Schedule 4.8....................................................Certain Changes
Schedule 4.11................................................Insurance Policies
Schedule 4.12................................................Material Contracts
Schedule 4.13................................................Litigation; Orders
Schedule 4.14.....................................................Real Property
Schedule 4.16...........................................................Permits
Schedule 4.17(a)........................................Owned Intangible Assets
Schedule 4.17(b).....................................Licensed Intangible Assets
Schedule 4.18(a)..........................................Welfare Benefit Plans
Schedule 4.18(b)..........................................Pension Benefit Plans
Schedule 4.18(c)..........................................Employee Arrangements
Schedule 4.18(d)........................................Benefit Plan Compliance
Schedule 4.18(e)..........................................No Title IV Liability
Schedule 4.18(f)..................................................Qualification
Schedule 4.18(g).........................................Effect of Consummation
Schedule 4.20......................................Relationship with Principals
Schedule 4.24.....................................Split Commission Arrangements
Schedule 4.25..............................................Brokerage Agreements
Schedule 4.26..................................Market Development Fund Accounts
Schedule 6.9..................................................Required Consents
Schedule 9.1(h)...........................................Consulting Agreements
Schedule 9.1(i).......................................Short-Term Lease Property
Schedule 9.1(j).......................................Commercial Lease Property
</TABLE>
EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
Exhibit 2.2........................................................Form of Note
Exhibit 3.2(a)......................Form of General Assignment and Bill of Sale
Exhibit 3.2(f)..............................Form of Opinion of Seller's Counsel
Exhibit 3.2(g).........................................Form of Escrow Agreement
Exhibit 3.3(c).....................................Form of Assumption Agreement
Exhibit 9.1(h).....................................Form of Consulting Agreement
Exhibit 9.1(i).........................................Form of Short-Term Lease
Exhibit 9.1(j).........................................Form of Commercial Lease
Exhibit 10.1(f)....................................Form of Employment Agreement
</TABLE>
<PAGE> 7
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT"), dated as of November
18, 1999 (the "SIGNING DATE"), is made by and between Marketing Specialists
Sales Company, a Texas corporation ("PURCHASER"), and Johnson-Lieber, Inc., a
Washington corporation, ("SELLER"). Purchaser and Seller are sometimes
collectively referred to as the "PARTIES," and individually referred to as a
"PARTY."
PRELIMINARY STATEMENTS
A. Seller is engaged in the food brokerage business, which includes
providing an array of sales, marketing, merchandising and order management
services to manufacturers in order to sell the manufacturers' products to
various retailers and wholesalers in a variety of trade channels, including
grocery stores, drug stores, convenience stores and mass merchandisers located
in the States of Washington, Oregon, Alaska and Montana (such business being
herein referred to as the "BUSINESS").
B. Seller desires to sell and assign to Purchaser, and Purchaser
desires to purchase from Seller, certain assets relating to the Business, in
each case on the terms and subject to the conditions set forth in this
Agreement.
C. Capitalized terms used in this Agreement are defined or indexed in
Appendix A for the convenience of the reader and in order to eliminate the need
for cross-references. Appendix A is incorporated herein by this reference for
all purposes.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, covenants, representations and warranties set forth in this
Agreement and for other good, valid and binding consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties, intending to be
legally bound, hereby agree as follows:
ARTICLE I.
IDENTIFICATION OF ASSETS AND LIABILITIES
Section 1.1 Sale of Assets. Subject to the terms and conditions and in
reliance upon the representations and warranties set forth in this Agreement
(including, without limitation, Section 1.3), at the Closing, Seller will sell,
convey, assign, negotiate, set over and deliver to Purchaser, and Purchaser will
purchase and acquire from Seller the following assets of Seller (collectively,
the "PURCHASED ASSETS") as they exist on the Closing Date, free and clear of all
Encumbrances:
(a) all of Seller's rights, title and interest to, in and
under the Brokerage Agreements;
<PAGE> 8
(b) all of Seller's rights and benefits in, to and under that
certain Lease Agreement executed as of January 22, 1999, by and between US Fleet
Leasing, a unit of Associates Leasing, Inc., and Seller (the "VEHICLE LEASE")
and the vehicles leased thereunder;
(c) all of Seller's Intangible Assets including, without
limitation, all of Seller's rights, title and interest in Seller's corporate
name and all of its trade names used in connection with the Business, including,
without limitation, the name "Johnson-Lieber, Inc." and all variations thereof;
(d) all of Seller's rights and benefits in, to and under the
leases identified on Schedule 1.1(d) (the "ASSUMED LEASES"); provided that the
term of each Assumed Lease shall not be longer than month-to-month; and
(e) all of Seller's rights, title and interest in and to the
goodwill of the Business as presently conducted by Seller and as carried on by
Seller at the time of Closing, including without limitation, the following:
(i) Seller's book of business, customer and principal
lists and telephone listings;
(ii) all customer and principal files and all other
records and books of account of every kind and nature; and
(iii) the value of the business as a going concern.
Section 1.2 Excluded Assets. The term "Excluded Assets" shall mean all
assets of Seller not specifically listed in Section 1.1.
Section 1.3 Assignment of Rights by Seller. Without limiting the
generality of Section 1.1, on the Closing Date, Seller shall assign to Purchaser
all of Seller's rights, title and interest in, to and under the Brokerage
Agreements listed on Schedule 4.25. Seller and Purchaser acknowledge and agree
that the Brokerage Agreements, generally, are terminable at will by the other
contracting party thereto on 30 days notice and that no such termination shall
constitute a breach of this Section 1.3. Notwithstanding the foregoing, no such
agreement shall be assigned to Purchaser if an attempted assignment thereof
without the consent of the other party or parties thereto would constitute a
breach thereof or in any way adversely affect the rights of Seller thereunder
and such consent is not obtained, or if any attempted assignment would be
ineffective or would affect the rights of Seller thereunder so that Purchaser
would not, in fact, receive the benefits thereof. Seller covenants and agrees
that the beneficial interest in and to any such agreement shall, to the extent
permitted by the relevant agreement and/or law, pass to Purchaser, and Seller
covenants and agrees: (a) that it will hold and declare that it holds all such
agreements in trust for the benefit of Purchaser, its successors and assigns,
from and after the Closing Date; (b) to use its best efforts to obtain and
secure any and all consents and approvals that may be necessary to effect such
assignment or assignments of the same; (c) to make or complete such assignment
or assignments as soon as reasonably possible; and (d) to cooperate with
Purchaser in any other reasonable arrangement designed to provide for actions
necessary to enable Seller to fulfill any such agreements until an effective
assignment thereof to Purchaser can be obtained, and the Parties agree to
cooperate and take all necessary actions, including accountings between
2
<PAGE> 9
the Parties, to assure that Purchaser shall receive all of such benefits and
rights under such agreements. The provisions of this Section 1.3 (x) do not
constitute (1) a waiver of Seller's obligation to deliver the Required Consents
or (2) the sole remedy of Purchaser in the event Seller fails to deliver the
Required Consents and (y) shall cease to apply to any Brokerage Agreement which
is not assigned but for which Purchaser and the manufacturer party thereto enter
into a new agreement in place thereof after the Closing Date.
Section 1.4 Assumed Liabilities. In addition to the payment of the
Purchase Price, at the Closing, Purchaser shall assume and agree to pay and
perform when due all of Seller's obligations under the Vehicle Lease, the
Assumed Leases and any assigned Brokerage Agreements arising thereunder from and
after the Closing Date (the "ASSUMED LIABILITIES") pursuant to the terms of the
Assumption Agreement.
Section 1.5 Excluded Liabilities. Purchaser has not agreed to pay,
shall not be required to assume and shall have no liability or obligation with
respect to, any liability or obligation, direct or indirect, absolute or
contingent, of Seller, any subsidiary or Affiliate of Seller or any other Person
other than the Assumed Liabilities (collectively, the "EXCLUDED LIABILITIES"),
and Seller agrees that it will take all actions and do all things necessary to
ensure that Purchaser is not liable for any Excluded Liabilities. Without
limiting the generality of the preceding sentence, the Excluded Liabilities
include, without limitation, all of the following:
(a) liabilities related to Taxes and Environmental Laws
arising out of or in connection with the ownership or conduct of the Business by
Seller;
(b) liabilities related to any Action arising out of or in
connection with the ownership or conduct of the Business by Seller, whether
asserted before or after the Closing Date and whether known or unknown on the
Closing Date;
(c) liabilities related to any former or current employee or
agent of Seller, including any liabilities under or associated with any Employee
Benefit Plan (including, without limitation, any Seller Welfare Benefit Plan,
Seller Pension Benefit Plan and Seller Employee Benefit Plan), any Actions
asserted by or on behalf of any former or current employee or agent of Seller,
any claims for wages, bonuses (other than the Bonus Payments), commissions or
other forms of compensation, and any claims under any policies of Seller related
to its employees, including any obligations related to accrued vacation, holiday
and sick leave and overtime pay;
(d) liabilities related to that certain Rabbi Trust dated
January 1, 1990
(e) liabilities, costs, and expenses related to that certain
Lease Agreement No. J0080197 dated as of August 1, 1997 between Seller and
Winthrop Resources Corporation;
(f) liabilities related to any market development fund
accounts in the possession or control of Seller (each, an "MDF ACCOUNT"),
including, but not limited, to any negative balance overspending of such MDF
Account;
(g) liabilities related to compliance of Seller's real
property with the Americans with Disabilities Act; and
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(h) liabilities, costs and expenses incurred by Seller in
connection with the negotiation, execution or performance of this Agreement and
the transactions contemplated hereby.
ARTICLE II.
PURCHASE PRICE AND RELATED TERMS
Section 2.1 Purchase Price. The total consideration for the Purchased
Assets will be Purchaser's assumption of the Assumed Liabilities and the sum of
$12,240,000 (the "PURCHASE PRICE").
Section 2.2 Payment of Purchase Price. For and in full consideration of
this Agreement and the transactions contemplated herein, at the Closing,
Purchaser will pay to Seller the Purchase Price, payable as follows: (i) the
amount of $3,000,000 (the "CLOSING CASH PAYMENT") by wire transfer of
immediately available funds to the bank account set forth in a notice given by
Seller to Purchaser no later than three (3) Business Days prior to the Closing
Date; and (ii) the aggregate principal amount of $9,240,000 by delivering to
Seller a promissory note substantially in the form of Exhibit 2.2 (the "NOTE").
ARTICLE III.
THE CLOSING
Section 3.1 The Closing. The consummation of the transactions
contemplated by this Agreement (the "CLOSING") will take place on December 17,
1999, at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1700 Pacific
Avenue, Suite 4100, Dallas, Texas 75201 or such other date or location as may be
mutually agreed upon by the Parties; provided that all of the conditions set
forth in Article IX, to the extent not waived, are satisfied. The date on which
the Closing actually occurs is referred to as the "CLOSING DATE."
Section 3.2 Deliveries by Seller. At the Closing, Seller will deliver,
or cause to be delivered, the following:
(a) A general assignment and bill of sale in substantially the
form of Exhibit 3.2(a) attached hereto;
(b) the closing and secretary's certificates referred to in
Sections 9.1(e) and 9.1(f);
(c) certificates of good standing and existence (or the
functional equivalents) for Seller dated within ten (10) Business Days of the
Closing Date issued by the Secretary of State (or other proper state official)
of the State of Washington;
(d) a certificate of good standing (or the functional
equivalent) for Seller dated within ten (10) Business Days of the Closing Date
issued by the Secretary of State (or other proper state official) of each state
in which Seller is qualified to transact business as a foreign corporation;
(e) all Books and Records of Seller relating to the Purchased
Assets;
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(f) an opinion of counsel addressed to Purchaser from counsel
to Seller in substantially the form of Exhibit 3.2(f);
(g) an escrow agreement substantially in the form of Exhibit
3.2(g) (the "ESCROW AGREEMENT");
(h) executed counterparts of all Required Consents;
(i) a receipt for the payment of the Closing Cash Payment and
delivery of the Note;
(j) all written Brokerage Agreements and all other documents,
instruments, writing or other materials evidencing or in any way relating to any
of the Purchased Assets; and
(k) all other previously undelivered documents, instruments
and writings required to be delivered by Seller to Purchaser at or prior to the
Closing pursuant to this Agreement and such other documents, instruments and
certificates as Purchaser may reasonably request in connection with the
transactions contemplated by this Agreement.
Section 3.3 Deliveries by Purchaser. At the Closing, Purchaser will
deliver, or cause to be delivered, the following:
(a) the Closing Cash Payment in accordance with Section 2.2;
(b) the Note;
(c) an assumption agreement substantially in the form of
Exhibit 3.3(c) attached hereto (the "ASSUMPTION AGREEMENT");
(d) the closing and secretary's certificates referred to in
Sections 9.2(f) and 9.2(g);
(e) the Escrow Agreement; and
(f) all other previously undelivered documents, instruments
and writings required to be delivered by Purchaser to Seller at or prior to the
Closing pursuant to this Agreement and such other documents, instruments and
certificates as Seller may reasonably request in connection with the
transactions contemplated by this Agreement.
Section 3.4 Simultaneous Deliveries. The delivery of the documents
required to be delivered at the Closing pursuant to this Agreement will be
deemed to occur simultaneously. No delivery will be effective until each Party
has received or waived receipt of all the documents that this Agreement entitles
such Party to receive.
Section 3.5 Bulk Sale; Sales and Transfer Taxes. The Parties agree not
to comply with the bulk transfer provisions (including, Article 6 of the Uniform
Commercial Code, or any similar applicable Law) of any jurisdiction in which any
of the Purchased Assets are located. Purchaser shall have no liability or
obligation to Seller, to Seller's creditors or to others, arising
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out of or relating to the sale by Seller of the Purchased Assets to Purchaser
under the provisions of this Agreement; nor shall Purchaser be liable for any
Tax liabilities attributable to the sale of the Purchased Assets other than any
transfer, sales tax, recording or similar fees and charges.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser that the statements
made in this Article IV are true, correct and complete:
Section 4.1 Organization; Good Standing; Delivery of Charter Documents.
Seller is a corporation duly incorporated, validly existing and in good standing
under the laws of the state of its incorporation and has the requisite power and
authority to own or lease its property and to carry on business as now being
conducted. Seller is duly licensed or qualified as a foreign corporation in each
jurisdiction in which its assets are owned or leased, or in which the nature of
its business makes such license or qualification necessary, except those
jurisdictions wherein the failure to so qualify would not have a Material
Adverse Effect on Seller. Schedule 4.1 lists the jurisdictions in which Seller
is qualified to transact business as a foreign corporation. There is no pending
or, to Seller's Knowledge, threatened proceeding for the dissolution,
liquidation, insolvency or rehabilitation of Seller.
Section 4.2 Articles of Incorporation and Bylaws. Seller has heretofore
furnished or made available to Purchaser a complete and correct copy of its
Charter Documents, each as in effect on the Signing Date. Seller is not in
violation of any provision of its Charter Documents.
Section 4.3 Power and Authority. Seller has all requisite corporate
power and authority necessary to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby, including the execution, delivery and performance of all the Transaction
Documents to which Seller is a party. The execution and delivery of the
Transaction Documents by Seller have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Seller are necessary to authorize this Agreement or to consummate the
Transaction Documents. Seller has all requisite corporate power and authority
necessary to own, operate and lease its assets and to carry on its business as
and where conducted. Prior to Closing, Seller will have obtained all necessary
board of director and shareholder approvals of this Agreement and the
transactions contemplated hereby.
Section 4.4 Authorization; Execution and Validity. Each of the
Transaction Documents, when executed by Seller and delivered to Purchaser, will
be duly authorized, executed and delivered, and will constitute a valid, legal
and binding obligation of Seller, enforceable against Seller in accordance with
the terms of such Transaction Document, subject to any Law Affecting Creditors'
Rights.
Section 4.5 No Conflict; Consents. The execution, delivery and
performance by Seller of each Transaction Document to which it is a party will
not, subject to obtaining the Required Consents and Consents required by
Governmental Authorities (a) violate any Law, (b) violate any Charter Document
of Seller, (c) violate any Order to which Seller is a party or by which
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Seller, the Purchased Assets or the Assumed Liabilities is bound, (d) breach any
Material Contract (other than a breach of that certain Business Loan Agreement
and Commercial Security Agreement dated July 1, 1998 by and between Seller and
U.S. Bank, which such breach Seller shall cure at or prior to Closing or as
contemplated by the Affected Agreements), (e) result in the creation of any
Encumbrance on any of the Purchased Assets of Seller or (f) require any Consent
from any Person.
Section 4.6 Financial Statements.
(a) Reviewed Financial Statements. Attached hereto as Schedule
4.6(a) are the reviewed balance sheets of Seller as of December 31, 1998 (the
"YEAR-END BALANCE SHEET") and such date is the "BALANCE SHEET DATE"), December
31, 1997, December 31, 1996 and December 31, 1995, together with the reviewed
statements of income, changes in shareholders' equity and cash flows of Seller
for the fiscal years then ended, and the notes thereto, accompanied by the
reports thereon of Clark Nuber, independent public accountants (collectively,
the "REVIEWED FINANCIAL STATEMENTS"). The Reviewed Financial Statements have
been prepared in accordance with GAAP (except as noted therein), and present
fairly, in all material respects, the financial position of Seller as of the
dates indicated and the results of Seller's operations and cash flows for the
periods then ended.
(b) Interim Financial Statements. Attached hereto as Schedule
4.6(b) are the interim balance sheets of Seller as of September 30, 1999 (the
"INTERIM BALANCE SHEET") and the related statements of operations for the nine
month period ended on such date and the monthly profit and loss statements for
the months of July, August and September, 1999 (collectively, the "INTERIM
FINANCIAL STATEMENTS"). The Interim Financial Statements have been prepared in
accordance with the Books and Records of Seller consistent with past practices,
and present fairly, in all material respects, the financial position of Seller
as of the date indicated and the results of its operations and cash flows for
the period then ended, subject to normal year-end adjustments.
Section 4.7 No Undisclosed Liabilities. Except as described in the
Year-End Balance Sheet, none of the Purchased Assets, the Assumed Liabilities or
the Business is subject to any Claim (other than Claims contemplated by the
Affected Agreements) of any nature, absolute or contingent, and, to Seller's
Knowledge, no events have occurred or circumstances exist that could give rise
to any future Claim (other than Claims contemplated by the Affected Agreements)
that could have a Material Adverse Effect on the Purchased Assets, the Assumed
Liabilities or the Business.
Section 4.8 Absence of Certain Changes. Since the Balance Sheet Date,
Seller has conducted its business only in the ordinary course of business
consistent with past practices and, without limiting the generality of the
foregoing, except as set forth on Schedule 4.8, there has not been any (a) event
or events (whether or not covered by insurance), and no facts or conditions
exist which, individually or in the aggregate, would reasonably be expected to
prevent or delay consummation of the Agreement or otherwise prevent Seller from
performing its obligations under this Agreement or have had, or would reasonably
be expected to have a Material Adverse Effect on Seller or any of the Purchased
Assets, the Assumed Liabilities or the Business, (b) other than the Affected
Accounts or the Affected Agreements, destruction, damage or other
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loss to any Purchased Asset, (c) other than the Affected Accounts or the
Affected Agreements, amendment, termination or receipt of notice of termination
of or entry into any contract, lease or license involving a total commitment by
Seller of $5,000 or more, (d) incurrence or guarantee of any debt by Seller,
other than trade and accounts payable incurred in the ordinary course of
business consistent with past practices, (e) waiver of any material right or
release of any debt or Claim relating to any of the Purchased Assets or the
Assumed Liabilities by Seller, (f) amendment or termination of any Permit
relating to any of the Purchased Assets or the Assumed Liabilities by Seller,
(g) imposition of any Encumbrance on any of the Purchased Assets of Seller, (h)
change in any accounting method used by Seller, or (i) agreement or commitment
to take any action described in this Section.
Section 4.9 Title to the Purchased Assets. At the Closing, Seller will
hold good, valid and marketable title to, or a valid leasehold interest in, each
of the Purchased Assets, free and clear of all Encumbrances. Seller and
Purchaser acknowledge and agree that the Brokerage Agreements, generally, are
terminable at will by the other contracting party thereto on 30 days notice and
that no such termination shall constitute a breach of this Section 4.9.
Section 4.10 Compliance with Laws. Seller has complied with all Laws in
the conduct of its Business, its ownership and operation of the Purchased Assets
and its performance of the Assumed Liabilities. Seller has not received any
notice from any Governmental Authority or other Person asserting that Seller has
violated any Law.
Section 4.11 Insurance. Schedule 4.11 lists, as of the Signing Date,
all insurance policies to which Seller is a party or which insure the Business
or any of the Purchased Assets against loss (collectively, the "INSURANCE
POLICIES"), including each insurer's name, coverage deductible and limit,
expiration date and current premium. Each Insurance Policy is in full force and
effect, all premiums with respect thereto have been paid to the extent due, and
no notice of cancellation or termination has been received with respect to any
such policy, other than any policy that will be replaced or is intended to be
replaced prior to the expiration thereof by policies providing substantially the
same coverage from an insurer that is financially sound and reputable. True and
complete copies of all Insurance Policies have been provided to Purchaser.
Section 4.12 Material Contracts. Neither Seller nor, to Seller's
Knowledge, any other Person is in default under any contract, agreement,
commitment, lease, policy or other instrument relating to the ownership and
operation of the Business, the Purchased Assets or the Assumed Liabilities or by
which any of the Purchased Assets or the Assumed Liabilities is bound
(including, without limitation, any of the Brokerage Agreements listed on
Schedule 4.25) (the "MATERIAL CONTRACTS"), nor is there any event which with
notice or lapse of time, or both, would constitute a default thereunder by
Seller or, to Seller's Knowledge, any other Person. The Material Contracts that
are or pertain to any of the Purchased Assets or the Assumed Liabilities are
listed on Schedule 4.12. All of the contracts listed on Schedule 4.12 and any
contracts entered into after the Signing Date in accordance with Section 6.3,
other than the Affected Accounts and the Affected Agreements, are valid and
binding and in full force and effect, subject to Laws Affecting Creditors'
Rights. True and complete copies of all the Material Contracts that are or
pertain to any of the Purchased Assets or the Assumed Liabilities have been
provided to Purchaser. Seller and Purchaser acknowledge and agree that the
Brokerage Agreements,
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generally, are terminable at will by the other contracting party thereto on 30
days notice and that no such termination shall constitute a breach of this
Section 4.12.
Section 4.13 Litigation; Orders. Except as disclosed on Schedule 4.13,
there is no Claim or Action pending or, to Seller's knowledge, threatened
against Seller, at law or in equity, before any arbitrator or Governmental
Authority which (a) individually or in the aggregate has had, or would
reasonably be expected to have, a Material Adverse Effect on Seller, the
Business or any of the Purchased Assets or the Assumed Liabilities, or (b) seeks
to, or would reasonably be expected to, prevent or delay consummation of the
Agreement or otherwise prevent Seller from performing its obligations under this
Agreement. True and complete copies of all material pleadings in the Actions
listed on Schedule 4.13 have been provided to Purchaser.
Section 4.14 Real Property. Schedule 4.14 lists each parcel of real
property owned or leased by Seller, including the street address of each
property and a summary description of the buildings and improvements thereon.
Except as disclosed on Schedule 4.14, all real property owned by Seller is (i)
in compliance with all applicable Laws, including, without limitation,
Environmental Laws and any building, fire, land use, occupancy, safety, set-back
or zoning Law, (ii) not burdened by any encroachment, covenant, easement,
restrictive covenant, right-of-way or servitude, other than those that do not
interfere with Seller's ability to conduct its Business as presently conducted
or to use such properties for their intended purpose.
Section 4.15 Environmental Matters.
(a) Compliance with Environmental Laws. The Business has been
and is operated in compliance with all Environmental Laws and all Permits,
approvals, identification numbers, licenses or other authorizations required
under any applicable Environmental Laws (collectively, the "ENVIRONMENTAL
PERMITS").
(b) Hazardous Materials. Seller has not caused or allowed the
generation, treatment, manufacture, processing, distribution, use, storage,
discharge, release, disposal, transport or handling of any Hazardous Materials
at any of the properties or facilities used in connection with the Business
(whether presently or formerly owned, leased or operated by Seller or any of its
current or former subsidiaries) except in compliance with all Environmental
Laws. No generation, treatment, manufacture, processing, distribution, use,
storage, discharge, release, disposal, transport or handling of any Hazardous
Materials has occurred at any of the properties or facilities used in connection
with the Business (whether presently or formerly owned, leased or operated by
Seller or any of its current or former subsidiaries), except in compliance with
all Environmental Laws. There has been no release of Hazardous Materials by
Seller or any of its current or former subsidiaries or, to Seller's Knowledge,
any other Person at any property currently or formerly owned, leased or operated
by Seller or any of its current or former subsidiaries.
(c) Existence of an Action. There are no past, pending or, to
Seller's Knowledge, threatened Actions, demands, demand letters, Claims, liens,
notices of non-compliance or violation, notices of liability or potential
liability, consent orders or consent agreements relating to Environmental Laws,
Environmental Permits or any Hazardous Materials ("ENVIRONMENTAL CLAIMS")
against Seller or any of its assets or property, including the
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Purchased Assets, by any Person, and, to the Seller's Knowledge, there are no
circumstances that could form the basis of any such Environmental Claim,
including without limitation those alleged to result from use, handling,
exposure, or injury from any Hazardous Material.
(d) Environmental Permits. There are no Environmental Permits
necessary to own or operate the Purchased Assets.
(e) Environmental Orders and Agreements. Seller is not the
subject of any outstanding written Order, contract, agreement, commitment, or
other arrangement with any Governmental Authority or any other Person respecting
Environmental Laws or Hazardous Materials.
(f) Miscellaneous. Without in any way limiting the generality
of the foregoing, (i) none of the off-site locations where Seller has
transported, released, discharged, stored, disposed or arranged for the disposal
of Hazardous Materials has been identified as a facility that is subject to an
existing Claim under any Environmental Law or is the subject of any threatened
Claim by any Person, (ii) no underground improvement regulated by any
Environmental Law, including any storage or treatment tank, is located on any
real property owned, leased or operated by Seller, (iii) there is no asbestos or
asbestos-containing material on any real property owned, leased or operated by
Seller in any condition that could reasonably be expected to give rise to any
corrective action requirements or other liability under applicable Environmental
Laws, and (iv) no polychlorinated biphenyls or polychlorinated
biphenyls-containing items are used or stored at any real property owned, leased
or operated by Seller.
Section 4.16 Permits. Schedule 4.16 lists all the Permits related to
the Purchased Assets or the Assumed Liabilities or the operation of the
Business. Except as disclosed on Schedule 4.16, Seller is in possession of all
grants, Permits, easements, variances, exceptions, Consents, and Orders of any
Governmental Authority necessary for it to own, lease or operate its properties
or to conduct the Business as it is now being conducted, except for those which
the failure to possess, individually or in the aggregate, would not reasonably
be expected to prevent or delay consummation of the Agreement or otherwise
prevent Seller from performing its obligations under this Agreement and have not
had, and would not reasonably be expected to have, a Material Adverse Effect on
Seller or any of the Purchased Assets or the Assumed Liabilities and, as of the
date hereof, no suspension, revocation, termination or cancellation of any of
the Permits is pending or, to Seller's Knowledge, threatened, except for such
suspensions, revocations, terminations or cancellations which, individually or
in the aggregate, would not reasonably be expected to prevent or delay
consummation of the Agreement or otherwise prevent Seller from performing its
obligations under this Agreement, and have not had, and would not reasonably be
expected to have, a Material Adverse Effect on any of the Purchased Assets or
the Assumed Liabilities. There is no Action pending or, or to Seller's
Knowledge, threatened to revoke or limit any Permit listed on Schedule 4.16.
Section 4.17 Intangible Assets.
(a) Owned Intangible Assets. Schedule 4.17(a) lists all the
Intangible Assets owned by Seller as of the Signing Date. With respect to the
Intangible Assets listed on Schedule 4.17(a) and all the Intangible Assets
obtained or developed prior to the Closing,
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(i) Seller owns all rights, title and interest in, to and under such Intangible
Assets free and clear of all Encumbrances, (ii) Seller has not sold,
transferred, licensed, sub-licensed or conveyed any interest in any of such
Intangible Assets, and (iii) no Person has infringed upon or misappropriated any
of such Intangible Assets.
(b) Licensed Intangible Assets. Schedule 4.17(b) lists all
licenses and contracts related to any Intangible Asset used by Seller as of the
Signing Date. Each license or contract listed on Schedule 4.17(b) and each
license or contract related to an Intangible Asset which is entered into after
the Signing Date in accordance with Section 6.3 is valid, binding and in full
force and effect. Seller has not infringed upon or misappropriated any
Intangible Asset owned by another Person.
Section 4.18 Employee Benefits.
(a) Welfare Benefit Plan. Schedule 4.18(a) lists, as of the
Signing Date, each Welfare Benefit Plan maintained by Seller or to which Seller
contributes or is required to contribute with respect to any Person (the "SELLER
WELFARE BENEFIT PLANS"). Except as disclosed on Schedule 4.18(a), Seller has no
liability for contributions, premiums or other payments more than 30 days past
due with respect to any of the Seller Welfare Benefit Plans. Except as disclosed
on Schedule 4.18(a), no Seller Welfare Benefit Plan provides for any benefits to
retirees or former employees except as required by Part G of Title I of ERISA.
(b) Pension Benefit Plans. Schedule 4.18(b) lists, as of the
Signing Date, each Pension Benefit Plan maintained by Seller or to which Seller
contributes or is required to contribute with respect to any Person (the "SELLER
PENSION BENEFIT PLANS"). Except for Seller's liabilities under the Seller
Pension Benefit Plans and as otherwise disclosed on Schedule 4.18(b), Seller has
not incurred any debt with respect to any Seller Pension Benefit Plan. Except as
disclosed on Schedule 4.18(b), Seller does not presently maintain and has never
maintained, nor has had any obligation of any nature (whether contingent or
otherwise) to contribute to, any Plan covered by Title IV of ERISA or to a
"defined benefit plan" (as defined in Section 414(j) of the Code), without
regard to whether such defined benefit plan met the requirements of Section
401(a) of the Code. Seller has no current liability for contributions due with
respect to the Seller Pension Benefit Plans, including any "individual account
plan" (as defined in Section 3(34) of ERISA).
(c) Employee Arrangements. Schedule 4.18(c) lists each
Employee Benefit Plan not otherwise disclosed in Schedules 4.18(a) or 4.18(b)
maintained by Seller with respect to any past or present employee of Seller.
Seller has no liability for contributions or payments more than 30 days past due
with respect to any of its Employee Benefit Plans listed on Schedule 4.18(c).
(d) Benefit Plan Compliance. All of the Employee Benefit Plans
maintained by Seller or to which Seller contributes or is required to contribute
with respect to any Person ("SELLER EMPLOYEE BENEFIT PLANS") and any related
trust agreements or annuity contracts (or any other funding instruments)
currently comply in all respects, and have so complied in the past, both as to
form and operation, with all applicable Laws, including ERISA and the Code.
Except as described on Schedule 4.18(d), no assets of Seller or any Seller
Employee Benefit Plans
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include any "employer securities" or "employer real property" as such terms are
defined in Section 407 of ERISA. Except as described on Schedule 4.18(d), no
debt has been incurred by any Seller Employee Benefit Plan, other than
liabilities for the payment of benefits or insurance premiums.
(e) No Title IV Liability. Except as described on Schedule
4.18(e), no liability under Title IV of ERISA has been or will be incurred by
Seller on or prior to the Closing Date. Seller has not made any commitment,
whether formal or informal, and whether legally binding or not, to create or
have liability under any additional Employee Benefit Plan, policy or
arrangement, or to modify any existing Seller Employee Benefit Plan.
(f) Qualification. Except as described on Schedule 4.18(f),
all funded Seller Pension Benefit Plans and their related trusts are qualified,
both in form and operation under Section 401(a) of the Code.
(g) Effect of Consummation. Except as set forth in Schedule
4.18(g), the consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee of Seller or any other
individual to a bonus (other than the Bonus Payments), severance pay,
unemployment compensation or similar payment, (ii) otherwise accelerate the time
of payment or vesting, or increase the amount of any compensation due to any
current or former employee of Seller, (iii) result in any prohibited transaction
described in Section 406 of ERISA or Section 4975 of the Code for which an
exemption is not available or (iv) in any way result in any additional liability
with respect to any Seller Employee Benefit Plan.
(h) No Penalties. Neither any Seller Employee Benefit Plan nor
any fiduciary of any trust related to such plans has engaged in any transaction
in connection with which Seller or any such fiduciary is or could be subject
either to a civil penalty or other liability under ERISA or an excise tax
imposed by the Code, and no event has occurred and no condition exists with
respect to any Seller Employee Benefit Plan that could subject Seller to any
other Tax or penalty under the Code or civil penalty or other liability under
ERISA or other Laws.
(i) No Actions. No Action is pending or, to Seller's
Knowledge, threatened involving any Seller Employee Benefit Plan.
Section 4.19 Taxes.
(a) Tax Returns. All Tax returns, reports, and declarations of
estimated Tax (collectively, "RETURNS") which were required to be filed by
Seller with any Governmental Authority have been timely filed. All Returns are
true and correct and accurately reflect the Tax liabilities of Seller. All Taxes
shown to be due pursuant to such Returns, other than Taxes being contested in
good faith and for which adequate reserves are reflected on the Interim Balance
Sheet, have been paid.
(b) Statute of Limitations and Tax Actions. Seller has not
executed any presently effective waiver or extension of any statute of
limitations against assessments and collection of Taxes. There are no pending
or, to Seller's Knowledge, threatened Claims, assessments, notices, proposals to
assess, deficiencies or audits with respect to Taxes.
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(c) Miscellaneous Tax Representations. Proper and accurate
amounts have been withheld and remitted by Seller from and in respect of all
Persons from whom it is required by applicable law to withhold for all periods
in compliance with the tax withholding provisions of all Laws. Neither Seller
nor, to Seller's Knowledge, any other corporation has filed an election under
Section 341(f) of the Code that is applicable to Seller or any of the Purchased
Assets. Seller is not a party to any tax sharing agreement. There is no
contract, plan or arrangement covering any Person that, individually or
collectively, would give rise to the payment of any amount that would not be
deductible by Seller by reason of Section 280G of the Code. Seller is not a
"foreign person" within the meaning of Section 1445(f)(3) of the Code. Seller
has never been a member of any group that filed a consolidated federal income
tax return.
Section 4.20 Relationship with Principals. Schedule 4.20 lists all of
the principals of Seller based on sales during the twelve month period ended
June 30, 1999, showing the approximate total sales by Seller for each such
principal and the Annualized Commissions of Seller earned on such sales during
such period. Except for the Affected Accounts and the Affected Agreements or as
otherwise disclosed on Schedule 4.20, there has not been any Material Adverse
Change in the business relationship between Seller and any principal disclosed
on Schedule 4.20. Except as disclosed on Schedule 4.20, the relationships of
Seller with its principals are satisfactory. Except as disclosed on Schedule
4.20, no principal has canceled or otherwise terminated, or threatened to cancel
or otherwise terminate, its relationship with Seller, or to materially decrease
its usage of the services of Seller.
Section 4.21 Books and Records. The Books and Records of Seller
relating to the Business, the Purchased Assets and the Assumed Liabilities, all
of which have been made available to Purchaser, are complete and correct and
have been maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls.
Section 4.22 Full Disclosure. No representation or warranty of Seller
made in this Agreement, nor any written statement furnished to Purchaser
pursuant hereto or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact which affects
the Business or financial condition of Seller or the Purchased Assets or the
Assumed Liabilities, or omits or will omit to state a material fact necessary to
make the statements or facts contained herein or therein not misleading.
Section 4.23 Brokers. No Person is or will become entitled to receive
any brokerage or finder's fee, advisory fee or other similar payment for the
transactions contemplated by this Agreement by virtue of having been engaged by
or acted on behalf of Seller.
Section 4.24 Split Commission Arrangements. Schedule 4.24 lists, as of
the Signing Date, all split commission arrangements maintained by Seller or to
which Seller is a party. Seller has not breached, is not in default under the
terms of any such split commission arrangement.
Section 4.25 Brokerage Agreements. Schedule 4.25 lists, as of the
Signing Date, all Brokerage Agreements to which Seller is a party and except as
noted on Schedule 4.25 none of the Brokerage Agreements (i) require more than 30
days written notice of termination, or (ii) contain any penalty provisions
related to termination for any reason by a party thereto. Other than the
Affected Agreements, Seller has not breached, nor is it in default under, the
terms of any
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Brokerage Agreement to which it is a party. Except as disclosed in Schedule
4.25, as of the date hereof, Seller has not received any notices of termination
relating to any of its Brokerage Agreements and is not on probation for any
reason with any manufacturer.
Section 4.26 Market Development Fund Accounts. Schedule 4.26 lists, as
of the Signing Date, MDF Accounts and the outstanding balances of each such MDF
Account. Seller has not overspent any MDF Account of any principal without such
principal's written approval, copies of which have been delivered to Purchaser,
and has properly segregated and maintained all MDF Accounts. Seller has no tax
liability related to any such MDF Account and has fulfilled all of its fiduciary
duties with respect to all of its MDF Accounts.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller that the statements
set forth in this Article V are correct and complete.
Section 5.1 Organization; Good Standing. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
Section 5.2 Power and Authority. Purchaser has all requisite corporate
power and authority necessary to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby, including the execution, delivery and performance of all the other
Transaction Documents to which Purchaser is a party. Purchaser has all requisite
corporate power and authority necessary to own, operate and lease its assets and
to carry on its business as and where conducted.
Section 5.3 Authorization; Execution and Validity. Each of the
Transaction Documents, when executed and delivered by Purchaser, will be duly
authorized, executed and delivered, and will constitute a valid, legal and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with the terms of such Transaction Document, subject to any Law Affecting
Creditors' Rights.
Section 5.4 No Conflict; Purchaser Consents. The execution, delivery
and performance by Purchaser of each Transaction Document to which it is a party
will not (a) violate any Law, (b) violate any Charter Document of Purchaser, (c)
violate any Order to which Purchaser is a party or by which Purchaser or its
assets is bound, or (d) except for any Consent required, if any, under the
Purchaser Indenture or the Purchaser Credit Agreement, require any Consent from
any Person.
Section 5.5 Reports and Financial Statements. From January 1, 1999 to
the date hereof, except where failure to have done so did not and would not have
a material adverse effect on Purchaser, Purchaser has filed all reports,
registrations and statements, together with any required amendments thereto,
that it was required to file with the Securities and Exchange Commission
("SEC"), including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K and
proxy statements (collectively, the PURCHASER REPORTS"). As of their respective
dates (but taking into account any amendments filed prior to the date of this
Agreement), the Purchaser Reports complied in all material respects with all the
rules and regulations promulgated by the SEC and
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did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
Section 5.6 Brokers. No Person is or will become entitled to receive
any brokerage or finder's fee, advisory fee or other similar payment for the
transactions contemplated by this Agreement by virtue of having been engaged by
or acted on behalf of Purchaser other than fees payable by Purchaser pursuant to
that certain Advisory Agreement dated August 18, 1999, among Marketing
Specialists Corporation ("MSC"), Monroe & Company, LLC and Richmont Capital
Partners I, LLP, the payment of which is the sole responsibility of Purchaser.
ARTICLE VI.
COVENANTS OF SELLER
Section 6.1 Cooperation of Seller. From the Signing Date through the
Closing Date, Seller will use reasonable efforts (a) to take all actions and to
do all things necessary or advisable to consummate the transactions contemplated
by this Agreement, (b) to cooperate with Purchaser in connection with the
foregoing, including using all reasonable efforts to obtain all of the Consents,
and (c) subject to the other terms and conditions of this Agreement, to cause
all the conditions set forth in Section 9.1 to be satisfied on or prior to the
Closing.
Section 6.2 Pre-Closing Access to Information. From the Signing Date
through the Closing Date, Seller will afford to Purchaser and its
Representatives access to the properties and the Books and Records of Seller.
Section 6.3 Conduct of Business.
(a) Ordinary Course. From the Signing Date through the Closing
Date or the termination of all negotiations relating to the consummation of this
Agreement, Seller, in connection with the conduct of the Business, (i) will use
its best efforts to (A) preserve substantially the relationships with its
Representatives, suppliers and principals, (B) perform its obligations under all
contracts, leases and Permits, (C) comply with all Laws, (D) confer with
Purchaser regarding operational matters of a material nature, (E) provide
Purchaser with the interim balance sheets of Seller as of August 31, 1999, and
monthly profit and loss statements of Seller for the period from June 30, 1999
through the month ending no more than 30 days prior to the Closing Date, and (F)
conduct the Business in the ordinary course and consistent with past practices
and (ii) will not, without the written consent of Purchaser, (A) enter into or
agree to any transaction outside the ordinary course of its business, (B) incur
any additional indebtedness, (C) increase or agree to increase the salary,
compensation, bonus, or benefits of any of the directors, officers or employees
of Seller, or (D) sell or otherwise dispose of or encumber any Purchased Asset.
(b) Prohibited Actions. Except as otherwise required or
permitted by this Agreement, from the Signing Date through the Closing Date or
prior to the termination of all negotiations relating to the consummation of
this Agreement, Seller will not, without the prior written consent of Purchaser,
take or fail to take any action as a result of which any of the changes or
events listed in Section 4.8 occur or become likely to occur.
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Section 6.4 Supplements to Schedules. If, between the Signing Date and
the Closing Date, Seller becomes aware that any of its representations and
warranties in this Agreement or the schedules to this Agreement were inaccurate
when made or if during such period any event occurs or condition changes that
causes any of such representations and warranties to be inaccurate, then Seller
will notify Purchaser thereof in writing and supplement the schedules hereto to
account for any such inaccuracy, event or change. Any such supplement to the
schedules will not be deemed to have been disclosed as of the Signing Date or to
have cured any breach of representations and warranties made in this Agreement,
unless so agreed to in writing by Purchaser.
Section 6.5 Standstill. From the Signing Date through the Closing Date
or prior to the termination of all negotiations relating to the consummation of
the transactions contemplated by this Agreement (in the event that the Closing
does not occur on or prior to December 31, 1999), Seller will not, and will use
its best efforts to cause its Representatives to not, directly or indirectly,
(i) initiate, solicit, seek, encourage or otherwise facilitate (including by way
of furnishing information or assistance) any inquiry, communication or proposal
that constitutes, or could reasonably be expected to result in, an Acquisition
Proposal, (ii) enter into any agreement contemplating or otherwise relating to
an Acquisition Proposal, (iii) provide any information or data to, or engage in,
maintain or continue discussions or negotiations with, any Person in furtherance
of any such inquiry, communication or proposal or otherwise relating to an
Acquisition Proposal or for the purpose of obtaining an Acquisition Proposal,
(iv) accept, agree to, endorse or recommend any Acquisition Proposal, or (v)
release any third party from any standstill or confidentiality agreement, or
waive or amend any provision thereof, to which it is a party; provided, that no
Person shall be deemed to have provided any information or data to, or engaged
in, maintained or continued discussions or negotiations with, any other Person
in violation of this Section if such Person advises the other Person that they
are precluded from taking any action that would constitute a violation of this
Section. Seller shall notify Purchaser orally (within one Business Day) and in
writing (as promptly as practicable) of all relevant details relating to, and
all material aspects of (including the identity of the Person making such
inquiry, communication or proposal), all inquiries, communications and proposals
which they or any of its or their Representatives may receive relating to any of
such matters and, if such inquiry, communication or proposal is in written form
or electronically or magnetically stored, shall deliver to Purchaser a copy of
such inquiry, communication or proposal as promptly as practicable. Seller has
terminated, and has used its best efforts to cause each of its Representatives
to cease and terminate, any existing initiation, solicitation, encouragement,
facilitation, communication, discussion or negotiation with any Person conducted
heretofore by Seller, or any of its Representatives relating to any Acquisition
Proposal. Seller shall promptly notify its Representatives of the obligations
undertaken in this Section and any violation of the restrictions set forth in
the two immediately preceding sentences by any Representative of Seller who
takes any such prohibited action with the express or apparent encouragement or
authority of Seller or with Seller's Knowledge, shall be deemed to be a breach
of this Section by Seller.
Section 6.6 Discharge of Encumbrances. Seller will take all actions and
do all things necessary to cause all Encumbrances on any Purchased Assets to be
terminated or otherwise discharged at or prior to the Closing.
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Section 6.7 Non-Disclosure; Non-Competition; Non-Solicitation.
(a) Non-Disclosure Agreement. Seller acknowledges that it and
its Representatives have and may have access to Confidential Information and
that such Confidential Information does and will constitute valuable, special
and unique property of Purchaser. Seller shall not, and, using its best efforts,
shall not permit any of its Representatives to, at any time (i) use any
Confidential Information in any manner adverse to the business interests of
Purchaser, or (ii) disclose any such Confidential Information to any Person for
any reason or purpose whatsoever, unless and until such time (A) as such
information becomes publicly available other than information which becomes
public as a result of a breach of this Section 6.7 by Seller or its
Representatives or (B) as Seller is advised by counsel that any such information
is required by law to be disclosed; provided, however, that prior to such
disclosure, Seller or any of its Representatives shall notify Purchaser within
fifteen days of its obligation to disclose any such Confidential Information.
Upon the request of Purchaser, Seller shall, and shall use its best efforts to
cause its Representatives to, deliver to Purchaser all letters, notes, computer
disks, software, notebooks, reports and other materials which contain
Confidential Information relating to the Purchased Assets and which are in the
possession or under the control of such Person.
(b) Non-Competition Agreement. Seller agrees not to conduct,
either directly or indirectly, the Business in the States of Washington, Oregon,
California and Montana or in any state or foreign country Seller conducts its
business as of the Closing Date for a period of five (5) years after the Closing
Date.
(c) Independent Covenants. The covenants set forth in this
Section constitute an independent and separate agreement independently supported
by good and adequate consideration. The Parties intend all provisions of this
Section 6.7 to be enforced to the fullest extent permitted by Law. Accordingly,
should a court of competent jurisdiction determine that the scope of any
subsection of this Section 6.7 is too broad to be enforced as written, the
Parties intend that the court should reform the provision to such narrower scope
as it determines to be enforceable. If, however, any provision contained in this
Section 6.7 is declared invalid or illegal, the other provisions hereof will not
be affected or impaired thereby and will remain valid and enforceable. The
existence of any Claim or cause of action of Seller or any of its
Representatives against Purchaser, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by Purchaser of the
covenants set forth in this Section.
(d) Injunctive Relief. In the event of a breach or threatened
breach by Seller or any of its Representatives of any provision of this Section,
Purchaser will be entitled to an injunction to prevent irreparable injury to
such entity. Nothing herein will be construed as prohibiting Purchaser from
pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages from Seller or any of its
Representatives.
(e) Acknowledgments of Seller. Seller acknowledges that (i)
any public disclosure of any Confidential Information related to the Purchased
Assets will have an adverse effect on Purchaser and its business, (ii) Purchaser
would suffer irreparable injury if Seller breaches any of the terms of this
Section, (iii) Purchaser will be at a substantial competitive disadvantage if
Seller fails to abide by the restrictions provided for in this Section, (iv) the
scope
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of the protective restrictions provided for in this Section are reasonable when
taking into account (A) the negotiations between the Parties and (B) that Seller
is the direct beneficiary of the Purchase Price paid pursuant to this Agreement,
(v) the consideration being paid to Seller pursuant to this Agreement is
sufficient inducement for Seller to agree to the terms hereof, (vi) the
provisions of this Section are reasonable and necessary to protect Purchaser's
business, to prevent the improper use or disclosure of the Confidential
Information related to the Purchased Assets and to provide Purchaser with
exclusive ownership of all such Confidential Information and (vii) the terms of
this Section preclude Seller from engaging in the conduct of the Business as
provided in this Section.
Section 6.8 Name of Seller. Immediately upon or after the Closing,
Seller shall change its name to another name not confusingly similar to its
present name or any trade names, and shall take all other action as may be
required to permit Purchaser to adopt (or file an assumed name certificate as
to) the name "Johnson-Lieber," any trade names of Seller or any names similar
thereto.
Section 6.9 Required Consents. Schedule 6.9 lists any third parties
(other than third parties under Brokerage Agreements related to the Affected
Accounts or the Affected Agreements) from whom Consents must be obtained by
Seller to consummate the transactions contemplated hereby, including the sale of
the Acquired Assets to, and the assumption of the Assumed Liabilities by,
Purchaser, prior to the Closing (collectively, the "REQUIRED CONSENTS"). Seller
shall obtain and deliver all Required Consents at or prior to the Closing;
provided, however, that a failure by the Seller to deliver any Required Consents
relating to the Brokerage Agreements at or prior to the Closing shall not
constitute a breach of this Section 6.9 but shall be subject to Sections 9.1(c)
and (d) and Section 10.1(c).
Section 6.10 Shareholder Approval. Prior to the Closing, Seller shall
recommend approval of this Agreement and the consummation of the transactions
contemplated hereby to its shareholders and shall use its best efforts to cause
each shareholder of Seller who is entitled to vote to attend (whether in person
or by proxy) a special meeting of the shareholders or to act by written consent
for the purpose of approving this Agreement and the transactions contemplated
hereby.
Section 6.11 U.S. Bank Breaches. At or prior to Closing, Seller shall
have cured any breaches under that certain Business Loan Agreement and
Commercial Security Agreement dated as of July 1, 1998 by and between Seller and
U.S. Bank.
ARTICLE VII.
COVENANTS OF PURCHASER
Section 7.1 Cooperation by Purchaser. From the Signing Date through the
Closing Date, Purchaser will use all reasonable efforts (a) to take all actions
and to do all things necessary or advisable to consummate the transactions
contemplated by this Agreement, (b) to cooperate with Seller in connection with
the foregoing, including using reasonable efforts to obtain all of the Consents,
and (c) subject to the other terms and conditions of this Agreement, to cause
all the conditions set forth in Section 9.2, the satisfaction of which is in the
reasonable control of Purchaser, to be satisfied on or prior to the Closing.
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Section 7.2 Purchaser Indenture Obligations. Purchaser shall obtain any
Consents from, and make any deliveries to, the trustee or holders, as
applicable, required (if any) under the Purchaser Indenture to consummate the
transactions contemplated hereby and in the other Transaction Documents.
Section 7.3 Purchaser Credit Agreement Obligations. Purchaser shall use
good faith commercially reasonable efforts to obtain Consents to consummate the
transactions contemplated hereby from the agent or lenders, as applicable, under
the Purchaser Credit Agreement within ten (10) days of the Signing Date or as
soon as practicable thereafter. Purchaser shall notify Seller it has obtained
such Consents as soon as practicable after the same have been delivered to
Purchaser.
Section 7.4 Bonus Payments. Prior to, simultaneously with, or as soon
as practicable after, the Closing Date, Purchaser shall make arrangements for
the payment of signing or retention bonuses in an aggregate amount not to exceed
$510,000 (the "BONUS PAYMENTS") pursuant to, and in accordance with the terms
of, new employment agreements, bonus agreements or such other agreements with
such employees of Seller and in such amounts and on such terms as Purchaser may
determine in its sole and absolute discretion, after consultation with Seller
with respect to the employees only.
ARTICLE VIII.
MUTUAL COVENANTS
Section 8.1 Consents. Each Party hereby agrees to use reasonable
efforts, to take reasonable actions and to cooperate with each other as may be
necessary to obtain all Consents from third parties (including Governmental
Authorities) to consummate the transactions contemplated by the Transaction
Documents.
Section 8.2 Books and Records.
(a) Access. For a period of six (6) years after the Closing,
each Party will provide the other Parties with reasonable access during normal
business hours to its Books and Records relating to the Purchased Assets or the
Assumed Liabilities (other than Books and Records protected by the
attorney-client privilege) to the extent that they relate to the condition or
operation of the Purchased Assets or the Assumed Liabilities prior to the
Closing Date and are requested by such Party to prepare its Returns, to respond
to third party Claims or for any other legitimate purpose specified in writing.
Each Party shall have the right, at its own expense, to make copies of any such
Books and Records.
(b) Destruction. No Party shall dispose of or destroy any
Books and Records relating to the Purchased Assets or the Assumed Liabilities to
the extent that they relate to the condition or operation of the Purchased
Assets or the Assumed Liabilities prior to the Closing without first offering to
turn over possession thereof to the other Party by written notice at least 30
days prior to the proposed date of disposition or destruction.
(c) Confidentiality. Each Party may take such action as it
deems reasonably appropriate to separate or redact information unrelated to the
Business from documents and other materials requested and made available
pursuant to this Section and may condition the other
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Party's access to documents and other materials that it deems confidential to
the execution and delivery of an agreement by the other Party not to disclose or
misuse such information.
(d) Assistance. Each Party will, upon written request and at
the requesting Party's expense, make personnel available to assist in locating
and obtaining any Books and Records relating to the Purchased Assets or the
Assumed Liabilities to the extent that they relate to the condition or operation
of the Purchased Assets or the Assumed Liabilities prior to the Closing and make
personnel available whose assistance, participation or testimony is reasonably
required in anticipation of, preparation for or the prosecution or defense of
any third party Claim in which the other Party does not have any adverse
interest.
Section 8.3 Further Assurances. Subject to the other terms and
conditions of this Agreement, at any time and from time to time, whether before
or after the Closing, each Party shall execute and deliver all instruments and
documents and take all other action that the other Party may reasonably request
to consummate or to evidence the consummation of the transactions contemplated
by this Agreement.
ARTICLE IX.
CONDITIONS PRECEDENT TO THE CLOSING
Section 9.1 Conditions Precedent to Purchaser's Obligations. The
obligation of Purchaser to consummate the transactions contemplated by this
Agreement will be subject to the satisfaction of the following conditions, any
of which may be waived in writing by Purchaser.
(a) Accuracy of Representations and Warranties. The
representations and warranties made by Seller in this Agreement will have been
true, complete and correct as of the Signing Date and as of the Closing Date as
though made as of the Closing Date, except to the extent such representations or
warranties made as of a specific date will have been correct and complete as of
the specified date.
(b) Performance of Covenants. Seller will have performed and
complied with all agreements, covenants and obligations required by this
Agreement to be performed by such Party prior to or at the Closing.
(c) No Material Adverse Change. None of Seller, the Purchased
Assets or the Assumed Liabilities will have undergone any Material Adverse
Change since the Signing Date.
(d) Consents. Seller will have received and delivered to
Purchaser all the Required Consents, each in form and substance satisfactory to
Purchaser, and will have given all notices required to be given to any Persons
prior to the consummation of the transactions contemplated by this Agreement.
(e) Closing Certificate. Seller will have delivered to
Purchaser a certificate confirming (i) the satisfaction of the conditions set
forth in Sections 9.1(a), 9.1(b), 9.1(c), and 9.1(l) and (ii) the continuing
force and effect of the Required Consents.
(f) Secretary's Certificate. Seller will have delivered to
Purchaser a certificate executed by the secretary or an assistant secretary of
Seller certifying as to (i) Seller's
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Charter Documents, (ii) Seller's good standing (in its state of incorporation
and each jurisdiction listed on Schedule 4.1) and existence (in its state of
incorporation), (iii) the resolutions in which Seller's board of directors
approved this Agreement and the transactions contemplated hereby, (iv) the
resolutions in which Seller's shareholders approved this Agreement and the
transactions contemplated hereby and (v) the incumbency of Seller's officers who
execute any documents on behalf of Seller in connection with this Agreement.
(g) Deliveries. Seller will have delivered the documents
required by Section 3.2, and such other documents as Purchaser may reasonably
require.
(h) Consulting Agreements. Purchaser, or an Affiliate of
Purchaser, shall have entered into a consulting agreement in substantially the
form of Exhibit 9.1(h) with each of the individuals set forth on Schedule
9.1(h).
(i) Short-Term Leases. Purchaser and Seller shall have entered
into a temporary lease in substantially the form of Exhibit 9.1(i) for the real
property described on Schedule 9.1(i).
(j) Commercial Lease. Purchaser and Seller shall have entered
into a commercial lease in substantially the form of Exhibit 9.1(j) for the real
property described in Schedule 9.1(j).
(k) Purchaser's Indenture and Credit Agreement. Purchaser
shall have obtained all Consents required, if any, under the Purchaser Indenture
and the Purchaser Credit Agreement.
(l) No Order or Action. No Order will be in effect forbidding
or enjoining the consummation of the transactions contemplated hereby. No Action
will be pending or, to Seller's Knowledge, threatened before any court or other
Governmental Authority seeking to enjoin the Closing or seeking damages against
Purchaser or any of its Representatives as a result of any of the transactions
contemplated by this Agreement, provided that neither Purchaser nor any of its
Affiliates instituted such Action.
Section 9.2 Conditions Precedent to Seller's Obligations. The
obligation of Seller to consummate the transactions contemplated by this
Agreement will be subject to the satisfaction of the following conditions, any
of which may be waived in writing by Seller.
(a) Accuracy of Representations and Warranties. The
representations and warranties made by Purchaser in this Agreement will have
been true and complete in, all material respects, as of the Signing Date and as
of the Closing Date as though made as of the Closing Date, except to the extent
such representations or warranties made as of a specific date will have been
true and complete as of the specified date.
(b) Performance of Covenants. Purchaser will have performed
and complied, in all material respects, with all agreements, covenants and
obligations required by this Agreement to be performed by Purchaser prior to or
at the Closing.
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(c) Deliveries. Purchaser will have delivered the documents
required by Section 3.3 and such other documents as Seller may reasonably
require.
(d) No Order or Action. No Order will be in effect forbidding
or enjoining the consummation of the transactions contemplated hereby. No Action
will be pending or, to the knowledge of Purchaser, threatened before any court
or other Governmental Authority seeking to enjoin the Closing or seeking damages
against Seller or any of its Representatives as a result of any of the
transactions contemplated by this Agreement, provided that Seller nor any of its
Affiliates instituted such Action.
(e) Shareholder Approval. The shareholders of Seller shall
have approved this Agreement and the consummation of the transactions
contemplated hereby.
(f) Closing Certificate. Purchaser will have delivered to
Seller a certificate confirming the satisfaction of the conditions set forth in
Sections 9.2(a), 9.2(b), 9.2(d) and 9.2(h).
(g) Secretary's Certificate. Purchaser will have delivered to
Seller a certificate executed by a secretary or assistant secretary of Purchaser
certifying as to (i) Purchaser's Charter Documents, (ii) the resolutions in
which Purchaser's board of directors approved this Agreement and the
transactions contemplated hereby and (iii) the incumbency of Purchaser's
officers who execute any documents on behalf of Purchaser in connection with
this Agreement.
(h) No Material Adverse Change. Since the Signing Date,
Purchaser, together with its subsidiaries on a consolidated basis, shall not
have suffered any material change in its financial condition which materially
and adversely affects its ability to repay the Note in accordance with the terms
thereof.
Section 9.3 If Conditions Not Satisfied. In the event that any of the
conditions set forth in this Article IX are not satisfied, and the Parties
nevertheless consummate the transactions contemplated by this Agreement to take
place at the Closing, the Parties will not be deemed to have waived any Claim
for damages or other relief arising from or in connection with such
non-satisfaction.
ARTICLE X.
TERMINATION PRIOR TO THE CLOSING
Section 10.1 Termination of Agreement. This Agreement may be terminated
at any time prior to the Closing:
(a) by mutual written agreement of the Parties;
(b) by Purchaser at any time after the occurrence of a
Material Adverse Change in the Business, the Purchased Assets or the Assumed
Liabilities;
(c) by Purchaser or Seller at any time on or after December
31, 1999; provided, however, that the right to terminate this Agreement under
this Section 10.1(c) shall not
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be available to any Party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date;
(d) by Purchaser, upon a breach of any representation,
warranty, covenant or agreement on the part of Seller set forth in this
Agreement or if any such representation or warranty of Seller shall have become
untrue, in either case such that the conditions set forth in Sections 9.1(a) or
9.1(b) would not be satisfied (a "TERMINATING SELLER BREACH"), and which
Terminating Seller Breach is not cured by Seller within ten (10) calendar days
following notice by Purchaser of such breach;
(e) by Seller, upon breach of any representation, warranty,
covenant or agreement on the part of Purchaser set forth in this Agreement, or
if such representation or warranty of Purchaser shall have become untrue, in
either case such that the conditions set forth in Sections 9.2(a) or 9.2(b)
would not be satisfied (a "TERMINATING PURCHASER BREACH"), and which Terminating
Purchaser Breach is not cured by Purchaser within ten (10) calendar days
following Purchaser's receipt of written notice of such breach; or
(f) by Purchaser if Purchaser, or an Affiliate of Purchaser,
shall have failed to enter into an employment agreement in substantially the
form of Exhibit 10.1(f) hereto with such employees of Seller as Purchaser deems
appropriate, in its sole and absolute discretion, after consultation with
Seller; provided Purchaser notifies Seller of such failure at least two days
prior to the Closing Date.
Section 10.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 10.1, all obligations of the parties hereto shall terminate
except the obligations of the Parties pursuant to Sections 10.2, 10.3, and 10.4
and Article XI. No termination of this Agreement pursuant to Sections 10.1(d) or
10.1(e) shall prejudice the ability of a non-breaching Party from seeking
damages from any other Party for any breach of this Agreement, including
attorney's fees and the right to pursue any remedy at law or in equity, and
nothing contained herein (including this Section) shall relieve any Party from
liability for any breach of this Agreement.
Section 10.3 Expenses.
(a) If the Closing occurs, unless otherwise specifically set
forth herein all costs and expenses incurred in connection with this Agreement
shall be paid by the Party incurring such expenses.
(b) If the Closing does not occur, unless otherwise
specifically set forth herein all costs and expenses incurred in connection with
this Agreement shall be paid by the Party incurring such expenses.
Section 10.4 Procedure Upon Termination. In the event of termination
pursuant to Section 10.1, written notice thereof will be immediately given to
the other Parties and the transactions contemplated by this Agreement will be
terminated, without any further action by any Party. If the transactions
contemplated by this Agreement are so terminated:
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(a) each Party will return all documents, work papers and
other materials of the other Parties, whether obtained before or after the
Signing Date to the party furnishing the same; and
(b) such termination will not in any way limit, restrict or
relieve any Party of liability for any breach of this Agreement.
ARTICLE XI.
INDEMNIFICATION AND RELATED MATTERS
Section 11.1 Indemnification of Purchaser.
(a) Indemnification Obligations of Seller. Seller will
indemnify, defend, and hold Purchaser harmless from any and all Claims directly
or indirectly related or arising with respect to:
(i) Breaches of Representations and Warranties. Any
inaccuracy in any representation or warranty made in Article
IV or in the certificates delivered by Seller pursuant to
Section 3.2(b);
(ii) Breaches of Covenants. Any failure to perform or
observe any covenant or agreement of Seller set forth in this
Agreement or in any agreement delivered pursuant to this
Agreement;
(iii) Failure to Pay or Perform Excluded Liabilities.
Any failure of Seller to pay or perform any of the Excluded
Liabilities; or
(iv) Operation of Business. Any Claim incurred as a
result of, relating to or arising out of Seller's ownership or
operation of (x) the Purchased Assets or the Assumed
Liabilities prior to Closing Date, (y) the Excluded Assets or
(z) the Business in each case regardless of whether such claim
is asserted before or after the Closing Date.
Section 11.2 Indemnification of Seller. Purchaser will indemnify,
defend, and hold Seller, harmless from any and all Claims directly or indirectly
related or arising with respect to:
(a) Breaches of Representations and Warranties. Any inaccuracy
in any representation or warranty of Purchaser made in Article V in the
certificates delivered by Purchaser pursuant to Section 3.3(d);
(b) Breaches of Covenants. Any failure to perform or observe
any covenant or agreement of Purchaser set forth in this Agreement or in any
agreement delivered pursuant to this Agreement; or
(c) Operation of Business. Any Claim incurred after the
Closing Date as a result of, relating to or arising out of Purchaser's ownership
or operation of the Purchased Assets or Assumed Liabilities from and after the
Closing Date.
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Section 11.3 Indemnification Procedure. The indemnification obligations
under this Agreement will be subject to the following procedures:
(a) Defense of Claim. Within five (5) days after a Party
entitled to indemnification (an "INDEMNITEE") receives a notice of any Claim
that may give rise to an indemnification obligation under this Agreement, the
Indemnitee will give the Party responsible for providing indemnification with
respect to such Claim (the "INDEMNITOR") notice of such Claim, together with a
copy of all documents relating to such Claim that the Indemnitee possesses;
provided, that the failure to provide such notice shall not deprive an
Indemnitee of its right to indemnification hereunder, unless the Indemnitor is
prejudiced by such failure. The Indemnitor will then immediately undertake the
defense of such Claim by representatives of its own choosing and reasonably
acceptable to Indemnitee (which, in the case of Purchaser, shall be deemed to
include Akin, Gump, Strauss, Hauer & Feld, L.L.P. and in the case of Seller
shall be deemed to include Graham & Dunn PC); provided further that Purchaser
will have the right to control and undertake such defense by representatives of
its own choosing if the Claim could have a material adverse effect upon the
Purchased Assets or Assumed Liabilities or involves any Environmental Law or
Hazardous Material. The Indemnitor will notify the Indemnitee of the
Indemnitor's undertaking of the defense of a Claim promptly after receiving the
notice of the Claim. Similarly, the Indemnitee will notify promptly the
Indemnitor of the Indemnitee's election of its right to control such defense
under the circumstances described above.
(b) Participation of the Indemnitee. If ten (10) Business Days
after delivering notice of a Claim to the Indemnitor or such shorter period
necessary to prevent judgment by default in favor of the Person asserting the
Claim, the Indemnitor has not begun to defend against such Claim, the Indemnitee
will have the right to defend or settle such Claim on behalf of the Indemnitor.
Notwithstanding whether the Indemnitor commences at any time to defend against a
Claim, the Indemnitee will have the right to participate in such defense by
representatives of its own choosing. The Indemnitee will bear any expense of
such participation if the Indemnitor is defending against the Claim unless (i)
defenses exist to the Indemnitee that are unavailable to the Indemnitor or (ii)
there exists a material conflict of interest between Indemnitor and Indemnitee
under applicable standards of professional conduct (each, as advised to the
Indemnitee in writing by Indemnitee's counsel, with a copy to the Indemnitor).
Under such circumstances, the Indemnitor will reimburse the Indemnitee for the
Indemnitee's reasonable attorneys' fees and expenses. In addition, the
Indemnitor will reimburse the Indemnitee for the Indemnitee's reasonable
attorneys' fees and expenses incurred during the period when the Indemnitor did
not defend against the Claim and in connection with Claims that Purchaser
possesses the right to defend. Notwithstanding whether the Claim involves a
purported breach of the Indemnitor's representations and warranties, the
Indemnitor's obligation to reimburse such fees and expenses will not be subject
to the Indemnitor's Maximum Liability. The Indemnitor will make such
reimbursement payments to the Indemnitee upon the Indemnitee's submission of
periodic invoices describing such fees and expenses in reasonable detail.
(c) Settlement of Claims. The Indemnitor may settle any Claim
at its own expense, provided that the Indemnitor will not settle any Claim or
consent to the entry of any judgment without the consent of the Indemnitee if
such settlement or judgment (i) includes any admission of wrongdoing by the
Indemnitee or any of the Indemnitee's Representatives, (ii) includes any consent
to any type of injunctive relief affecting the Indemnitee or any of the
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Indemnitee's Representatives, (iii) excludes an unconditional release by the
Person asserting the Claim of the Indemnitee and the Indemnitee's
Representatives from all liability with respect to such Claim, or (iv) requires
the Indemnitee or any of the Indemnitee's Representatives to make any payment.
(d) Reimbursement. If an Indemnitor undertakes the defense of
any Claim or settles any Claim and such Claim was not within the scope of the
Indemnitor's indemnification obligations under this Agreement, the Indemnitee
will promptly reimburse the Indemnitor for all expenses with respect to such
defense or settlement, including the Indemnitor's reasonable attorneys' fees and
expenses.
(e) Cooperation. In connection with any indemnity obligation
under this Article XI, the Indemnitee will cooperate with all reasonable
requests of the Indemnitor and its Representatives.
(f) Payment--Net of Insurance Proceeds. The amount of any
damage or indemnification payable pursuant to this Article XI will be net of any
insurance proceeds actually received by the Indemnitee in connection with the
circumstances giving rise to the Claim. The calculation of net insurance
proceeds will give effect to all costs incurred by the Indemnitee for such
insurance recovery, including all costs associated with retrospective premium
adjustments, experienced-based premium adjustments, and indemnification
obligations. Nothing in this Section will be construed or interpreted as a
guaranty of any level or amount of insurance recovery with respect to any Claim
hereunder.
(g) Payment--Net of Tax Benefit and Detriment. The Parties
will treat any payment or receipt of damages or indemnification under this
Article XI as an adjustment to the Purchase Price on all Returns, except for the
interest component of any such payment, which the Parties will treat as interest
income or expense, as the case may be. To the extent that any damage or
indemnification payment exclusive of the interest component constitutes taxable
income to the Indemnitee, the amount of such damage or indemnification payment
will be increased by the amount of any income Tax attributable to such payment
and the reimbursement of any related income Taxes. To the extent that any damage
or indemnification payment exclusive of the interest component constitutes a
reduction of taxable income to the Indemnitee, the amount of such damage or
indemnification payment will be decreased by the amount of any income Tax
attributable to such reduction of taxable income.
(h) Offset Under Note.
(i) Subject to the restrictions of Section 11.9,
Purchaser may offset all or any part of a Claim (in lieu of
seeking any cash indemnification therefor to which Purchaser
believes in good faith it is entitled under this Article XI)
against its payment obligations under the Note by delivering
to Seller with a copy to the Escrow Agent written notice
thereof in accordance with Section 11.3(a) (the "OFFSET
NOTICE") certifying the existence, nature and amount (or
estimated amount) of such Claim.
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(ii) In the event Seller in good faith objects to the
grounds for an amount of any offset, Seller shall deliver
written notice stating the basis of such dispute along with
the amount of the Claim it rejects, if any, to Purchaser with
a copy to Escrow Agent within ten (10) days after delivery of
the Offset Notice. If Seller fails to object to all or any
portion of the Claim pursuant to such notice, Purchaser may
immediately offset such Claim (or portion thereof) in
accordance with subsection (iii) of this paragraph (h). The
parties shall resolve any such dispute in accordance with the
provisions set forth in Article XII. After the receipt of such
notice and until such time as such dispute is resolved in
accordance with Article XII, Purchaser may make any payments
required under the Note (the "ESCROW PAYMENTS") equal to the
estimated amount of the disputed Claim (or portion thereof)
into an escrow account pursuant to the Escrow Agreement.
(iii) Purchaser may immediately offset any undisputed
or resolved Claim (or any portion thereof) against payments
under the Note or the Escrow Payments, as applicable;
provided, however, that Purchaser shall exhaust the amount of
the Escrow Payments (and any interest thereon), if any, prior
to any offset of further payments under the Note. Any offset
by Purchaser of a Claim for indemnification hereunder shall
alter the timing and amount of payments required under the
Note in the same manner as if Purchaser had made a prepayment
thereunder.
Section 11.4 Meritless Third Party Claims. If a third party makes a
Claim against the Indemnitee that ultimately proves to be meritless, the
Indemnitee may nevertheless require the Indemnitor to defend such Claim and
reimburse the Indemnitee for its reasonable attorneys' fees and expenses in
connection with such Claim if such Claim was within the scope of the
Indemnitor's indemnification obligations under this Agreement.
Section 11.5 Assignment of Claims. If any amounts for which the
Indemnitor is responsible are recoverable from a third party, the Indemnitee
will assign any rights that it may have to recover such amounts to the
Indemnitor.
Section 11.6 Other Indemnitees. Upon the Indemnitee's request, the
Indemnitor will indemnify any of the Indemnitee's Representatives to the same
extent as the Indemnitee; provided that Indemnitor shall not be required to
indemnify more than one Person under this Article XI for the same loss. No
Representative of any Indemnitee, however, will be a third party beneficiary of
the indemnification provisions set forth in this Agreement. In addition, an
Indemnitee shall release or waive any claim to which such Indemnitee has
requested another indemnitor to indemnify such Indemnitee's Representative, but
such release or waiver shall apply only to the extent that said Representative
is indemnified by such indemnitor, and such Representative will have no recourse
against the Indemnitee for the amount so indemnified. To the extent that an
Indemnitee requests an Indemnitor to indemnify such Indemnitee's representative,
such Indemnitor shall indemnify the Representative according to the
indemnification limitations set forth in this Article XI.
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Section 11.7 Contribution. If the indemnity obligations provided for in
this Agreement are held unenforceable in whole or in part for any reason other
than a determination that the injury is not covered by a warranty, covenant or
agreement of Seller hereunder, each Party will perform such indemnity
obligations to the extent enforceable. To the extent that such indemnity
obligations are unenforceable, the Party that would have been the Indemnitor
with respect to a Claim except for such unenforceability will contribute to such
Claim in such proportion as appropriate to reflect the relative fault of such
Party as opposed to the relative fault of the Person who would have been the
Indemnitee, as well as any other relevant equitable considerations.
Section 11.8 Damages Without Indemnification. A Party may assert a
Claim for damages against another Party for a breach of this Agreement even
though the Party seeking such damages has not incurred a liability or made a
payment to another Person.
Section 11.9 Maximum Liability. Seller shall not be required to
indemnify Purchaser for any Claim under this Article XI unless and until the
aggregate amount of all such Claims exceeds $200,000 (the "MINIMUM LOSS"). After
the Minimum Loss is exceeded, Purchaser shall be entitled to be paid the entire
amount of all Claims, including those amounts constituting the Minimum Loss. In
addition, Purchaser shall not be liable for any Claim for damages or
indemnification under this Agreement to the extent that the aggregate amount of
such Claims exceeds $100,000. Similarly, Seller will not be liable for any Claim
for damages or indemnification to the extent that the aggregate amount of such
Claims exceeds the Purchase Price (such amounts are referred to as such Party's
"MAXIMUM LIABILITY"). If the aggregate amount of such Claims for which a Party
would otherwise be responsible exceeds the Maximum Liability, such Party's
responsibility for such Claims will be applied proportionately against all such
Claims. Notwithstanding anything to the contrary contained in this Section, the
Maximum Liability shall not apply (1) to claims based upon a breach of the
representations and warranties made in Sections 4.15, 4.18 or 4.19, or (2) to
claims related to Purchaser's payment obligations under the Note which shall be
governed by the terms thereof.
Section 11.10 Interest. A Party will pay interest computed at the then
current prime rate on any Claim for indemnification under this Agreement for
which such Party is the Indemnitor from the date of the Indemnitee's
indemnifiable out-of-pocket expenditures through the date that the Party pays
such Claim.
Section 11.11 Notice of Breach. If before the Closing, a Party notifies
another Party of its breach of this Agreement, such notification will neither
prevent such other Party from seeking damages for such breach nor decreasing or
mitigating such damages if such other Party still closes the transactions
contemplated by this Agreement.
Section 11.12 Discovery of Breach. If before the Closing a Party
discovers that another Party has breached this Agreement, such discovery will
neither prevent such Party from seeking damages for such breach nor decreasing
or mitigating such damages if such Party still closes the transactions
contemplated by this Agreement; provided that the non-breaching Party shall
deliver written notice of such breach within five (5) days after the discovery
thereof and the breaching party shall have failed to cure such breach within ten
(10) days after receipt of such notice or the number of days until the Closing
Date, whichever is less; provided, further, that the foregoing
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notice and cure period shall not apply if the non-breaching Party discovers such
breach less than five (5) days before the Closing Date or to breaches by Seller
of Section 6.5 or 6.7.
Section 11.13 Survival of Terms. The agreements, covenants, indemnity
obligations, representations and warranties, and other terms of this Agreement,
Seller's closing certificate and any other documents contemplated under this
Agreement will survive the Closing and any investigation or notice by any Party,
provided that the representations and warranties of each Party under this
Agreement will expire at 5:00 p.m. Dallas, Texas time on the day immediately
preceding the second anniversary of the Closing Date. Notwithstanding the
general expiration of each Party's representations and warranties described
above: (a) the representations and warranties set forth in Article IV, Sections
4.3 (Power and Authority), 4.4 (Authorization; Execution and Validity), 4.5 (No
Conflict; Consents), 4.9 (Title to the Purchased Assets), 4.22 (Full Disclosure)
and 4.23 (Brokers) will survive forever, subject to all defenses available under
applicable Law, including the expiration of any applicable statute of
limitations, and (b) the representations and warranties set forth in Sections
4.10 (Compliance with Laws), 4.15 (Environmental Matters), 4.18 (Employee
Benefits) and 4.19 (Taxes) will not expire until 30 days after the expiration of
the applicable statute of limitations, as such statutory period may be extended
from time to time. A Party will not be responsible with respect to any Claim for
damages or indemnification with respect to any inaccuracy in any of such Party's
representations or warranties unless such Party receives notice of the Claim
with respect to such inaccuracy before such representation and warranty expires.
With respect to any such Claim received before the expiration of a particular
representation or warranty, the Party responsible for such representation or
warranty will remain responsible for any damage or indemnification amounts
claimed notwithstanding the subsequent expiration of such representation or
warranty.
Section 11.14 Negligence and Strict Liability. THE PROVISIONS OF THIS
AGREEMENT CONCERNING CLAIMS FOR DAMAGES AND INDEMNIFICATION WILL APPLY WHETHER
OR NOT THE PARTY OR OTHER PERSON CLAIMING SUCH DAMAGES OR INDEMNIFICATION WAS
NEGLIGENT, GROSSLY NEGLIGENT, OR STRICTLY LIABLE IN CONNECTION WITH THE EVENTS
GIVING RISE TO SUCH CLAIM.
ARTICLE XII.
ARBITRATION AND EQUITABLE REMEDIES
Section 12.1 Settlement Meeting. The Parties will attempt in good faith
to resolve promptly through negotiations any dispute under this Agreement (other
than disagreements governed by Sections 6.7 or 13.12 or as otherwise provided in
Section 12.5). If any such dispute should arise, the Parties will meet at least
once to attempt to resolve the matter (the "SETTLEMENT MEETING"). Any Party may
request the other Parties to attend a Settlement Meeting at a mutually agreed
time and place within ten (10) days after delivery of a notice of a dispute. The
occurrence of a Settlement Meeting with respect to a dispute will be a condition
precedent to seeking any arbitration or judicial remedy, provided that if a
Party refuses to attend a Settlement Meeting the other Parties may proceed to
seek such remedy.
Section 12.2 Arbitration Proceedings. If the Parties have not resolved
a dispute at the Settlement Meeting any Party may submit the matter to
arbitration. A panel of three arbitrators
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will conduct the arbitration proceedings in accordance with the provisions of
the Federal Arbitration Act (99 U.S.C. Section 1 et seq.) and the Commercial
Arbitration Rules of the American Arbitration Association (the "ARBITRATION
RULES"). The decision of a majority of the panel will be the decision of the
arbitrators.
(a) Arbitration Notice. To submit a dispute to arbitration, a
Party will furnish the other Parties and the American Arbitration Association
with a notice (the "ARBITRATION NOTICE") containing (i) the name and address of
such Party, (ii) the nature of the dispute in reasonable detail, (iii) the
Party's intent to commence arbitration proceedings under this Agreement, and
(iv) the other information required under the Federal Arbitration Act and the
Arbitration Rules.
(b) Selection of Arbitrators. Within ten days after delivery
of the Arbitration Notice, Purchaser and Seller will each select one arbitrator
from the list of the American Arbitration Association's National Panel of
Commercial Arbitrators. Within ten (10) days after the selection of the last of
those two arbitrators, those two arbitrators will select the third arbitrator
from such list. If the first two arbitrators cannot select a third arbitrator
within such ten (10) day period, the American Arbitration Association will
select a third arbitrator from the list. Each arbitrator will be an individual
not subject to disqualification under Rule No. 19 of the Arbitration Rules with
experience in settling complex litigation involving mergers and acquisitions.
(c) Arbitration Final. The arbitration of the matters in
controversy and the determination of any amount of damages or indemnification
will be final and binding upon the Parties to the maximum extent permitted by
Law, provided that any Party may seek any equitable remedy available under Law
as provided in this Agreement. This agreement to arbitrate is irrevocable.
Section 12.3 Place of Arbitration. Any arbitration proceedings will be
conducted in such location as the Indemnitee or non-breaching party, as
appropriate, may select. The arbitrators will hold the arbitration proceedings
within 60 days after the selection of the third arbitrator.
Section 12.4 Discovery. During the period beginning with the selection
of the third arbitrator and ending upon the conclusion of the arbitration
proceedings, the arbitrators will have the authority to permit the Parties to
conduct such discovery as the arbitrators consider appropriate.
Section 12.5 Equitable Remedies. Notwithstanding anything else in this
Agreement to the contrary, after the Settlement Meeting, a Party will be
entitled to seek any equitable remedies available under Law or this Agreement,
including an injunction prohibiting a breach of the provisions of Section 6.7 or
an Order requiring Seller to perform this Agreement pursuant to Section 13.12.
Any such equitable remedies will be in addition to any damages or
indemnification rights that such Party may assert in an arbitration proceeding.
Section 12.6 Exclusive Jurisdiction. The Parties agree that any claim
for equitable relief relating to this Agreement will be instituted in a federal
or state court sitting in the
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jurisdiction selected by the non-breaching party, which courts and their
respective appellate courts will be the exclusive venue for any such claim. Each
Party waives any objection that it may have to the laying of such venue, and
irrevocably submits to the jurisdiction of any such court with respect to any
such claim. Any service of process and other notice in any such case will be
effective against a Party when transmitted in accordance with Section 13.7,
provided that a Party also may serve process in any manner permitted by Law.
Section 12.7 Judgments. Any arbitration award under this Agreement will
be final and binding. Any court having jurisdiction may enter judgment on such
arbitration award upon application of a Party.
Section 12.8 Expenses. If any Party commences arbitration proceedings
or court proceedings seeking equitable relief with respect to this Agreement,
the prevailing Party in such arbitration proceedings or case may receive as part
of any award or judgment reimbursement of such Party's reasonable attorneys'
fees and expenses to the extent that the arbitrators or court considers
appropriate. Notwithstanding whether the arbitration or court proceedings
involved a purported breach of a Party's representations and warranties, the
portion of any award or judgment reimbursing the prevailing Party's attorneys'
fees and expenses will not be subject to the other Party's Maximum Liability.
Section 12.9 Cost of the Arbitration. The arbitrators will assess the
costs of the arbitration proceedings, including their fees, to the Parties in
such proportions as the arbitrators consider reasonable under the circumstances.
Section 12.10 Exclusivity of Remedies. To the extent permitted by Law,
the arbitration and judicial remedies set forth in this Article XI will be the
exclusive remedies available to the Parties with respect to any dispute under
this Agreement (other than remedies provided in Sections 6.7 or 13.12).
ARTICLE XIII.
MISCELLANEOUS
Section 13.1 Amendment. No amendment of this Agreement will be
effective unless in a writing signed by the Parties.
Section 13.2 Counterparts; Fax Signatures. This Agreement may be
executed in any number of counterparts, each of which will be deemed to be an
original agreement, but all of which will constitute one and the same agreement.
Any Party may execute and deliver this Agreement by an executed signature page
transmitted by a facsimile machine. If a Party transmits its signature page by a
facsimile machine, such Party will promptly thereafter deliver an originally
executed signature page to the other Parties, provided that any failure to
deliver such an originally executed signature page will not affect the validity,
legality, or enforceability of this Agreement.
Section 13.3 Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the Parties and supersedes all prior
agreements and understandings, both written and oral, and all contemporaneous
oral agreements and understandings with respect to the subject matter of this
Agreement. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
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Section 13.4 Governing Law. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS
OF THE STATE OF TEXAS REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
THE CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE.
Section 13.5 No Assignment. No Party may assign its benefits or
delegate its duties under this Agreement without the prior written consent of
the other Parties. Any attempted assignment or delegation without such prior
written consent shall be void. Notwithstanding this prohibition against
assignment and delegation, Purchaser may assign its rights and delegate its
duties under this Agreement to a wholly-owned subsidiary; provided, however,
that upon such assignment of benefits or delegation of duties, Purchaser shall
not be released from any of its obligations under this Agreement without
Seller's written consent. In addition, at any time prior to or after the
Closing, Purchaser may assign its rights under this Agreement to a purchaser of
all of the assets or equity of Purchaser, or any other successor-in-interest to
Purchaser, without Seller's consent, and any such purchaser and any subsequent
purchasers of all of the asset or equity of Purchaser may similarly assign such
rights.
Section 13.6 No Third Party Beneficiaries. This Agreement is solely for
the benefit of the Parties and no other Person will have any right, interest, or
claim under this Agreement.
Section 13.7 Notices. Unless otherwise provided elsewhere in this
Agreement, all claims, consents, designations, notices, waivers, and other
communications in connection with this Agreement shall be in writing. Such
claims, consents, designations, notices, waivers, and other communications will
be considered received (a) on the day of actual transmittal when transmitted by
hand delivery, (b) on the day of actual transmittal when transmitted by
facsimile with written confirmation of such transmittal, (c) on the next
business day following actual transmittal when transmitted by a nationally
recognized overnight courier, or (d) on the third business day following actual
transmittal when transmitted by certified or registered United States mail,
postage prepaid, return receipt requested; in each case when transmitted to a
Party at its address or location set forth below (or to such other address to
which such Party has notified the other Parties in accordance with this Section
to send such claims, consents, designations, notices, waivers, and other
communications):
Purchaser: Marketing Specialists Sales Company
17855 N. Dallas Parkway, Suite 200
Dallas, Texas 75287
Attn: Nick G. Bouras
Facsimile: (972) 349-6448
Copy to: Marketing Specialists Sales Company
17855 N. Dallas Parkway, Suite 200
Dallas, Texas 75287
Attn: Nancy K. Jagielski, Esq.
Facsimile: (972) 349-6448
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Copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201
Attn: Alan M. Utay
Facsimile: (214) 969-4343
Seller: Johnson-Lieber, Inc.
Attn: Mr. Ronald L. Dengel
P. O. Box 9723
Renton, Washington 98057
Facsimile: (425) 228-9788
Copy to: Graham & Dunn PC
1420 Fifth Avenue, 33rd Floor
Seattle, Washington 98101
Attn: Jack G. Strother
Facsimile: (206) 340-9599
Section 13.8 Public Announcements. The Parties will agree on the terms
of any press releases or other public announcements related to this Agreement,
and will consult with each other before issuing any press releases or other
public announcements related to this Agreement. The parties agree, to the extent
practicable, to consult with each other regarding any such public announcement
in advance thereof.
Section 13.9 Representation by Legal Counsel. Each Party is a
sophisticated Person that was advised by experienced legal counsel and other
advisors in the negotiation and preparation of this Agreement.
Section 13.10 Schedules. All references in this Agreement to schedules
will mean the schedules identified in this Agreement, which are incorporated
into this Agreement and will be deemed a part of this Agreement for all
purposes. Each Section of this Agreement that refers to a schedule will have a
separate schedule. In addition, any disclosure under a particular Section's
schedule will be made under the heading of any relevant subsection of such
Section. A disclosure of an item in a schedule for a particular Section or under
a heading in a schedule corresponding to a particular subsection will not be a
disclosure under any other Section's schedule or any other subsection, unless so
noted specifically on such schedule. Seller has delivered to Purchaser a correct
and complete copy of each document described on each schedule to this Agreement
and a written description of each unwritten arrangement or other item described
on each such schedule.
Section 13.11 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction will not invalidate the
remaining provisions of this Agreement or affect the validity or enforceability
of such provision in any other jurisdiction. In addition, any such prohibited or
unenforceable provision will be given effect to the extent possible in the
jurisdiction where such provision is prohibited or unenforceable.
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Section 13.12 Specific Performance. Seller acknowledges that the
benefits that Purchaser will derive from the transactions contemplated by this
Agreement are unique and irreplaceable. Accordingly, if Seller improperly
abandons or terminates this Agreement, Purchaser would not have an adequate
remedy at law. Purchaser therefore will be entitled to a court order requiring
Seller to perform this Agreement. Seller will be entitled to specific
performance of this Agreement.
Section 13.13 Successors. This Agreement will be binding upon and will
inure to the benefit of each Party and its heirs, legal representatives,
permitted assigns, and successors, provided that this Section will not permit
the assignment or other transfer of this Agreement, whether by operation of law
or otherwise, if such assignment of other transfer is not otherwise permitted
under this Agreement.
Section 13.14 Time of the Essence. Time is of the essence in the
performance of this Agreement and all dates and periods specified in this
Agreement.
Section 13.15 Waiver. No provision of this Agreement will be considered
waived unless such waiver is in writing and signed by the Party that benefits
from the enforcement of such provision. No waiver of any provision in this
Agreement, however, will be deemed a waiver of a subsequent breach of such
provision or a waiver of a similar provision. In addition, a waiver of any
breach or a failure to enforce any term or condition of this Agreement will not
in any way affect, limit, or waive a Party's rights under this Agreement at any
time to enforce strict compliance thereafter with every term and condition of
this Agreement.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 41
IN WITNESS WHEREOF, each Party executed, or caused a duly authorized
officer to execute, this Agreement as of the Signing Date.
PURCHASER: MARKETING SPECIALISTS SALES COMPANY,
a Texas corporation
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
SELLER: JOHNSON-LIEBER, INC.,
a Washington corporation
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
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APPENDIX A
DEFINITIONS AND RULES OF INTERPRETATION
Definitions. Unless the context otherwise requires, the terms defined
in this Appendix will have the meanings specified below for all purposes of this
Agreement:
(a) "ACTION" means any action, arbitration proceeding, cause of action,
charge, counterclaim, cross claim, inquiry, investigation, legal action,
litigation, Order, proceeding, or suit.
(b) "ACQUISITION PROPOSAL" means any proposal or offer, other than a
proposal or offer by Purchaser with respect to (a) any merger, reorganization,
recapitalization, consolidation, share exchange, business combination,
liquidation, dissolution or other similar transaction involving Seller (b) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of 5% or
more of the assets of Seller, in a single transaction or series of transactions
(whether related or unrelated), other than inventory sold, leased, exchanged,
mortgaged, pledged, transferred or otherwise disposed of in the ordinary course
of business, (c) any sale of, tender offer or exchange offer for 5% or more of
the outstanding shares of any class of Seller's capital stock or any class of
Seller's debt securities or the filing of a registration statement under the
Securities Act in connection therewith, (d) the acquisition by any Person of
beneficial ownership of 5% or more of the then outstanding shares of any class
of Seller's capital stock or any class of Seller's debt securities or (e) any
public announcement of a proposal, plan or intention to do any of the foregoing
or any agreement to engage in any of the foregoing.
(c) "AFFECTED ACCOUNTS" means (i) the manufacturers listed below and
(ii) any other manufacturers that are currently represented by Seller that move
to Purchaser prior to the Closing:
Smuckers
Bumble Bee
Cullyspring
Oral B
Stash Tea
Gortons
Borden
Heart Light
Boca Burgers
Good Humor
Slim Fast
Minute Maid
(d) "AFFECTED AGREEMENTS" means those Brokerage Agreements specifically
and separately identified on Schedule 4.12 under which a default arises solely
by reason of Seller's negotiation, execution, delivery or performance of this
Agreement pursuant to the terms hereof or the consummation of the transactions
contemplated hereby.
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(e) "AFFILIATE" will mean any Person who, at the time such
determination is being made, is Controlling, Controlled by or under common
Control with, such Person. As used in this Agreement, the term "Control,"
whether used as a noun, adjective or verb, refers to the possession, directly or
indirectly, of the power to direct, or cause the direction of, the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise, and Control will be presumed to exist, with respect to
any Person, where any other Person of which the securities or other ownership
interests representing fifty percent (50%) or more of the equity or fifty
percent (50%) made, owned, controlled or held, directly or indirectly, by such
Person.
(f) "AGREEMENT" will have the meaning set forth in the first paragraph.
(g) "ANNUALIZED COMMISSIONS OF SELLER" will mean all commissions,
bonuses, retail services fees and outside warehouse commissions of Seller based
on sales or services to or on behalf of principals of Seller or with respect to
a particular food or product line represented by Seller on behalf of such
principals.
(h) "ARBITRATION NOTICE" will have the meaning set forth in Section
12.2(a).
(i) "ARBITRATION RULES" will have the meaning set forth in Section
12.2.
(j) "ASSUMED LEASES: will have the meaning set forth in Section 1.1(d).
(k) "ASSUMED LIABILITIES" will have the meaning set forth in Section
1.4.
(l) "ASSUMPTION AGREEMENT" will have the meaning set forth in Section
3.3(c).
(m) "BALANCE SHEET DATE" will have the meaning set forth in Section
4.6(a).
(n) "BOOKS AND RECORDS" will mean all the books and records maintained
by or for Seller, including all accounting records, minute books, stock records,
computerized records and storage media and the software used in connection
therewith.
(o) "BONUS PAYMENTS" will have the meaning set forth in Section 7.4.
(p) "BROKERAGE AGREEMENTS" will mean all outstanding food or product
brokerage accounts, agreements, engagements, understandings, benefits and
advantages that have been entered into by Seller or to which Seller is or can be
entitled on account of or in respect to Seller's Business.
(q) "BUSINESS" will have the meaning set forth in Preliminary Statement
A.
(r) "BUSINESS DAY" will mean any day other than a day on which
commercial banks in Dallas, Texas are authorized to close under applicable Law.
(s) "CHARTER DOCUMENTS" will mean (i) in the case of a corporation, its
articles or certificate of incorporation and its bylaws, (ii) in the case of a
partnership, its partnership certificate and its partnership agreement, and
(iii) in the case of any other Person, its organic and
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governing documents; in each case as such document has been amended or
supplemented from time to time prior to the Signing Date.
(t) "CLAIM" will mean any arbitration award, assessment, charge,
citation, claim, damage, demand, directive, expense, fine, interest, joint or
several liability, lawsuit, notice, obligation, payment, penalty, or summons of
any kind or nature whatsoever, including any damages incurred because of any
punitive damages and any reasonable attorneys' fees and expenses. A Claim will
be considered to exist even though it may be conditional, contingent, indirect,
potential, secondary, unaccrued, unasserted, unknown, unliquidated, or
unmatured.
(u) "CLOSING" will have the meaning set forth in Section 3.1.
(v) "CLOSING CASH PAYMENT" will have the meaning set forth in Section
2.2.
(w) "CLOSING DATE" will have the meaning set forth in Section 3.1.
(x) "CODE" will mean the Internal Revenue Code of 1986.
(y) "CONFIDENTIAL INFORMATION" means any proprietary information, and
any information which Purchaser reasonably considers to be proprietary,
pertaining to Seller's and Purchaser's past, present or prospective business
secrets, methods or policies, earnings, finances, security holders, lenders, key
employees, nature of services performed by such entity's sales personnel,
procedures, standards and methods, information relating to arrangements with
suppliers, the identity and requirements of arrangements with principals, the
type, volume or profitability of services or products for principals, drawings,
records, reports, documents, manuals, techniques, ratings, information, data,
statistics, trade secrets and all other information of any kind or character
relating to each of the Parties, whether or not reduced to writing.
(z) "CONSENT" will mean a consent, approval, order, authorization or
waiver from, notice to or declaration, registration or filing with any Person.
(aa) "EMPLOYEE BENEFIT PLAN" will mean any (i) Pension Benefit Plan,
(ii) Welfare Benefit Plan, (iii) accident, dental, disability, health, life,
medical, or vision plan or insurance policy, (iv) bonus, executive, incentive or
deferred compensation plan, (v) change in control plan, (vi) fringe benefits and
perquisites, (vii) holiday, sick pay, leave, vacation, moving or tuition
reimbursement or other similar policy, (viii) stock option, stock purchase,
phantom stock, restricted stock or stock appreciation plan, (ix) severance plan,
or (x) other employee arrangement, commitment, custom, policy or practice.
(bb) "ENCUMBRANCE" will mean any title defect or objection, mortgage,
lien, deed of trust, equity, judgment, claim, restrictive covenant, use
restriction, charge, pledge, security interest or other encumbrance of any
nature whatsoever, including all leases, chattel mortgages, conditional sales
contracts, collateral security arrangements and other title or interest
retention arrangements.
(cc) "ENVIRONMENTAL LAW" will mean (i) the Clean Air Act (42 U.S.C.
Section 7401 et seq.), (ii) the Clean Water Act or Federal Water Pollution
Control Act (33 U.S.C. Section 1251 et seq.), (iii) the Comprehensive
Environmental Response, Compensation and
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Liability Act, as amended by the Superfund Amendments and Reauthorization Act of
1986 (42 U.S.C. Section 9601 et seq.), (iv) the Hazardous Materials
Transportation Act (49 U.S.C. Section 5101 et seq.), (v) the National
Environmental Policy Act (42 U.S.C. Section 4321 et seq.), (vi) the Oil
Pollution Act of 1990 (33 U.S.C. Section 2701 et seq.), (vii) the Resource
Conservation and Recovery Act, as amended by the Hazardous and Solid Waste
Amendments of 1984 (42 U.S.C. Section 6901 et seq.), (viii) the Safe Drinking
Water Act (42 U.S.C. Section 300f et seq.), (ix) the Toxic Substances Control
Act (15 U.S.C. Section 2601 et seq.), the Emergency Planning and Community
Right-to-Know Act of 1986 (42 U.S.C. Section 11001 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et seq.), the
Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.); (x) any
state, local, tribal, or foreign law, ordinance, regulation, or statute
analogous to any of the foregoing statutes, (xi) any regulations promulgated
pursuant thereto, or (xii) any other federal, state, local, tribal, or foreign
law, ordinance, regulation, or statute prohibiting, regulating, rule or
restricting the disposal, generation, handling, placement, recycling, release,
storage, transportation or treatment of any contaminant, liquid, mass, material,
matter, pollutant, solid, substance, or waste classified or considered to be
hazardous or toxic to human health or the environment or otherwise related to
environmental protection or health and safety.
(dd) "ENVIRONMENTAL PERMITS" will have the meaning set forth in Section
4.15(a).
(ee) "ERISA" will mean the Employee Retirement Income Security Act of
1974, as amended.
(ff) "ESCROW AGENT" will have the meaning ascribed to such term in the
Escrow Agreement.
(gg) "ESCROW AGREEMENT" will have the meaning set forth in Section
3.2(g).
(hh) "EXCLUDED ASSETS" will have the meaning set forth in Section 1.2.
(ii) "EXCLUDED LIABILITIES" will have the meaning set forth in Section
1.5.
(jj) "GAAP" will mean generally accepted accounting principles in
effect in the United States of America as of the Signing Date.
(kk) "GOVERNMENTAL AUTHORITY" will mean any federal, state, local,
tribal, foreign or other governmental agency, department, branch, commission,
board, bureau, court, instrumentality or body.
(ll) "HAZARDOUS MATERIAL" will mean (i) any contaminant, liquid, mass,
material, matter, pollutant, solid, substance, or waste for which any
Environmental Law limits, prohibits, or regulates its disposal, generation,
handling, placement, recycling, release, storage, transportation or treatment,
(ii) any carcinogenic, corrosive, explosive, flammable, infectious, mutagenic,
radioactive, or toxic substance, (iii) any diesel fuel, gasoline, or other
petroleum product in an unconfined manner, (iv) any substance that contains
polychlorinated biphenyls, (v) any substance that contains asbestos, (vi) any
substance that contains urea formaldehyde foam installation, (vii) any substance
that constitutes a nuisance upon any property, (viii) any substance that imposes
a hazard to the health or safety of any individual; or (ix) any material that
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is defined as a "hazardous waste," "hazardous substance," "hazardous material,"
"restricted hazardous waste," "industrial waste," "solid waste," "special
waste," "toxic waste," or "toxic substance" under any Environmental Law.
(mm) "INDEMNITEE" will have the meaning set forth in Section 11.3(a).
(nn) "INDEMNITOR" will have the meaning set forth in Section 11.3(a).
(oo) "INSURANCE POLICIES" will have the meaning set forth in Section
4.11.
(pp) "INTANGIBLE ASSET" will mean any patent, trademark, trademark
license, computer software (including, without limitation, the algorithms of
such software), trade name, masthead, brand name, slogan, copyright, reprint
right, franchise, license, process, authorization, invention, know-how, formula,
trade secret and other intangible asset, together with any pending application,
continuation-in-part or extension therefor or common law rights thereto,
regardless of whether the same is registered or unregistered.
(qq) "INTERIM BALANCE SHEET" will have the meaning set forth in Section
4.6(b).
(rr) "INTERIM FINANCIAL STATEMENTS" will have the meaning set forth in
Section 4.6(b).
(ss) "LAW" will mean any applicable code, statute, law, common law,
rule, regulation, ordinance, or Order, of any Governmental Authority.
(tt) "LAW AFFECTING CREDITORS' RIGHTS" will mean any bankruptcy,
fraudulent conveyance or transfer, insolvency, moratorium, reorganization, or
other law affecting the enforcement of creditors' rights generally, and any
general principles of equity.
(uu) "MATERIAL ADVERSE CHANGE (OR EFFECT)" means a change (or effect),
in the condition (financial or otherwise of Seller), the Business, Purchased
Assets or Assumed Liabilities (other than the Affected Accounts) which change
(or effect), individually or in the aggregate, is materially adverse to such
condition, the Business, Purchased Assets or Assumed Liabilities.
(vv) "MATERIAL CONTRACTS" will have the meaning set forth in Section
4.12.
(ww) "MAXIMUM LIABILITY" will have the meaning set forth in Section
11.9.
(xx) "MDF ACCOUNTS" will have the meaning set forth in Section 1.4(f).
(yy) "NOTE" will have the meaning set forth in Section 2.2.
(zz) "ORDER" will mean any consent decree, decree, determination,
injunction, judgment, order, or writ of any arbitrator or Governmental
Authority.
(aaa) "PARTY" will have the meaning set forth in the first paragraph.
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(bbb) "PENSION BENEFIT PLAN" will mean (i) an "employee pension benefit
plan" as defined in Section 3(2) of ERISA, and (ii) a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA.
(ccc) "PERMIT" will mean any license, approval, certificate, franchise,
registration, permit or authorization issuable by any Governmental Authority.
(ddd) "PERSON" will mean any association, bank, business trust,
corporation, estate, general partnership, Governmental Authority, individual,
joint stock company, joint venture, labor union, limited liability company,
limited partnership, non-profit corporation, professional association,
professional corporation, trust, or any other organization or entity.
(eee) "PLAN" will mean any bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance, hospitalization or other
medical, life or other insurance, supplemental unemployment benefit, profit
sharing, pension, or retirement plan, program, agreement or arrangement.
(fff) "PURCHASE PRICE" will have the meaning set forth in Section 2.1.
(ggg) "PURCHASED ASSETS" will have the meanings set forth in Section
1.1.
(hhh) "PURCHASER" will have the meaning set forth in first paragraph.
(iii) "PURCHASER CREDIT AGREEMENT" will mean that certain Amended and
Restated Credit Agreement dated as of August 18, 1999, among Marketing
Specialists Corporation, as borrower, First Union National Bank, individually
and as agent for itself and the other lenders, and each of the financial
institutions listed on Schedule 1 thereto, as amended, supplemented, restated or
otherwise modified from time to time.
(jjj) "PURCHASER INDENTURE" will mean that certain Indenture dated as
of December 19, 1991, by and between Marketing Specialist Corporation, as
Issuer, and Chase Bank of Texas, National Association, as trustee, relating to
$100,000,000 of 10 1/8 % Senior Subordinated Notes due 2007, as amended,
supplemented, restated or otherwise modified from time to time.
(kkk) "REPRESENTATIVES" will mean, with respect to a Person, such
Person's directors, employees, officers, agents, accountants, affiliates,
consultants, investment bankers, attorneys, lenders, representatives and
shareholders.
(lll) "REQUIRED CONSENTS" will have the meaning set forth in Section
6.9.
(mmm) "RETURNS" will have the meaning set forth in Section 4.19(a).
(nnn) "REVIEWED FINANCIAL STATEMENTS" will have the meaning set forth
in Section 4.6(a).
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(ooo) "SECURITIES ACT" shall mean the Securities Act of 1933, or any
similar federal statute, and the rules and regulations of the Securities and
Exchange Commission thereunder, all as the same shall be in effect at the time.
(ppp) "SELLER" will have the meaning set forth in the first paragraph.
(qqq) "SELLER EMPLOYEE BENEFIT PLANS" will have the meaning set forth
in the Section 4.18(d).
(rrr) "SELLER PENSION BENEFIT PLANS" will have the meaning set forth in
Section 4.18(b).
(sss) "SELLER WELFARE BENEFIT PLANS" will have the meaning set forth
Section 4.18(a).
(ttt) "SELLER'S KNOWLEDGE" will mean the actual knowledge, after
reasonable inquiry, as of the date that a specific representation or warranty is
made or deemed made, of Ronald L. Dengel, Les Norman or Clint Spaulding, or any
member of the board of directors of Seller.
(uuu) "SETTLEMENT MEETING" will have the meaning set forth in Section
12.1.
(vvv) "SIGNING DATE" will have the meaning set forth in the first
paragraph.
(www) "TAX" will mean any assessment, charge, duty, fee, impost, levy,
tariff, or tax of any nature whatsoever imposed by any Governmental Authority or
payable pursuant to any tax sharing agreement, including any income, payroll,
withholding, excise, gift, alternative minimum, capital gain, added value,
social security, sales, use, real and personal property, use and occupancy,
business and occupation, mercantile, real estate, capital stock, and franchise
tax or charge, together with any related interest, penalties or additions
thereon.
(xxx) "TRANSACTION DOCUMENTS" will mean this Agreement, the Note and
all other documents and instruments executed and delivered pursuant to or in
furtherance of this Agreement (including all employment agreements,
non-competition agreements, consulting agreements and leases).
(yyy) "VEHICLE LEASE" will have the meaning set forth in Section
1.1(b).
(zzz) "WELFARE BENEFIT PLAN" will mean an "employee welfare benefit
plan" as defined in Section 3(1) of ERISA, including an employee welfare benefit
plan which is a "multiemployer welfare plan" as defined in Section 3(37) of
ERISA and a "multiple employer welfare arrangement" as defined in Section 3(40)
of ERISA.
(aaaa) "YEAR-END BALANCE SHEET" will have the meaning set forth in
Section 4.6(a).
Accounting Terms. Except as otherwise provided in this Agreement, all
accounting terms defined in this Agreement, whether defined in this Article or
otherwise, will be construed in accordance with GAAP applied on a consistent
basis.
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Articles, Sections, Exhibits and Schedules. Except as otherwise
specifically stated, references to Articles, Sections, Exhibits and Schedules
refer to the Articles, Sections, Exhibits and Schedules of this Agreement.
Attorneys' Fees. Whenever this Agreement refers to a Person's
"attorneys' fees and expenses," such reference also will include any fees and
expenses of accountants, experts, investigators, and other professional advisors
whose services such Person's attorney considered advisable in connection with
the prosecution or defense of the particular matter.
Breach. The term "breach" with respect to any contract or instrument
means any breach or violation of, or default under, such contract or instrument,
any conflict with another contract or instrument or any emergence of a right of
another party to such contract or instrument to accelerate, cancel, modify or
terminate such contract or instrument, including any such breach, violation,
default, conflict, or right that will arise after notice or lapse of time;
provided, however, that the loss of the Affected Accounts or the move of
manufacturers currently represented by Seller to Purchaser will have no effect
on and will not be the basis for any breach, adjustment or other modification to
the Agreement.
Disclosure Thresholds. The establishment of any monetary thresholds for
the disclosure of particular items will not create a materiality standard under
this Agreement.
Drafting. Neither this Agreement nor any provision set forth in this
Agreement will be interpreted in favor of or against any Party because such
Party or its legal counsel drafted this Agreement or such provision. No prior
draft of this Agreement or any provision set forth in this Agreement will be
used when interpreting this Agreement or its provisions.
Headings. Article and section headings are used in this Agreement only
as a matter of convenience and will not have any effect upon the construction or
interpretation of this Agreement.
Include. The term "include" or any derivative of such term does not
mean that the items following such term are the only types of such items.
Or. The term "or" will not be interpreted as excluding any of the items
described.
Plural and Singular Words. Whenever the plural form of a word is used
in this Agreement, that word will include the singular form of that word.
Whenever the singular form of a word is used in this Agreement, that word will
include the plural form of that word.
Pronouns. Whenever a pronoun of a particular gender is used in this
Agreement, if appropriate that pronoun also will refer to the other gender and
the neuter. Whenever a neuter pronoun is used in this Agreement, if appropriate
that pronoun also will refer to the masculine and feminine gender.
Representations and Warranties. Seller's representations and warranties
under this Agreement will mean the representations and warranties set forth in
Article IV and the reaffirmation of Seller's representations and warranties in
certificates delivered pursuant to Section 3.2(b). Purchaser's representations
and warranties under this Agreement will mean the
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representations and warranties set forth in Article V and the reaffirmation of
Purchaser's representations and warranties in certificates delivered pursuant to
Section 3.3(e).
Statutes. Any reference to Laws or any specific statute will include
any changes to such Law or statute after the Signing Date, any successor Law or
statute, and any regulations and rules promulgated under such Law or statute and
any successor law or statute, whether promulgated before or after the Signing
Date.
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FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT (this "AMENDMENT") is
dated as of January ___, 2000, by and between Marketing Specialists Sales
Company, a Texas corporation (the "PURCHASER"), and Johnson-Lieber, Inc., a
Washington corporation (the "SELLER").
PRELIMINARY STATEMENTS
A. Pursuant to that certain Asset Purchase Agreement dated as of
November 18, 1999 by and among the Purchaser and the Seller (the "AGREEMENT"),
the Purchaser agreed to purchase from the Seller, and the Seller agreed to sell
to the Purchaser, certain assets of the Seller, subject to the terms and
conditions of the Agreement. All capitalized terms used but not otherwise
defined herein shall have the meaning ascribed to them in the Agreement.
B. The parties hereto desire to amend the Agreement as set forth in
this Amendment.
NOW, THEREFORE, based on the foregoing, in consideration of the mutual
promises contained herein and in the Agreement (as amended hereby), and subject
to the terms and conditions set forth herein and in the Agreement (as amended
hereby), the parties hereto agree as follows:
STATEMENT OF AGREEMENT
1. Section 2.2 of the Agreement is hereby amended and restated in its
entirety as follows:
Section 2.2 Payment of Purchase Price. For and in full consideration of
this Agreement and the transactions contemplated herein, Purchaser will pay to
Seller the Purchase Price, payable as follows: (i) the amount of $3,000,000 in
cash (the "CASH PURCHASE PRICE"), payable as follows: (X) $1,000,000 (the
"CLOSING CASH PAYMENT") at the Closing, (Y) $1,000,000 (the "FIRST CASH
PAYMENT") on the day thirty (30) days after the Closing Date (such date, or if
not a Business Day, the next succeeding Business Day, being the "FIRST PAYMENT
DATE") and (Z) $1,000,000 (the "SECOND CASH PAYMENT", and together with the
First Cash Payment, the "ADDITIONAL CASH Payments") on the day thirty (30) days
after the First Payment Date (such date, or if not a Business Day, the next
succeeding Business Day, being the "SECOND PAYMENT DATE"), in each case by wire
transfer of immediately available funds to the bank account set forth in a
notice given by Seller to Purchaser no later than three (3) Business Days prior
to the Closing Date, the First Payment Date or the Second Payment Date, as
applicable; and (ii) the aggregate principal amount of $9,240,000, subject to
reduction as provided below, by delivering to Seller a promissory note
substantially in the form of Exhibit 2.2 (the "NOTE") at the Closing. The
obligation of Purchaser to pay to Seller the Additional Cash Payments shall be
subordinated to the Loans (as such term is defined in that certain Consent
Agreement dated January ___, 2000 (the "CONSENT AGREEMENT") by and among
Marketing Specialists Corporation, Marketing Specialists Sales Company, the
Lenders under the Credit Agreement described therein and First Union National
Bank, as Agent for the Lenders) and shall have the same priority as the Note.
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The principal amount of the Note shall be reduced by an amount not to exceed
$1,100,000 if at any time prior to the 180th day after the Closing Date there is
any reduction in markets, territories or customers serviced or a decrease in
services performed by Purchaser pursuant to request by Church and Dwight in
Oregon, Washington, Montana or Alaska or by Continental Mills in Oregon. In any
such case, for each market, territory or customer that is no longer serviced or
particular service which is no longer performed, the principal amount of the
Note shall be reduced by the amount of commissions recorded by Seller in the
Reviewed Financial Statements for the year ended December 31, 1999 relating to
such principal in the relevant market or territory or with respect to such
customer. Such reduction will be made starting with the last monthly installment
and to each monthly installment preceding it until such reduction has been
satisfied. For example, if during 1999 Seller earned $100,000 in commissions
from Church and Dwight in Washington and Church and Dwight terminates Purchaser
as its broker in Washington prior to the 180th day after the Closing Date, then
the aggregate principal amount of the Note will be reduced by $100,000 thereby
eliminating the last $100,000 of principal payments.
2. Section 3.1 of the Agreement is hereby amended and restated in its
entirety as follows:
Section 3.1 The Closing. The consummation of the
transactions contemplated by this Agreement (the "CLOSING")
will take place on January ___, 2000, at the offices of Akin,
Gump, Strauss, Hauer & Feld, L.L.P., 1700 Pacific Avenue,
Suite 4100, Dallas, Texas 75201 or such other date or location
as may be mutually agreed to by the Parties; provided that all
of the conditions set forth in Article IX, to the extent not
waived, are satisfied. The date on which the Closing actually
occurs is hereinafter referred to as the "CLOSING DATE."
3. Article VI of the Agreement is hereby amended by inserting the
following text as new Sections 6.12 and 6.13:
Section 6.12 Renewal of Employee Benefit Plans.
Seller shall renew and maintain the effectiveness of all of
its Employee Benefit Plans (including, without limitation, all
Seller Welfare Benefit Plans, Seller Pension Benefit Plans and
Seller Employee Benefit Plans).
Section 6.13 Repayment of Costs. In the event Closing
fails to occur, Seller shall immediately reimburse any and all
costs and expenses incurred by Purchaser pursuant to its
obligations under Section 7.5.
4. Section 6.3, Subsection (a) of the Agreement is hereby amended by
deleting the words "and monthly profit and loss statements of Seller for the
period from June 30, 1999 through the month ending no more than 30 days prior to
the Closing Date" from the seventh, eight and ninth lines thereof and inserting
in place thereof the words "monthly profit and loss statements of Seller for the
period from June 30, 1999 through November 30, 1999 and, no later than February,
29, 2000, the monthly profit and loss statement of Seller for the period from
December 1, 1999 through December 31, 1999".
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5. Section 6.5 of the Agreement is hereby amended by deleting the words
"December 31, 1999" from the third line thereof and inserting in place thereof
the words "January 31, 2000."
6. Article VII of the Agreement is hereby amended by inserting the
following text as new Sections 7.5 and 7.6:
Section 7.5 Payment of Employee Benefit Plan Costs.
If Closing occurs, Purchaser agrees to reimburse Seller for
the costs of maintaining any of the Seller Welfare Benefit
Plans, Seller Pension Benefit Plans and Seller Employee
Benefit Plans relating directly to any of Seller's employees
hired by Purchaser for the period beginning on the Closing
Date and ending on such date as such employees are covered
under Purchaser's Employee Benefit Plans.
Section 7.6 Payment of Additional Cash Payments.
Purchaser shall pay Seller the First Cash Payment on the First
Payment Date and the Second Cash Payment on the Second Payment
Date in accordance with Section 2.2.
7. Section 9.2 of the Agreement is hereby amended by inserting the
following text as a new subparagraph (h):
(h) Security for Additional Cash Payments. Purchaser
will arrange and deliver to Seller at Closing a letter of
credit, on such terms and conditions as may be mutually
acceptable to the Parties, as security for the payment of the
Additional Cash Payments.
8. Section 10.1(c) of the Agreement is hereby amended by deleting the
words "December 31, 1999" and inserting in place thereof the words "January 31,
2000."
9. Section 11.9 of the Agreement is hereby amended by deleting the last
sentence thereof and inserting in place thereof the following:
Notwithstanding anything to the contrary contained in this
Section, Seller's Maximum Liability shall not apply to (1)
Claims based upon a breach of the representations and
warranties made in Section 4.15, 4.18 or 4.19; (2) Claims
based upon a breach of Seller's covenants in Sections 6.12 or
6.13; (3) Claims contemplated by Section 11.1(a)(iii)
(including, without limitation, any liability imposed on
Purchaser under COBRA as a successor entity to Seller); or (4)
Claims contemplated by Section 11.1(a)(iv). Further,
Purchaser's Maximum Liability shall not apply to (i) Claims
related to Purchaser's failure to pay any portion of the Cash
Purchase Price in accordance with Sections 2.2 and 7.6; (2)
Claims related to Purchaser's payment obligations under the
Note which shall be governed by the terms thereof; (3) Claims
based upon a breach of Purchaser's covenants in Section 7.5;
or (4) Claims contemplated by Section 11.2(c).
3
<PAGE> 54
10. The definition of "AFFECTED ACCOUNTS" in the Agreement is hereby
amended and restated in its entirety as follows:
"AFFECTED ACCOUNTS" means (i) manufacturers whose
relationships with Purchaser were terminated prior to June 30,
1999, (ii) the manufacturers listed below, and (iii) any other
manufacturers that are currently represented by Seller that
move to Purchaser prior to the Closing:
Smuckers
Bumble Bee
Cullyspring
Oral B
Stash Tea
Gortons
Borden
Heart Light
Boca Burgers
Good Humor
Slim Fast
Minute Maid
Authentic Specialty
Johnson & Johnson
Omni Nutraceuticals
Purely Cotton
Resers
Burns Philp
11. Annex A of the Agreement is hereby amended by inserting the
following definitions in their appropriate alphabetical order:
"ADDITIONAL CASH PAYMENTS" shall have the meaning set forth in
Section 2.2.
"CASH PURCHASE PRICE" shall have the meaning set forth in Section
2.2.
"FIRST CASH PAYMENT" shall have the meaning set forth in Section
2.2.
"FIRST CASH PAYMENT DATE" shall have the meaning set forth in
Section 2.2.
"SECOND CASH PAYMENT" shall have the meaning set forth in Section
2.2.
"SECOND CASH PAYMENT DATE" shall have the meaning set forth in
Section 2.2.
4
<PAGE> 55
12. Except as specifically provided in this Amendment, there are no
amendments, revisions or other modifications to the Agreement. All other terms
and conditions of the Agreement are hereby incorporated by reference and shall
remain in full force and effect and apply fully to this Amendment.
13. This Amendment may be executed in any number of counterparts, each
of which will be deemed to be an original agreement, but all of which will
constitute one and the same agreement. Any party hereto may execute and deliver
this Amendment by an executed signature page transmitted by a facsimile machine.
If a party transmits its signature page by a facsimile machine, such party will
promptly thereafter deliver an originally executed signature page to the other
parties, provided that any failure to deliver such an originally executed
signature page will not affect the validity, legality, or enforceability of this
Amendment.
14. THIS AMENDMENT IS GOVERNED BY THE LAWS OF THE STATE OF TEXAS
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER THE CONFLICTS OF LAWS
PRINCIPLES OF SUCH STATE.
[SIGNATURE PAGE FOLLOWS]
5
<PAGE> 56
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
PURCHASER: MARKETING SPECIALISTS SALES
COMPANY, a Texas corporation
By:
------------------------------------
Name: Nick G. Bouras
Title: Vice President
SELLER: JOHNSON-LIEBER, INC., a Washington
corporation
By:
------------------------------------
Name: Ronald L. Dengel
Title: Chairman/CEO
<PAGE> 1
EXHIBIT 10.17
STOCK PURCHASE AGREEMENT
by and among
MERKERT AMERICAN CORPORATION
as Buyer
BUCKEYE SALES & MARKETING, INC.
d/b/a
THE SELL GROUP - CLEVELAND
as the Company
JF & JF LIMITED PARTNERSHIP
as the Stockholder of the Company
and
THE PRIMARY PARTIES
July 7, 1999
<PAGE> 2
STOCK PURCHASE AGREEMENT
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. SALE OF SHARES AND PURCHASE PRICE...................................1
1.1 Transfer of Company Shares..........................................1
1.2 Purchase Price and Payment..........................................2
1.3 Revenue Statement Dispute Resolution................................3
1.4 Time and Place of Closing...........................................4
1.5 Stockholder's Representative........................................4
1.6 Further Assurances..................................................5
1.7 Transfer Taxes......................................................5
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
STOCKHOLDER.........................................................6
2.1 Making of Representations and Warranties............................6
2.2 Organization and Qualifications of the Company......................6
2.3 Capital Stock of the Company; Beneficial Ownership..................6
2.4 Subsidiaries; Acquisitions..........................................7
2.5 Authority of the Company, the Stockholder and the Primary Parties...7
2.6 No Conflicts........................................................7
2.7 Real and Personal Property..........................................8
2.8 Financial Statements and Related Matters...........................10
2.9 Taxes..............................................................13
2.10 Collectibility of Accounts Receivable..............................14
2.11 Inventories........................................................14
2.12 Absence of Certain Changes.........................................14
2.13 Ordinary Course....................................................16
2.14 Approvals; Consents................................................16
2.15 Banking Relations..................................................16
2.16 Intellectual Property..............................................17
2.17 Year 2000..........................................................18
2.18 Contracts..........................................................19
2.19 Litigation.........................................................21
2.20 Compliance with Laws...............................................21
2.21 Insurance..........................................................21
2.22 Powers of Attorney.................................................21
2.23 Finder's Fee.......................................................22
2.24 Permits; Burdensome Agreements.....................................22
2.25 Corporate Records; Copies of Documents.............................22
2.26 Transactions with Interested Persons...............................22
2.27 Employee Benefit Programs..........................................22
2.28 Environmental Matters..............................................26
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
2.29 List of Directors, Officers and Employees..........................27
2.30 Employees; Labor Matters...........................................27
2.31 Principals.........................................................28
2.32 Absence of Improper Payments.......................................29
2.33 Transfer of Shares.................................................29
2.34 Stock Repurchase...................................................30
2.35 Disclosure.........................................................30
SECTION 3. COVENANTS OF THE COMPANY, THE STOCKHOLDER AND THE
PRIMARY PARTIES....................................................30
3.1 Making of Covenants and Agreements.................................30
3.2 Cooperation........................................................30
3.3 Consents...........................................................30
3.4 Notice of Default..................................................30
3.5 Conduct of Business................................................31
3.6 Acquisition Proposals..............................................32
3.7 Transfers of Shares; Voting........................................33
3.8 Confidentiality....................................................33
3.9 Tax Returns........................................................33
3.10 Lease..............................................................33
3.11 Consummation of Agreement..........................................34
3.12 Fees and Expenses..................................................34
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER............................34
4.1 Making of Representations and Warranties...........................34
4.2 Organization of Buyer..............................................34
4.3 Authority of Buyer.................................................34
4.4 Litigation.........................................................34
4.5 Finder's Fee.......................................................34
4.6 No Conflicts.......................................................35
SECTION 5. COVENANTS OF BUYER.................................................35
5.1 Making of Covenants and Agreements.................................35
5.2 Consents...........................................................35
5.3 Confidentiality....................................................35
5.4 Indebtedness.......................................................36
5.5 Release of Guaranty................................................36
SECTION 6. CONDITIONS.........................................................36
6.1 Conditions to the Obligations of Buyer.............................36
6.2 Conditions to Obligations of the Company and the Stockholder.......39
SECTION 7. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED........................40
7.1 Termination........................................................40
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C> <C>
7.2 Effect of Termination.............................................40
7.3 Right to Proceed..................................................40
SECTION 8. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING......................41
8.1 Survival of Warranties............................................41
SECTION 9. INDEMNIFICATION...................................................41
9.1 Indemnification by the Stockholder and the Primary Parties........41
9.2 Limitations on Indemnification by the Stockholder.................42
9.3 Indemnification by Buyer..........................................43
9.4 Limitation on Indemnification by Buyer............................44
9.5 Notice; Defense of Claims.........................................44
9.6 Satisfaction of Stockholder Indemnification Obligations...........45
SECTION 10. DEFINITIONS.......................................................45
SECTION 11. MISCELLANEOUS.....................................................49
11.1 Fees and Expenses.................................................49
11.2 Governing Law.....................................................49
11.3 Notices...........................................................49
11.4 Entire Agreement..................................................50
11.5 Assignability; Binding Effect.....................................50
11.6 Execution in Counterparts.........................................50
11.7 Amendments........................................................50
11.8 Publicity and Disclosures.........................................51
11.9 Dispute Resolution; Consent to Jurisdiction.......................51
11.10 Consent to Jurisdiction...........................................52
11.11 Specific Performance..............................................52
11.12 No Third-Party Beneficiaries......................................52
11.13 Severability......................................................52
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
LIST OF EXHIBITS AND SCHEDULES
<S> <C>
Exhibit A: List of Stockholders, Stockholdings and Consideration to be Paid
Exhibit B: Form of Lease
Exhibit C: Form of Opinion of Counsel for the Company and the Stockholder
Exhibit D-1: Form of Employment and Noncompetition Agreement
Exhibit D-2: Form of Consulting Agreement
Exhibit E: Form of General Release
Exhibit F: Form of Opinion of Counsel for the Buyer
Exhibit G: New Business Prospects
Schedule 2.2 Foreign Qualifications
2.3 Capital Stock of the Company; Beneficial Ownership
2.7(a) Real Property
2.7(b) Personal Property
2.8 Financial Statements
2.8(d) Itemized Projections
2.8(e) Cash Flows
2.8(g) Certain Expenses
2.8(h) Compensation of Officers
2.9 Taxes
2.10 Collectibility of Accounts Receivable
2.12 Absence of Certain Changes
2.14 Approval; Consents
2.15 Banking Relations
2.16 Intellectual Property
2.18 Contract
2.19 Litigation
2.20 Compliance with Laws
2.21 Insurance
2.24 Permits, Burdensome Agreements
2.26 Transactions with Interested Persons
2.27 Employee Benefit Programs
2.28 Environmental Matters
2.29 List of Directors, Officers and Employees
2.31 Principals
2.33 Transfer of Shares
2.34 Stock Repurchase
4.6 No Conflicts
6.1 Employment Agreements
</TABLE>
(iv)
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") entered into as of July
7, 1999 by and among Merkert American Corporation, a Delaware corporation
("Buyer"), Buckeye Sales and Marketing, Inc. doing business as The Sell Group -
Cleveland, an Ohio corporation (the "Company"), JF & JF Limited Partnership, an
Ohio limited partnership, (herein referred to together with any successors or
assigns as the "Stockholder") and James J. Forkin, Joan M. Forkin and Timothy P.
Forkin (collectively referred to as the "Primary Parties" and individually as a
"Primary Party").
W I T N E S S E T H
WHEREAS, the Stockholder owns of record and beneficially all of the
issued and outstanding shares (the "Company Shares") of the common stock, no par
value per share (the "Common Stock"), of the Company; and
WHEREAS, the Stockholder desires to sell all of the Company Shares to
Buyer, and Buyer desires to acquire all of the Company Shares.
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
SECTION 1. SALE OF SHARES AND PURCHASE PRICE.
1.1 Transfer of Company Shares. Upon the terms and subject to the
conditions set forth in this Agreement, Buyer hereby purchases, and the
Stockholder hereby sells, assigns, conveys, transfers and delivers to Buyer all
of the Stockholder's right, title and interest in any and all of the Company
Shares owned beneficially or of record by such Stockholder free and clear of any
and all liens, encumbrances, charges, claims or adverse interests of any kind at
an aggregate purchase price for all of the Company Shares of (i) $4,000,000 (the
"Base Consideration") plus (ii) an amount (the "Additional Payment") equal to
70% of the Additional Revenues (as defined below); provided that in no event
shall the Additional Payment exceed $1,050,000, (the aggregate amount set forth
in clause (i) and (ii), collectively, the "Purchase Price"). At the Closing, the
Stockholder shall deliver or cause to be delivered to Buyer certificates
representing all of the Company Shares owned by the Stockholder, as set forth in
Exhibit A attached hereto. Such stock certificates shall be duly endorsed in
blank for transfer or shall be presented with stock powers duly executed in
blank, with such signature guarantees and such other documents as may be
reasonably required by Buyer to effect a valid transfer of such Company Shares
by the Stockholder in accordance with this Agreement. The Stockholder by
execution of this Agreement hereby appoints Buyer as his attorney-in-fact to
effectuate transfer of the Company Shares at the Closing.
1
<PAGE> 7
1.2 Purchase Price and Payment.
(a) In consideration of the sale by the Stockholder to Buyer
of the Company Shares and in reliance upon the representations and warranties of
the Company, the Stockholder and the Primary Parties herein contained and made
at the Closing and subject to (i) the satisfaction of all of the conditions
contained herein, and (ii) the provisions of Section 1.2(c) below, Buyer agrees
that, subject to certain adjustments set forth in this Agreement at the Closing
it will pay to the Stockholder an aggregate amount of FOUR MILLION AND 00/100
DOLLARS ($4,000,000.00) which, subject to adjustment as contemplated by Section
1.2(b) below, shall be paid in cash delivered as follows: (i) by the payment of
One Hundred Thousand Dollars ($100,000.00) on the Closing Date and (ii)
thereafter in thirty-nine (39) equal quarterly installments of One Hundred
Thousand Dollars ($100,000.00) on March 31, June 30, September 30 and December
31 of each year beginning September 30, 1999 and ending March 31, 2009. The
Additional Payment, if any, payable to the Stockholder hereunder shall be
calculated and paid in accordance with Section 1.2(b) below.
(b) Subject to the provisions of Sections 1.2(c) and 1.3
below, the Additional Payment, if any, payable by the Buyer to the Stockholder
shall be calculated and paid in accordance with this Section 1.2(b). The payment
of any Additional Payment hereunder shall be paid in cash by the delivery of an
aggregate amount equal to one-fortieth (1/40th) of the Additional Payment to the
Stockholder on June 30, September 30, December 31 and March 31 of each year
while any portion of such Additional Payment remains outstanding. As promptly as
practicable after the date which is one year after the Closing Date (but in no
event later than sixty (60) days thereafter), the Buyer, shall prepare and
deliver, or shall cause to be prepared and delivered, to the Stockholder's
Representative a calculation (the "Revenue Statement") of the Company's
Additional Revenues setting forth the changes in the revenues realized by the
Company which are attributable to the New Business Prospects which calculation
shall be based upon the Company's books and records as of the first anniversary
of the Closing Date.
(c) The Stockholder hereby specifically acknowledges and
agrees that Buyer's obligation to pay all or any portion of the Base
Consideration, the Additional Payment or any other amount payable by Buyer
hereunder is, and at all times hereafter will be, junior and subordinate in
right of payment and exercise of remedies to the prior payment in full in cash
of all obligations owed in respect of all Senior Debt (as defined below), and
that the subordination of the obligations to the Stockholder under this
Agreement is for the benefit of all holders of Senior Debt whether such Senior
Debt is outstanding on the date hereof or incurred, created or arising
hereafter, effective upon receipt of written notice to the Stockholder. The
Stockholder hereby specifically acknowledges and agrees that upon the occurrence
and during the continuation of any default or event of default under any Senior
Debt, Buyer will have no obligation to make, and the Stockholder will not accept
or receive, any payment of any portion of the Purchase Price until such
delinquent Senior Debt has been paid in full. In the event that any payment,
distribution, security, or proceeds of the Purchase
2
<PAGE> 8
Price should be received by the Stockholder contrary to the terms hereof, the
Stockholder immediately will deliver the same to the holders of the Senior Debt
in precisely the form received (except for the endorsement or assignment of the
Stockholder where necessary), for application on or to secure the Senior Debt,
whether it is due or not due, and until so delivered the same shall be held in
trust by such Payee as property of the holders of the Senior Debt. Nothing in
this paragraph (c) shall prohibit the Stockholder from receiving and retaining
any amount due to the Stockholder hereunder provided that at the time such
amount is paid to the Stockholder there shall not have occurred or be continuing
any default or event of default under any Senior Debt. Buyer hereby agrees to
give the Stockholder written notice of the occurrence of any event of default
giving rise to the Stockholder's obligations described in this Section 1.2(c)
within a reasonable period after the occurrence thereof; provided, however, that
(i) Buyer's failure to deliver such notice shall not relieve the Stockholder of
any of its obligations under this Section 1.2(b), (ii) the Stockholder shall
keep such information strictly confidential and (iii) the Stockholder and each
person holding any partnership or other equity interest in the Stockholder shall
refrain from any and all transactions in the equity securities of the Buyer
until such information has been publicly disclosed in a press release issued by
the Buyer or in a public filing made by the Buyer with the Securities and
Exchange Commission.
The Stockholder agrees, and each successor or assign of the Stockholder
by the acceptance of this Agreement agrees, to execute (i) any subordination
agreement(s) consistent with the terms of this Agreement that Buyer and the
holders of any Senior Debt may request to better reflect the subordination of
the indebtedness evidenced hereby to any Senior Debt incurred by Buyer and (ii)
any confidentiality and/or standstill agreement reasonably requested by the
Company in connection with any such disclosures made by the Company to the
Stockholder in accordance with this section 1.2(c).
1.3 Revenue Statement Dispute Resolution
(a) If the Stockholder's Representative does not agree with
the Additional Revenues as reflected on the Revenue Statement prepared by Buyer,
the Stockholder's Representative shall promptly (but not later than 45 days
after the receipt of such Revenue Statement) give written notice to Buyer of any
exceptions thereto (in reasonable detail describing the nature of the
disagreement asserted). If the Stockholder's Representative does not give notice
of any exception within such 45 day period or if the Stockholder's
Representative gives written notification of its acceptance of the Revenue
Statement prior to the end of such 45 day period, such Revenue Statement shall
thereupon become final and conclusive upon all the parties hereto and
enforceable in a court of law. In the event that the Stockholder's
Representative delivers a notice that it disputes any item in such Revenue
Statement, the Stockholder's Representative and Buyer shall negotiate in good
faith for a period of not more than twenty-five (25) days in order to reconcile
their differences regarding the Revenue Statement. In the event that the
Stockholder's Representative and the Buyer reconcile such differences, the
Revenue Statement shall be adjusted accordingly and shall thereupon become final
and conclusive upon all of the parties hereto and enforceable in a court
3
<PAGE> 9
of law. If the Stockholder's Representative and Buyer are unable to reconcile
their differences during such 25 day period, the items in dispute shall be
submitted to a mutually acceptable accounting firm of national reputation (the
"Independent Accountants") for final determination,and the Revenue Statement
shall be deemed adjusted in accordance with the determination of the Independent
Accountants and shall become final and conclusive upon all of the parties hereto
and enforceable in a court of law. The Independent Accountants shall consider
only the items in dispute and shall be instructed to act within 20 days (or such
longer period as the Stockholder's Representative and the Buyer may agree) to
resolve all items in dispute.
(b) The non-prevailing party shall pay all of the fees and
expenses of the Independent Accountants in connection with the resolution of any
dispute pursuant to this Section 1.3.
1.4 Time and Place of Closing. The closing of the purchase and
sale provided for in this Agreement (herein called the "Closing") shall be held
at 10:00 a.m. on July 7, 1999 at the offices of Goodwin, Procter & Hoar LLP,
Exchange Place, Boston, Massachusetts 02109 or at such other place or an earlier
or later date or time or by such other means as may be mutually agreed upon by
the parties.
1.5 Stockholder's Representative.
(a) In order to administer efficiently (i) the implementation
of the Agreement by the Stockholder, (ii) the waiver of any condition to the
obligations of the Stockholder to consummate the transactions contemplated
hereby, and (iii) the settlement of any dispute with respect to the Agreement,
the Stockholder hereby designates James J. Forkin as its representative (the
"Stockholder's Representative").
(b) The Stockholder hereby authorizes the Stockholder's
Representative (i) to take all action necessary in connection with the
implementation of the Agreement on behalf of the Stockholder, the waiver of any
condition to the obligations of the Stockholder to consummate the transactions
contemplated hereby, or the settlement of any dispute, (ii) to give and receive
all notices required to be given under the Agreement and (iii) to take any and
all additional action as is contemplated to be taken by or on behalf of the
Stockholder by the terms of this Agreement, including without limitation, the
execution and delivery of documents to transfer the Company Shares to Buyer.
(c) In the event that the Stockholder's Representative dies,
becomes legally incapacitated or resigns from such position, Christopher Wenum
shall fill such vacancy and shall be deemed to be the Stockholder's
Representative for all purposes of this Agreement; however, no change in the
Stockholder's Representative shall be effective until Buyer is given notice of
it by the Stockholder.
4
<PAGE> 10
(d) All decisions and actions by the Stockholder's
Representative shall be binding upon the Stockholder, and the Stockholder shall
have no right to object, dissent, protest or otherwise contest the same.
(e) By execution of this Agreement, the Stockholder agrees
that:
(i) Buyer shall be able to rely conclusively on the
instructions and decisions of the Stockholder's Representative as to
any actions required or permitted to be taken by the Stockholder or the
Stockholder's Representative hereunder, and no party hereunder shall
have any cause of action against Buyer for any action taken by Buyer in
reliance upon the instructions or decisions of the Stockholder's
Representative;
(ii) all actions, decisions and instructions of the
Stockholder's Representative shall be conclusive and binding upon the
Stockholder and the Stockholder shall not have any cause of action
against the Stockholder's Representative for any action taken, decision
made or instruction given by the Stockholder's Representative under
this Agreement, except for fraud or willful breach of this Agreement by
the Stockholder's Representative;
(iii) remedies available at law for any breach of the
provisions of this Section 1.5 are inadequate; therefore, Buyer shall
be entitled to temporary and permanent injunctive relief without the
necessity of proving damages if Buyer brings an action to enforce the
provisions of this Section 1.5; and
(iv) the provisions of this Section 1.5 are
independent and severable, shall constitute an irrevocable power of
attorney, coupled with an interest and surviving death, granted by the
Stockholder to the Stockholder's Representative and shall be binding
upon the executors, heirs, legal representatives and successors of the
Stockholder.
(f) All fees and expenses incurred by the Stockholder's
Representative shall be paid by the Stockholder.
1.6 Further Assurances. The Stockholder from time to time after the
Closing at the request of Buyer and without further consideration shall execute
and deliver further instruments of transfer and assignment and take such other
action as Buyer may reasonably require to more effectively transfer and assign
to, and vest in, Buyer the Company Shares and all rights thereto, and to fully
implement the provisions of this Agreement.
1.7 Transfer Taxes. All transfer taxes, fees and duties under
applicable law incurred in connection with the sale and transfer of the Company
Shares under this Agreement will be borne and paid by the Stockholder, and the
Stockholder shall promptly reimburse the
5
<PAGE> 11
Company and Buyer for any such tax, fee or duty which any of them is required to
pay under applicable law.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
STOCKHOLDER.
2.1 Making of Representations and Warranties. As a material
inducement to Buyer to enter into this Agreement and consummate the transactions
contemplated hereby, the Company, the Stockholder and each of the Primary
Parties jointly and severally hereby make to Buyer the representations and
warranties contained in this Section 2. For the purposes of this Agreement, to
the extent that any disclosure made by the Company, the Stockholder or any
Primary Party would be required to be made on more than one Schedule delivered
hereunder, the Company, the Stockholder and each Primary Party may make such
disclosure by a cross-reference to information set forth on any other Schedule
delivered hereunder. Capitalized terms used and not otherwise defined in the
Schedules shall have the meanings ascribed thereto in this Agreement.
2.2 Organization and Qualifications of the Company. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Ohio with full corporate power and authority to own or
lease its properties and to conduct its business in the manner and in the places
where such properties are owned or leased or such business is currently
conducted or proposed to be conducted. The copies of the Company's Articles of
Incorporation, as amended to date, certified by the Secretary of State of the
State of Ohio, and of the Company's Code of Regulations, as amended to date,
certified by the Company's Secretary, and heretofore delivered to Buyer's
counsel, are complete and correct, and no amendments thereto are pending. The
Company is not in violation of any term of its Articles of Incorporation or Code
of Regulations. Except as set forth on Schedule 2.2 attached hereto, the Company
is qualified to do business as a foreign corporation in all jurisdictions in
which the nature of the business conducted by the Company or the characters of
the assets owned or leased by it make such qualification necessary or prudent.
2.3 Capital Stock of the Company; Beneficial Ownership.
6
<PAGE> 12
(a) The authorized capital stock of the Company consists of
(i) 750 shares of Common Stock, of which 100 shares are duly and validly issued,
outstanding, fully paid and non-assessable and of which 650 shares are
authorized but unissued. The Company holds no shares of Common Stock in its
treasury. Except as disclosed on Schedule 2.3 attached hereto, no person or
entity other than the Stockholder holds any shares of the capital stock of the
Company. There are no outstanding subscriptions, calls, options, warrants,
rights, commitments, preemptive rights, arrangements or agreements of any kind
for or relating to the issuance, sale, transfer, registration or voting of, or
outstanding securities convertible into, exchangeable for or carrying the right
to purchase, subscribe for or otherwise acquire, any shares of capital stock of
any class or any other equity security of the Company or outstanding warrants,
options or other rights to acquire any such convertible securities. None of the
Company's capital stock has been issued in violation of any applicable federal
or state securities law. Except as set forth in the Schedule 2.3 attached
hereto, there are no voting trusts, voting agreements, proxies or other
agreements, instruments or undertakings with respect to the voting of the
Company Shares to which the Company, the Stockholder or any of the Primary
Parties is a party.
(b) The Stockholder owns beneficially and of record the
Company Shares set forth opposite the Stockholder's name on Exhibit A hereto
free and clear of any lien, security interest, charge, pledge, restriction,
encumbrance or adverse interest of any kind or nature (collectively, "Liens").
2.4 Subsidiaries; Acquisitions. The Company does not have any
subsidiaries or any investments in any other corporation or business
organization.
2.5 Authority of the Company, the Stockholder and the Primary
Parties. The Company has full right, authority and corporate power, and the
Stockholder and each of the Primary Parties has full right, power, authority and
capacity, to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by the Company, the Stockholder or each
of the Primary Parties pursuant to this Agreement and to carry out the
transactions contemplated hereby and thereby. The execution, delivery and
performance by the Company, the Stockholder and each Primary Party of this
Agreement and each such other agreement, document and instrument have been duly
authorized by all necessary action of the Company, the Stockholder and/or each
of the Primary Parties and no other action on the part of the Company, the
Stockholder or any Primary Party is required in connection therewith.
2.6 No Conflicts. This Agreement and each agreement, document and
instrument executed and delivered by the Company, the Stockholder and/or any
Primary Party pursuant to this Agreement constitutes, or when executed and
delivered will constitute, valid and binding obligations of the Company, the
Stockholder and or any Primary Party enforceable in accordance with their terms.
The execution, delivery and performance by the Company of this Agreement and
each other agreement, document or instrument to be executed, delivered or
performed by the Company, the Stockholder or any Primary Party (the "Transaction
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<PAGE> 13
Documents") does not and will not, with or without the giving of notice or the
lapse of time or both, (i) violate any provision of the Articles of
Incorporation or Code of Regulations of the Company; and (ii) violate any laws
of the United States or any state or other jurisdiction applicable to the
Company, the Stockholder or any Primary Party or require the Company, the
Stockholder or any Primary Party to obtain any approval, consent or waiver of,
or make any filing with, any person or entity (governmental or otherwise) that
has not been obtained or made. Except as set forth on Schedule 2.6 attached
hereto, neither the course of conduct of the Company, the Stockholder or any
Primary Party in connection with the negotiation, execution and delivery of this
Agreement or any other Transaction Document nor this execution, delivery or
performance by the Company, the Stockholder or any Primary Party of this
Agreement or any Transaction Document does or will result in a breach of,
constitute a default under, accelerate any obligation under, or give rise to a
right of termination of any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which the Company, the Stockholder or any Primary Party is a party or by which
the property of the Company, the Stockholder or any Primary Party is bound or
affected, or result in the creation or imposition of any mortgage, pledge, or
other Lien in any of the Company's assets or the Company Shares.
2.7 Real and Personal Property.
(a) Real Property. All of the real property owned or
leased by the Company or any of its Subsidiaries is identified on Schedule
2.7(a) (herein referred to as the "Owned Real Property" or the "Leased Real
Property," as the case may be, or collectively as the "Real Property.")
(i) Title. The Company has good, valid, record and
marketable title to all Owned Real Property, free and clear of all
easements, covenants, restrictions, leases, mortgages, liens,
assessments, claims, rights, judgments, encroachments or other matters
affecting title (collectively, "Encumbrances"), other than:
(x) easements, covenants, restrictions and
similar encumbrances that do not and could
not interfere with the use of the Owned Real
Property as currently used and improved,
(y) minor encroachments that do not and could
not adversely affect the value or use of the
Owned Real Property as currently used and
improved and that could be removed without
material cost, and
(z) liens for Taxes (as defined below) not yet
due or delinquent or being contested in good
faith pursuant to appropriate proceedings
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<PAGE> 14
and statutory liens arising in the ordinary
course of business by operation of law that
are not yet due or delinquent.
((x), (y) and (z) are collectively referred to as "Permitted
Encumbrances"), except as set forth on Schedule 2.7(a). To the
knowledge of the Company or any Primary Party, except as set forth on
Schedule 2.7(a), the Lessors of Leased Real Property have good, clear,
record and marketable title to the Leased Real Property, and the
Company has good, valid and enforceable leasehold interests to the
leasehold estate in the Leased Real Property granted to the Company
pursuant to each pertinent lease, in each case free and clear of all
Encumbrances other than Permitted Encumbrances, subject only to the
right of reversion of the Lessor, except as set forth in Schedule
2.7(a).
(ii) Status of Leases. All leases relating to Leased
Real Property are identified on Schedule 2.7(a), and true and complete
copies thereof have been delivered to Buyer. Each of said leases has
been duly authorized and executed by the parties and is in full force
and effect. The Company is not in default under any of said leases, nor
has any event occurred which, with notice or the passage of time, or
both, would give rise to such a default. To the knowledge of the
Company or any Primary Party, the other party to each of said leases is
not in default under any of said leases and there is no event which,
with notice or the passage of time, or both, would give rise to such a
default.
(iii) Consents. Except as set forth in Schedule
2.7(a), no consent or approval is required with respect to the
transactions contemplated by this Agreement from the other parties to
any lease of Leased Real Property, from the holder of any Encumbrance
on any Owned Real Property, or from any regulatory authority, no filing
with any regulatory authority is required in connection therewith, and
to the extent that any such consents, approvals or filings are
required, the Company, the Stockholder or the Primary Parties will
obtain or complete them before the Closing.
(iv) Condition of Real Property. Except as set forth
in Schedule 2.7(a), there are no material defects in the physical
condition of any land, buildings or improvements constituting part of
the Real Property, including without limitation, structural elements,
mechanical systems, parking and loading areas, and all such buildings
and improvements are in good operating condition and repair, have been
well maintained and are free from infestation by rodents or insects. To
the knowledge of the Company or any Primary Party, none of the Real
Property is located in an area designated by any governmental authority
as being within a flood plain or subject to special flood or other
hazards. Access to the Real Property is by a public way or public
street. All water, sewer, gas, electric, telephone, drainage and other
utilities required by law or necessary for the current or planned
operation of the Real Property have been connected under valid permits
and pursuant to valid easements where required, and are sufficient to
service the Real Property and in good operating condition.
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<PAGE> 15
(v) Compliance with the Law. The Company has not
received any notice from any governmental authority of any violation of
any law, ordinance, regulation, license, permit or authorization issued
with respect to any Real Property that has not been heretofore
corrected and no such violation exists which could have an adverse
effect on the operation or value of any Real Property. All improvements
located on or constituting part of the Real Property and their use and
operation by the Company were and are now in compliance in all material
respects with all applicable laws, ordinances, regulations, licenses,
permits and authorizations, expect as set forth in Schedule 2.7(a). No
approval or consent to the transactions contemplated by this Agreement
is required of any governmental authority with jurisdiction over any
aspect of the Real Property or its use or operations. The Company has
not received any notice of any real estate tax deficiency or assessment
or is aware of any proposed deficiency, claim or assessment with
respect to any of the Real Property, or any pending or threatened
condemnation thereof.
(b) Personal Property. A complete description of the
machinery and equipment of the Company is contained in Schedule 2.7(b) hereto.
Except as specifically disclosed in said Schedule or in the Base Balance Sheet
(as hereinafter defined), the Company has good and marketable title to all of
its personal property. None of such personal property or assets is subject to
any mortgage, pledge, conditional sale agreement or Lien except as specifically
disclosed in said Schedule or in the Base Balance Sheet. The Base Balance Sheet
reflects all personal property of the Company. Except as otherwise specified in
Schedule 2.7(b) hereto or as could not, individually or in the aggregate, have a
Material Adverse Effect, all leasehold improvements, furnishings, machinery and
equipment of the Company are in good repair (ordinary wear and tear excepted),
have been well maintained, and comply with all applicable laws, ordinances and
regulations, and such machinery and equipment is in good working order. None of
the Company, the Stockholder or any of the Primary Parties knows of any pending
or threatened change of any such law, ordinance or regulation which could
adversely affect the Company or any of its businesses.
2.8 Financial Statements and Related Matters.
(a) The Company has delivered to Buyer the following
financial statements, copies of which are attached hereto as Schedule 2.8(a):
(i) a balance sheet of the Company for its fiscal
years ended September 30, 1996, 1997 and 1998 and statements of income,
retained earnings and cash flows for the three years then ended, which
statements have been compiled by Browske, DiPietro & Company,
independent public accountants (such financial statements, the
"Compiled Financial Statements"). The Company's compiled balance sheet
as of September 30, 1998, is sometimes referred to herein as the "Base
Balance Sheet").
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<PAGE> 16
(ii) a balance sheet of the Company as of March 31,
1999 (herein the "Interim Balance Sheet") and statements of income,
retained earnings and cash flows for the six-month period then ended,
certified by the Company's chief financial officer (the "Interim
Financial Statements").
(iii) a balance sheet of the Company as of May 31,
1999 (the "May Balance Sheet") and statements of income, retained
earnings and cash flows for the eight-month period then ended,
certified by the Company's chief financial officer (the "May Financial
Statements"). The Compiled Financial Statements, the Interim Financial
Statements and the May Financial Statements are referred to herein,
collectively, as the "Financial Statements."
Said Financial Statements have been prepared on a cash basis in
accordance with the accounting principles described therein applied consistently
during the periods covered thereby, are complete and correct in all material
respects and present fairly the financial condition of the Company on a cash
basis at the dates of said statements and the results of its operations for the
periods covered thereby. Schedule 2.8(a) includes an itemized list of
adjustments to the Financial Statements in order to cause each of the Financial
Statements, in light of such adjustment and viewed as a whole, to constitute
financial statements as of their respective dates and for the periods therein
ended, prepared on an accrual basis and in accordance with generally accepted
accounting principles ("GAAP"), consistently applied.
(b) As of the date of the Base Balance Sheet, the Company
did not have any liabilities of any nature, whether accrued, absolute,
contingent or otherwise, asserted or unasserted, known or unknown (including
without limitation, liabilities as guarantor or otherwise with respect to
obligations of others, liabilities for taxes due or then accrued or to become
due, or contingent or potential liabilities relating to activities of the
Company or the conduct of its business prior to the date of the Base Balance
Sheet regardless of whether claims in respect thereof had been asserted as of
such date), except liabilities stated or adequately reserved against on the Base
Balance Sheet, or reflected in Schedule 2.8(a) (other than the May Financial
Statements or any disclosure relating thereto) furnished to Buyer hereunder as
of the date hereof.
(c) As of the date hereof and as of the Closing, the
Company has not had and will not have any liabilities of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted, known or
unknown (including without limitation, liabilities as guarantor or otherwise
with respect to obligations of others, or liabilities for taxes due or then
accrued or to become due or contingent or potential liabilities relating to
activities of the Company or the conduct of its business prior to the date
hereof or the Closing, as the case may be, regardless of whether claims in
respect thereof had been asserted as of such date), except liabilities (i)
stated or adequately reserved against on the Interim Balance Sheet or the notes
thereto, (ii) reflected in Schedule 2.8(a) (other than the May Financial
Statements or any
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<PAGE> 17
disclosure relating thereto) furnished to Buyer hereunder on the date hereof, or
(iii) incurred after March 31, 1999 in the ordinary course of business of the
Company consistent with the terms of this Agreement and which would not be
required to be disclosed on a balance sheet of the Company prepared in
accordance with GAAP.
(d) The itemized projections of commission revenues for
the 12 months ending May 31, 2000 which have been separately prepared by the
Company and presented to the Buyer are attached hereto as Schedule 2.8(d) and
have been based upon assumptions which are set forth therein and which were
reasonable when made and continue to be reasonable and give effect to the gains
and losses of or other changes in, or with respect to, Principal accounts
disclosed on Schedules 2.31(e) and 2.31(f) hereto.
(e) As of the Closing Date, the outstanding balance under
the Company's aggregate indebtedness for borrowed money (including both
short-term indebtedness and long-term indebtedness) will not, and does not,
exceed $1,163,746.22 subject to adjustment for the accrual of interest after
June 29, 1999 as set forth on Schedule 2.8(e). Except as set forth in Schedule
2.8(e), the Company's cash flow from operations has been sufficient to fund the
operation of the business in the ordinary course of business consistent with the
Company's past practices.
(f) For the twelve-month period ended December 31, 1998,
the Company's reimbursements to its officers, directors and employees (other
than James Forkin) with respect to travel and entertainment expenses have not
been less than $29,310.59. For the twelve-month period ended December 31, 1998,
the Company's reimbursements to, and direct payments on behalf of, James Forkin
with respect to travel, entertainment and other reimbursable expenses were not
less than $220,000. As of the Closing Date, the aggregate amount of claims for
reimbursement for travel and entertainment expenses which remain unpaid does not
exceed $1,500.00.
(g) Schedule 2.8(g) attached hereto sets forth, on an
individualized basis, the monthly and annual obligations of the Company to
reimburse officers and employees for expenses related to the use and operation
of an automobile, including gas, insurance, maintenance and mileage
reimbursement.
(h) Schedule 2.8(h) attached hereto sets forth the
aggregate annual compensation of each officer, employee or consultant of the
Company as of the Closing Date.
(i) As of the Closing Date, the Stockholder and the
Primary Parties shall have paid, or shall have caused the payment of, all fees
and expenses incurred by or on behalf of any such party arising out of or in
connection with the transactions contemplated by this Agreement including
without limitation all such fees and expenses of attorneys, accountants,
financial advisors and other consultants to the Company; provided that the
Company shall not have paid or reimbursed any party for, any such amount.
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<PAGE> 18
2.9 Taxes.
(a) Except as set forth on Schedule 2.9(a), attached
hereto, the Company has paid or caused to be paid all federal, state, local,
foreign, and other taxes, including without limitation, income taxes, estimated
taxes, alternative minimum taxes, excise taxes, sales taxes, use taxes,
value-added taxes, gross receipts taxes, franchise taxes, capital stock taxes,
employment and payroll-related taxes, withholding taxes, stamp taxes, transfer
taxes, windfall profit taxes, environmental taxes and property taxes, whether or
not measured in whole or in part by net income, and all deficiencies, or other
additions to tax, interest, fines and penalties owed by it (collectively,
"Taxes"), required to be paid by it through the date hereof whether disputed or
not.
(b) Except as set forth on Schedule 2.9(a), attached
hereto, the Company has in accordance with applicable law filed all federal,
state, local and foreign tax returns required to be filed by it through the date
hereof, and all such returns correctly and accurately set forth the amount of
any Taxes relating to the applicable period. A list of all federal, state, local
and foreign income tax returns filed with respect to the Company for taxable
periods ended on or after December 31, 1993 is set forth in Schedule 2.9
attached hereto, and said Schedule indicates those returns that have been
audited or currently are the subject of an audit. For each taxable period of the
Company ended on or after December 31, 1993, the Company has delivered to Buyer
correct and complete copies of all federal, state, local and foreign income tax
returns, examination reports and statements of deficiencies assessed against or
agreed to by the Company.
(c) Except as set forth on Schedule 2.9(a), attached
hereto, neither the United States Internal Revenue Service (the "IRS") nor any
other governmental authority is now asserting or, to the knowledge of the
Company, any Primary Party, or the Stockholder, threatening to assert against
the Company any deficiency or claim for additional Taxes. Except as set forth in
Schedule 2.9(c) attached hereto, no claim has ever been made by an authority in
a jurisdiction where the Company does not file reports and returns that the
Company is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Taxes. The Company has never
entered into a closing agreement pursuant to Section 7121 of the United States
Internal Revenue Code of 1986, as amended (the "Code").
(d) Except as set forth in Schedule 2.9(d) attached
hereto, with respect to any tax period ending on or after December 31, 1991,
there has not been any audit of any tax return filed by the Company, no such
audit is in progress, and the Company has not been notified by any tax authority
that any such audit is contemplated or pending. Except as set forth in Schedule
2.9(d), no extension of time with respect to any date on which a tax return was
or is to be filed by the Company is in force, and no waiver or agreement by the
Company is in force for the extension of time for the assessment or payment of
any Taxes.
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(e) The Company has never been (or has ever had any
liability for unpaid Taxes because it once was) a member of an "affiliated
group" (as defined in Section 1504(a) of the Code). Except as set forth in
Schedule 2.9(e), the Company has never filed, and has ever been required to
file, a consolidated, combined or unitary tax return with any other entity.
Except as set forth in Schedule 2.9(e), the Company does not own and has never
owned a direct or indirect interest in any trust, partnership, corporation or
other entity. Except as set forth in Schedule 2.9(e) attached hereto, the
Company is not a party to any tax sharing agreement.
(f) For purposes of this Agreement, all references to
Sections of the Code shall include any predecessor provisions to such Sections
and any similar provisions of federal, state, local or foreign law.
2.10 Collectibility of Accounts Receivable. All of the accounts
receivable of the Company shown or reflected on the Interim Balance Sheet (which
are referred to as "outstanding income" on the Interim Balance Sheet and such
Schedule 2.8) or existing at the date hereof (less the reserve therefor set
forth on the Interim Balance Sheet) are or will be at the Closing valid and
enforceable claims, fully collectible and subject to no set off or counterclaim.
The Company has no accounts or loans receivable from any person, firm or
corporation which is affiliated with the Company or from any director, officer
or employee of the Company, except as disclosed on Schedule 2.10 hereto, and all
accounts and loans receivable from any such person, firm or corporation shall be
paid in cash prior to the Closing.
2.11 Inventories. [Intentionally omitted.]
2.12 Absence of Certain Changes. Except as disclosed in Schedule
2.12 attached hereto, since the date of the Base Balance Sheet there has not
been:
(a) Any change in the condition (financial or otherwise),
properties, assets, liabilities, business or operations of the Company, which
change by itself or in conjunction with all other such changes, whether or not
arising in the ordinary course of business, could have a material adverse effect
on the business, assets, properties, results of operations, conditions
(financial or otherwise) or prospects of the Company (a "Material Adverse
Effect");
(b) Any amendment or termination, or to the knowledge of
the Company or any Primary Party, proposed or threatened amendment or
termination, whether written or oral, of any Contract (as defined in Section
2.18) or material lease;
(c) Any contingent liability incurred by the Company as
guarantor or otherwise with respect to the obligations of others or any
cancellation of any material debt or claim owing to, or waiver of any material
right of, the Company;
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(d) Any Encumbrance or Lien placed on any of the
properties of the Company which remains in existence on the date hereof or will
remain on the Closing Date;
(e) Any cancellation of any material debt or claim owing
to, or waiver of a material right of, the Company;
(f) Any obligation or liability of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted, known or
unknown (including without limitation liabilities for Taxes due or to become due
or contingent or potential liabilities relating to products or services provided
by the Company or the conduct of the business of the Company since the date of
the Base Balance Sheet regardless of whether claims in respect thereof have been
asserted), incurred by the Company other than obligations and liabilities
incurred in the ordinary course of business consistent with the terms of this
Agreement (it being understood that product or service liability claims shall
not be deemed to be incurred in the ordinary course of business);
(g) Any purchase, sale or other disposition, or any
agreement or other arrangement for the purchase, sale or other disposition, of
any of the properties or assets of the Company other than in the ordinary course
of business;
(h) Any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties, assets
or business of the Company;
(i) Any declaration, setting aside or payment of any dividend
by the Company, or the making of any other distribution in respect of the
capital stock of the Company, or any direct or indirect redemption, purchase or
other acquisition by the Company of its own capital stock;
(j) Any labor trouble or claim of unfair labor practices
involving the Company; any change in the compensation payable or to become
payable by the Company to any of its officers, employees, agents or independent
contractors other than normal merit increases in accordance with its usual
practices; or any bonus payment or arrangement made to or with any of such
officers, employees, agents or independent contractors;
(k) Any change with respect to the officers or management
of the Company;
(l) Any payment or discharge of a material lien or
liability of the Company which was not shown on the Base Balance Sheet or in the
adjustments to the Base Balance Sheet as specifically set forth in Schedules
2.8(a), (d), (e), (f), (g) and (h) or incurred in the ordinary course of
business thereafter;
(m) Any obligation or liability incurred by the Company
to any of its officers, directors, stockholders or employees, or any loans or
advances made by the Company
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<PAGE> 21
to any of its officers, directors, stockholders or employees, except normal
compensation and expense allowances payable to officers or employees;
(n) Any resignation or termination of the Company's
representation of any Principal (with respect to all or any of the products of
such Principal or with respect to any Customers), or any change in commission
rate paid by any Principal, or any notice of same (for purposes of this
Agreement, "Principal" shall mean any manufacturer, grower, processor, producer,
distributor or other wholesaler, or any supplier whose goods, products or lines
are offered for sale or for retail merchandising by the Company, and "Customer"
shall mean any individual, firm, corporation or other business entity from which
the Company obtains product orders on behalf of its Principals);
(o) Any change in accounting methods or practices, credit
practices or collection policies used by the Company;
(p) Any other transaction entered into by the Company
other than transactions in the ordinary course of business; or
(q) Any agreement or understanding whether in writing or
otherwise, for the Company to take any of the actions specified in paragraphs
(a) through (p) above.
2.13 Ordinary Course. Since the date of the Base Balance Sheet, the
Company has conducted its business only in the ordinary course and consistently
with its prior practices.
2.14 Approvals; Consents. Except as set forth on Schedule 2.14
attached hereto, no approval, consent, authorization or exemption from or filing
with any person or entity not a party to this Agreement is required to be
obtained or made by the Company in connection with the execution and delivery of
this Agreement and the Transaction Documents or the consummation of the
transactions contemplated hereby and thereby.
2.15 Banking Relations. All of the arrangements which the Company
has with any banking institution are completely and accurately described in
Schedule 2.15 attached hereto, indicating with respect to each of such
arrangements the type of arrangement maintained (such as checking account,
borrowing arrangements, safe deposit box, etc.) and the person or persons
authorized in respect thereof.
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2.16 Intellectual Property.
(a) Except as described in Schedule 2.16(a), the Company
has exclusive ownership of, or sufficient license to use, all material patent,
copyright, trade secret, trademark, or other proprietary rights (collectively,
"Intellectual Property") used or to be used in the business of the Company as
presently conducted or contemplated. All of the rights of the Company in such
Intellectual Property are freely transferable. There are no claims or demands of
any other person pertaining to any of such Intellectual Property and no
proceedings have been instituted, or are pending or, to the knowledge of the
Company or any Primary Party, are threatened, which challenge the rights of the
Company in respect thereof. Except as described in Schedule 2.16(a), the Company
has the right to use, free and clear of claims or rights of other persons, all
customer lists, designs, manufacturing or other processes, computer software,
systems, data compilations, research results and other information required for
or incident to its products or its business as presently conducted or
contemplated.
(b) All patents, patent applications, trademarks,
trademark applications and registrations and registered copyrights which are
owned by or licensed to the Company or used or to be used by the Company in its
business as presently conducted or contemplated, and all other items of
Intellectual Property which are material to the business or operations of the
Company, are listed in Schedule 2.16(b). All of such patents, patent
applications, trademark registrations, trademark applications and registered
copyrights have been duly registered in, filed in or issued by the United States
Patent and Trademark Office, the United States Register of Copyrights, or the
corresponding offices of other jurisdictions as identified on said Schedule, and
have been properly maintained and renewed in accordance with all applicable
provisions of law and administrative regulations of the United States and each
such jurisdiction.
(c) All licenses or other agreements under which the
Company is granted rights in Intellectual Property are listed in Schedule
2.16(c). All said licenses or other agreements are in full force and effect,
there is no material default by any party thereto, and, except as set forth on
Schedule 2.16(c), all of the rights of the Company thereunder will continue in
full force and effect upon consummation of the transactions contemplated hereby.
To the knowledge of the Company or any Primary Party, the licensors under said
licenses and other agreements have and had all requisite power and authority to
grant the rights purported to be conferred thereby. True and complete copies of
all such licenses or other agreements, and any amendments thereto, have been
provided to Buyer.
(d) All licenses or other agreements under which the
Company has granted rights to others in Intellectual Property owned or licensed
by the Company are listed in Schedule 2.16(d). All of said licenses or other
agreements are in full force and effect, there is no material default by any
party thereto, and, except as set forth on Schedule 2.16(d), all of the rights
of Company thereunder will continue in full force and effect upon consummation
of the
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transactions contemplated hereby. True and complete copies of all such licenses
or other agreements, and any amendments thereto, have been provided to Buyer.
(e) The Company has taken all steps required in
accordance with sound business practice to establish and preserve its ownership
of all material Intellectual Property rights with respect to its products,
services and technology. The Company has not made any valuable non-public
information of the Company available to any person other than employees of
Company except pursuant to written agreements requiring the recipients to
maintain the confidentiality of such information and appropriately restricting
the use thereof. Neither the Company nor any Primary Party has any knowledge of
any infringement by others of any material Intellectual Property rights of the
Company.
(f) The present and contemplated business, activities and
products of the Company do not infringe any Intellectual Property of any other
person. No proceeding charging the Company with infringement of any adversely
held Intellectual Property has been filed or is threatened to be filed. To the
knowledge of the Company or any Primary Party, there exists no unexpired patent
or patent application which includes claims that would be infringed by or
otherwise adversely affect the products, activities or business of the Company.
The Company is not making unauthorized use of any confidential information or
trade secrets of any person, including without limitation, to the knowledge of
the Company or any Primary Party, any former employer of any past or present
employee of Company. Except as set forth in Schedule 2.16(f), neither the
Company nor, to the knowledge of the Company or any Primary Party, any of its
employees have any agreements or arrangements with any persons other than the
Company related to confidential information or trade secrets of such persons or
restricting any such employee's ability to engage in business activities of any
nature. The activities of its employees on behalf of the Company do not violate
any such agreements or arrangements known to the Company or any Primary Party.
2.17 Year 2000.
(a) (i) The Company has (x) undertaken a comprehensive
and detailed inventory, review and assessment of all areas within its
business and operations to address the "Year 2000 Problem" (i.e., the
risk that applications used by the Company or its suppliers and/or
providers may be unable to recognize and properly perform
date-sensitive functions involving certain dates prior to and any date
on or after January 1, 2000), (y) developed a detailed plan and time
line for becoming Year 2000 Compliant on a timely basis, and (z) to
date, implemented that plan in accordance with its timetable in all
material respects;
(ii) The Company's Year 2000 program includes
feasible contingency plans to ensure in all material respects
uninterrupted and unimpaired business operation, including liquidity
needs, in the event of its own or a third party's failure to be Year
2000 Compliant;
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(iii) The Company has made written inquiry of each of
its Key Vendors and material Customers as to whether such persons will,
on a timely basis, be Year 2000 Compliant in all material respects and
on the basis of such inquiry believes that all such persons will be so
compliant; and
(iv) The Company reasonably believes that the Year
2000 Problem will not have any material adverse effect on the business,
operations, liquidity or prospects of the Company.
(b) For purposes of this Section:
(i) "Four Digit Year Format" means a format that
allows entry or processing of a four digit date where the first two
digits will designate the century and the second two digits will
designate the year within the century;
(ii) "Key Vendors" means vendors of the Company whose
business failure, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect;
(iii) "Leap Year" means any year during which an
extra day is added in February (the year 2000 is a Leap Year); and
(iv) "Year 2000 Compliant" means with respect to the
operations of the Company or third parties, that all
computer-controlled processes, electronic communications interfaces,
software, hardware, machinery, equipment, programs, and tools operate
for all date-sensitive functions before, on or after January 1, 2000
consistently, predictably, accurately and unambiguously, without
interruption or manual intervention.
2.18 Contracts. Except for contracts, commitments, plans,
agreements and licenses referred to in Schedule 2.18 (true and complete copies
of which have been delivered to Buyer), the Company is not a party to nor
subject to:
(a) any agreement for the sale, lease or other
disposition of products or other assets not made in the ordinary course of
business;
(b) any plan or contract providing for bonuses, pensions,
options, stock purchases, deferred compensation, retirement payments, profit
sharing, collective bargaining or the like, or any contract or agreement with
any labor union;
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(c) any employment contract or contract for services
which requires the payment of more than $25,000 annually or which is not
terminable within 30 days by the Company without liability for any penalty or
severance payment;
(d) any contract or agreement for the purchase of any
commodity, material or equipment except purchase orders in the ordinary course
for less than $5,000 each, such orders not exceeding $20,000 in the aggregate;
(e) any other contracts or agreements creating any
obligations of the Company of $5,000 or more on an individual basis or $20,000
or more on an aggregate basis, with respect to any such contract or agreement
not specifically disclosed elsewhere under this Agreement;
(f) any contract or agreement providing for the purchase
of all or substantially all of its requirements of a particular product from a
supplier;
(g) any contract or agreement which by its terms does not
terminate or is not terminable without penalty by the Company or its successors
within one year after the date hereof;
(h) any contract or arrangement with any sales agent or
distributor;
(i) any contract containing covenants limiting the
freedom of the Company to compete in any line of business or with any person or
entity;
(j) any contract or agreement for the purchase of any
fixed asset;
(k) any license agreement (as licensor or licensee);
(l) any indenture, mortgage, promissory note, loan
agreement, guaranty or other agreement or commitment for the borrowing of money;
or
(m) any contract or agreement with any officer, employee,
director or stockholder of the Company or with any persons or organizations
controlled by or affiliated with the Company.
The Company is not in default in any material respect under any such
contracts, commitments, plans, agreements or licenses described in said Schedule
(individually a "Contract" and collectively the "Contracts") and to the
knowledge of the Company or any Primary Party, there are no conditions or facts
which with notice or passage of time, or both, would constitute a default,
except where any such default could not reasonably be expected to, individually
or in the aggregate, have a Material Adverse Effect. Each of the Contracts is
valid and in full force and effect, and will be enforceable by the Company
against the other
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<PAGE> 26
party thereto in accordance with its terms, except for any non-competition
provision or agreement limiting the freedom of any party thereto to compete in
any line of business or with any person or entity, the benefits of which run to
the Company, the enforceability of which may be limited by the principles
governing the availability of equitable remedies.
2.19 Litigation. Schedule 2.19 hereto lists all currently pending
litigation and governmental or administrative proceedings or investigations to
which the Company is a party. Except for matters described in Schedule 2.19,
there is no litigation or governmental or administrative proceeding or
investigation pending or, to the knowledge of the Company, any Primary Party or
the Stockholder, threatened against the Company or its affiliates and (b) there
is no litigation or governmental or administrative proceeding or investigation
pending or, to the knowledge of the Company, or any Primary Party, threatened
against the Stockholder or any Primary Party relating to the business of the
Company which may have any adverse effect on the properties, assets, prospects,
financial condition or business or prospects of the Company or which would
prevent or hinder the consummation of the transactions contemplated by this
Agreement. With respect to each matter set forth therein, Schedule 2.19 sets
forth a description of the matter, the forum (if any) in which it is being
conducted, the parties thereto and the type and amount of relief sought. There
are no existing or, to the knowledge of the Company or any Primary Party,
threatened product liability, warranty or other similar claims, or any facts
upon which a material claim of such nature could be based, against the Company
for products or services which are defective or fail to meet any product or
service warranties except as disclosed in Schedule 2.19 hereto. Except as
disclosed in Schedule 2.19, no claim has been asserted against the Company for
renegotiation or price redetermination of any business transaction, and there
are no facts upon which any such claim could be based.
2.20 Compliance with Laws. Except as set forth in Schedule 2.20
hereto, the Company is in compliance in all material respects with all
applicable statutes, ordinances, orders, judgements, decrees, rules and
regulations promulgated by any federal, state, municipal entity, agency, court
or other governmental authority which apply to the Company or to the conduct of
its business, and the Company has not received notice of a violation or alleged
violation of any such statute, ordinance, order, rule or regulation.
2.21 Insurance. The physical properties and assets of the Company
are insured to the extent disclosed in Schedule 2.21 attached hereto and all
such insurance policies and arrangements are disclosed in said Schedule. Said
insurance policies and arrangements are in full force and effect, all premiums
with respect thereto are currently paid, and the Company is in compliance in all
material respects with the terms thereof. Said insurance is adequate and
customary for the business engaged in by the Company and is sufficient for
compliance by the Company with all requirements of law and all agreements and
leases to which the Company is a party.
2.22 Powers of Attorney. Neither the Company nor the Stockholder
has granted to any other person or entity any outstanding power of attorney.
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2.23 Finder's Fee. The Company has not incurred or become liable
for any broker's commission or finder's fee relating to or in connection with
the transactions contemplated by this Agreement.
2.24 Permits; Burdensome Agreements. Schedule 2.24 lists all
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from federal, state or local
authorities in order for the Company to conduct its business. Except as set
forth in Schedule 2.24, the Company has obtained all such Approvals, which are
valid and in full force and effect, and is operating in compliance in all
material respects therewith. Such Approvals include, but are not limited to,
those required under federal, state, or local statutes, ordinances, orders,
requirements, rules, regulations, or laws pertaining to environmental
protection, public health and safety, worker health and safety, buildings,
highways or zoning. Except as disclosed in Schedule 2.24, the Company is not
subject to or bound by any agreement, judgment, decree or order which may
materially and adversely affect its business or prospects, its condition,
financial or otherwise, or any of its assets or properties.
2.25 Corporate Records; Copies of Documents. The corporate record
books of the Company accurately record all corporate action taken by its
stockholders and board of directors and committees. The copies of the corporate
records of the Company, as made available to Buyer for review, are true and
complete copies of the originals of such documents. The Company has made
available for inspection and copying by Buyer and its counsel true and correct
copies of all documents referred to in this Section or in the Schedules
delivered to Buyer pursuant to this Agreement.
2.26 Transactions with Interested Persons. Except as set forth in
Schedule 2.26 hereto, neither the Company nor the Stockholder or any Primary
Party, officer, supervisory employee or director of the Company nor, to the
knowledge of the Company or any Primary Party, any of their respective spouses
or family members, owns directly or indirectly on an individual or joint basis
any material interest in, or serves as an officer or director or in another
similar capacity of, any competitor or supplier of Company, or any organization
which has a material contract or arrangement with the Company.
2.27 Employee Benefit Programs.
(a) Schedule 2.27 sets forth a list of every Employee
Program that has been maintained by the Company or an Affiliate (including,
without limitation, any entity or business which the Company has acquired by
asset purchase, stock purchase, merger, consolidation or other similar
transaction) at any time during the six-year period ending on the Closing Date.
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(b) Each Employee Program which has ever been maintained
by the Company or an Affiliate and which has been intended to qualify under
Section 401(a) or 501(c)(9) of the Code has received a favorable determination
or approval letter from the IRS regarding its qualification under such section
and has, in fact, been qualified under the applicable section of the Code from
the effective date of such Employee Program through and including the Closing
Date (or, if earlier, the date that all of such Employee Program's assets were
distributed). No event or omission has occurred which would cause any such
Employee Program to lose its qualification or otherwise fail to satisfy the
relevant requirements to provide tax-favored benefits under the applicable Code
Section (including without limitation Code Sections 105, 125, 401(a) and
501(c)(9)). Each asset held under any such Employee Program may be liquidated or
terminated without the imposition of any redemption fee, surrender charge or
comparable liability. No partial termination (within the meaning of Section
411(d)(3) of the Code) has occurred with respect to any Employee Program.
(c) Neither the Company nor any Affiliate knows, nor
should any of them reasonably know, of any failure of any party to comply with
any laws applicable with respect to the Employee Programs that have ever been
maintained by the Company or any Affiliate. With respect to any Employee Program
ever maintained by the Company or any Affiliate, there has been no (i)
"prohibited transaction," as defined in Section 406 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or Code Section 4975, (ii)
failure to comply with any provision of ERISA, other applicable law, or any
agreement, or (iii) non-deductible contribution, which, in the case of any of
(i), (ii), or (iii), could subject the Company or any Affiliate to liability
either directly or indirectly (including, without limitation, through any
obligation of indemnification or contribution) for any damages, penalties, or
taxes, or any other loss or expense. No litigation or governmental
administrative proceeding (or investigation) or other proceeding (other than
those relating to routine claims for benefits) is pending or threatened with
respect to any such Employee Program. All payments and/or contributions required
to have been made (under the provisions of any agreements or other governing
documents or applicable law) with respect to all Employee Programs ever
maintained by the Company or any Affiliate, for all periods prior to the Closing
Date, either have been made or have been accrued (and all such unpaid but
accrued amounts are described on Schedule 2.27).
(d) Neither the Company nor any Affiliate has incurred
any liability under Title IV of ERISA which has not been paid in full prior to
the Closing. There has been no "accumulated funding deficiency" (whether or not
waived) with respect to any Employee Program ever maintained by the Company or
any Affiliate and subject to Code Section 412 or ERISA Section 302. With respect
to any Employee Program maintained by the Company or any Affiliate and subject
to Title IV of ERISA, there has been no (nor will there be any as a result of
the transactions contemplated by this Agreement) (i) "reportable event," within
the meaning of ERISA Section 4043 or the regulations thereunder, for which the
notice requirement is not waived by the regulations thereunder, and (ii) event
or condition which presents a material risk of a plan termination or any other
event that may cause the Company
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or any Affiliate to incur liability or have a lien imposed on its assets under
Title IV of ERISA. Except as described in Schedule 2.27(d), no Employee Program
maintained by the Company or any Affiliate and subject to Title IV of ERISA
(other than a Multiemployer Plan) has any "unfunded benefit liabilities" within
the meaning of ERISA Section 4001(a)(18), as of the Closing Date. Neither the
Company nor any Affiliate has ever maintained a Multiemployer Plan. None of the
Employee Programs ever maintained by the Company or any Affiliate has ever
provided health care or any other non-pension benefits to any employees after
their employment is terminated (other than as required by part 6 of subtitle B
of title I of ERISA) or has ever promised to provide such post-termination
benefits.
(e) With respect to each Employee Program maintained by
the Company within the six years preceding the Closing Date, complete and
correct copies of the following documents (if applicable to such Employee
Program) have previously been delivered to Buyer: (i) all documents embodying or
governing such Employee Program, and any funding medium for the Employee Program
(including, without limitation, trust agreements) as they may have been amended
to the date hereof; (ii) the most recent IRS determination or approval letter
with respect to such Employee Program under Code Section 401(a) or 501(c)(9),
and any applications for determination or approval subsequently filed with the
IRS; (iii) the six most recently filed IRS Forms 5500, with all applicable
schedules and accountants' opinions attached thereto; (iv) the six most recent
actuarial valuation reports completed with respect to such Employee Program; (v)
the summary plan description for such Employee Program (or other descriptions of
such Employee Program provided to employees) and all modifications thereto; (vi)
any insurance policy (including any fiduciary liability insurance policy or
fidelity bond) related to such Employee Program; (vii) any registration
statement or other filing made pursuant to any federal or state securities law
and (viii) all correspondence to and from any state or federal agency within the
last six years with respect to such Employee Program.
(f) Each Employee Program required to be listed on
Schedule 2.27 may be amended, terminated, or otherwise modified by the Company
to the greatest extent permitted by applicable law, including the elimination of
any and all future benefit accruals under any Employee Program and no employee
communications or provision of any Employee Program document has failed to
effectively reserve the right of the Company or the Affiliate to so amend,
terminate or otherwise modify such Employee Program.
(g) Each Employee Program maintained by the Company
(including each non-qualified deferred compensation arrangement) as of any date
on or after January 1, 1993 has been maintained in compliance with all
applicable requirements of federal and state securities laws including (without
limitation, if applicable) the requirements that the offering of interests in
such Employee Program be registered under the Securities Act of 1933, as
amended, and/or state "Blue Sky" laws.
(h) Each Employee Program maintained by the Company or an
Affiliate as of any date on or after January 1, 1993 has complied with the
applicable notification and other
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applicable requirements of the Consolidated Omnibus Budget Reconciliation Act of
1985, Health Insurance Portability and Accountability Act of 1996, the Newborns'
and Mothers' Health Protection Act of 1996, the Mental Health Parity Act of 1996
and the Women's Health and Cancer Rights Act of 1998.
(i) For purposes of this section:
(i) "Employee Program" means (A) all employee benefit
plans within the meaning of ERISA Section 3(3), including, but
not limited to, multiple employer welfare arrangements (within
the meaning of ERISA Section 3(40)), plans to which more than
one unaffiliated employer contributes and employee benefit
plans (such as foreign or excess benefit plans) which are not
subject to ERISA; (B) all stock option plans, stock purchase
plans, bonus or incentive award plans, severance pay policies
or agreements, deferred compensation agreements, supplemental
income arrangements, vacation plans, and all other employee
benefit plans, agreements, and arrangements (including any
informal arrangements) not described in (A) above, including
without limitation, any arrangement intended to comply with
Code Section 120, 125, 127, 129 or 137; and (C) all plans or
arrangements providing compensation to employee and
non-employee directors. In the case of an Employee Program
funded through a trust described in Code Section 401(a) or an
organization described in Code Section 501(c)(9), or any other
funding vehicle, each reference to such Employee Program shall
include a reference to such trust, organization or other
vehicle.
(ii) An entity "maintains" an Employee Program if
such entity sponsors, contributes to, or provides benefits
under or through such Employee Program, or has any obligation
(by agreement or under applicable law) to contribute to or
provide benefits under or through such Employee Program, or if
such Employee Program provides benefits to or otherwise covers
employees of such entity (or their spouses, dependents, or
beneficiaries).
(iii) An entity is an "Affiliate" of the Company if
it would have ever been considered a single employer with the
Company under ERISA Section 4001(b) or part of the same
"controlled group" as the Company for purposes of ERISA
Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means an employee pension
or welfare benefit plan to which more than one unaffiliated
employer contributes and which is maintained pursuant to one
or more collective bargaining agreements.
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2.28 Environmental Matters.
(a) Except as set forth in Schedule 2.28 hereto, (i) the
Company has never generated, transported, used, stored, treated, disposed of, or
managed any Hazardous Waste (as defined below); (ii) no Hazardous Material (as
defined below) has ever been or is threatened to be spilled, released, or
disposed of at any site presently or formerly owned, operated, leased, or used
by the Company, or has ever been located in the soil or groundwater at any such
site; (iii) no Hazardous Material has ever been transported from any site
presently or formerly owned, operated, leased, or used by the Company for
treatment, storage, or disposal at any other place; (iv) the Company does not
presently own, operate, lease, or use, nor has it previously owned, operated,
leased, or used any site on which underground storage tanks are or were located;
and (v) no lien has ever been imposed by any governmental agency on any
property, facility, machinery, or equipment owned, operated, leased, or used by
the Company in connection with the presence of any Hazardous Material.
(b) Except as set forth in Schedule 2.28 hereto, (i) the
Company has no liability under, nor has it ever violated, any Environmental Law
(as defined below) except as could not, individually or in the aggregate, have a
Material Adverse Effect; (ii) the Company, any property owned, operated, leased,
or used by the Company, and any facilities and operations thereon, are presently
in compliance in all material respects with all applicable Environmental Laws;
(iii) the Company has never entered into or been subject to any judgment,
consent decree, compliance order, or administrative order with respect to any
environmental or health and safety matter or received any request for
information, notice, demand letter, administrative inquiry, or formal or
informal complaint or claim with respect to any environmental or health and
safety matter or the enforcement of any Environmental Law; and (iv) to the
knowledge of the Company or any Primary Party, the Company does not have any
reason to believe that any of the items enumerated in clause (iii) of this
subsection will be forthcoming.
(c) Except as set forth in Schedule 2.28 hereto, no site
owned, operated, leased, or used by the Company contains any asbestos or
asbestos-containing material, any polychlorinated biphenyls (PCBs) or equipment
containing PCBs, or any urea formaldehyde foam insulation.
(d) The Company has provided to Buyer copies of all
documents, records, and information available to the Company concerning any
environmental or health and safety matter relevant to the Company, whether
generated by the Company, or others, including without limitation, environmental
audits, environmental risk assessments, site assessments, documentation
regarding off-site disposal of Hazardous Materials, spill control plans, and
reports, correspondence, permits, licenses, approvals, consents, and other
authorizations related to environmental or health and safety matters issued by
any governmental agency.
(e) For purposes of this Section 2.28, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant,
contaminant, or other substance which may pose a threat to the
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environment or to human health or safety, as defined or regulated under any
Environmental Law; (ii) "Hazardous Waste" shall mean and include any hazardous
waste as defined or regulated under any Environmental Law; (iii) "Environmental
Law" shall mean any environmental or health and safety-related law, regulation,
rule, ordinance, or by-law at the foreign, federal, state, or local level,
whether existing as of the date hereof, previously enforced, or subsequently
enacted; and (iv) "Company" shall mean and include the Company, and all other
entities for whose conduct the Company is or may be held responsible under any
Environmental Law. The above definition notwithstanding, "Hazardous Materials"
shall not include consumer products used for cleaning or housekeeping purposes,
so long as such materials are used for their intended purpose and in accordance
with applicable laws.
2.29 List of Directors, Officers and Employees. Schedule 2.29 hereto
contains a true and complete list of all current directors and officers of the
Company. In addition, Schedule 2.29 hereto contains a list of all managers,
employees and consultants of the Company, in each case such Schedule includes
the current job title and aggregate annual compensation of each such individual.
2.30 Employees; Labor Matters. The Company employs a total of 68
full-time employees and 13 part-time employees and generally enjoys good
employer-employee relationships. The Company is not delinquent in payments to
any of its employees for any wages, salaries, commissions, bonuses or other
direct compensation for any services performed for it to the date hereof or
amounts required to be reimbursed to such employees. Upon termination of the
employment of any of said employees, neither the Company nor Buyer will by
reason of the transactions contemplated under this Agreement or anything done
prior to the Closing be liable to any of said employees for so-called "severance
pay" or any other payments (other than with respect to accrued, unpaid vacation
benefits). The Company has no policy, practice, plan or program of paying
severance pay or any form of severance compensation in connection with the
termination of employment. The Company is in compliance with all applicable laws
and regulations respecting labor, employment, fair employment practices, work
place safety and health, terms and conditions of employment, and wages and
hours. There are no charges of employment discrimination or unfair labor
practices, nor are there any strikes, slowdowns, stoppages of work, or any other
concerted interference with normal operations which are existing, pending or, to
the knowledge of the Company or any Primary Party, threatened against or
involving the Company. No question concerning representation exists respecting
any employees of the Company. There are no grievances, complaints or charges
that have been filed against the Company under any dispute resolution procedure
(including, but not limited to, any proceedings under any dispute resolution
procedure under any collective bargaining agreement) that might have an adverse
effect on the Company or the conduct of its business, and there is no
arbitration or similar proceeding pending and no claim therefor has been
asserted. No collective bargaining agreement is in effect or is currently being
or is about to be negotiated by the Company. The Company has not received any
information indicating that any of its employment policies or practices is
currently being audited or investigated by any federal, state or local
government
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agency. The Company is, and at all times since November 6, 1986 has been, in
compliance with the requirements of the Immigration Reform Control Act of 1986.
2.31 Principals.
(a) The list of the Company's Principals and the aggregate
brokerage commission revenues received by the Company during the twelve-month
period ended September 30, 1998 from each such Principal, attached hereto as
Schedule 2.31(a), is true, correct and complete. The Company has delivered to
Buyer true and complete copies of all written brokerage agreements and/or
letters of appointment with or from all of the Company's Principals in effect as
of the date of this Agreement. Set forth on Schedule 2.31(a) is a list of all
other agreements and documents with or involving any person or entity and
relating to financial obligations of the Company with respect to commissions or
other payments received by the Company (or an affiliate of the Company) from
Principals. Except as set forth on Schedule 2.31(a), since September 30, 1998,
the Company has had no commitment, understanding or agreement with any Principal
or any other person or entity relating to payments to be made by the Company to
any person or entity computed in whole or in part with respect to sales of or
commissions paid or to be paid by any Principal.
(b) Except as set forth on Schedule 2.31(b), the Company is
not currently, and since September 30, 1998 has not been, subject to any notice
of probation from any Principal. Except as set forth on Schedule 2.31(b), since
September 30, 1998, the Company has not received any oral or written
communication from any Principal which places the Company on probation or
otherwise suggests, threatens or implies possible termination of the Company's
appointment as broker for such Principal, any reduction in the commission rate
paid to the Company or any reduction as to the geographic area, Customers or
products represented by the Company, conditionally or unconditionally.
(c) To the knowledge of the Company or any Primary Party, no
Principal intends to, or is considering, amending the terms of the Company's
brokerage agreement with such Principal in order to reappoint, or continue the
appointment of, the Company as broker with respect to a lesser portion of the
applicable territory than the greatest portion of such area in which, or with
respect to fewer than the greatest number of product items or Customers than,
the Company acted as broker for such Principal during the twelve-month period
ended September 30, 1998, or at a lower commission rate than the highest rate
paid by such Principal to the Company with respect to sales during such period.
The relationships of the Company with its Principals are good commercial working
relationships.
(d) Except as set forth on Schedule 2.31, there are, and since
September 30, 1998 there have been, no disputes or claims (i) between the
Company and any Principal, (ii) between the Company and any Customer, or (iii)
to the knowledge of the Company, between any Principal and any Customer. As used
in this Section 2.31(d), the terms "disputes" or "claims" shall mean (A) matters
which, to the knowledge of the Company or any Primary
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Party, have been referred to counsel or are the subject of litigation, or (B)
matters as to which a Principal has threatened to seek recourse against the
Company, or may be reasonably expected to seek recourse against the Company, if
such matter is not resolved to the satisfaction of such Principal.
(e) With respect to all Principals (i) which, since September
30, 1997, have terminated such party's brokerage relationship with the Company
or (ii) which, since September 30, 1997, have reduced or otherwise adversely
modified the geographic territory in which the Company acts as broker or the
product item(s) represented by the Company or (iii) from which, since September
30, 1997, the Company has resigned, in whole or in part, its representation as a
food broker, Schedule 2.31(e) sets forth (A) the name of such Principal and the
effective date of such termination, reduction or resignation and (B) the
Company's estimated annualized commission revenues from each such Principal for
the twelve months ending May 31, 2000 in the absence of such modification,
termination or resignation, which estimates were reasonable when made and
continue to be reasonable.
(f) With respect to all Principals which, since September 30,
1997, have entered into a brokerage relationship with the Company, or have
substantially increased an existing brokerage relationship with the Company,
Schedule 2.31(f) sets forth (i) the name of such Principal and the date on which
such Principal entered into a brokerage agreement with the Company and (ii) the
Company's estimated annualized commission revenues attributable to such
Principal for the twelve months ending May 31, 2000, which estimates were
reasonable when made and continue to be reasonable.
2.32 Absence of Improper Payments. Since December 31, 1988, the
Company: (a) has not made any contributions, payments or gifts of its property
to or for the private use of any governmental official, employee or agent where
either the payment or the purpose of such contribution, payments or gift is
illegal under the laws of the United States, any state thereof or any other
jurisdiction (foreign or domestic), (b) has not established or maintained any
unrecorded fund or asset for any purpose, or made any false or artificial
entries on its books or records for any reason, (c) has not made any payments to
any person where the Company intended or understood that any part of such
payment was to be used for any other purpose other than that described in the
documents supporting the payment, (d) has not made any contribution, or
reimbursed any political gift or contribution made by any other person, to
candidates for public office, whether federal, state or local, where such
contribution would be in violation of applicable law or (e) has not misused,
misapplied or improperly handled, administered or managed market development or
promotional funds or market development or promotional fund accounts in any
material respect.
2.33 Transfer of Shares. Except as set forth on Schedule 2.33, no
holder of stock of the Company has at any time transferred any of such stock to
any employee of the Company, which transfer constituted or could be viewed as
compensation for services rendered to the Company by said employee.
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2.34 Stock Repurchase. Except as set forth on Schedule 2.34, the
Company has not redeemed or repurchased, or entered into any written or oral
agreement to redeem or repurchase, any of its capital stock.
2.35 Disclosure. The representations, warranties and statements
contained in this Agreement and in the agreements, documents, instruments,
certificates, exhibits and schedules delivered by the Company pursuant to this
Agreement to Buyer do not contain any untrue statement of a material fact, and,
when taken together, do not omit to state a material fact required to be stated
therein or necessary in order to make such representations, warranties or
statements not misleading in light of the circumstances under which they were
made. To the knowledge of the Company or any Primary Party, there are no facts
which presently or may in the future, individually or in the aggregate, have a
Material Adverse Effect on the Company which have not been specifically
disclosed herein or in a Schedule furnished herewith, other than general
economic conditions affecting the industries in which the Company operates.
SECTION 3. COVENANTS OF THE COMPANY, THE STOCKHOLDER AND THE PRIMARY PARTIES.
3.1 Making of Covenants and Agreements. The Company, the Stockholder
and each Primary Party jointly and severally hereby make the covenants and
agreements set forth in this Section 3 and the Stockholder and each Primary
Party agrees to cause the Company to comply with such agreements and covenants.
3.2 Cooperation. The Company, the Stockholder and each Primary Party
shall cooperate with all reasonable requests of the Buyer or any of its
representatives and agents to more effectively consummate the transactions
contemplated hereby and the transactions referred to herein.
3.3 Consents. The Company shall obtain or cooperate with the Buyer in
obtaining all consents, authorizations and approvals of third parties including,
without limitation, any requisite consent of any governmental authorities,
regulatory agencies and other entities necessary in connection with the
consummation of the transactions contemplated hereby or referred to herein.
3.4 Notice of Default. Promptly upon the occurrence of, or promptly
upon the Company, the Stockholder or any Primary Party becoming aware of the
impending or threatened occurrence of, any event which would cause or constitute
a breach or default, or would have caused or constituted a breach or default had
such event occurred or been known to the Company, the Stockholder or any Primary
Party prior to the date hereof, of any of the representations, warranties or
covenants of the Company, the Stockholder or any Primary Party contained in or
referred to in this Agreement or in any Schedule or Exhibit referred to in this
Agreement, the Company, the Stockholder or such Primary Party shall give
detailed written
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notice thereof to the Buyer and the Company, the Stockholder or such Primary
Party shall use its or his reasonable best efforts to prevent or promptly remedy
the same.
3.5 Conduct of Business. Except as contemplated by this Agreement or as
is necessary to effectuate the transactions contemplated hereby, between the
date of this Agreement and the Closing Date, the Company shall, the Stockholder
and each Primary Party shall cause the Company to:
(a) Conduct its business in the ordinary course and refrain
from changing or introducing any method of management or operations except in
the ordinary course of business consistent with prior practices;
(b) Refrain from making any change or incurring any obligation
to make a change in its Articles of Incorporation, Code of Regulations or
authorized or issued capital stock;
(c) Refrain from declaring, setting aside or paying any
dividend, making any other distribution in respect of its capital stock or
making any direct or indirect redemption, purchase or other acquisition of its
stock;
(d) Refrain from making any purchase, sale or disposition of
any asset or property costing more than $5,000 individually or $20,000 in the
aggregate other than in the ordinary course of business, from purchasing any
capital asset for use in the business costing more than $5,000 individually or
$20,000 in the aggregate and from mortgaging, pledging, subjecting to a lien or
otherwise encumbering any of the assets of the Company other than in the
ordinary course of business.
(e) Refrain from incurring or assuming any liability,
obligation or indebtedness for borrowed money in an aggregate amount in excess
of $5,000 incurring or assuming any contingent liability as a guarantor or
otherwise with respect to the obligations of others, and from incurring any
other contingent or fixed obligations or liabilities except in the ordinary
course of business;
(f) Refrain from canceling any material indebtedness owed to
the Company or waiving any claims or rights of substantial value, other than in
the ordinary course of business consistent with past practice;
(g) Refrain from making any change in the compensation payable
or to become payable to any of its officers, employees, agents or independent
contractors except in connection with promotions made, or bonuses paid, in the
ordinary course of business consistent with past practices;
(h) Refrain from adopting or amending any Employee Program or
collective bargaining agreement, except as may be required by law;
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(i) Refrain from prepaying loans (if any) from its
shareholders, officers or directors or making any change in such borrowing
arrangements;
(j) Refrain from making any change in any method of accounting
or accounting practice or policy other than those required by GAAP;
(k) Use its commercially reasonable efforts consistent with
its prior business practices to prevent any change with respect to its
management and supervisory personnel and banking arrangements;
(l) Use its commercially reasonable efforts consistent with
its past practices to keep intact its business organizations, to keep available
its present employees and to preserve the goodwill of all suppliers, customers
and others having business relations with it in connection with the Company;
(m) Have in effect and maintain at all times all insurance of
the kind described in Section 2.21 above or equivalent insurance with any
substitute insurers;
(n) Maintain its properties, facilities, equipment and other
assets in as good working order and condition as of the date of this Agreement,
ordinary wear and tear excepted;
(o) Perform all its material obligations under debt and lease
instruments and all other agreements relating to or affecting its assets,
properties, equipment and rights;
(p) Except as contemplated by Section 3.10 below, refrain from
entering into any new lease agreements other than in the ordinary course of
business without the prior knowledge and written consent of Buyer; and
(q) Maintain compliance with all applicable permits, rules,
laws, regulations, consent orders and the like.
3.6 Acquisition Proposals. Except in connection with the transactions
contemplated hereby unless and until this Agreement shall have been terminated
in accordance with its terms, none of the Company, the Stockholder or any
Primary Party shall cause the Company to (a) take any action to solicit,
initiate submission of or encourage any Acquisition Proposal (as defined below),
(b) participate in any substantive discussions or negotiations regarding an
Acquisition Proposal with any person other than the Buyer and Buyer's
representatives or (c) furnish any information with respect to or afford access
to the properties, books or records of the Company to any person who is known by
the Company, the Stockholder or any Primary Party to be considered making or has
made an offer with respect to an Acquisition Proposal other than the Buyer or
(d) otherwise cooperate in any way with, or assist or participate in, facilitate
or encourage, any effort or attempt by any person other than by the Buyer and
its representatives to
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do or seek any of the foregoing. The Company, the Stockholder and each Primary
Party shall promptly notify the Buyer upon receipt of any offer or notice that
any person is considering making an offer with respect to an Acquisition
Proposal and shall not accept any such offer for so long as this Agreement
remains in effect. For purposes hereof, an "Acquisition Proposal" shall include
any offer or other proposal to acquire or purchase all or a portion of the
capital stock or any assets of, or any equity interest in, the Company, any
merger or business combination with the Company, any public or private offering
of shares of the capital stock of the Company, or any other acquisition or
financing involving the Company.
3.7 Transfers of Shares; Voting. Unless and until this Agreement shall
have been terminated, the Stockholder shall not directly or indirectly exchange,
deliver, assign, pledge, encumber or otherwise transfer or dispose of any of the
Company Shares which it holds of, nor shall the Stockholder directly or
indirectly grant any right of any kind to acquire, dispose of, vote or otherwise
control in any manner any Company Shares.
3.8 Confidentiality. Except as may be required by applicable law, rules
or regulations, the Company, the Stockholder and each Primary Party shall hold
in strict confidence, and will not use, any confidential or proprietary data or
information obtained from Buyer with respect to the Buyer's business or
financial condition except for the purpose of evaluating, negotiating and
completing the transaction contemplated hereby. Information generally known in
the Buyer's industry or which has been disclosed to the Company, the Stockholder
or any Primary Party by third parties which have a right to do so shall not be
deemed confidential or proprietary information for purposes of this Agreement.
If the transaction contemplated by this Agreement is not consummated, the
Company, the Stockholder and each Primary Party will return to the Buyer all
copies of such data and information, including but not limited to financial
information, customer lists, business and corporate records, worksheets, test
reports, tax returns, lists, memoranda, and other documents prepared by or made
available to the Company, the Stockholder or any Primary Party in connection
with the transaction.
3.9 Tax Returns. The Company, the Stockholder and each Primary Party
shall use its best efforts to cause the Company, in accordance with applicable
law, (i) to promptly prepare and file on or before the due date or any extension
thereof all federal, state and local tax returns required to be filed by them
with respect to taxable periods of the Company that include any period ending on
or before the Closing Date and (ii) to pay all Taxes of the Company shown on
such returns attributable to periods ending on or before the Closing Date.
3.10 Lease. On or prior to the Closing Date, the Company and James F.
Forkin and Joan M. Forkin shall enter into a Lease in the form attached hereto
as Exhibit B relating to the Company's facility (the "Cleveland Facility")
located at 2265 Enterprise East Parkway, Twinsburg, Ohio 44087 to provide for
the following: (i) the term of such Lease shall be one year, (ii) the rent
payable thereunder shall be $12,500 per month, triple net.
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3.11 Consummation of Agreement. The Company, the Stockholder, each
Primary Party and Buyer shall each use its or his best efforts to perform and
fulfill all conditions and obligations on his part to be performed and fulfilled
under this Agreement to the end that the transactions contemplated by this
Agreement be fully carried out.
3.12 Fees and Expenses. As of the Closing Date, the Stockholder and the
Primary Parties shall have paid, or shall have caused the payment of, all fees
and expenses incurred by or on behalf of any such party arising out of or in
connection with the transactions contemplated by this Agreement including
without limitation all such fees and expenses of attorneys, accountants,
financial advisors and other consultants to the Company; provided that the
Company shall not have paid or reimbursed any party for, any such amount.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
4.1 Making of Representations and Warranties. As a material inducement
to the Company, the Stockholder and the Primary Parties to enter into this
Agreement and consummate the transactions contemplated hereby, Buyer hereby
makes the representations and warranties to the Company, the Stockholder and the
Primary Parties contained in this Section 4.
4.2 Organization of Buyer. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power to own or lease its properties and to conduct its
business in the manner and in the places where such properties are owned or
leased or such business is conducted by it.
4.3 Authority of Buyer. Buyer has full right, authority and power to
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by Buyer pursuant to this Agreement and to carry out the
transactions contemplated hereby. The execution, delivery and performance by
Buyer of this Agreement and each such other agreement, document and instrument
have been duly authorized by all necessary corporate action of Buyer and no
other action on the part of Buyer is required in connection therewith. This
Agreement and each other agreement, document and instrument executed and
delivered by Buyer pursuant to this Agreement constitute, or when executed and
delivered will constitute, valid and binding obligations of Buyer enforceable in
accordance with their terms.
4.4 Litigation. There is no litigation pending or, to the Buyer's
knowledge, threatened against Buyer which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
4.5 Finder's Fee. Except for the arrangement between the Buyer and
Monroe & Company, LLC as previously disclosed to the Company, Buyer has not
incurred or become
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liable for any broker's commission or finder's fee relating to or in connection
with the transactions contemplated by this Agreement.
4.6 No Conflicts. The execution, delivery and performance by Buyer of
this Agreement and each other agreement contemplated by this Agreement to which
such entity is a party does not and will not with or without the giving of
notice or the lapse of time or both, (a) violate any provision of Buyer's
Certificate of Incorporation, as amended to date, (b) constitute a violation of,
or conflict with or result in any breach of, acceleration of any obligation
under, right of termination under, or default under, any agreement or instrument
to which Buyer is a party or by which either of them is bound, (c) to the
knowledge of Buyer violate any judgment, decree, order, statute, law, rule or
regulation applicable to Buyer (d) except as set forth on Schedule 4.6 attached
hereto, require Buyer to obtain any approval, consent or waiver of, or to make
any filing with, any person or entity (governmental or otherwise) that has not
been obtained or made or (e) result in the creation or imposition of any Lien on
any of property or assets of Buyer.
SECTION 5. COVENANTS OF BUYER.
5.1 Making of Covenants and Agreements. The Buyer hereby makes to the
Company, the Stockholder and the Primary Parties the covenants and agreements
set forth in this Section 5, and agrees to use reasonable efforts to comply with
and perform all covenants and agreements contained in this Section 5.
5.2 Consents. The Buyer shall use commercially reasonable efforts to
obtain all consents, authorizations and approvals of third parties including,
without limitation, any requisite consent of any governmental authorities,
regulatory agencies and other entities necessary in connection with the
consummation of the transactions contemplated hereby or referred to herein.
5.3 Confidentiality. Except as may be required by applicable laws,
rules or regulations, the Buyer shall hold in strict confidence, and will not
use, any confidential or proprietary data or information obtained from the
Company with respect to the Company's business or financial condition except for
the purpose of evaluating, negotiating and completing the transaction
contemplated hereby. Information generally known in the Company's industry or
which has been disclosed to the Buyer by third parties which have a right to do
so shall not be deemed confidential or proprietary information for purposes of
this Agreement. If the transaction contemplated by this Agreement is not
consummated, the Buyer will return to the Company all copies of such data and
information, including but not limited to financial information, customer lists,
business and corporate records, worksheets, test reports, tax returns, lists,
memoranda, and other documents made available to the Buyer in connection with
the transaction.
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5.4 Indebtedness.
(a) At the time of the Closing, Buyer shall arrange to pay by
federal wire transfer of immediately available funds, in full at all of the
Company's indebtedness for borrowed money, as set forth on Schedule 2.8(e) plus
interest accruing after June 29, 1999.
(b) At the time of the Closing, Buyer shall arrange to pay by
check the amount of $26,000 to Donald Anderson ("Mr. Anderson") as payment in
full of all amounts outstanding under that certain Separation Agreement and
Release, dated as of October 14, 1998, by and between Mr. Anderson and the
Company.
5.5 Release of Guaranty. Buyer shall use its commercially reasonable
efforts to cause Cranberry Corporate Center Partnership ("Cranberry"), owner of
the office space at 260 Executive Drive, Cranberry Township, Pennsylvania, to
release James J. Forkin from his Guaranty dated as of August 8, 1997
guaranteeing, to and for the benefit of Cranberry, the Company's performance of
all obligations under the Lease Agreement between Cranberry and the Company of
August 8, 1997.
SECTION 6. CONDITIONS.
6.1 Conditions to the Obligations of Buyer. The obligation of Buyer to
consummate this Agreement and the transactions contemplated hereby are subject
to the fulfillment, prior to or at the Closing, of the following conditions
precedent:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of the Company, the Stockholder and each of the
Primary Parties contained in Section 2 shall be true and correct as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing; and the Company, the Stockholder and each of the Primary Parties shall,
on or before the Closing, have performed all of their obligations hereunder
which by the terms hereof are to be performed on or before the Closing; each of
the conditions specified in this Section 6.1 shall have been satisfied or waived
(in whole or in part) in writing by the Buyer; and on the Closing Date a
certificate to such effect executed on behalf of each of the Company, the
Stockholder and the Primary Parties shall be delivered to the Buyer.
(b) Authorization. The Board of Directors of the Company (the
"Company Board") shall have duly adopted resolutions in form reasonably
satisfactory to the Buyer and shall have taken all action necessary for the
purpose of authorizing the Company to consummate the transactions contemplated
by this Agreement in accordance with the terms thereof.
(c) Certificate from Officers. The Company shall have
delivered to Buyer a certificate of the Company's President and Chief Financial
Officer dated as of the Closing to
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the effect that the statements set forth in paragraph (a) and (b) above in this
Section 6.1 are true and correct.
(d) No Material Adverse Change. There shall have been no
material adverse change in the financial condition, properties, assets,
liabilities, operations, business or prospects of the Company since the date of
the Base Balance Sheet, whether or not in the ordinary course of business.
(e) Approval of Buyer's Counsel. All actions, proceedings,
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this Agreement shall have been reasonably approved by Goodwin, Procter & Hoar
LLP as counsel for Buyer, and such counsel shall have received on behalf of
Buyer such other certificates and other documents in form satisfactory to such
counsel, as Buyer may reasonably require from the Company, the Stockholder and
the Primary Parties to evidence compliance with the terms and conditions hereof
as of the Closing and the correctness as of the Closing of the representations
and warranties of the Stockholder, the Primary Parties and the Company and the
fulfillment of their respective covenants.
(f) Opinion of Counsel. On the Closing Date, Buyer shall have
received from Arter & Hadden LLP, counsel for the Company, the Stockholder and
the Primary Parties, an opinion as of said date, substantially in form attached
hereto as Exhibit C.
(g) No Litigation. There shall have been no determination by
Buyer, acting in good faith, that the consummation of the transactions
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by any person or any federal, state, or other
governmental authority of litigation, proceedings or other action against Buyer,
the Company, the Stockholder or any Primary Party. The transactions contemplated
hereby shall not be in violation of any law or regulation and shall not be
subject to any injunction, stay or restraining order.
(h) Consents. The Company, the Stockholder and each of the
Primary Parties shall have made all filings with and notifications of
governmental authorities, regulatory agencies and other entities required to be
made by the Company, the Stockholder or the Primary Parties in connection with
the execution and delivery of this Agreement, the performance of the
transactions contemplated hereby and the continued operation of the business of
the Company by Buyer subsequent to the Closing; and the Company, the
Stockholder, the Primary Parties and Buyer shall have received all
authorizations, waivers, consents and permits, in form and substance reasonably
satisfactory to Buyer, from all third parties, including, without limitation,
applicable governmental authorities, regulatory agencies, lessors, lenders and
contract parties, required to permit the continuation of the business of the
Company and the consummation of the transactions contemplated by this Agreement,
and to avoid a breach, default, termination, acceleration or modification of any
indenture, loan or credit agreement or any other agreement, contract,
instrument, mortgage, lien, lease, permit,
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authorization, order, writ, judgment, injunction, decree, determination or
arbitration award as a result of, or in connection with, the execution and
performance of this Agreement.
(i) Compensation Expense. The aggregate compensation expense
of the Company as of the Closing Date (including, without limitation, expenses
for salary, wages, benefits, bonuses and commissions) shall be in an amount not
in excess of $2,617,866 on an annualized basis.
(j) Employment Agreements. Each of the persons identified in
Schedule 6.1 (j) shall have executed and delivered to Buyer an Employment and
Noncompetition Agreement in substantially the form of Exhibit D-1 attached
hereto. In addition, James J. Forkin shall have executed and delivered to Buyer
a Consulting Agreement in substantially the form of Exhibit D-2 attached hereto.
(k) Business Relations. Buyer shall be reasonably satisfied
based on personal interviews with the Principals and Customers that such
Principals and Customers intend to continue their current level of business with
the Company after the closing.
(l) Employee Programs. The Company shall have taken all steps
necessary under the relevant documents and applicable law to maintain the
qualification of each Employee Program identified on Schedule 2.27
notwithstanding the purchase of the Company Shares by Buyer.
(m) Resignations. The Company shall have delivered to Buyer
the resignations of all of the Directors and Officers of the Company, such
resignations to be effective at the Closing.
(n) Releases. The Company shall have delivered to Buyer
general releases signed by each of the Primary Parties and Mr. Anderson of all
claims which any of them have against the Company in the form attached here to
as Exhibit E.
(o) Lease. The Company shall have delivered to the Buyer a
copy of the Lease executed by the Company and James J. Forkin and Joan M.
Forkin.
(p) Due Diligence and Disclosure Schedules. Buyer, in its sole
discretion, shall be satisfied, with the results of its legal, accounting,
business, environmental, title and other due diligence review of the Company.
Buyer, in its sole discretion, shall, be satisfied with the form and substance
of the Disclosure Schedules to this Agreement which shall have been delivered to
Buyer by the Company, the Stockholder and any of the Primary Parties on or prior
to the date hereof.
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(q) Good Standing. At or prior to the Closing, Buyer shall
have received from the Company a certificate of good standing from the Secretary
of State of the State of Ohio and each other jurisdiction in which the Company
is qualified to do business.
(r) Qualifications to do Business. At or prior to the Closing,
the Company shall have applied for qualification to do business as a foreign
corporation in the state of New York, and shall be qualified to do business as a
foreign corporation in the commonwealth of Pennsylvania and each other state in
which the nature of the business conducted by the Company or the characteristics
of the assets owned or leased by it make such qualification necessary or
prudent.
6.2 Conditions to Obligations of the Company and the Stockholder. The
obligation of the Company, the Stockholder and the Primary Parties to consummate
this Agreement and the transactions contemplated hereby is subject to the
fulfillment, prior to or at the Closing, of the following conditions precedent:
(a) Representations; Warranties; Covenants. The
representations and warranties of the Buyer contained in this Agreement shall be
true and correct on the date hereof and as of the Closing Date; each of the
conditions specified in this Section 6.2 shall have been satisfied or waived (in
whole or in part) in writing by the Stockholder Representative; and on the
Closing Date a certificate to such effect executed on behalf of the Buyer shall
be delivered to the Stockholder Representative.
(b) Approval of the Company's Counsel. All actions,
proceedings, instruments and documents required to carry out this Agreement and
the transactions contemplated hereby and all related legal matters contemplated
by this agreement shall have been approved by Arter & Hadden LLP as counsel for
the Company, the Stockholder and the Primary Parties, and such counsel shall
have received on behalf of the Company, the Stockholder and the Primary Parties
such certificates and other documents, in form satisfactory to such counsel as
the Company may reasonably require from Buyer to evidence compliance with the
terms and conditions hereof as of the Closing and the correctness as of the
Closing of the representations and warranties of Buyer and the fulfillment of
its covenants.
(c) Opinion of Counsel. On the Closing Date, the Company, the
Stockholder and the Primary Parties shall have received from Goodwin, Procter &
Hoar LLP, counsel for the Buyer, an opinion as of said date, substantially in
the form attached hereto as Exhibit F.
(d) No Litigation. There shall have been no determination by
the Company, acting in good faith, that the consummation of the transactions
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by any person or any federal, state or other
governmental authority of material litigation, proceedings or other action
against Buyer, the Company, the Stockholder or any Primary Party. The
transactions
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contemplated hereby shall not be in violation of any law or regulation, and
shall not be subject to any injunction, stay or restraining order.
SECTION 7. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED.
7.1 Termination. At any time prior to the Closing, this Agreement may
be terminated as follows:
(i) by mutual written consent of all of the parties to this
Agreement;
(ii) by Buyer, pursuant to written notice by Buyer to Company,
if any of the conditions set forth in Section 6.1 of this Agreement have not
been satisfied at or prior to the Closing, or if it has become reasonably and
objectively certain that any of such conditions, other than a condition within
the control of Buyer, will not be satisfied at or prior to the Closing, such
written notice to set forth such conditions which have not been or will not be
so satisfied;
(iii) by Company, pursuant to written notice by Company to
Buyer, if any of the conditions set forth in Section 6.2 of this Agreement have
not been satisfied at or prior to the Closing, or if it has become reasonably
and objectively certain that any of such conditions, other than a condition
within the control of Company, will not be satisfied at or prior to the Closing,
such written notice to set forth such conditions which have not been or will not
be so satisfied;
(iv) by Buyer in its sole discretion, if either the Company or
any representative of the Company solicits, encourages, entertains or discusses
any Acquisition Proposal from any person or any entity other than Buyer; or
(v) by Buyer or Company, if the Closing has not occurred on or
prior to July 9, 1999.
7.2 Effect of Termination. All obligations of the parties hereunder
shall cease upon any termination pursuant to Section 7.1, provided, however,
that (i) the provisions of Section 3.8, this Article 7, Section 11.1 and Section
11.9 hereof shall survive any termination of this Agreement; (ii) nothing herein
shall relieve any party from any liability for a material error or omission in
any of its representations or warranties contained herein or a material failure
to comply with any of its covenants, conditions or agreements contained herein,
and (iii) the parties shall have rights to proceed as further set forth in
Section 7.3 below.
7.3 Right to Proceed. Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in Section 7.1 hereof have
not been satisfied, Buyer shall have the right to proceed with the transactions
contemplated hereby without waiving any of its
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rights hereunder, and if any of the conditions specified in Section 7.1 hereof
have not been satisfied, Company shall have the right to proceed with the
transactions contemplated hereby without waiving any of their rights hereunder.
SECTION 8. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
8.1 Survival of Warranties. Each of the representations, warranties,
agreements, covenants and obligations herein or in any schedule, exhibit,
certificate or financial statement delivered by any party to the other party
incident to the transactions contemplated hereby are material, shall be deemed
to have been relied upon by the other party and shall survive the Closing for a
period of two years regardless of any investigation and shall not merge in the
performance of any obligation by either party hereto.
SECTION 9. INDEMNIFICATION.
9.1 Indemnification by the Stockholder and the Primary Parties. The
Stockholder, each of the Primary Parties and their respective successors and
assigns jointly and severally agree subsequent to the Closing to indemnify and
hold the Company, Buyer and their respective subsidiaries and affiliates and
persons serving as officers, directors, partners or employees of any of the
foregoing (individually a "Buyer Indemnified Party" and collectively the "Buyer
Indemnified Parties") harmless from and against any damages, liabilities,
losses, taxes, fines, penalties, costs, and expenses (including, without
limitation, reasonable fees of counsel) of any kind or nature whatsoever
(whether or not arising out of third-party claims and including all amounts paid
in investigation, defense or settlement of the foregoing) which may be sustained
or suffered by any of them arising out of or based upon any of the following
matters:
(a) fraud, intentional misrepresentation or a deliberate or
wilful breach by the Company, the Stockholder or any of the Primary Parties of
any of their representations, warranties, agreements or covenants under this
Agreement or in any agreement, document, instrument, certificate, schedule or
exhibit delivered pursuant hereto;
(b) any other breach of any representation or warranty of the
Company, the Stockholder or any Primary Party under this Agreement or in any
agreement, document, instrument, certificate, schedule or exhibit delivered
pursuant hereto, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing constituting a breach of such
representations or warranties;
(c) any other breach of any agreement or covenant of the
Company, the Stockholder or any Primary Party under this Agreement or in any
agreement, document, instrument, certificate, schedule or exhibit delivered
pursuant hereto, or by reason of any
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claim, action or proceeding asserted or instituted arising out of any matter or
thing constituting a breach of any such agreement or covenant.
(d) any liability of the Company for Taxes arising from an
event or transaction prior to the Closing or as a result of the Closing which
have not been paid or provided for or adequately reserved against by the
Company, including without limitation, any increase in Taxes due to the
unavailability of any loss or deduction claimed by the Company;
(e) any liability relating to the operation, activities or
conduct of the business of the Company on or prior to the Closing Date
including, without limitation, any liability of the Company relating to any
claims resulting from the Company's failure to be qualified to do business in
the state of New York and the Commonwealth of Pennsylvania other than (i)
liabilities or obligations of the Company reflected on the Base Balance Sheet or
incurred thereafter in the ordinary course of business (except for any such
liability required to be disclosed on a Schedule to this Agreement that is not
so disclosed), (ii) liabilities under the Contracts or any contract, agreement
or arrangement not required to be disclosed on any Schedule to this Agreement
and (iii) other liabilities disclosed in this Agreement or any Schedule
furnished pursuant hereto; and
(f) any liability of the Company in respect of any claim made
by any third party and relating to, arising out of or in connection with any
event occurring on or prior to the Closing Date.
(g) The Stockholder and each Primary Party hereby acknowledges
and agrees that neither the Stockholder nor any Primary Party shall have any
right of indemnity or contribution from the Company with respect to any breach
of any representation or warranty hereunder.
9.2 Limitations on Indemnification by the Stockholder.
(a) Threshold. Subject to the exceptions set forth in Section
9.2(b) below, no indemnification shall be payable by the Stockholder or any
Primary Party with respect to claims except to the extent that the cumulative
amount of all such claims first exceed Twenty- Five Thousand Dollars ($25,000)
in the aggregate (the "Threshold Amount"), whereupon the Buyer Indemnified
Parties shall be entitled to dollar-for-dollar indemnification from the first
dollar in accordance with the terms hereof.
(b) Maximum Indemnification. Subject to the exceptions set
forth in Section 9.2(c) below, neither the Stockholder nor any Primary Party
shall be obligated to indemnify any Indemnified Party for any amount of
otherwise indemnifiable losses in excess of Three Hundred Thousand Dollars
($300,000) (the "Maximum Indemnification").
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(c) Limitation on Certain Claims. Notwithstanding anything
herein to the contrary, Buyer Indemnified Parties (i) shall be entitled to
dollar-for-dollar indemnification from the first dollar, (ii) shall not be
subject to the Threshold Amount, and (iii) shall not be subject to the Maximum
Indemnification in seeking indemnification from the Stockholder or any Primary
Party with respect to any of the following:
(i) Losses involving a breach by the Company, the
Stockholder or any Primary Party of any of the representations and
warranties contained in Section 2.2, 2.3, 2.5, 2.8, 2.9, 2.23, 2.27 or
2.28; or
(ii) Losses described in Sections 9.1(a) or
9.1(c)-(f), inclusive.
Indemnification pursuant to Section 9.2 shall be limited to the
aggregate amount of the Purchase Price plus any Additional Payment to be paid to
the Stockholder (or any successor or assignee of the Stockholder) outstanding as
of the date of the Buyer's notice with respect to the pertinent claim.
(d) Time Limitation. No indemnification shall be payable to a
Buyer Indemnified Party with respect to claims asserted pursuant to Subsection
9.1(b) (other than any claims for indemnification for Taxes or based upon or
related to a breach of any representation, warranty or covenant with respect to
title to the Company Shares, authorization, Taxes or tax related matters,
finder's fees, ERISA, or environmental matters) after the date which is the
second anniversary of the Closing Date (the "Indemnification Cut-Off Date");
provided that (i) any claim as to which notice is given by a Buyer Indemnified
Party to the Stockholder or any Primary Party prior to the Indemnification
Cut-Off Date shall survive the Indemnification Cut-Off Date until final
resolution of such claim; (ii) claims based upon or related to a breach of any
representation or warranty contained in Sections 2.5, 2.8, 2.9, 2.23, 2.27 or
2.28 or in Sections 9.1(c)-9.1(f), inclusive may be asserted until the 60th day
following expiration of the statute of limitations (if any) applicable to such
claim; and (iii) claims based upon a breach of any representation or warranty
contained in Section 2.3 or pursuant to Section 9.1(a) shall continue without
limitation as to time.
9.3 Indemnification by Buyer. Buyer agrees to indemnify and hold the
Stockholder, each party holding any partnership interest in the Stockholder,
each Primary Party and their respective heirs, legal representatives, successors
and assigns (individually a "Stockholder Indemnified Party" and collectively the
"Stockholder Indemnified Parties") harmless from and against any damages,
liabilities, losses, taxes, fines, penalties, costs and expenses (including,
without limitation, reasonable fees of counsel) of any kind or nature whatsoever
(whether or not arising out of third-party claims and including all amounts paid
in investigation, defense or settlement of the foregoing) which may be sustained
or suffered by any of them arising out of or based upon any breach of any
representation, warranty or covenant made by Buyer in this Agreement or in any
certificate delivered by Buyer hereunder, or by reason of any claim,
43
<PAGE> 49
action or proceeding asserted or instituted growing out of any matter or thing
constituting such a breach.
9.4 Limitation on Indemnification by Buyer. Notwithstanding the
foregoing, no indemnification shall be payable to the Stockholder or any Primary
Party with respect to claims asserted pursuant to Section 9.3 above after the
Indemnification Cut-Off Date (other than any claim relating to the performance
of the Buyer's obligations under Section 1.2 and Section 5.5 hereof). With
regard to Section 5.5, indemnification shall be payable to James J. Forkin with
respect to any claims asserted pursuant to Section 5.5 for so long as James J.
Forkin remains the Guarantor under the Guaranty.
9.5 Notice; Defense of Claims. An indemnified party may make claims for
indemnification hereunder by giving written notice thereof to the indemnifying
party within the period in which indemnification claims can be made hereunder.
If indemnification is sought for a claim or liability asserted by a third party,
the indemnified party shall also give written notice thereof to the indemnifying
party promptly after it receives notice of the claim or liability being
asserted, but the failure to do so shall not relieve the indemnifying party from
any liability except to the extent that it is prejudiced by the failure or delay
in giving such notice. Such notice shall summarize the bases for the claim for
indemnification and any claim or liability being asserted by a third party.
Within 20 days after receiving such notice the indemnifying party shall give
written notice to the indemnified party stating whether it disputes the claim
for indemnification and whether it will defend against any third party claim or
liability at its own cost and expense. If the indemnifying party fails to give
notice that it disputes an indemnification claim within 20 days after receipt of
notice thereof, it shall be deemed to have accepted and agreed to the claim,
which shall become immediately due and payable. The indemnifying party shall be
entitled to direct the defense against a third party claim or liability with
counsel selected by it (subject to the consent of the indemnified party, which
consent shall not be unreasonably withheld) as long as the indemnifying party is
conducting a good faith and diligent defense. The indemnified party shall at all
times have the right to fully participate in the defense of a third party claim
or liability at its own expense directly or through counsel; provided, however,
that if the named parties to the action or proceeding include both the
indemnifying party and the indemnified party and the indemnified party is
advised that representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct, the
indemnified party may engage separate counsel at the expense of the indemnifying
party. If no such notice of intent to dispute and defend a third party claim or
liability is given by the indemnifying party, or if such good faith and diligent
defense is not being or ceases to be conducted by the indemnifying party, the
indemnified party shall have the right, at the expense of the indemnifying
party, to undertake the defense of such claim or liability (with counsel
selected by the indemnified party), and to compromise or settle it, exercising
reasonable business judgment. If the third party claim or liability is one that
by its nature cannot be defended solely by the indemnifying party, then the
indemnified party shall make available such information and assistance as the
indemnifying
44
<PAGE> 50
party may reasonably request and shall cooperate with the indemnifying party in
such defense, at the expense of the indemnifying party.
9.6 Satisfaction of Stockholder Indemnification Obligations. In order
to satisfy the indemnification obligations of the Stockholder and the Primary
Parties pursuant to Sections 9.1 above and without limiting any right of any
Buyer Indemnified Party with respect to any claim for indemnification
thereunder, subject to the limitations set forth in Section 9.2, each Buyer
Indemnified Party shall have the right (in addition to collecting directly from
the Stockholder) to recover the amount of such indemnification obligation by
setting off and applying the amount of such obligation against any amounts
payable to the Stockholder hereunder.
SECTION 10. DEFINITIONS.
For the purposes of this Agreement, the capitalized terms set forth
below shall have the meanings indicated.
"Accountants" shall have the meaning set forth in Section 1.2 hereof.
"Accumulated Funding Deficiency" shall have the meaning set forth in
Section 2.27 hereof.
"Acquisition Proposal" shall have the meaning set forth in Section 3.6
hereof.
"Additional Revenue" shall mean the excess of (i) the amount equal to
the Company's commission revenues attributable to sales of the products
of the New Business Prospects during the twelve month period ending on
the first anniversary of the Closing Date over (ii) an amount equal to
(x) $200,000 plus (y) the net reduction, if any, in the Company's
commission revenues during the twelve month period ending on the first
anniversary of the Closing Date attributable to any termination or
diminution of the brokerage relationship in effect as of the Closing
Date with any of the Company's Principals as reflected in Schedule
2.8(d). All of the components of Additional Revenue shall be calculated
on an annualized basis.
"Affiliate" shall have the meaning set forth in Section 2.27 hereof.
"Affiliated Group" shall have the meaning set forth in Section 2.9
hereof.
"Agreement" shall have the meaning set forth in the Recitals hereto.
"Approvals" shall have the meaning set forth in Section 2.24 hereof.
"Audited Financial Statements" shall have the meaning set forth in
Section 2.8 hereof.
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<PAGE> 51
"Interim Balance Sheet" shall have the meaning set forth in Section 2.8
hereof.
"Blue Sky" shall have the meaning set forth in Section 2.27 hereof.
"Buyer" shall have the meaning set forth in the Recitals hereto.
"Buyer Indemnified Party" and "Buyer Indemnified Parties" shall have
the meaning set forth in Section 9.1 hereof.
"Closing" shall have the meaning set forth in Section 1.4 hereof.
"Closing Date" shall mean the date on which the Closing occurs.
"Code" shall have the meaning set forth in Section 2.9 hereof.
"Common Stock" shall have the meaning set forth in the Recitals hereto.
"Company" shall have the meaning set forth in the Recitals hereto.
"Company Board" shall have the meaning set forth in Section 6.1 hereof.
"Company Shares" shall have the meaning set forth in the Recitals
hereto.
"Contract" and "Contracts" shall have the meaning set forth in Section
2.18 hereof.
"Controlled Group" shall have the meaning set forth in Section 2.27
hereof.
"CPR Rules" shall have the meaning set forth in Section 11.9 hereof.
"Customers" shall have the meaning set forth in Section 2.12 hereof.
"Employee Program" shall have the meaning set forth in Section 2.27
hereof.
"Encumbrances" shall have the meaning set forth in Section 2.7 hereof.
"Environmental Law" shall have the meaning set forth in Section 2.28
hereof.
"ERISA" shall have the meaning set forth in Section 2.27 hereof.
"Financial Statements" shall have the meaning set forth in Section 2.8
hereof.
"GAAP" shall have the meaning set forth in Section 2.8 hereof.
46
<PAGE> 52
"Hazardous Material" shall have the meaning set forth in Section 2.28
hereof.
"Hazardous Waste" shall have the meaning set forth in Section 2.28
hereof.
"Indemnification Cut-Off Date" shall have the meaning set forth in
Section 9.2 hereof.
"Intellectual Property" shall have the meaning set forth in Section
2.16 hereof.
"Interim Financial Statements" shall have the meaning set forth in
Section 2.8 hereof.
"IRS" shall have the meaning set forth in Section 2.9 hereof.
"Leased Real Property" shall have the meaning set forth in Section 2.7
hereof.
"Liens" shall have the meaning set forth in Section 2.3 hereof.
"Maintains" shall have the meaning set forth in Section 2.27 hereof.
"Material Adverse Effect" shall have the meaning set forth in Section
2.12 hereof.
"Maximum Indemnification" shall have the meaning set forth in Section
9.
"Multiemployer Plan" shall have the meaning set forth in Section 2.27
hereof.
"New Business Prospects" shall mean and include the Principals
identified on Exhibit G attached hereto as such Exhibit may be amended
or modified from time to time after the date hereof upon the mutual
written agreement of the Buyer and the Stockholder's Representative.
"Owned Real Property" shall have the meaning set forth in Section 2.7
hereof.
"Permitted Encumbrances" shall have the meaning set forth in Section
2.7 hereof.
"Principal" shall have the meaning set forth in Section 2.12.
"Products" shall have the meaning set forth in Section 2.16 hereof.
"Prohibited Transaction" shall have the meaning set forth in Section
2.27 hereof.
"Purchase Price" shall have the meaning set forth in Section 1.1
hereof.
"Real Property" shall have the meaning set forth in Section 2.7 hereof.
47
<PAGE> 53
"Reportable Event" shall have the meaning set forth in Section 2.27
hereof.
"Revenue Statement" shall have the meaning set forth in Section 1.2
hereof.
"Senior Debt" shall mean and include all principal of, interest on,
premium, if any, and other obligations of Buyer with respect to any (i)
indebtedness to any bank, trust company, insurance company or other
institutional lender providing financing to Buyer whether outstanding
on the date hereof or incurred, created or arising hereafter pursuant
to any agreement or instrument which Buyer may have executed and
delivered prior to the date hereof, or may execute and deliver as of
the date hereof or at any time hereafter, including, without
limitation, the indebtedness of Buyer under that certain Credit
Agreement, as amended from time to time, dated as of December 18, 1998,
by and between Buyer, First Union National Bank, as agent and certain
other lenders named therein, (ii) indebtedness of Buyer for monies
borrowed from other entities, (iii) obligations of Buyer as lessee
under leases of real or personal property, (iv) principal of, interest
on and premium, if any, relating to any indebtedness or obligations of
others of the kinds described (i), (ii) and (iii) above assumed or
guaranteed in any manner by Buyer, and (v) any amendment, modification,
supplement, restatement, refinancing, deferral, renewal, extension or
refunding of any such indebtedness described in (i), (ii), (iii), and
(iv) above (including, without limitation, any of the foregoing having
the effect of increasing the principal amount of the indebtedness
outstanding or available thereunder) as may be entered into by Buyer
from time to time.
"Severance Pay" shall have the meaning set forth in Section 2.30
hereof.
"Stockholder" shall have the meaning set forth in the Recitals hereto.
"Stockholder Indemnified Party and "Stockholder Indemnified Parties"
shall have the meaning set forth in Section 9.3 hereof.
"Stockholder's Representative" shall have the meaning set forth in
Section 1.5 hereof.
"Taxes" shall have the meaning set forth in Section 2.9 hereof.
"Threshold Amount" shall have the meaning set forth in Section 9.2
hereof.
"Transaction Documents" shall have the meaning set forth in Section 2.6
hereof.
"Unfunded Benefit Liabilities" shall have the meaning set forth in
Section 2.27 hereof.
"Base Balance Sheet" shall have the meaning set forth in Section 2.8
hereof.
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<PAGE> 54
SECTION 11. MISCELLANEOUS.
11.1 Fees and Expenses.
(a) Buyer, on one hand, and the Stockholder on the other,
shall pay all of its or their respective fees, expenses and costs incurred in
connection with the preparation and negotiation of this Agreement and the
consummation of the transactions contemplated hereby and none of such fees,
expenses or costs incurred by or on behalf of the Stockholder shall be paid by
the Company.
(b) The Stockholder will pay all costs incurred, whether at or
subsequent to the Closing, in connection with the transfer of the Company Shares
to Buyer as contemplated by this Agreement, including without limitation, all
transfer taxes and charges applicable to such transfer, and all costs of
obtaining permits, waivers, registrations or consents with respect to any
assets, rights or contracts of the Company.
11.2 Governing Law. This Agreement shall be construed under and
governed by the internal laws of the Commonwealth of Massachusetts without
regard to its conflict of laws provisions.
11.3 Notices. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been given if delivered or sent by facsimile transmission, upon receipt, if sent
by a nationally recognized overnight courier for next day delivery, on the next
business day following delivery to such overnight courier, or if sent by
registered or certified mail, upon the sooner of the date on which receipt is
acknowledged or the expiration of three days after deposit in United States post
office facilities properly addressed with postage prepaid. All notices to a
party will be sent to the addresses set forth below or to such other address or
person as such party may designate by notice to each other party hereunder:
TO BUYER: Merkert American Corporation
490 Turnpike Street
Canton, Massachusetts 02021
Attn: Chief Executive Officer
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn.: Stuart M. Cable, P.C.
TO COMPANY: Buckeye Sales & Marketing, Inc.
2265 Enterprise East Parkway
Twinsburg, Ohio 44087
Attn: James J. Forkin
49
<PAGE> 55
With a copy to: Arter & Hadden LLP
925 Euclid Avenue
1100 Huntington Building
Cleveland, Ohio 44115-1475
Attn: Jacob I. Rosenbaum, Esq.
TO THE STOCKHOLDER
REPRESENTATIVE: James J. Forkin
2055 Fairway Blvd.
Hudson, Ohio 44236
Any notice given hereunder may be given on behalf of any party by his
counsel or other authorized representatives.
11.4 Entire Agreement. This Agreement, including the Schedules and
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby, is complete, reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous written
or oral negotiations, commitments and writings. No promises, representations,
understandings, warranties and agreements have been made by any of the parties
hereto except as referred to herein or in such Schedules and Exhibits or in such
other writings; and all inducements to the making of this Agreement relied upon
by either party hereto have been expressed herein or in such Schedules or
Exhibits or in such other writings.
11.5 Assignability; Binding Effect. This Agreement shall only be
assignable by Buyer to a corporation, partnership or other entity controlling,
controlled by or under common control with Buyer upon written notice to the
Company and the Stockholder. This Agreement may not be assigned by the
Stockholder, any Primary Party or the Company without the prior written consent
of Buyer. This Agreement shall be binding upon and enforceable by, and shall
inure to the benefit of, the parties hereto and their respective successors and
permitted assigns.
11.6 Execution in Counterparts. For the convenience of the parties and
to facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
11.7 Amendments. This Agreement may not be amended or modified, nor may
compliance with any condition or covenant set forth herein be waived, except by
a writing duly and validly executed by each party hereto, or in the case of a
waiver, the party waiving compliance.
50
<PAGE> 56
11.8 Publicity and Disclosures. No press releases or public disclosure,
either written or oral, of the transactions contemplated by this Agreement,
shall be made by a party to this Agreement without the prior knowledge and
written consent of Buyer and the Company.
11.9 Dispute Resolution; Consent to Jurisdiction.
(a) Except as provided below, any dispute arising out of or
relating to this Agreement or the breach, termination or validity hereof shall
be finally settled by arbitration conducted expeditiously in accordance with the
Center for Public Resources Rules for Nonadministered Arbitration of Business
Disputes (the "CPR Rules"). The Center for Public Resources shall appoint a
neutral advisor from its National CPR Panel. The arbitration shall be governed
by the United States Arbitration Act, 9 U.S.C. Sections 1-16, and judgment upon
the award rendered by the arbitrators may be entered by any court having
jurisdiction thereof.
(b) Any such arbitration shall be conducted in accordance with
the following:
(i) The arbitrator shall be authorized, but not
required, to award to the prevailing party the costs of arbitration,
including the reasonable fees and expenses of attorneys and
accountants.
(ii) The arbitrator shall not be authorized or
empowered to award damages in excess of compensatory damages.
(iii) The arbitrator shall enforce the following
agreed upon procedures: (A) mandatory exchange of all relevant
documents to be accomplished within 30 days of the initiation of the
arbitration procedure; (B) hearings before the arbitrator shall be
limited to a summary presentation by each party not to exceed three
hours for each party; (C) all hearings shall have concluded not more
than 60 days after the initiation of the arbitration procedure; and (D)
the arbitrator's decision shall be rendered not more than 10 days after
the conclusion of such hearings.
(c) Notwithstanding anything to the contrary contained herein,
the provisions of this Section 11.9 shall not apply with regard to any equitable
remedies to which any party may be entitled hereunder.
(d) Each of the parties hereto (i) hereby irrevocably submits
to the jurisdiction of any state or federal court sitting in Boston,
Massachusetts for the purpose of enforcing the award or decision in any such
proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a
defense, or otherwise, in any such suit, action or proceeding, any claim that it
is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is
51
<PAGE> 57
improper or that this Agreement or the subject matter hereof may not be enforced
in or by such court, and (iii) hereby waives and agrees not to seek any review
by any court of any other jurisdiction which may be called upon to grant an
enforcement of the judgment of any such court. Each of the parties hereto hereby
consents to service of process by registered mail at the address to which
notices are to be given. Each of the parties hereto agrees that its submission
to jurisdiction and its consent to service of process by mail is made for the
express benefit of the other parties hereto. Final judgment against any party
hereto in any such action, suit or proceeding may be enforced in other
jurisdictions by suit, action or proceeding on the judgment, or in any other
manner provided by or pursuant to the laws of such other jurisdiction; provided,
however, that any party hereto may at its option bring suit, or institute other
judicial proceedings, in any state or federal court of the United States or of
any country or place where the other parties or their assets, may be found.
11.10 Consent to Jurisdiction. Each of the parties hereby consents to
the exclusive personal jurisdiction, service of process and venue in the federal
or state courts sitting in Cleveland, Ohio for any claim, suit or proceeding
arising under this Agreement, or in the case of a third party claim subject to
indemnification hereunder, in the court where such claim is brought.
11.11 Specific Performance. The parties agree that it would be
difficult to measure damages which might result from a breach of this Agreement
by the Company or the Stockholder and that money damages would be an inadequate
remedy for such a breach. Accordingly, if there is a breach or proposed breach
of any provision of this Agreement by the Company, the Stockholder or any
Primary Party, and Buyer does not elect to terminate under Section 7, Buyer
shall be entitled, in addition to any other remedies which it may have, to an
injunction or other appropriate equitable relief to restrain such breach without
having to show or prove actual damage to Buyer.
11.12 No Third-Party Beneficiaries. This Agreement is intended solely
for the benefit of the parties hereto. Neither this Agreement nor any of the
transactions contemplated hereby shall be deemed to create or enlarge any rights
in any party not a party hereto.
11.13 Severability. The parties agree that, in the event that any
provision of this Agreement or the application of any such provision to any
party is held by a court of competent jurisdiction to be contrary to law, the
provision in question shall be construed so as to be lawful and the remaining
provisions of this Agreement shall remain in full force and effect.
[Remainder of Page Intentionally Left Blank]
52
<PAGE> 58
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date first set forth above by their duly authorized
representatives.
MERKERT AMERICAN
CORPORATION
By:
Name:
Title:
BUCKEYE SALES & MARKETING,
INC.
By:
Name:
Title:
JF & JF LIMITED PARTNERSHIP
By:
Name:
Title:
-----------------------------------------
JAMES J. FORKIN
-----------------------------------------
JOAN M. FORKIN
-----------------------------------------
TIMOTHY P. FORKIN
53
<PAGE> 59
EXHIBIT A
List of Stockholders, Stockholdings and Consideration to be Paid
<TABLE>
<CAPTION>
==============================================================================================
NO. OF COMPANY PERCENTAGE
NAME AND ADDRESS OF SHARES EQUITY CASH AT MONTHLY
STOCKHOLDER OWNED OWNERSHIP CLOSING PAYMENTS
- --------------------------------------------------------- ---------
<S> <C> <C> <C> <C>
JF & JF Limited 100 100 $100,000 40
Partnership
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
==============================================================================================
</TABLE>
54
<PAGE> 1
EXHIBIT 10.18
================================================================================
STOCK PURCHASE AGREEMENT
by and among
RICHMONT MARKETING SPECIALISTS INC.,
PAUL INMAN ASSOCIATES, INC.
and
THE SHAREHOLDERS OF PAUL INMAN ASSOCIATES, INC.
regarding the sale of 100% of the outstanding capital stock of
Paul Inman Associates, Inc.
dated as of May 14, 1999
================================================================================
This Agreement is subject to arbitration under
the rules and regulations of the American
Arbitration Association as provided in
Article XII hereof.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Preliminary Statements............................................................................................1
Statement of Agreement............................................................................................1
ARTICLE I. TERMS OF THE PURCHASE AND SALE..................................................................1
Section 1.1 Sale of Shares............................................................................1
Section 1.2 Purchase Price............................................................................2
Section 1.3 Payment of Purchase Price.................................................................2
Section 1.4 Adjustments to Purchase Price.............................................................2
ARTICLE II. THE CLOSING.....................................................................................3
Section 2.1 The Closing...............................................................................3
Section 2.2 Escrow....................................................................................3
Section 2.3 Deliveries by the Sellers.................................................................3
Section 2.4 Deliveries by Company.....................................................................4
Section 2.5 Deliveries by Purchaser...................................................................5
Section 2.6 Simultaneous Deliveries...................................................................5
Section 2.7 Sales and Transfer Taxes..................................................................5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLERS...................................................5
Section 3.1 Title to Shares...........................................................................5
Section 3.2 Power, Authority, Right and Capacity......................................................6
Section 3.3 Authorizations; Execution and Validity....................................................6
Section 3.4 No Conflict; Consents.....................................................................6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND COMPANY.......................................6
Section 4.1 Organization and Good Standing............................................................6
Section 4.2 Delivery of Charter Documents.............................................................6
Section 4.3 Power and Authority.......................................................................6
Section 4.4 Authorization; Execution and Validity.....................................................7
Section 4.5 No Conflict; Consents.....................................................................7
Section 4.6 Capitalization............................................................................7
Section 4.7 Financial Statements......................................................................7
Section 4.8 No Undisclosed Liabilities................................................................8
Section 4.9 Absence of Certain Changes................................................................8
Section 4.10 Sufficiency and Condition of and Title to the Assets......................................9
Section 4.11 Accounts Receivable.......................................................................9
Section 4.12 Inventory.................................................................................9
Section 4.13 Real Property.............................................................................9
Section 4.14 Personal Property........................................................................10
Section 4.15 Compliance with Laws.....................................................................10
Section 4.16 Insurance................................................................................11
</TABLE>
(i)
<PAGE> 3
<TABLE>
Page
----
<S> <C> <C>
Section 4.17 Contracts................................................................................11
Section 4.18 Litigation; Orders.......................................................................11
Section 4.19 Environmental Orders.....................................................................12
Section 4.20 Environmental Matters....................................................................12
Section 4.21 Permits..................................................................................12
Section 4.22 Intangible Assets........................................................................13
Section 4.23 Employees................................................................................13
Section 4.24 Employee Benefits........................................................................14
Section 4.25 Taxes....................................................................................16
Section 4.26 Bank Accounts; Powers of Attorney........................................................17
Section 4.27 Relationship with Suppliers..............................................................17
Section 4.28 Relationship with Principals.............................................................18
Section 4.29 Affiliated Transactions..................................................................18
Section 4.30 Books and Records........................................................................18
Section 4.31 Full Disclosure..........................................................................18
Section 4.32 Brokers..................................................................................18
Section 4.33 Split Commission Arrangements............................................................18
Section 4.34 Brokerage Agreements.....................................................................18
Section 4.35 Market Development Fund Accounts.........................................................19
Section 4.36 Change in Control........................................................................19
Section 4.37 Affiliates...............................................................................19
Section 4.38 Certain Business Practices...............................................................19
Section 4.39 Parachute Payments.......................................................................19
Section 4.40 Board Recommendation.....................................................................20
Section 4.41 HSR Requirements.........................................................................20
Section 4.42 Year 2000................................................................................20
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER....................................................21
Section 5.1 Organization; Good Standing; Delivery of Charter Documents...............................21
Section 5.2 Power and Authority......................................................................21
Section 5.3 Authorization; Execution and Validity....................................................21
Section 5.4 No Conflict; Purchaser Consents..........................................................21
Section 5.5 Brokers..................................................................................21
ARTICLE VI. COVENANTS OF COMPANY AND THE SELLERS...........................................................21
Section 6.1 Cooperation of Company and the Sellers...................................................21
Section 6.2 Pre-Closing Access to Information........................................................22
Section 6.3 Conduct of Business......................................................................22
Section 6.4 Supplements to Schedules.................................................................22
Section 6.5 Standstill...............................................................................23
Section 6.6 Discharge of Encumbrances................................................................23
Section 6.7 Non-Disclosure; Non-Competition; Non-Solicitation........................................24
Section 6.8 Comerica Loan............................................................................25
ARTICLE VII. COVENANTS OF PURCHASER.........................................................................25
Section 7.1 Cooperation by Purchaser.................................................................25
Section 7.2 Pre-Closing Access to Information........................................................25
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 7.3 Employee Benefits........................................................................26
Section 7.4 RMSI Debt Obligations....................................................................26
ARTICLE VIII. MUTUAL COVENANTS...............................................................................26
Section 8.1 Governmental Consents....................................................................26
Section 8.2 Consents to Assign Leases and Contracts..................................................26
Section 8.3 Permits..................................................................................27
Section 8.4 Books and Records........................................................................27
Section 8.5 Further Assurances.......................................................................27
Section 8.6 Escrow Agreement.........................................................................28
Section 8.7 Tax Matters..............................................................................28
ARTICLE IX. CONDITIONS PRECEDENT TO THE CLOSING............................................................30
Section 9.1 Conditions Precedent to Purchaser's Obligations..........................................30
Section 9.2 Conditions Precedent to Company's and the Sellers' Obligations...........................31
ARTICLE X. TERMINATION PRIOR TO THE CLOSING...............................................................32
Section 10.1 Termination of Agreement.................................................................32
Section 10.2 Effect of Termination....................................................................32
Section 10.3 Expenses.................................................................................32
Section 10.4 Procedure Upon Termination...............................................................33
ARTICLE XI. INDEMNIFICATION AND RELATED MATTERS............................................................33
Section 11.1 Indemnification of Purchaser.............................................................33
Section 11.2 Indemnification of the Sellers...........................................................34
Section 11.3 Indemnification Procedure................................................................34
Section 11.4 Meritless Third Party Claims.............................................................36
Section 11.5 Assignment of Claims.....................................................................36
Section 11.6 Other Indemnitees........................................................................36
Section 11.7 Contribution.............................................................................36
Section 11.8 Sole and Exclusive Remedy................................................................36
Section 11.9 Maximum Liability Cap....................................................................37
Section 11.10 Recourse Against Escrow Deposit..........................................................37
Section 11.11 Consequential Damages....................................................................37
Section 11.12 Interest.................................................................................37
Section 11.13 Survival of Terms........................................................................37
Section 11.14 Negligence and Strict Liability..........................................................38
ARTICLE XII. THE SELLER REPRESENTATIVE......................................................................38
Section 12.1 Authorization of the Seller Representative...............................................38
Section 12.2 Removal and Replacement of Seller Representative; Successor
Seller Representative; Action by Seller Representative...................................40
Section 12.3 Reliance; Limitation as to Purchaser.....................................................40
ARTICLE XIII. ARBITRATION AND EQUITABLE REMEDIES.............................................................41
Section 13.1 Settlement Meeting.......................................................................41
Section 13.2 Arbitration Proceedings..................................................................41
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 13.3 Place of Arbitration.....................................................................41
Section 13.4 Discovery................................................................................42
Section 13.5 Equitable Remedies.......................................................................42
Section 13.6 Exclusive Jurisdiction...................................................................42
Section 13.7 Judgments................................................................................42
Section 13.8 Expenses.................................................................................42
Section 13.9 Cost of the Arbitration..................................................................42
Section 13.10 Exclusivity of Remedies..................................................................42
ARTICLE XIV. MISCELLANEOUS..................................................................................43
Section 14.1 Amendment................................................................................43
Section 14.2 Counterparts; Fax Signatures.............................................................43
Section 14.3 Entire Agreement.........................................................................43
Section 14.4 Governing Law............................................................................43
Section 14.5 No Assignment............................................................................43
Section 14.6 No Third Party Beneficiaries.............................................................43
Section 14.7 Notices..................................................................................43
Section 14.8 Public Announcements.....................................................................44
Section 14.9 Representation by Legal Counsel..........................................................45
Section 14.10 Schedules................................................................................45
Section 14.11 Severability.............................................................................45
Section 14.12 Specific Performance.....................................................................45
Section 14.13 Successors...............................................................................45
Section 14.14 Time of the Essence......................................................................45
Section 14.15 Waiver...................................................................................45
Section 14.16 No Waiver Relating to Claims of Fraud....................................................46
</TABLE>
(iv)
<PAGE> 6
SCHEDULES
<TABLE>
<CAPTION>
Schedule Description
- -------- -----------
<S> <C>
Schedule 1.1...............................................Ownership of the Shares and Allocation of Purchase Price
Schedule 4.1.................................................................Jurisdictions of Foreign Qualification
Schedule 4.6.........................................................................................Capitalization
Schedule 4.7(a).......................................................................Reviewed Financial Statements
Schedule 4.7(b)........................................................................Interim Financial Statements
Schedule 4.8................................................................................Undisclosed Liabilities
Schedule 4.9........................................................................................Certain Changes
Schedule 4.10(b)................................................................................Condition of Assets
Schedule 4.11...........................................................................Accounts Receivable Set-off
Schedule 4.13(a)................................................................................Owned Real Property
Schedule 4.13(b)...............................................................................Leased Real Property
Schedule 4.14(a)............................................................................Owned Personal Property
Schedule 4.14(b)...........................................................................Leased Personal Property
Schedule 4.15..................................................................................Compliance with Laws
Schedule 4.16....................................................................................Insurance Policies
Schedule 4.17....................................................................................Material Contracts
Schedule 4.18....................................................................................Litigation; Orders
Schedule 4.20.................................................................................Environmental Matters
Schedule 4.21...............................................................................................Permits
Schedule 4.22(a)............................................................................Owned Intangible Assets
Schedule 4.22(b).........................................................................Licensed Intangible Assets
Schedule 4.23(a)..........................................................................................Employees
Schedule 4.23(b).....................................................................Employment and Labor Contracts
Schedule 4.24(a)..............................................................................Welfare Benefit Plans
Schedule 4.24(b)..............................................................................Pension Benefit Plans
Schedule 4.24(c)..............................................................................Employee Arrangements
Schedule 4.24(d)...................................................Debts Incurred by Company Employee Benefit Plans
Schedule 4.24(h)........................................................Effect of Consummation on Employee Benefits
Schedule 4.25(a)........................................................................................Tax Returns
Schedule 4.26.....................................................................Bank Accounts; Powers of Attorney
Schedule 4.27...........................................................................Relationship with Suppliers
Schedule 4.28..........................................................................Relationship with Principals
Schedule 4.34.....................................................................................Broker Agreements
Schedule 4.35......................................................................Market Development Fund Accounts
Schedule 4.36.....................................................................................Change in Control
Schedule 4.37.............................................................................Contracts with Affiliates
Schedule 4.39....................................................................................Parachute Payments
Schedule 4.42.............................................................................................Year 2000
Schedule 6.3......................................................................................Permitted Actions
Schedule 8.2(b)...................................................................................Required Consents
Schedule 8.3(b)....................................................................................Required Permits
Schedule 9.1(h)...............................................................................Employment Agreements
</TABLE>
(v)
<PAGE> 7
EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
Exhibit 1.3(b)....................................................................................Form of the Notes
Exhibit 2.2................................................................................Form of Escrow Agreement
Exhibit 2.3(c)..............................................................Form of Opinion of the Sellers' Counsel
Exhibit 2.4(f).................................................................Form of Opinion of Company's Counsel
Exhibit 4.13(b).............................................................................Form of Estoppel Letter
Exhibit 9.1(h).........................................................................Form of Employment Agreement
</TABLE>
(vi)
<PAGE> 8
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May 14,
1999 (the "SIGNING DATE"), is made by and among Richmont Marketing Specialists,
Inc., a Delaware corporation, ("PURCHASER"), Paul Inman Associates, Inc., a
Michigan corporation ("COMPANY"), the Paul Inman Associates, Inc. Employee Stock
Ownership Plan & Trust (the "ESOP"), the other Persons listed on the signature
pages attached hereto (collectively with the ESOP, the "SELLERS," and
individually, a "SELLER"), and, for the purposes set forth in Section 6.7 only,
each of the Persons identified as "RESTRICTED PERSONS" on the signature page
hereto. Purchaser, Company and the Sellers are sometimes collectively referred
to as the "PARTIES," and individually referred to as a "PARTY."
PRELIMINARY STATEMENTS
A. Company is engaged in the food brokerage business, which includes
providing an array of sales, marketing, merchandising and order management
services to manufacturers in order to sell the manufacturers' products to
various retailers and wholesalers in a variety of trade channels, including
grocery stores, drug stores, convenience stores and mass merchandisers located
in Michigan, Indiana, Ohio and Illinois (such business being herein referred to
as the "BUSINESS").
B. The Sellers own all the issued and outstanding shares of Company's
common stock, no par value per share (the "COMMON STOCK"), which shares
constitute all the issued and outstanding equity securities of Company.
C. Each Seller desires to sell, assign, and transfer to Purchaser, and
Purchaser desires to purchase from each Seller, the Shares (as defined below),
in each case on the terms and subject to the conditions set forth in this
Agreement.
D. Capitalized terms used in this Agreement are defined or indexed in
Appendix A for the convenience of the reader and in order to eliminate the need
for cross-references. Appendix A is incorporated herein by this reference for
all purposes.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, covenants, representations and warranties set forth in this
Agreement and for other good, valid and binding consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties, intending to be
legally bound, hereby agree as follows:
ARTICLE I.
TERMS OF THE PURCHASE AND SALE
Section 1.1 Sale of Shares. Subject to the terms and conditions and in
reliance upon the representations and warranties set forth in this Agreement, at
the Closing, each Seller will sell, assign and transfer to Purchaser, and
Purchaser will purchase and acquire from each Seller,
<PAGE> 9
the number of shares of the Common Stock listed on Schedule 1.1 opposite the
name of such Seller (collectively, the "SHARES"), in each case free and clear of
all Encumbrances.
Section 1.2 Purchase Price. The total consideration for the Shares will
be the sum of $10,894,500, subject to any adjustment pursuant to Section 1.4 (as
so adjusted, the "PURCHASE PRICE").
Section 1.3 Payment of Purchase Price.
(a) ESOP Shares. Subject to any adjustment pursuant to Section
1.4, for and in full consideration of this Agreement and the transactions
contemplated herein, at the Closing, Purchaser will pay to the ESOP the amount
of $8,219,139.95 (the "ESOP PAYMENT") by wire transfer of immediately available
funds to the bank account set forth on a notice given by the ESOP to Purchaser
no later than three days prior to the Closing Date and will deposit the amount
of $395,360.05 (the "ESOP ESCROW DEPOSIT") to an account with the Escrow Agent
to be held in escrow and distributed pursuant to the terms of this Agreement and
the Escrow Agreement.
(b) Non-ESOP Shares. Subject to any adjustment pursuant to
Section 1.4, for and in full consideration of this Agreement and the
transactions contemplated herein, at the Closing, Purchaser will pay to the
Sellers (other than the ESOP) an aggregate amount equal to $2,280,000, payable
as follows: (i) the amount of $104,639.95 (the "NON-ESOP ESCROW DEPOSIT," and
together with the ESOP Escrow Deposit, the "ESCROW DEPOSIT," as the same may be
increased or decreased from time to time pursuant to the terms of the Escrow
Agreement) to an account with the Escrow Agent to be held in escrow and
distributed pursuant to the terms of this Agreement and the Escrow Agreement;
(ii) the amount of $1,135,360.05 (the "NON-ESOP PAYMENT") by wire transfer of
immediately available funds in the amounts set forth on Schedule 1.1 (as the
same may be revised to reflect any adjustment to the Purchase Price) opposite
the name of each Seller (other than the ESOP) to the bank accounts set forth on
a notice given by each such Seller to Purchaser no later than three business
days prior to the Closing Date; and (iii) the aggregate principal amount of
$1,040,000 by delivering to each Seller (other than the ESOP) a promissory note
substantially in the form attached hereto as Exhibit 1.3(b) with a principal
amount equal to the amount set forth on Schedule 1.1 (as the same may be revised
to reflect any adjustment to the Purchase Price) opposite the name of such
Seller (collectively, the "NOTES").
Section 1.4 Adjustments to Purchase Price. The Parties acknowledge and
agree that the payment of the full amount of the Purchase Price (prior to any
adjustment pursuant to this Section 1.4) is expressly conditioned upon the
annualized commissions of Company being at least $17,000,000 as of the Closing
Date. If the annualized commissions of Company are greater than or equal to
$17,000,000 as of the Closing Date, there shall be no adjustment to the Purchase
Price, and the Parties shall close in accordance with the terms of this
Agreement. If the annualized commissions of Company are less than or equal to
$16,999,999 but greater than or equal to $15,000,000 as of the Closing Date, the
Purchase Price automatically shall be adjusted downward $0.65 for each $1.00 the
annualized commissions are below $17,000,000. In the event the annualized
commissions of Company are less than $15,000,000 as of the Closing Date,
Purchaser, in its sole and absolute discretion, may terminate this Agreement
pursuant to Section
2
<PAGE> 10
10.1(b) or negotiate an acceptable adjustment to the Purchase Price with
Sellers. For purposes of this Section 1.4 only, "annualized commissions of
Company" shall mean all commissions, bonuses, retail service fees, and outside
warehouse commissions of Company based on sales or services to or on behalf
principals of Company, regardless of whether such principals were principals of
Company on or after the Signing Date. Company shall deliver a calculation of
annualized commissions of Company as of the Closing Date to Purchaser at least
three (3) business days prior to the Closing Date, which calculation shall be
subject to verification by Purchaser.
ARTICLE II.
THE CLOSING
Section 2.1 The Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") will take place either at the
offices of Paul Inman Associates, Inc., 30095 Northwestern Highway, Farmington
Hills, Michigan 48334, or Miro Weiner & Kramer, 500 North Woodward Avenue, Suite
100, Bloomfield Hills, Michigan 48303 on the date upon which the merger with and
into Merkert American Corporation ("MERKERT") occurs, or in the event such
merger fails to occur, a date within ten (10) days of the date on which the
agreement (or if no agreement exists, the negotiations) relating thereto is (or
are) terminated by written instrument between Purchaser and Merkert, but in any
event no later than 179 days from the Signing Date; provided that all of the
conditions set forth in Article IX, to the extent not waived, are satisfied. The
Closing may be postponed to such other date as the Parties may mutually agree,
but in any event no later than 179 days from the Signing Date. Purchaser shall
notify Sellers and Company of the date of Closing as soon as possible. The date
on which the Closing actually occurs is hereinafter referred to as the "CLOSING
DATE."
Section 2.2 Escrow. Pursuant to Article XI, and subject to the terms
and conditions set forth therein, (i) each Seller has severally, and not
jointly, agreed to indemnify Purchaser from and against certain Claims as set
forth in Section 11.1(a), and (ii) the Sellers have jointly and severally agreed
to indemnify Purchaser from and against certain Claims as set forth in Section
11.1(b). At or prior to Closing, each of the Sellers, Purchaser and the Escrow
Agent shall enter into an Escrow Agreement in the form of Exhibit 2.2, subject
only to the comments, if any, of the Escrow Agent as to its rights and
obligations thereunder. Notwithstanding any other provision in this Agreement to
the contrary, Purchaser and each Seller acknowledge and agree that the Escrow
Deposit represents a portion of the funds which would otherwise be payable to
such Seller under Section 1.3 and is necessary in order to secure such Seller's
indemnification obligations hereunder.
Section 2.3 Deliveries by the Sellers. At the Closing, the Sellers or
each Seller, as the case may be, will deliver the following:
(a) the closing certificates referred to in Section 9.1(e);
(b) a certificate or certificates representing the number of
Shares listed on Schedule 1.1 opposite the name of such Seller, in each case
properly endorsed for transfer or accompanied by a duly executed stock power in
either case executed in blank or in favor of Purchaser;
3
<PAGE> 11
(c) an opinion of counsel addressed to Purchaser from counsel
to the Sellers in substantially the form of Exhibit 2.3(c) attached hereto;
(d) executed counterparts of all Required Consents and
Required Permits;
(e) a receipt for the payment of that portion of the ESOP
Payment or the Non-ESOP Payment, as applicable, received by such Seller and a
receipt for the delivery of the Note due to such Seller, if any; and
(f) each of the agreements referred to in Section 8.6 to which
such Seller is a party, each executed by such Seller.
Section 2.4 Deliveries by Company. At the Closing, Company will
deliver, or cause to be delivered, the following:
(a) the closing and secretary's certificates referred to in
Sections 9.1(e) and 9.1(f);
(b) the recorded Charter Documents of Company, recently
certified by the Secretary of State (or other proper state official) of the
State of Michigan;
(c) certificates of good standing and existence (or the
functional equivalents) for Company dated within 30 business days of the Closing
Date issued by the Secretary of State (or other proper state official) of the
State of Michigan;
(d) a certificate of good standing (or the functional
equivalent) for Company dated within 30 business days of the Closing Date issued
by the Secretary of State (or other proper state official) of each state in
which Company is qualified to transact business as a foreign corporation;
(e) all Books and Records of Company;
(f) an opinion of counsel addressed to Purchaser from counsel
to Company in substantially the form of Exhibit 2.4(f) attached hereto;
(g) any nondisturbance agreements obtained pursuant to Section
4.13(b);
(h) any estoppel letters obtained pursuant to Section 4.13(b);
(i) executed counterparts of all Required Consents and
Required Permits;
(j) an executed counterpart of the Escrow Agreement; and
(k) all other previously undelivered documents, instruments
and writings required to be delivered by Company to Purchaser at or prior to the
Closing pursuant to this Agreement and such other documents, instruments and
certificates as Purchaser may reasonably request in connection with the
transactions contemplated by this Agreement.
Section 2.5 Deliveries by Purchaser. At the Closing, Purchaser will
deliver, or cause to be delivered, the following:
4
<PAGE> 12
(a) the ESOP Payment, the Non-ESOP Payment, and the Escrow
Deposit in accordance with Section 1.3;
(b) the Notes;
(c) the secretary's certificate referred to in Section 9.2(a);
(d) the recorded Charter Documents of Purchaser, recently
certified by the Secretary of State (or other proper state official) of the
State of Delaware;
(e) a certificate of existence and good standing for Purchaser
dated within 30 business days of the Closing Date issued by the Secretary of
State of the State of Delaware;
(f) a receipt to each Seller for the delivery of the number of
Shares listed on Schedule 1.1 opposite the name of such Seller;
(g) each of the agreements referred to in Section 8.6 to which
Purchaser is a party, each executed by Purchaser; and
(h) all other previously undelivered documents, instruments
and writings required to be delivered by Purchaser to Company or the Sellers at
or prior to the Closing pursuant to this Agreement and such other documents,
instruments and certificates as the Sellers may reasonably request in connection
with the transactions contemplated by this Agreement.
Section 2.6 Simultaneous Deliveries. The delivery of the documents
required to be delivered at the Closing pursuant to this Agreement will be
deemed to occur simultaneously. No delivery will be effective until each Party
has received or waived receipt of all the documents that this Agreement entitles
such Party to receive.
Section 2.7 Sales and Transfer Taxes. Any Taxes and any transfer,
recording or similar fees and charges arising out of or in connection with the
transactions contemplated by this Agreement will be borne by the Sellers.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller hereby represents and warrants to Purchaser, with respect
to itself and not with respect to any other Seller, that the statements made in
this Article III are true, correct and complete.
Section 3.1 Title to Shares. Seller is the record and beneficial owner
of the number of Shares listed on Schedule 1.1 opposite the name of such Seller,
free and clear of all Encumbrances. At the Closing, Seller will sell, transfer,
assign, convey and deliver to Purchaser its entire right, title and interest in,
to and under the Shares.
Section 3.2 Power, Authority, Right and Capacity. Seller has the
requisite power, authority, right and capacity, as the case may be, to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby,
5
<PAGE> 13
including the execution, delivery and performance of all the Transaction
Documents to which such Seller is a party.
Section 3.3 Authorizations; Execution and Validity. Each of the
Transaction Documents, when executed by Seller and delivered to Purchaser, will
be duly authorized (where appropriate), executed and delivered, and will
constitute a valid, legal and binding obligation of Seller, enforceable against
Seller in accordance with the terms of such Transaction Document, subject to any
Law Affecting Creditors' Rights.
Section 3.4 No Conflict; Consents. The execution, delivery and
performance by Seller of each Transaction Document to which it is a party will
not (a) violate any Law, (b) violate any Charter Document of such Seller (if
applicable), (c) violate any Order to which Seller is a party or by which Seller
or its assets is bound, (d) result in the creation of any Encumbrance on any of
the Shares, or (e) require any Consent from any Person.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Company hereby represents and warrants to Purchaser that the statements
made in this Article IV are true, correct and complete:
Section 4.1 Organization and Good Standing. Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Michigan and has the requisite power and authority to own or lease its
property and to carry on business as now being conducted. Company is duly
licensed or qualified as a foreign corporation in each jurisdiction in which the
nature of its business makes such license or qualification necessary, except
those jurisdictions wherein the failure to so qualify would not have a Material
Adverse Effect on Company. Schedule 4.1 lists the jurisdictions in which Company
is qualified to transact business as a foreign corporation. There is no pending
or threatened proceeding for the dissolution, liquidation, insolvency or
rehabilitation of Company.
Section 4.2 Delivery of Charter Documents. Company has heretofore
furnished or made available to Purchaser a complete and correct copy of its
Charter Documents, each as in effect on the Signing Date. Company is not in
violation of any provision of its Charter Documents.
Section 4.3 Power and Authority. Company has all requisite corporate
power and authority necessary to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby, including the execution, delivery and performance of all the Transaction
Documents to which Company is a party. The execution and delivery of the
Transaction Documents by Company have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Company are necessary to authorize this Agreement or to consummate the
Transaction Documents. Company has all requisite corporate power and authority
necessary to own, operate and lease its assets and to carry on its business as
and where conducted.
Section 4.4 Authorization; Execution and Validity. Each of the
Transaction Documents, when executed by Company and delivered to Purchaser, will
be duly authorized,
6
<PAGE> 14
executed and delivered, and will constitute a valid, legal and binding
obligation of Company, enforceable against Company in accordance with the terms
of such Transaction Document, subject to any Law Affecting Creditors' Rights.
Section 4.5 No Conflict; Consents. The execution, delivery and
performance by Company of each Transaction Document to which it is a party will
not, subject to obtaining the Required Consents, Required Permits and Consents
required by Governmental Authorities (a) violate any Law, (b) violate any
Charter Document of Company, (c) violate any Order to which Company is a party
or by which Company or its Assets is bound, (d) breach any Material Contract,
Real Property Lease or Personal Property Lease, (e) result in the creation of
any Encumbrance on any Assets of Company, other than Permitted Encumbrances, or
(f) require any Consent from any Person.
Section 4.6 Capitalization. Schedule 4.6 lists the total number of
authorized, issued and outstanding shares of capital stock of Company. As of the
date hereof, all of the Shares have been duly authorized and validly issued and
are fully paid and non-assessable. There are no issued and outstanding shares of
capital stock of Company other than the Shares. Except as disclosed on Schedule
4.6, as of the date of this Agreement, there is no authorized or outstanding
option, subscription, warrant, call, right, commitment, contract, understanding
or other agreement obligating Company to (a) offer, sell, issue, grant, pledge,
transfer, encumber or otherwise dispose of any of the Shares or any other equity
securities of Company, (b) redeem, purchase or otherwise acquire, or offer to
redeem, purchase or otherwise acquire any of the Shares or any other equity
securities of Company or (c) grant any Lien on any of the Shares or any other
equity securities of Company. None of the Shares were issued or will be
transferred pursuant to this Agreement in violation of any preemptive,
preferential or similar rights of any Person. Except as disclosed on Schedule
4.6, Company does not own any shares of capital stock, partnership interests or
other beneficial ownership interests in any other Person.
Section 4.7 Financial Statements.
(a) Reviewed Financial Statements. Attached hereto as Schedule
4.7(a) are the reviewed balance sheets of Company as of September 30, 1998 (the
"YEAR-END BALANCE SHEET" and such date is the "BALANCE SHEET DATE"), September
30, 1997 and September 30, 1996, together with the reviewed statement of
operations, changes in shareholders' equity and cash flows of Company for the
fiscal years then ended, and the notes thereto, accompanied by the reports
thereon of Plante & Moran, L.L.P., independent public accountants (collectively,
the "REVIEWED FINANCIAL STATEMENTS"). The Reviewed Financial Statements have
been prepared in accordance with normal, customary and reasonable accounting
practices applied by Company on a consistent basis, and, subject to any
disclaimers or qualifications in the reports of Plante & Morgan, L.L.P. included
therewith, present fairly, in all material respects, the financial position of
Company as of the dates indicated and the results of Company's operations and
cash flows for the periods then ended.
(b) Interim Financial Statements. Attached hereto as Schedule
4.7(b) are the interim unaudited balance sheets of Company as of December 31,
1998 (the "INTERIM BALANCE SHEET") and the related statements of operations,
changes in shareholders' equity and cash flows for the three month period ended
on such date (collectively, the "INTERIM FINANCIAL
7
<PAGE> 15
STATEMENTS"). The Interim Financial Statements have been prepared in accordance
with the Books and Records and with normal, customary and reasonable accounting
practices applied by Company on a consistent basis, and present fairly, in all
material respects, the financial position of Company as of the date indicated
and the results of its operations and cash flows for the period then ended,
subject to normal year-end adjustments by Company or any independent auditor in
connection with the audit thereof.
Section 4.8 No Undisclosed Liabilities. Except as described in the
Year-End Balance Sheet or as set forth on Schedule 4.8, none of the Assets or
the Business is subject to any Claim of any nature, absolute or contingent, and,
to Company's Knowledge, no events have occurred or circumstances exist that
could give rise to any future Claim that could have a Material Adverse Effect on
the Assets or the Business.
Section 4.9 Absence of Certain Changes. Since the Balance Sheet Date,
Company has conducted its business only in the ordinary course of business
consistent with past practices and, without limiting the generality of the
foregoing, except as set forth on Schedule 4.9 or otherwise disclosed in this
Agreement, there has not been any (a) event or events (whether or not covered by
insurance) which, and, to Company's Knowledge, no facts or conditions exist
which, individually or in the aggregate, would reasonably be expected to prevent
or delay consummation of the Agreement or otherwise prevent Company from
performing its obligations under this Agreement or have had, or would reasonably
be expected to have a Material Adverse Effect on Company, (b) amendment to the
Charter Documents of Company, (c) payment of any dividend or distribution made
with respect to Company's capital stock, (d) redemption or purchase of Company's
capital stock, (e) amendment, termination or receipt of notice of termination of
or entry into any Material Contract, (f) incurrence or guarantee of any debt by
Company, other than trade and accounts payable incurred in the ordinary course
of business consistent with past practices, (g) loan to, or transaction with,
any officer, director or shareholder of Company, (h) waiver of any material
right or release of any debt or claim by Company, (i) amendment or termination
of any Permit of Company, (j) destruction, damage or other loss to any material
asset of Company, (k) adoption of, or increase in, the payments to or benefits
under any Employee Benefit Plan of Company (except for vesting of certain
benefits as a direct result of the consummation of the transactions contemplated
in this Agreement), (l) sale, lease, or other disposition of any Assets used in
the Business of Company, other than Assets sold, leased or otherwise disposed of
in the ordinary course of business consistent with past practices, (m)
imposition of any Encumbrance on any of the Assets of Company, other than
Permitted Encumbrances, (n) purchase or lease of any Assets used in the Business
of Company, other than Assets purchased or leased in the ordinary course of
business consistent with past practices, (o) payment of any bonus or any
increase in the salary, bonus or other compensation payable to any officer,
director or employee of Company, (p) change in any accounting method used by
Company, (q) acceleration related to the collection of Accounts Receivable of
Company or delay related to the payment of accounts payable of Company, or (r)
agreement or commitment to take any action described in this Section.
Section 4.10 Sufficiency and Condition of and Title to the Assets.
(a) Sufficiency of the Assets. The assets reflected on the
Books and Records of Company (the "ASSETS") constitute all the assets,
properties, licenses and other arrangements that
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are presently being used or are related in any material way to the Business, and
are sufficient to operate the Business in a manner consistent with past
practices and historic capacity.
(b) Condition of the Assets. Except as disclosed on Schedule
4.10(b), each of the Assets is in normal operating condition and repair
(ordinary wear and tear excepted), with no known defects, and suitable for its
intended use.
(c) Title to the Assets. Company holds good, valid and
indefeasible title to, or a valid leasehold interest in, each of the Assets,
free and clear of all Encumbrances, other than Permitted Encumbrances.
Section 4.11 Accounts Receivable. All accounts receivable of Company
reflected on the Interim Balance Sheet (the "ACCOUNTS RECEIVABLE") represent or
will represent valid and genuine obligations arising from bona fide sales and
deliveries of goods made, commissions earned or services performed in the
ordinary course of business. Unless paid prior to the Closing Date, the Accounts
Receivable are current and collectible net of the respective reserves shown on
the Interim Balance Sheet (which reserves are adequate and calculated consistent
with past practices). Subject to such reserves, each of the Accounts Receivable
either has been or will be collected in full, without any set-off, within 120
days after the day on which it first becomes due and payable. Except as set
forth on Schedule 4.11, Schedule 4.8 or otherwise disclosed in this Agreement,
there is no contest, claim, or right of set-off under any contract with any
obligor of Accounts Receivable relating to the amount or validity of such
Accounts Receivable. Except as disclosed on Schedule 4.11, there are no
discounts, trade promotions or similar marketing arrangements that affect the
collectibility or value of any such Accounts Receivable.
Section 4.12 Inventory. Company owns all of the inventory reflected on
the Year-End Balance Sheet and all inventory that it has acquired or created
after the Balance Sheet Date, other than inventory disposed of since then in the
ordinary course of business consistent with past practices.
Section 4.13 Real Property.
(a) Owned Real Property. Schedule 4.13(a) lists, as of the
Signing Date, each parcel of real property owned by Company, including the
street address of each property and a summary description of the buildings and
improvements thereon. Each parcel of real property listed on Schedule 4.13(a)
and any parcel of real property purchased after the Signing Date in accordance
with Section 6.3 (collectively, the "OWNED REAL PROPERTY") is (i) to the
Company's Knowledge, in compliance with all applicable Laws, including the
Americans with Disabilities Act and any building, fire, land use, occupancy,
safety, set-back, or zoning Law, (ii) not burdened by any covenant, easement,
encroachment, restrictive covenant, right-of-way, or servitude, and (iii) to the
Company's Knowledge, not subject to any pending or threatened condemnation,
eminent domain or similar Action.
(b) Leased Real Property. Schedule 4.13(b) lists all the
leases of real property to which Company is a party and which are in effect as
of the Signing Date. All of the leases on Schedule 4.13(b) and any leases of
real property entered into after the Signing Date in accordance with Section 6.3
(collectively, the "REAL PROPERTY LEASES") are valid, binding and in
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full force and effect. Neither Company nor, to Company's Knowledge, any other
Person is in default under any Real Property Lease, nor is there any event which
with notice or lapse of time, or both, would constitute a default thereunder by
Company or any other Person. Company has requested in writing (copies of which
requested have been provided to Purchaser) (i) a nondisturbance agreement from
each lessor's lender under each of the Real Property Leases and (ii) an estoppel
letter substantially in the form of Exhibit 4.13(b) from each lessor under each
of the Real Property Leases. True and complete copies of all the Real Property
Leases, any amendments thereto and any nondisturbance agreements and estoppel
letters have been provided to Purchaser prior to the Signing Date.
Section 4.14 Personal Property.
(a) Owned Personal Property. Schedule 4.14(a) lists, as of the
Signing Date, all of the material personal property (including all machinery,
equipment, vehicles, structures, fixtures and furniture) owned by Company,
located on its premises or shown on the Interim Balance Sheet or acquired after
the date thereof (except for inventory subsequently sold in the ordinary course
of business and consistent with past practices).
(b) Leased Personal Property. Schedule 4.14(b) lists, as of
the Signing Date, all the leases of personal property to which Company is a
party. All of the leases on Schedule 4.14(b) and any leases of personal property
entered into after the Signing Date in accordance with Section 6.3
(collectively, the "PERSONAL PROPERTY LEASES") are valid, binding and in full
force and effect. Neither Company nor, to Company's Knowledge, any other Person
is in default under any Personal Property Lease, nor is there any event which
with notice or lapse of time, or both, would constitute a default thereunder by
Company or any other Person. True and complete copies of all the Personal
Property Leases and any amendments thereto have been provided to Purchaser prior
to the Signing Date.
Section 4.15 Compliance with Laws. Except as disclosed on Schedule
4.15, Company is in compliance with (a) all Laws applicable to Company or by
which any property or asset of Company is bound or affected, and (b) all
Permits, except where the failure to be in compliance under either (a) or (b)
would not, individually or in the aggregate, reasonably be expected to prevent
or delay consummation of the Agreement or otherwise prevent Company from
performing its obligations under this Agreement and has not had, and would not
reasonably be expected to have, a Material Adverse Effect on Company. Except as
set forth on Schedule 4.15, Company has not received any notice from any
Governmental Authority or other Person asserting that Company has violated any
Law. To Company's Knowledge, no events have occurred and no circumstances exist
that could reasonably be expected to cause Company to fail to be in compliance
with any Law or Permit in the future.
Section 4.16 Insurance. Schedule 4.16 lists, as of the Signing Date,
all insurance policies to which Company is a party or which insure the Business
or any of the Assets against loss (collectively, the "INSURANCE POLICIES"),
including each insurer's name, coverage deductible and limit, expiration date
and current premium. Schedule 4.16 specifically lists all split dollar Insurance
Policies to which Company is a party. Except as otherwise noted on Schedule
4.16, Company has the right to reimbursement for premiums paid on all split
dollar Insurance Policies. Except as disclosed on Schedule 4.16, each Insurance
Policy is in full force and effect, all
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premiums with respect thereto have been paid to the extent due, and no notice of
cancellation or termination has been received with respect to any such policy,
other than any policy that will be replaced or is intended to be replaced prior
to the expiration thereof by policies providing substantially the same coverage
from an insurer that is financially sound and reputable. To Company's Knowledge,
the coverage provided by the Insurance Policies is not less than the coverage
customary in Company's industry. True and complete copies of all Insurance
Policies have been provided to Purchaser.
Section 4.17 Contracts. Schedule 4.17 lists, as of the Signing Date,
all the contracts, agreements, commitments, arrangements, leases, policies or
other instruments relating to the operation or ownership of the Business or the
Assets or by which any of the Assets is bound, pursuant to which the obligations
to be performed by any party thereto after the Signing Date are, or are
contemplated to be, with respect to any such contract (a) in excess of $15,000
during any 12-month period during the term thereof, (b) not terminable prior to
three months from the Signing Date, or (c) otherwise material to the Business.
All of the contracts listed on Schedule 4.17 and any contracts entered into
after the Signing Date in accordance with Section 6.3 (collectively, the
"MATERIAL CONTRACTS") are valid and binding and in full force and effect.
Neither Company nor, to Company's Knowledge, any other Person is in default
under any Material Contract, nor is there any event which with notice or lapse
of time, or both, would constitute a default thereunder by Company or any other
Person. Other than the Material Contracts, Company is not a party to any
contract which (x) requires the Consent of any Person in order to consummate the
transactions contemplated by this Agreement, (y) is in excess of the normal,
ordinary and usual requirements of the Business, or (z) to Company's Knowledge,
is excessive in price or quantity. True and complete copies of all the Material
Contracts have been provided to Purchaser.
Section 4.18 Litigation; Orders. Except as disclosed on Schedule 4.18,
there is no Claim or Action pending or, to the Company's Knowledge, threatened
against Company, at law or in equity, before any arbitrator or Governmental
Authority which (a) individually or in the aggregate, has had, or would
reasonably be expected to have, a Material Adverse Effect on Company or (b)
seeks to or would reasonably be expected to prevent or delay consummation of the
Agreement or otherwise prevent Company from performing its obligations under
this Agreement, and to Company's Knowledge, no basis therefor exists. True and
complete copies of all material pleadings in the Actions listed on Schedule 4.18
have been provided to Purchaser.
Section 4.19 Environmental Orders and Agreements. The Company is not
the subject of any outstanding written Order, contract, agreement, commitment,
or other arrangement with any Governmental Authority or any other Person
respecting Environmental Laws or Hazardous Materials.
Section 4.20 Environmental Matters.
(a) Compliance with Environmental Laws. The Business has been
and is operated in material compliance with all Environmental Laws and all
Permits required under any applicable Environmental Laws (collectively, the
"ENVIRONMENTAL PERMITS").
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(b) Hazardous Materials. Company has not caused or allowed the
generation, treatment, manufacture, processing, distribution, use, storage,
discharge, release, disposal, transport or handling of any Hazardous Materials
at any of the properties or facilities used in connection with the Business. To
Company's Knowledge, none of the off-site locations where Company has
transported, released, discharged, stored, disposed or arranged for the disposal
of Hazardous Materials has been listed on the National Priorities List.
(c) Existence of any Actions. Except as set forth on Schedule
4.20, there are no past, pending or, to Company's Knowledge, threatened,
Actions, demands, claims, liens, notices of non-compliance or violation, notices
of liability or potential liability, investigations, consent orders or consent
agreements relating to Environmental Laws and Environmental Permits
("ENVIRONMENTAL CLAIMS") against Company by any Person, and to Company's
Knowledge, there are no circumstances that could form the basis of any such
Environmental Claim.
(d) Environmental Permits. To Company's Knowledge, Company
does not require any Environmental Permits for the operation of the Business in
compliance with all Environmental Laws.
(e) Environmental Reports. Company has made available to
Purchaser copies of any and all environmental reports, studies or analyses in
its possession relating to the current or former operations of Company.
Section 4.21 Permits. Schedule 4.21 lists all the Permits related to
the Assets or the operation of the Business, and indicates those Permits for
which the Consent of any Person is required to assign such Permit. Except as
disclosed on Schedule 4.21, Company is in possession of all grants, Permits,
easements, variances, exceptions, Consents, and Orders of any Governmental
Authority necessary for it to own, lease or operate its properties or to conduct
the Business as it is now being conducted, except for those which the failure to
possess, individually or in the aggregate, would not reasonably be expected to
prevent or delay consummation of the Agreement or otherwise prevent Company from
performing its obligations under this Agreement and have not had, and would not
reasonably be expected to have, a Material Adverse Effect on Company and, as of
the date hereof, no suspension, revocation, termination or cancellation of any
of the Permits is pending or, to Company's Knowledge, threatened, except for
such suspensions, revocations, terminations or cancellations which, individually
or in the aggregate, would not reasonably be expected to prevent or delay
consummation of the Agreement or otherwise prevent Company from performing its
obligations under this Agreement, and have not had, and would not reasonably be
expected to have, a Material Adverse Effect on Company. There is no Action
pending or, to Company's Knowledge, threatened, to revoke or limit any Permit
listed on Schedule 4.21.
Section 4.22 Intangible Assets.
(a) Owned Intangible Assets. Schedule 4.22(a) lists all the
Intangible Assets owned by Company as of the Signing Date. With respect to the
Intangible Assets listed on Schedule 4.22(a) and all the Intangible Assets
obtained or developed prior to the Closing, (i) Company owns all right, title
and interest in, to and under such Intangible Assets free and clear of all
Encumbrances, (ii) Company has not sold, transferred, licensed, sub-licensed or
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conveyed any interest in any of such Intangible Assets, and (iii) to Company's
Knowledge, no Person has infringed upon or misappropriated any of such
Intangible Assets.
(b) Licensed Intangible Assets. Except as set forth on
Schedule 4.22(b) Company has no licenses or contracts related to any Intangible
Asset used by Company. Company has not infringed upon or misappropriated any
Intangible Asset owned by another Person.
Section 4.23 Employees.
(a) Employees. Schedule 4.23(a) lists the name, job title,
date of employment and current annual compensation (including salary and bonus)
for each employee of Company employed as of the Signing Date (collectively, the
"EMPLOYEES"). To Company's Knowledge, all Employees are either United States
citizens or resident aliens specifically authorized to engage in employment in
the United States in accordance with all Laws. Except for qualified retirement
plan benefits for which an Employee or former employee is not in pay status or
which an employee or former employee is otherwise due, and except as otherwise
disclosed on Schedules 4.23(b), 4.24(c) or otherwise in this Agreement, all
Employees and former employees of Company have been, or will have been on or
before the Closing, paid in full all wages, salaries, commissions, bonuses,
vacation pay, severance and termination pay, sick pay, and other compensation
for all services performed by them that, in each case, was accrued by them up to
the Closing and payable as of the Closing in accordance with the obligations of
Company under any employment or labor practices and policies, or any collective
bargaining agreement or individual agreement to which Company is a party, or by
which Company may be bound. All Employees and contract labor are and have been
properly classified by Company for wage-hour, employee benefits and payroll tax
purposes.
(b) Contracts. Schedule 4.23(b) lists each (i) contract
between Company and an Employee, and (ii) collective bargaining agreement and
other contract to or with any labor union, employee representative or group of
employees. Other than the contracts listed on Schedule 4.23(b), Company's
employment of each Employee is terminable at will without any penalty or
severance obligation of any kind on the part of Company.
(c) Compliance with Labor Laws. Company has complied and is
presently complying with all Laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours and
occupational safety and health, and is not engaged in any unfair labor practice
or unlawful employment practice.
(d) Labor Actions and Relations. There is no unfair labor
practice charge or complaint against Company pending or, to Company's Knowledge,
threatened, before the National Labor Relations Board nor is there any grievance
nor any arbitration proceeding arising out of or under any collective bargaining
agreement pending and, to Company's Knowledge, no basis for any such charge,
complaint or grievance exists. There is no labor strike, slowdown or work
stoppage pending or threatened against Company. Company has not experienced any
significant work stoppages or been a party to any Action before the National
Labor Relations Board involving any issue for the past three years nor been a
party to any arbitration proceeding arising out of or under any collective
bargaining agreement for the past three years. There is no charge or complaint
pending or threatened against Company before the Equal Employment
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Opportunity Commission or the Department of Labor or any state or local agency
of similar jurisdiction. No labor organization has made a demand for recognition
or has filed a petition for representation against Company within the past three
years.
(e) WARN Act. Neither Company nor any Person with whom Company
is treated as an "employer" for purposes of the Worker Adjustment and Retraining
Notification Act or any similar state Law has incurred any liability or
obligation under such Laws.
Section 4.24 Employee Benefits.
(a) Welfare Benefit Plan. Schedule 4.24(a) lists, as of the
Signing Date, each Welfare Benefit Plan maintained by Company or to which
Company contributes or is required to contribute with respect to any Person (the
"COMPANY WELFARE BENEFIT PLANS"). Complete and current copies of the plan
documents for each of the Company Welfare Benefit Plans and all related summary
plan descriptions have been provided to Purchaser, together with the two most
recently filed annual reports for such plans. Company has no liability for
contributions, premiums or other payments more than 30 days past due with
respect to any of the Company Welfare Benefit Plans. Except as set forth on
Schedule 4.24(a), no Company Welfare Benefit Plan provides for any benefits to
retirees or former employees except as required by Part 6 of Title I of ERISA.
(b) Pension Benefit Plans. Schedule 4.24(b) lists, as of the
Signing Date, each Pension Benefit Plan maintained by Company or to which
Company contributes or is required to contribute with respect to any Person
("COMPANY PENSION BENEFIT PLANS"). True, correct and complete copies of the plan
and related trust documents for each Company Pension Benefit Plan and all
related summary plan descriptions have been provided to Purchaser, together with
the two most recently filed annual reports for such plans. In addition, all
documents relating to any debt that has been incurred by the ESOP or other
Company Pension Benefit Plans have been provided to Purchaser. Company does not
presently maintain and, within the last six (6) years, has never maintained, nor
has had any obligation of any nature (whether contingent or otherwise) to
contribute to, any Plan covered by Title IV of ERISA or to a "defined benefit
plan" (as defined in Section 414(j) of the Code), without regard to whether such
defined benefit plan met the requirements of Section 401(a) of the Code. Company
has no liability for contributions due and unpaid with respect to the Company
Pension Benefit Plans, including any "individual account plan" (as defined in
Section 3(34) of ERISA).
(c) Employee Arrangements. Schedule 4.24(c) lists each
Employee Benefit Plan not otherwise disclosed in Schedules 4.23(b), 4.24(a) or
4.24(b) maintained by Company with respect to any past or present employee of
Company. True, correct and complete copies of each Employee Benefit Plan listed
on Schedule 4.24(c) (and any related documents) have been provided to Purchaser.
Company has no liability for contributions or payments more than 30 days past
due with respect to any of its Employee Benefit Plans listed on Schedule
4.24(c).
(d) Benefit Plan Compliance. All of the Employee Benefit Plans
maintained by Company or to which Company contributes or is required to
contribute with respect to any Person (the "COMPANY EMPLOYEE BENEFIT PLANS") and
any related trust agreements or annuity contracts (or any other funding
instruments) currently comply in all material respects, and have
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so complied in the past, both as to form and operation, with all applicable
Laws, including ERISA and the Code. Except with respect to the ESOP, no Assets
of Company or any Company Employee Benefit Plans include any "employer
securities" or "employer real property" as such terms are defined in Section 407
of ERISA. Except as described on Schedule 4.24(d), no debt has been incurred by
any Company Employee Benefit Plan, other than liabilities for the payment of
benefits or insurance premiums.
(e) No Title IV Liability. No liability under Title IV of
ERISA has been or will be incurred by Company on or prior to the Closing Date.
(f) Benefit Commitments. Company has not made any commitment,
whether formal or informal, and whether legally binding or not, to create or
have liability under any additional Employee Benefit Plan, policy or
arrangement, or to modify any existing Company Employee Benefit Plan, except as
a direct result of the transactions contemplated by this Agreement.
(g) Qualification. All funded Company Pension Benefit Plans
and their related trusts which are intended to be subject to Section 401(a) of
the Code are qualified under Section 401(a) of the Code.
(h) Effect of Consummation. Except as set forth in Schedule
4.24(h) or otherwise disclosed pursuant to this Agreement, the consummation of
the transactions contemplated by this Agreement will not (i) entitle any current
or former employee of Company or any other individual to a bonus, severance pay
or similar payment, (ii) otherwise accelerate the time of payment or vesting, or
increase the amount of any compensation due to any current or former employee of
Company, except as required by Law with respect to any Plan termination or
partial Plan termination, (iii) result in any prohibited transaction described
in Section 406 of ERISA or Section 4975 of the Code for which an exemption is
not available or (iv) in any way result in any additional liability with respect
to any Company Employee Benefit Plan, except for liability that is a direct
result of the transactions contemplated by this Agreement.
(i) No Penalties. Neither any Company Employee Benefit Plan
nor any fiduciary of any trust related to such plans has engaged in any
transaction in connection with which Company or any such fiduciary is or could
be subject either to a civil penalty or other liability under ERISA or an excise
tax imposed by the Code, and, to Company's Knowledge, no event has occurred and
no condition exists with respect to any Company Employee Benefit Plan that could
subject Company to any other tax or penalty under the Code or civil penalty or
other liability under ERISA or other Laws.
(j) No Actions. No Action other than routine Claims for
benefits is pending or, to Company's Knowledge, threatened involving any Company
Employee Benefit Plan.
Section 4.25 Taxes.
(a) Tax Returns. (a) Except as disclosed on Schedule 4.25(a),
Company and any affiliated, consolidated, combined, unitary or similar group of
which Company is or was a member has (i) timely filed all Tax returns, reports
and declarations of estimated Tax (collectively, "RETURNS") required to be filed
by it or them, as applicable, prior to the date of this
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Agreement (taking into account extensions), and all such Returns are true,
correct and complete in all respects, (ii) timely paid or accrued all Taxes due
for such periods covered by the Returns and (iii) paid or accrued all Taxes for
which a notice of assessment or collection has been received (other than amounts
being contested in good faith by appropriate proceedings). Neither Company nor
any affiliated, consolidated, combined, unitary or similar group of which
Company is or was a member is currently the beneficiary of any extension of time
within which to file any Return. Except as set forth in Schedule 4.25(a),
neither the Internal Revenue Service nor any other federal, state, local or
foreign taxing authority has asserted any claim for Taxes for such periods
covered by the Returns, is, to Company's Knowledge, threatening to assert any
claims for Taxes, due from or with respect to Company or any affiliated,
consolidated, combined, unitary or similar group of which Company is or was a
member. There are no currently pending legal or administrative Tax proceedings
pursuant to which Company or any affiliated, consolidated, combined, unitary or
similar group of which Company is or was a member is or could be made liable for
any Taxes. Company and any affiliated, consolidated, combined, unitary or
similar group of which Company is or was a member have open years for federal,
state and foreign income Tax Returns only as disclosed on Schedule 4.25(a).
Company does not expect any taxing authority to assess any additional Taxes for
any period for which Returns have been filed. Company has withheld or collected
and paid over, or will withhold or collect and pay over (or are properly holding
for such payments), to the appropriate Governmental Authorities all Taxes
required by Law to be withheld or collected in connection with any amounts paid
or owing to any employee, creditor, independent contractor, stockholder or other
third party. Neither Company nor any of its subsidiaries has consented to the
application of Section 341(f)(2) of the Code (or any predecessor provision).
Company has not agreed to make any adjustment pursuant to Section 481(a) of the
Code (or any predecessor provision) by reason of any change in any accounting
method, and there is no application pending with any taxing authority requesting
permission for any changes in any accounting method of Company or any
affiliated, consolidated, combined or unitary or similar group of which Company
is or was a member. Company is not a party to, is not bound by and has no
obligation under, any tax sharing agreement, tax allocation agreement or similar
contract, agreement or arrangement. Company has not executed or entered into
with the Internal Revenue Service, or any taxing authority, a closing agreement
pursuant to Section 7121 of the Code or any similar provision of state, local,
foreign or other income Tax Law. There are no liens for Taxes upon the Assets of
Company (other than liens for Taxes that are not yet due or that are being
contested in good faith by appropriate proceedings).
(b) Statute of Limitations and Tax Actions. Company has not
executed any presently effective waiver or extension of any statute of
limitations against assessments and collection of Taxes.
(c) Miscellaneous Tax Representations. There is no contract,
plan or arrangement covering any Person that, individually or collectively,
would give rise to the payment of any amount that would not be deductible by
Company by reason of Section 280G of the Code. Company is not a "foreign person"
within the meaning of Section 1445(f)(3) of the Code. Since October of 1988,
Company has not been a member of any group that filed a consolidated, combined
or unitary federal, state or foreign income Tax Return. Neither Company nor any
of its subsidiaries has been a "United States real property holding corporation"
within the meaning of Section 897(c)(2) of the Code. Company and each of its
subsidiaries have disclosed on their
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respective federal income Returns all positions taken herein which could give
rise to a substantial understatement of federal income Tax within the meaning of
Section 6662 of the Code. Neither Company nor any of its subsidiaries has any
liability for the Taxes of any Person under Treasury Regulation 1.1502-6 or as a
transferee, or as a successor, by contract or otherwise.
(d) The unpaid Taxes of Company and its subsidiaries due and
owing as of the most recent fiscal month end, did not, as of such time, exceed
the reserve for Taxes (rather any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on the face of
the Interim Balance Sheet (rather than in any notes thereto) and do not exceed
that reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of Company and its subsidiaries in
filing their Tax Returns.
Section 4.26 Bank Accounts; Powers of Attorney. Schedule 4.26 lists the
names of (a) each bank, trust company and stock or other broker with which
Company has an account, credit line or safe deposit box or vault, or otherwise
maintains relations (the "BANK ACCOUNTS"), (b) all Persons authorized to draw
on, or to have access to, each of the Bank Accounts, and (c) all Persons
authorized by proxies, powers of attorney or other like instrument to act on
behalf of Company in any matter concerning the Business. Except with respect to
Company's sweep accounts specifically referenced in Schedule 4.26 which have a
zero bank balance but have a negative book balance, each of the Bank Accounts
has a positive cash balance. No proxies, powers of attorney or other like
instruments are irrevocable.
Section 4.27 Relationship with Suppliers. Schedule 4.27 lists the ten
largest suppliers of Company based on purchases during the 12-month period ended
December 31, 1998, showing the approximate total purchases by Company from each
such supplier during such period. There has not been any Material Adverse Change
in the business relationship between Company and any supplier disclosed on
Schedule 4.27, and, except as disclosed on Schedule 4.27, to Company's
Knowledge, there will not be any such Material Adverse Change as a result of the
consummation of the transactions contemplated by this Agreement or otherwise.
The relationships of Company with its suppliers are satisfactory. To Company's
Knowledge, no such supplier has canceled or otherwise terminated, or threatened
to cancel or otherwise terminate, its relationship with Company, or to
materially decrease its services to Company.
Section 4.28 Relationship with Principals. Schedule 4.28 lists all of
the principals of Company based on sales during the twelve month period ended
December 31, 1998, showing the approximate total sales by Company to each such
principal and the annualized commissions earned on such sales during such
period. There has not been any Material Adverse Change in the business
relationship between Company and any principal disclosed on Schedule 4.28, and,
except as disclosed on Schedule 4.28, to Company's Knowledge, there will not be
any such Material Adverse Change in the future as a result of the consummation
of the transactions contemplated by this Agreement or otherwise. The
relationships of Company with its principals are satisfactory. Except as
disclosed on Schedule 4.28, no principal has canceled or otherwise terminated,
or threatened to cancel or otherwise terminate, its relationship with Company,
or to materially decrease its usage of the services of Company.
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Section 4.29 Affiliated Transactions. Except as disclosed on Schedule
6.3, since the Balance Sheet Date, Company has not paid, loaned or advanced any
amount to, or sold, transferred or leased any properties or assets (tangible or
intangible) to, or entered into any agreement or arrangement with, any of the
officers, directors or shareholders (other than the ESOP) of Company or any of
its Affiliates, except for compensation to officers at rates not exceeding the
rates of compensation paid in the ordinary course of business and consistent
with rates in effect during the fiscal year ended on the Balance Sheet Date and
routine travel advances to officers and employees.
Section 4.30 Books and Records. The Books and Records, all of which
have been made available to Purchaser, are complete and correct and have been
maintained in accordance with sound business practices.
Section 4.31 Full Disclosure. No representation or warranty of any
Seller or Company made in this Agreement, nor any written statement furnished to
Purchaser pursuant hereto or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact which
affects the Business or financial condition of Company, or omits or will omit to
state a material fact necessary to make the statements or facts contained herein
or therein not misleading.
Section 4.32 Brokers. No Person is or will become entitled to receive
any brokerage or finder's fee, advisory fee or other similar payment for the
transactions contemplated by this Agreement by virtue of having been engaged by
or acted on behalf of the Sellers or Company.
Section 4.33 Split Commission Arrangements. There are no split
commission arrangements maintained by Company or to which Company is a party
other than those which in no way affect the amount of commissions to be received
by the Company.
Section 4.34 Brokerage Agreements. Schedule 4.34 lists, as of the
Signing Date, all food brokerage agreements to which Company is a party and
except as noted on Schedule 4.34 none of the brokerage agreements (i) require
more than 30 days written notice of termination, or (ii) contain any penalty
provisions related to termination for any reason by a party thereto. Company has
not breached, nor is it in default under, the terms of any food brokerage
agreement to which it is a party. Except as set forth in Schedule 4.34, as of
the Signing Date, Company has not received any notices of termination relating
to any of its food brokerage agreements and is not on probation for any reason
with any manufacturer.
Section 4.35 Market Development Fund Accounts. Schedule 4.35 lists, as
of the Signing Date, all market development fund accounts (each, an "MDF
ACCOUNT") of Company and the outstanding balances of each such MDF Account.
Except as disclosed on Schedule 4.35, Company has not overspent any MDF Account
of any principal and has properly segregated and maintained all MDF Accounts.
Except as disclosed on Schedule 4.35, Company has received no notice imposing,
and to Company's Knowledge has no, Tax liability related to any such MDF Account
and has fulfilled, in all material respects, its fiduciary duties with respect
to its MDF Accounts.
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Section 4.36 Change in Control. Schedule 4.36 lists all contracts,
agreements, commitments, arrangements and understandings between Company and any
of its top 50 principals (based on sales during the 12-month period ended as of
the Year of Balance Sheet Date) that contain a "change in control," "potential
change of control," or similar provision, which, as a result of the consummation
of this Agreement will (either alone or upon the occurrence of any additional
acts or events) result in (a) any payment (whether of severance or otherwise)
becoming due from Company to any Person, (b) acceleration of any obligations
under such contract, agreement or understanding, or (c) would reasonably be
expected to prevent or delay consummation of this Agreement or otherwise prevent
Company or, to Company's Knowledge, any of the Sellers, from performing their
obligations under this Agreement or would reasonably be expected to have a
Material Adverse Effect on Company.
Section 4.37 Affiliates. Except as set forth on Schedule 4.37, Company
is not a party to any contract, agreement, commitment, arrangement or
understanding with any Affiliate.
Section 4.38 Certain Business Practices. As of the date of this
Agreement, except for such actions which have not had, and would not reasonably
be expected to have, a Material Adverse Effect on Company, neither Company nor
any director, officer, or, to Company's Knowledge, any agent or employee of
Company has (a) used any funds for unlawful contributions, gifts, entertainment
or other unlawful expenses relating to political activity, (b) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (c) made any other
unlawful payment.
Section 4.39 Parachute Payments. Except as set forth on Schedule 4.39,
neither Company nor any Seller has entered into any agreement that would result
in the making of "parachute payments," as defined in Section 280G of the Code,
to any Person.
Section 4.40 Board Recommendation. At a meeting duly called and held in
compliance with, or by unanimous written consent pursuant to, the Michigan
Compiled Laws, Chapter 450, prior to the date of this Agreement, the board of
directors of Company adopted resolutions approving this Agreement and the
transactions contemplated herein, based on a determination that the Agreement is
fair to Company and to the Sellers and is in the best interest of the Sellers.
These resolutions have not been withdrawn, rescinded, superseded or modified in
any way and remain in full force and effect.
Section 4.41 HSR Requirements., Company, including, on a fully
consolidated basis, any entities that Company controls 50% or more, directly or
indirectly, has total assets of less than $25 million and annual sales of less
than $25 million, within the meaning of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT") and applicable regulations
thereunder, 16 C.F.R. Parts 801-803; and (b) the transactions contemplated by
the Transaction Documents are exempt from the requirements of the HSR Act under
16 C.F.R. sec. 802.20.
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Section 4.42 Year 2000.
(a) Except as disclosed on Schedule 4.42, each item of
hardware, software, information technology, embedded, electro-mechanical or
processor based system or any combination thereof, used, developed,
manufactured, distributed, licensed, transferred or delivered by Company on or
before the Closing Date (each a "System"), shall be able to correctly function,
operate, process data or perform date related calculations, including, but not
limited to, (i) calculate, compare and sequence, from, into and between the
years 1999 and 2000, (ii) accurately process, provide and receive date data,
including leap year calculations, into and between the years 1999, 2000 and
beyond, and (iii) otherwise function according to the specifications thereof
both before, during and following January 1, 2000. Neither performance nor
functionality of any System shall be affected by dates prior to, during or after
January 1, 2000.
(b) Except as disclosed on Schedule 4.42, each System
containing or calling on a calendar function including, without limitation, any
function indexed to the CPU clock, and any function providing specific dates or
days, or calculating spans of dates or days, shall record, store, process,
provide and, where appropriate, insert, true and accurate dates and calculations
for dates and spans, before, during and following January 1, 2000.
(c) Except as disclosed on Schedule 4.42, each System shall
have no lesser functionality or operability with respect to records containing
dates, before, during or after January 1, 2000, than heretofore with respect to
dates prior to January 1, 2000;
(d) Except as disclosed on Schedule 4.42, Each System shall be
fully interoperable and shall interface with any and all other systems, software
and/or hardware used by Purchaser before, during or after January 1, 2000, and
otherwise exchange data, including date related data, therewith.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Sellers that the
statements set forth in this Article V are correct and complete.
Section 5.1 Organization; Good Standing; Delivery of Charter Documents.
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Purchaser is duly qualified or licensed
as a foreign corporation in each jurisdiction in which its assets are owned or
leased, or in which the nature of its business makes such qualification or
licensing necessary, except those jurisdictions wherein the failure to so
qualify would not have a Material Adverse Effect on Purchaser.
Section 5.2 Power and Authority. Purchaser has all requisite corporate
power and authority necessary to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby, including the execution, delivery and performance of all the other
Transaction Documents to which Purchaser is a party. Purchaser has all requisite
corporate power and authority necessary to own, operate and lease its assets and
to carry on its business as and where conducted.
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Section 5.3 Authorization; Execution and Validity. Each of the
Transaction Documents, when executed and delivered by Purchaser, will be duly
authorized, executed and delivered, and will constitute a valid, legal and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with the terms of such Transaction Document, subject to any Law Affecting
Creditors' Rights.
Section 5.4 No Conflict; Purchaser Consents. The execution, delivery
and performance by Purchaser of each Transaction Document to which it is a party
will not (a) violate any Law, (b) violate any Charter Document of Purchaser, (c)
violate any Order to which Purchaser is a party or by which Purchaser or its
assets is bound, or (d) except for any Consent required under the RMSI Indenture
or the RMSI Credit Agreement, require any Consent from any Person.
Section 5.5 Brokers. No Person is or will become entitled to receive
any brokerage or finder's fee, advisory fee or other similar payment for the
transactions contemplated by this Agreement by virtue of having been engaged by
or acted on behalf of Purchaser.
ARTICLE VI.
COVENANTS OF COMPANY AND THE SELLERS
Section 6.1 Cooperation of Company and the Sellers. From the Signing
Date through the Closing Date, Company and each Seller will use all reasonable
efforts (a) to take all actions and to do all things necessary or advisable to
consummate the transactions contemplated by this Agreement, (b) to cooperate
with Purchaser in connection with the foregoing, including using all reasonable
efforts to obtain all of the Consents, and (c) subject to the other terms and
conditions of this Agreement, to cause all the conditions set forth in Section
9.1, the satisfaction of which is in the reasonable control of Company and the
Sellers, to be satisfied on or prior to the Closing.
Section 6.2 Pre-Closing Access to Information. From the Signing Date
through the Closing Date, Company and each Seller will afford to Purchaser and
its Representatives access to the properties and the Books and Records of
Company.
Section 6.3 Conduct of Business.
(a) Ordinary Course. Except as set forth on Schedule 6.3, from
the Signing Date through the Closing Date or the termination of all negotiations
relating to the consummation of this Agreement, Company and each Seller, in
connection with the conduct of the Business, (i) will use all reasonable efforts
to (A) preserve substantially the relationships with its Representatives,
suppliers, principals, and customers, (B) perform its obligations under all
contracts, leases and Permits, (C) comply with all Laws, (D) confer with
Purchaser regarding operational matters of a material nature, (E) report
periodically to Purchaser regarding the status of the Business and the results
of operations of Company, and (F) conduct the Business in the ordinary course
and consistent with past practices and (ii) will not, without the written
consent of Purchaser, (A) enter into or agree to any transaction outside the
ordinary course of its business, (B) incur any additional indebtedness, (C)
issue any equity securities, or rights to purchase equity securities, (D)
increase or agree to increase the salary, compensation, bonus, or benefits of
any of the Sellers or any of the directors, officers or employees of Company,
(E) make or cause to be
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made any dividends, advances or similar distributions of any kind to any Seller
or to any director, officer or employee of Company, or (F) sell or otherwise
dispose of or encumber any asset or property of Company or any of its
Affiliates.
(b) Prohibited Actions. Except as otherwise required or
permitted by this Agreement or listed on Schedule 6.3, from the Signing Date
through the Closing Date or the termination of all negotiations relating to the
consummation of this Agreement, Company and each Seller will not, without the
prior written consent of Purchaser, take or fail to take any action as a result
of which any of the changes or events listed in Section 4.9 occur or become
likely to occur.
Section 6.4 Supplements to Schedules. If, between the Signing Date and
the Closing Date, Company or any Seller becomes aware that any of its
representations and warranties in this Agreement or the schedules to this
Agreement was inaccurate when made or if during such period any event occurs or
condition changes that causes any of such representations and warranties to be
inaccurate, then such Party will notify Purchaser thereof in writing and
supplement the schedules hereto to account for any such inaccuracy, event or
change. Any such supplement to the schedules will not be deemed to have been
disclosed as of the Signing Date or to have cured any breach of representations
and warranties made in this Agreement, unless so agreed to in writing by
Purchaser; provided, however, that any such supplement to the schedules will be
deemed to be disclosed as of the Closing Date for purposes of the accuracy of
the representations and warranties made in this Agreement as of the Closing
Date.
Section 6.5 Standstill. From the Signing Date through the Closing Date
or prior to the termination of all negotiations relating to the consummation of
the transactions contemplated by this Agreement in the event the Closing does
not occur within 179 days after the Signing Date, Company and each of the
Sellers will not, and will cause its and their Representatives to not, directly
or indirectly, (i) initiate, solicit, seek, encourage or otherwise facilitate
(including by way of furnishing information or assistance) any inquiry,
communication or proposal that constitutes, or could reasonably be expected to
result in, an Acquisition Proposal, (ii) enter into any agreement contemplating
or otherwise relating to an Acquisition Proposal, (iii) provide any information
or data to, or engage in, maintain or continue discussions or negotiations with,
any Person in furtherance of any such inquiry, communication or proposal or
otherwise relating to an Acquisition Proposal or for the purpose of obtaining an
Acquisition Proposal, (iv) accept, agree to, endorse or recommend any
Acquisition Proposal, or (v) release any third party from any standstill or
confidentiality agreement, or waive or amend any provision thereof, to which it
is a party; provided, that no Person shall be deemed to have provided any
information or data to, or engaged in, maintained or continued discussions or
negotiations with, any other Person in violation of this Section if such Person
(without identifying Purchaser) advises the other Person that they are precluded
from taking any action that would constitute a violation of this Section, and
nothing shall prohibit the board of directors of Company from making any
disclosure to the shareholders of Company if such disclosure is required by
applicable Law. Company and Sellers shall notify Purchaser orally (within three
Business Days) and in writing (as promptly as practicable) of all relevant
details relating to, and all material aspects of (including the identity of the
Person making such inquiry, communication or proposal), all inquiries,
communications and proposals which they or any of its or their Representatives
may receive relating to any of such matters and, if such inquiry, communication
or proposal is in written form or electronically or
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magnetically stored, shall deliver to Purchaser a copy of such inquiry,
communication or proposal as promptly as practicable. Company and Sellers have
terminated, and have caused each of its and their Representatives to cease and
terminate, any existing initiation, solicitation, encouragement, facilitation,
communication, discussion or negotiation with any Person conducted heretofore by
Company, or any of its Representatives relating to any Acquisition Proposal.
Company and Sellers shall promptly notify its or their Representatives of the
obligations undertaken in this Section and any violation of the restrictions set
forth in the two immediately preceding sentences by any Representative, whether
or not acting on behalf of Company or Sellers, shall be deemed to be a breach of
this Section by Company.
Section 6.6 Discharge of Encumbrances. Company and each Seller will
take all actions and do all things necessary to cause all Encumbrances other
than Permitted Encumbrances on any Assets to be terminated or otherwise
discharged at or prior to the Closing.
Section 6.7 Non-Disclosure; Non-Competition; Non-Solicitation.
(a) Non-Disclosure Agreement. Each of the Non-Competition
Parties acknowledges that it has and may have access to Confidential Information
and that such Confidential Information does and will constitute valuable,
special and unique property of Purchaser. At no time will any Non-Competition
Party or any of its Representatives (i) use any Confidential Information in any
manner adverse to the business interests of Purchaser, or (ii) disclose any such
Confidential Information to any Person for any reason or purpose whatsoever
except as required by law pursuant to a court order or the order of any
Governmental Authority or as otherwise necessary for tax preparation purposes.
Upon the request of Purchaser, each Non-Competition Party will deliver to
Purchaser all letters, notes, computer disks, software, notebooks, reports and
other materials which contain Confidential Information and which are in the
possession or under the control of such Non-Competition Party.
(b) Non-Competition Agreement. Each Non-Competition Party
agrees not to conduct, either directly or indirectly, the Business in the States
of Michigan, Indiana, Ohio and Illinois for a period of two years after the
Closing Date, unless such Non-Competition Party is doing so solely as an
employee of Purchaser.
(c) Non-Solicitation Agreement. For a period of two years
after the Closing Date, each Non-Competition Party will not, either on its own
behalf or on behalf of any business competing with Purchaser, directly or
indirectly to the extent that such Non-Competition Party is prohibited in
engaging in such business pursuant to this Section, (i) solicit or induce, or in
any manner attempt to solicit or induce any Person employed by, or an agent of,
Company or Purchaser to terminate such Person's employment or agency, as the
case may be, with such entity, or (ii) solicit, divert, or attempt to solicit or
divert, or otherwise accept as a supplier or principal, any Person which sells
any products and services of Company, furnishes products or services to, or
receives products and services from, Purchaser, nor will such Non-Competition
Party attempt to induce any such supplier or principal to cease being (or any
prospective supplier or principal not to become) a supplier or principal Company
or Purchaser.
(d) Independent Covenants. The covenants set forth in this
Section constitute an independent and separate agreement independently supported
by good and adequate
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consideration. Purchaser and the Non-Competition Parties intend all provisions
of this Section to be enforced to the fullest extent permitted by Law.
Accordingly, should a court of competent jurisdiction determine that the scope
of any subsection of this Section is too broad to be enforced as written, the
Parties intend that the court should reform the provision to such narrower scope
as it determines to be enforceable. If, however, any provision contained in this
Section is declared invalid or illegal, the other provisions hereof will not be
affected or impaired thereby and will remain valid and enforceable. The
existence of any Claim or cause of action of a Seller against Purchaser, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Purchaser of the covenants set forth in this Section; provided,
however, in the event Purchaser defaults under any terms of the Notes and has
not cured such default within the applicable period provided in the Notes, then
each of the Non-Competition Parties shall be released from the covenants of this
Section.
(e) Injunctive Relief. In the event of a breach or threatened
breach by any Non-Competition Party of any provision of this Section, Company
and Purchaser will be entitled to an injunction to prevent irreparable injury to
such entity. Nothing herein will be construed as prohibiting Company or
Purchaser from pursuing any other remedies available to such entity for such
breach or threatened breach, including the recovery of damages from such
Non-Competition Party.
(f) Acknowledgments of Non-Competition Party. Each
Non-Competition Party acknowledges that (i) any public disclosure of the
Confidential Information will have an adverse effect on Company, Purchaser and
the Business, (ii) Company and Purchaser would suffer irreparable injury if any
Non-Competition Party breaches any of the terms of this Section, (iii) Company
and Purchaser will be at a substantial competitive disadvantage if such entity
fails to acquire and maintain exclusive ownership of the Confidential
Information or if any Non-Competition Party fails to abide by the restrictions
provided for in this Section, (iv) the scope of the protective restrictions
provided for in this Section are reasonable when taking into account (A) the
negotiations between the Parties and (B) that each Non-Competition Party is the
direct or indirect beneficiary of the Purchase Price paid pursuant to this
Agreement, (v) the consideration being paid to each Non-Competition Party
pursuant to this Agreement is sufficient inducement for each Non-Competition
Party to agree to the terms hereof, (vi) the provisions of this Section are
reasonable and necessary to protect the Business, to prevent the improper use or
disclosure of the Confidential Information and to provide Company and Purchaser
with exclusive ownership of all such Confidential Information and (vii) the
terms of this Section preclude each Non-Competition Party from engaging in the
conduct of the Business, except as otherwise provided in this Section.
Section 6.8 Comerica Loan. Prior to or simultaneously with the Closing,
Company shall discharge or refinance, pursuant to an agreement acceptable to and
approved by Purchaser prior to the consummation of such discharge or refinance,
the Comerica Loan.
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ARTICLE VII.
COVENANTS OF PURCHASER
Section 7.1 Cooperation by Purchaser. From the Signing Date through the
Closing Date, Purchaser will use all reasonable efforts (a) to take all actions
and to do all things necessary or advisable to consummate the transactions
contemplated by this Agreement, (b) to cooperate with Company and the Sellers in
connection with the foregoing, including using reasonable efforts to obtain all
of the Consents, and (c) subject to the other terms and conditions of this
Agreement, to cause all the conditions set forth in Section 9.2, the
satisfaction of which is in the reasonable control of Purchaser, to be satisfied
on or prior to the Closing.
Section 7.2 Pre-Closing Access to Information. Purchaser will comply
with the limitations on the disclosure and use of information as set forth in
the Confidentiality Agreement dated December 14, 1998, with respect to the
information that Company and the Sellers provide to Purchaser in and pursuant to
this Agreement.
Section 7.3 Employee Benefits.
(a) On and after the Closing Date, Purchaser shall cause the
officers and employees of Company to be provided Employee Benefit Plans,
programs and policies which are no less favorable in the aggregate to such
officers and employees than those provided to similarly situated employees of
Purchaser as of the Signing Date. The officers and employees of Company shall
receive credit for time employed by Company for purposes of eligibility and
vesting under the Employee Benefit Plans, programs and policies contemplated by
this Section 7.3(a).
(b) Nothing contained in this Section shall create any third
party beneficiary rights in any officer or employee or former officer or
employee (including any beneficiary or dependent thereof) of Company in respect
of continued employment for any specified period of any nature or kind
whatsoever.
(c) Nothing contained in this Section shall create any
obligation on the part of Purchaser or Company to maintain the ESOP. Each of the
parties hereto hereby acknowledges and agrees that it is the intent of the
parties that Purchaser and Company shall, simultaneously with, or within three
(3) months following, the Closing, terminate the ESOP.
Section 7.4 RMSI Debt Obligations. Purchaser shall obtain any Consents
from, and make any deliveries to, the trustee, agent, lenders or holders, as
applicable, required under the RMSI Indenture and the RMSI Credit Agreement to
consummate the transactions contemplated hereby and in the other Transaction
Documents.
ARTICLE VIII.
MUTUAL COVENANTS
Section 8.1 Governmental Consents. Promptly after the Signing Date,
each Party will take all actions and do all things necessary to obtain all
Consents required by any Governmental Authority to consummate the transactions
contemplated hereby. Each Party will reasonably cooperate with the other Parties
in obtaining the Consents specified in this Section.
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Section 8.2 Consents to Assign Leases and Contracts.
(a) Cooperation and Reasonable Efforts. Each Party hereby
agrees to use reasonable efforts, to take reasonable actions and to cooperate
with each other as may be necessary to obtain all Consents from third parties
(including Governmental Authorities) to consummate the transactions contemplated
by the Transaction Documents.
(b) Required Consents. Schedule 8.2(b) lists the Encumbered
Instruments to which a Consent to transfer and assign must be obtained from the
appropriate third party prior to the Closing (collectively, the "REQUIRED
CONSENTS").
Section 8.3 Permits.
(a) Cooperation and Reasonable Efforts. Each Party hereby
agrees to use reasonable efforts, to take reasonable actions (including
Purchaser's delivery to any Governmental Authority of its audited financial
statements) and to cooperate with each other as may be necessary to transfer to
Purchaser, or assist Purchaser in obtaining, all Permits required to conduct the
Business. On or as soon as practicable after the Signing Date, each Party will
file, separately or jointly with any other Party, as the case may be, all
applications necessary to transfer or obtain such Permits. Each Party will use
reasonable efforts to resolve such objections, if any, as may be asserted by any
Governmental Authority with respect to the applications contemplated hereby.
(b) Required Permits. Schedule 8.3(b) lists the Permits which
must be transferred to or obtained by Purchaser prior to the Closing (the
"REQUIRED PERMITS").
Section 8.4 Books and Records.
(a) Access. For a period of six years after the Closing, each
Party will provide the other Parties with reasonable access during normal
business hours to its Books and Records relating to the Business (other than
Books and Records protected by the attorney-client privilege) to the extent that
they relate to the condition or operation of the Business prior to the Closing
Date and are requested by such Party to prepare its Returns, to respond to third
party Claims or for any other legitimate purpose specified in writing. Each
Party shall have the right, at its own expense, to make copies of any such Books
and Records.
(b) Destruction. No Party shall dispose of or destroy any
Books and Records relating to the Business to the extent that they relate to the
condition or operation of the Business prior to the Closing without first
offering to turn over possession thereof to the other Party by written notice at
least 30 days prior to the proposed date of disposition or destruction.
(c) Confidentiality. Each Party may take such action as it
deems reasonably appropriate to separate or redact information unrelated to the
Business from documents and other materials requested and made available
pursuant to this Section and may condition the other Party's access to documents
and other materials that it deems confidential to the execution and delivery of
an agreement by the other Party not to disclose or misuse such information.
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(d) Assistance. Each Party will, upon written request and at
the requesting Party's expense, make personnel available to assist in locating
and obtaining any Books and Records relating to the Business to the extent that
they relate to the condition or operation of the Business prior to the Closing
and make personnel available whose assistance, participation or testimony is
reasonably required in anticipation of, preparation for or the prosecution or
defense of any third party Claim in which the other Party does not have any
adverse interest.
Section 8.5 Further Assurances. Subject to the other terms and
conditions of this Agreement, at any time and from time to time, whether before
or after the Closing, each Party shall execute and deliver all instruments and
documents and take all other action that the other Party may reasonably request
to consummate or to evidence the consummation of the transactions contemplated
by this Agreement.
Section 8.6 Escrow Agreement. At the Closing, the Parties shall enter
into the Escrow Agreement.
Section 8.7 Tax Matters. The following provisions shall govern the
allocation of responsibility as between Purchaser and Sellers for certain Tax
matters following the Closing Date:
(a) Tax Return Accruals. The Sellers shall prepare or cause to
be prepared and file or cause to be filed all Returns for Company and its
subsidiaries for all periods ending on or prior to the Closing Date which are
due after the Closing Date other than income Tax Returns with respect to periods
for which a consolidated, unitary or combined income Tax Return of the Sellers
will include the operations of Company and its subsidiaries. Purchaser shall
prepare or cause to be prepared and file or cause to be filed any Returns of
Company and its subsidiaries for Tax periods which begin before the Closing Date
and end after the Closing Date. Company will close its books on the Closing
Date. The Persons previously responsible for preparing Company's Returns will
then estimate by accrual: (i) in the case of income Taxes (including franchise
taxes for the applicable jurisdictions) as to which Company's taxable year ends
on the Closing Date, the income Taxes for the period commencing on 10/1/98 and
ending on the Closing Date, which were not previously paid prior to the Closing
Date; (ii) in the case of all other Taxes for all periods ending on or prior to
the Closing Date which are due after the Closing Date, the amount of such Taxes
which were not previously paid prior to the Closing Date; and (iii) in the case
of Taxes as to which Company's taxable year begins before and ends after the
Closing Date, an amount of such Taxes allocated in the manner described in this
section to such partial period, which were not previously paid by the Company on
or prior to the Closing Date. The Company will retain an amount of cash on hand
on the Closing Date sufficient to permit the Company to pay the full amount of
the Taxes of the Company described in the preceding sentence (and the payment of
such amount will not have a Material Adverse Effect on Company's ability to pay
all of its other current obligations), as estimated by accrual. For purposes of
this Section, in the case of any Taxes that are imposed on a periodic basis and
are payable for a taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such taxable
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire taxable period multiplied by a fraction the numerator of
which is the number of days in the taxable period ending on the Closing Date and
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the denominator of which is the number of days in the entire taxable period, and
(y) in the case of any Tax based upon or related to income or receipts including
sales, use and transaction Taxes be deemed equal to the amount which would be
payable if the relevant taxable period ended on the Closing Date. Any credits
relating to a taxable period that begins before and ends after the Closing Date
shall be taken into account as though the relevant taxable period ended on the
Closing Date. All determinations necessary to give effect to the foregoing
allocations shall be made in a manner consistent with prior practice of Company
and its subsidiaries.
(b) Amending Returns. Purchaser will agree not to amend any
Return or extend any statute of limitations applicable to a Return, without the
consent of the Sellers (such consent not to be unreasonably withheld); provided,
however, that Purchaser may amend any return and agree to extend any statute of
limitations to the extent that any Return is inconsistent with the
representations and warranties made in this Agreement.
(c) Cooperation on Tax Matters.
(i) Purchaser, Company and its subsidiaries and the
Sellers shall cooperate fully, as and to the extent reasonably requested by the
other Party, in connection with the filing of Returns pursuant to this Section
and any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other Party's request) the
provision of records and information which are reasonably relevant to any such
audit, litigation or other proceeding and, to the extent possible, making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. Company and its
subsidiaries and the Sellers agree (A) to retain all Books and Records with
respect to Tax matters pertinent to Company and its subsidiaries relating to any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by Purchaser or Sellers, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (B) to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such Books and Records and, if the other Party so requests,
Company and its subsidiaries or Sellers, as the case may be, shall allow the
other Party to take possession of such books and records.
(ii) Purchaser and the Sellers further agree, upon
request, to provide the other Party with all information that either Party may
be required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
(d) Tax Sharing Agreements. All tax sharing agreements or
similar agreements with respect to or involving Company and its subsidiaries
shall be terminated as of the Closing Date and, after the Closing Date, Company
and its subsidiaries shall not be bound thereby or have any liability
thereunder.
(e) Certain Taxes. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by Sellers
when due, and Sellers will, at their own expense, file all necessary Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration and other Taxes and fees, and, if required by applicable
Law, Purchaser
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will, and will cause its Affiliates to, join in the execution of any such
Returns and other documentation.
(f) Appointment of Independent Person. If Purchaser and the
Sellers fail to agree by the day which is 30 days prior to the due date
(including extensions) of a Return due pursuant to this Section, the matters in
dispute (but no other matters) will be submitted to a firm of independent
certified accountants mutually acceptable to Purchaser and the Sellers, as a
group (the "INDEPENDENT PERSON"), which firm will make a final and binding
determination as to the matters in dispute within 15 days after its appointment.
The Independent Person will send its written determination, at which point the
determination of the Independent Person will be binding on Purchaser and the
Sellers, absent fraud or manifest error. The fees and expenses of the
Independent Person will be borne equally by Purchaser, on the one hand, and the
Sellers, on the other hand.
(g) Consistency. Any Return to be prepared pursuant to the
provisions of this Section will be prepared in a manner consistent with
practices followed in prior years with respect to similar Returns, except for
changes required by applicable law.
ARTICLE IX.
CONDITIONS PRECEDENT TO THE CLOSING
Section 9.1 Conditions Precedent to Purchaser's Obligations. The
obligation of Purchaser to consummate the transactions contemplated by this
Agreement will be subject to the satisfaction of the following conditions, any
of which may be waived in writing by Purchaser.
(a) Accuracy of Representations and Warranties. The
representations and warranties made by each Seller and Company in this Agreement
will have been true, complete and correct as of the Signing Date and as of the
Closing Date as though made as of the Closing Date, except to the extent such
representations or warranties made as of a specific date will have been correct
and complete as of the specified date.
(b) Performance of Covenants. Company and each Seller will
have performed and complied in all material respects with all agreements,
covenants and obligations required by this Agreement to be performed by such
Party prior to or at the Closing.
(c) Absence of Certain Changes. (i) The annualized commissions
of Company as of the Closing Date (as determined in accordance with Section 1.4)
will not be lower than $15,000,000; (ii) neither Ronald K. Fairchild nor any
other two of the individuals listed on Schedule 9.1(h) shall have voluntarily
terminated (not including by death or disability) his employment with Company;
and (iii) the assets and liabilities of Company will not be materially different
from those set forth on the Year-End Balance Sheet.
(d) Consents. Company and each Seller, as the case may be,
will have received and delivered to Purchaser all the Required Consents and the
Required Permits, including any Consent necessary to transfer the Shares, each
in form and substance satisfactory to Purchaser, and will have given all notices
required to be given to any Persons prior to the consummation of the
transactions contemplated by this Agreement.
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(e) Closing Certificate. Each Seller and an executive officer
of Company will have delivered to Purchaser a certificate confirming (i) the
satisfaction of the conditions set forth in Sections 9.1(a), 9.1(b), 9.1(c) and
9.1(k) and (ii) the continuing force and effect of the Required Consents and
Required Permits.
(f) Secretary's Certificate. Company will have delivered to
Purchaser a certificate executed by the secretary or an assistant secretary of
Company certifying as to (i) Company's Charter Documents, (ii) Company's good
standing (in the State of Michigan and each jurisdiction listed on Schedule 4.1)
and existence (in the State of Michigan), (iii) the resolutions in which
Company's board of directors approved this Agreement and the transactions
contemplated hereby, and (iv) the incumbency of Company's officers who execute
any documents on behalf of Company in connection with this Agreement.
(g) Deliveries. Company and each Seller, as the case may be,
will have delivered the documents required by Sections 2.3 and 2.4,
respectively, and such other documents as Purchaser may reasonably require.
(h) Employment Agreements. Purchaser, or an Affiliate of
Purchaser, will have entered into employment agreements with the individuals set
forth on Schedule 9.1(h), as such schedule may be amended prior to the Closing.
(i) Purchaser's Indenture and Credit Agreement. Purchaser
shall have obtained all Consents required under the RMSI Indenture and the RMSI
Credit Agreement.
(j) Comerica Bank Obligations. Company shall have discharged
or refinanced the Comerica Loan to the satisfaction of Purchaser.
(k) No Order or Action. No Order will be in effect forbidding
or enjoining the consummation of the transactions contemplated hereby. No Action
will be pending or threatened before any court or other Governmental Authority
seeking to enjoin the Closing or seeking damages against Purchaser or any of its
Representatives as a result of any of the transactions contemplated by this
Agreement, provided that neither Purchaser nor any of its Affiliates instituted
such Action.
Section 9.2 Conditions Precedent to Company's and the Sellers'
Obligations. The obligation of Company and each Seller to consummate the
transactions contemplated by this Agreement will be subject to the satisfaction
of the following conditions, any of which may be waived in writing by Company or
the Sellers, as the case may be.
(a) Secretary's Certificate. Purchaser will have delivered to
Company a certificate executed by the secretary or an assistant secretary of
Purchaser certifying as to (i) Purchaser's Charter Documents, (ii) Purchaser's
good standing, (iii) the resolutions in which Purchaser's board of directors
approved this Agreement and the transactions contemplated hereby, and (iv) the
incumbency of Purchaser's officers who execute any documents on behalf of
Purchaser in connection with this Agreement.
(b) Deliveries. Purchaser will have delivered the documents
required by Section 2.5 and such other documents as the Sellers may reasonably
require.
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(c) No Order or Action. No Order will be in effect forbidding
or enjoining the consummation of the transactions contemplated hereby. No Action
will be pending or, to the knowledge of Purchaser, threatened before any court
or other Governmental Authority seeking to enjoin the Closing or seeking damages
against Company or any Seller or any of their Representatives as a result of any
of the transactions contemplated by this Agreement, provided that neither
Company nor any Seller nor any of their respective Affiliates instituted such
Action.
ARTICLE X.
TERMINATION PRIOR TO THE CLOSING
Section 10.1 Termination of Agreement. This Agreement may be terminated
at any time prior to the Closing:
(a) by mutual written agreement of the Parties;
(b) by Purchaser (i) if the annualized commissions of Company
as of the Closing Date (as calculated in accordance with Section 1.4) are less
than $15,000,000 or (ii) if Ronald K. Fairchild or any other two (2) of the
individuals listed on Schedule 9.1(h) voluntarily terminates (not including
termination by death or disability) his employment with Company prior to the
Closing Date;
(c) by Purchaser or Company or any Seller at any time on or
after the date 179 days after the Signing Date; provided, however, that the
right to terminate this Agreement under this Section 10.1(c) shall not be
available to any Party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date; or
(d) by Purchaser, upon a breach of any representation,
warranty, covenant or agreement on the part of Company or any Seller set forth
in this Agreement or if any such representation or warranty of Company or any
Seller shall have become untrue, in either case such that the conditions set
forth in Sections 9.1(a) or 9.1(b) would not be satisfied (a "TERMINATING SELLER
BREACH"), and which Terminating Seller Breach is not cured by Company or any
Seller within ten calendar days following notice by Purchaser of such breach.
Section 10.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 10.1, all obligations of the parties hereto shall terminate
except the obligations of the Parties pursuant to Sections 10.2, 10.3, and 10.4
and Article XIII. No termination of this Agreement by Purchaser pursuant to
Section 10.1(d) shall prejudice the ability of Purchaser to seek damages from
the Sellers or Company, as applicable, for any breach of this Agreement,
including attorney's fees and the right to pursue any remedy at law or in
equity, and nothing contained herein (including this Section) shall relieve the
Sellers or Company from liability for any breach of this Agreement.
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Section 10.3 Expenses.
(a) If the Closing occurs, unless otherwise specifically set
forth herein all costs and expenses incurred in connection with this Agreement
shall be paid by the Party incurring such expenses.
(b) If the Closing does not occur, unless otherwise
specifically set forth herein all costs and expenses incurred in connection with
this Agreement shall be paid by the Party incurring such expenses; provided,
however, that if this Agreement is terminated prior to Closing and such
termination is by Purchaser other than as permitted by Section 10.1, Purchaser
shall pay Company an amount equal to $500,000 as reimbursement for the costs and
expenses of the Sellers and Company. Such payment would be due and payable in a
cash lump sum payment immediately upon such termination.
Section 10.4 Procedure Upon Termination. In the event of termination
pursuant to Section 10.1, written notice thereof will be immediately given to
the other Parties and the transactions contemplated by this Agreement will be
terminated, without any further action by any Party. If the transactions
contemplated by this Agreement are so terminated:
(a) each Party will return all documents, work papers and
other materials of the other Parties, whether obtained before or after the
Signing Date to the party furnishing the same; and
(b) such termination will not in any way limit, restrict or
relieve any Party of liability for any breach of this Agreement.
ARTICLE XI.
INDEMNIFICATION AND RELATED MATTERS
Section 11.1 Indemnification of Purchaser.
(a) Several Indemnification Obligations. Each Seller will,
severally but not jointly, indemnify, defend, and hold Purchaser harmless from
any and all Claims (including court costs and reasonable attorneys' fees and
expenses incurred in investigating, preparing for or participating in any
Action, including any Action to enforce the terms and provisions of this Article
XI) directly or indirectly related or arising with respect to any inaccuracy in
any representation or warranty of such Seller made in Article III or in the
certificate delivered by such Seller pursuant to Section 2.3(a) or any failure
of such Seller to observe the covenants and agreements contained in Section 6.7;
(b) Joint and Several Indemnification Obligation. By virtue of
their execution of this Agreement, each of the Sellers shall be deemed to have
agreed that, subject to the provisions of this Article XI, each of the Sellers
and, until the Closing, Company, will, jointly and severally, indemnify, defend,
and hold Purchaser harmless from any and all Claims (including court costs and
reasonable attorneys' fees and expenses incurred in investigating, preparing for
or participating in any Action, including any Action to enforce the terms and
provisions of this Article XI) directly or indirectly related or arising with
respect to:
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(i) Breaches of Representations and Warranties. Any
material inaccuracy in any representation or warranty made in
Article IV or in the certificate delivered by Company pursuant
to Section 2.3(a), including without limitation such
representations and warranties relating to environmental
matters in Section 4.20;
(ii) Breaches of Covenants. Any failure to perform or
observe any covenant or agreement of Company or Sellers set
forth in this Agreement (other than Section 6.7) or in any
agreement delivered pursuant to this Agreement (other than the
employment agreement of a particular Seller); or
(iii) Other Indemnification. Any undisclosed claims,
obligations, damages, judgments, debts, or other liabilities
resulting from the operation of Company prior to the Closing
Date.
Section 11.2 Indemnification of the Sellers. Purchaser will indemnify,
defend, and hold the Sellers and, until the Closing, Company, harmless from any
and all Claims (including court costs and reasonable attorneys' fees and
expenses incurred in investigating, preparing for or participating in any
Action, including any Action to enforce the terms and provisions of this Article
XI) directly or indirectly related or arising with respect to:
(a) Breaches of Representations and Warranties. Any material
inaccuracy in any representation or warranty of Purchaser made in Article V or
in the certificates delivered by Purchaser pursuant to Section 2.4(d); or
(b) Breaches of Covenants. Any failure to perform or observe,
in all material respects, any covenant or agreement of Purchaser set forth in
this Agreement or in any agreement delivered pursuant to this Agreement.
Section 11.3 Indemnification Procedure. The indemnification obligations
under this Agreement will be subject to the following procedures:
(a) Defense of Claim. Within five days after a Party entitled
to indemnification (an "INDEMNITEE") receives a notice of any Claim that may
give rise to an indemnification obligation under this Agreement, the Indemnitee
will give the Party responsible for providing indemnification with respect to
such Claim (the "INDEMNITOR") notice of such Claim, together with a copy of all
documents relating to such Claim that the Indemnitee possesses; provided, that
the failure to provide such notice shall not deprive an Indemnitee of its right
to indemnification hereunder, unless the Indemnitor is prejudiced by such
failure. The Indemnitor will then immediately undertake the defense of such
Claim by representatives of its own choosing and reasonably acceptable to
Indemnitee (which, in the case of Purchaser, shall be deemed to include Akin,
Gump, Strauss, Hauer & Feld, L.L.P.); provided further that Purchaser will have
the right to control and undertake such defense by representatives of its own
choosing if the Claim could have a continuing effect upon Purchaser or involves
any Environmental Law or Hazardous Material, in each case evidenced by a writing
from Purchaser's legal counsel providing in reasonable detail the basis for such
conclusion. The Indemnitor will notify the Indemnitee of the Indemnitor's
undertaking of the defense of a Claim promptly after receiving the notice of the
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Claim. Similarly, the Indemnitee will notify promptly the Indemnitor of the
Indemnitee's election of its right to control such defense under the
circumstances described above.
(b) Participation of the Indemnitee. If ten days after
delivering notice of a Claim to the Indemnitor or such shorter period necessary
to prevent judgment by default in favor of the Person asserting the Claim, the
Indemnitor has not begun to defend against such Claim, the Indemnitee will have
the right to defend or settle such Claim on behalf of the Indemnitor.
Notwithstanding whether the Indemnitor commences at any time to defend against a
Claim, the Indemnitee will have the right to participate in such defense by
representatives of its own choosing. The Indemnitee will bear any expense of
such participation if the Indemnitor is defending against the Claim unless the
Indemnitor possesses a conflict of interest with respect to the Indemnitee.
Under such circumstances, the Indemnitor will reimburse the Indemnitee for the
Indemnitee's reasonable attorneys' fees and expenses. In addition, the
Indemnitor will reimburse the Indemnitee for the Indemnitee's reasonable
attorneys' fees and expenses incurred during the period when the Indemnitor did
not defend against the Claim and in connection with Claims that Purchaser
possesses the right to defend. The Indemnitor will make such reimbursement
payments to the Indemnitee upon the Indemnitee's submission of periodic invoices
describing such fees and expenses in reasonable detail. Any reimbursement under
this Section 11.3(c) shall be subject to the provisions of this Article XI,
including, without limitation, Sections 11.9 and 11.10.
(c) Settlement of Claims. The Indemnitor may settle any Claim
at its own expense, provided that the Indemnitor will not settle any Claim or
consent to the entry of any judgment without the consent of the Indemnitee if
such settlement or judgment (i) includes any admission of wrongdoing by the
Indemnitee or any of the Indemnitee's Representatives, (ii) includes any consent
to any type of injunctive relief affecting the Indemnitee or any of the
Indemnitee's Representatives, (iii) excludes an unconditional release by the
Person asserting the Claim of the Indemnitee and the Indemnitee's
Representatives from all liability with respect to such Claim, or (iv) requires
the Indemnitee or any of the Indemnitee's Representatives to make any payment.
(d) Reimbursement. If an Indemnitor undertakes the defense of
any Claim or settles any Claim and such Claim was not within the scope of the
Indemnitor's indemnification obligations under this Agreement, the Indemnitee
will promptly reimburse the Indemnitor for all expenses with respect to such
defense or settlement, including the Indemnitor's reasonable attorneys' fees and
expenses.
(e) Cooperation. In connection with any indemnity obligation
under this Article XI, the Indemnitee will cooperate with all reasonable
requests of the Indemnitor and its Representatives.
(f) Payment--Net of Insurance Proceeds. The amount of any
damage or indemnification payable pursuant to this Article XI will be net of any
insurance proceeds actually received by the Indemnitee in connection with the
circumstances giving rise to the Claim. The calculation of net insurance
proceeds will give effect to all costs incurred by the Indemnitee for such
insurance recovery, including all costs associated with retrospective premium
adjustments, experienced-based premium adjustments, and indemnification
obligations. Nothing in this
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Section will be construed or interpreted as a guaranty of any level or amount of
insurance recovery with respect to any Claim hereunder.
(g) Payment--Net of Tax Benefit and Detriment. The Parties
will treat any payment or receipt of damages or indemnification under this
Article XI as an adjustment to the Purchase Price on all Returns, except for the
interest component of any such payment, which the Parties will treat as interest
income or expense, as the case may be. To the extent that any damage or
indemnification payment exclusive of the interest component constitutes taxable
income to the Indemnitee, the amount of such damage or indemnification payment
will be `increased by the amount of any income Tax attributable to such payment
and the reimbursement of any related income Taxes. To the extent that any damage
or indemnification payment exclusive of the interest component constitutes a
reduction of taxable income to the Indemnitee, the amount of such damage or
indemnification payment will be decreased by the amount of any income Tax
attributable to such reduction of taxable income.
Section 11.4 Meritless Third Party Claims. If a third party makes a
Claim against the Indemnitee that ultimately proves to be meritless, the
Indemnitee may nevertheless require the Indemnitor to defend such Claim and
reimburse the Indemnitee for its reasonable attorneys' fees and expenses in
connection with such Claim if such Claim was within the scope of the
Indemnitor's indemnification obligations under this Agreement.
Section 11.5 Assignment of Claims. If any amounts for which the
Indemnitor is responsible are recoverable from a third party, the Indemnitee
will assign any rights that it may have to recover such amounts to the
Indemnitor.
Section 11.6 Other Indemnitees. Upon the Indemnitee's request, the
Indemnitor will indemnify any of the Indemnitee's Representatives to the same
extent as the Indemnitee. No Representative of any Indemnitee, however, will be
a third party beneficiary of the indemnification provisions set forth in this
Agreement. In addition, an Indemnitee may release or waive any Claim to which
such Indemnitee previously requested another Indemnitor to indemnify such
Indemnitee's Representatives, and such Representatives will have no recourse
against the Indemnitee. To the extent that an Indemnitee requests an Indemnitor
to indemnify such Indemnitee's Representatives, such Indemnitee will cause its
Representatives to comply with the indemnification provisions and abide by the
indemnification limitations set forth in this Agreement.
Section 11.7 Contribution. If the indemnity obligations provided for in
this Agreement are held unenforceable in whole or in part for any reason, each
Party will perform such indemnity obligations to the extent enforceable. To the
extent that such indemnity obligations are unenforceable, the Party that would
have been the Indemnitor with respect to a Claim except for such
unenforceability will contribute to such Claim in such proportion as appropriate
to reflect the relative fault of such Party as opposed to the relative fault of
the Person who would have been the Indemnitee, as well as any other relevant
equitable considerations.
Section 11.8 Sole and Exclusive Remedy. Purchaser and each Seller
hereby acknowledge and agree that, after the Closing, notwithstanding any other
provision of this Agreement to the contrary, such party's sole and exclusive
remedy with respect to any
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indemnification obligations under this Agreement shall be in accordance with,
and limited by, the provisions set forth in this Article XI.
Section 11.9 Maximum Liability Cap.
(a) Except as specifically provided in Section 10.3(b),
Purchaser will not be liable for any Claim for damages or indemnification under
this Agreement to the extent that the aggregate amount of such Claims exceeds
$200,000.
(b) The Parties hereby agree that (i) the maximum liability of
any Seller under this Article XI shall in no event exceed such Seller's Maximum
Shareholder Escrow Amount and (ii) the maximum aggregate liability of the
Sellers shall in no event exceed the Escrow Deposit, except that the foregoing
limitations shall not apply to (w) Claims for breaches of Section 3.1 (Title to
Shares), (x) Claims contemplated by Section 14.16 (No Waiver Relating to Claims
of Fraud), (y) Claims for damages pursuant to Section 6.7 (Non-Disclosure;
Non-Competition; Non-Solicitation), or (z) Claims for breaches of Section 8.7(a)
(Tax Return Accruals).
Section 11.10 Recourse Against Escrow Deposit.
(a) In the event of any Claim by Purchaser against a Seller
for indemnification under Section 11.1(a), Purchaser shall seek payment first
out of the amount held by the Escrow Agent pursuant to the Escrow Agreement from
time to time in an amount not to exceed such Shareholder's Maximum Shareholder
Escrow Amount and, if such Shareholder's Maximum Shareholder Escrow Amount has
been reduced to zero pursuant to this Section, subject to the terms and
conditions of this Agreement and only if and to the extent such Claim is based
on a breach by such Seller of Sections 3.1, 14.16 or 6.7 Purchaser shall then be
entitled to seek payment directly from such Seller.
(b) In the event of any Claim by Purchaser against a Seller
for indemnification under Section 11.1(b), Purchaser shall seek payment solely
from the Escrow Deposit pursuant to the Escrow Agreement, until such Claims have
been paid in full or the Escrow Deposit has been reduced to zero; provided, that
if and to the extent such a Claim (i) is based on a breach of Section 14.16 by
Company or a breach of Section 8.7 (a) and (ii) exceeds the Escrow Deposit,
Purchaser shall be entitled to seek damages directly from the Sellers.
Section 11.11 Consequential Damages. Subject to Section 11.9, a Party
will be (a) liable for any consequential, incidental, punitive, or special
damages with respect to any breach of this Agreement, and (b) responsible for
indemnifying an Indemnitee for any consequential, incidental, punitive, or
special damages that such Indemnitee incurs if within the scope of such Party's
indemnification obligation.
Section 11.12 Interest. Subject to Section 11.9, a Party will pay
interest computed at the then current prime rate on (a) any Claim for damages
with respect to such Party's breach of this Agreement from the date of the
breach through the date that the Party pays such damages, and (b) any Claim for
indemnification under this Agreement for which such Party is the Indemnitor from
the date of the Indemnitee's indemnifiable out-of-pocket expenditures through
the date that the Party pays such Claim.
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Section 11.13 Survival of Terms. The agreements, covenants, indemnity
obligations, representations and warranties, and other terms of this Agreement,
Purchaser's closing certificate, each Seller's closing certificate, Company's
closing certificate and any other documents contemplated under this Agreement
will survive the Closing and any investigation or notice by any Party, provided
that the representations and warranties of each Party under this Agreement will
expire at 5:00 p.m. Dallas, Texas time on the day immediately preceding the
first anniversary of the Closing Date; provided, however, that (i) the
representations and warranties set forth in Section 3.1 shall survive forever,
(ii) the covenants set forth in Section 6.7 shall survive for the period stated
therein, (iii) Claims contemplated by Section 14.16 shall survive for the
applicable statute of limitations, and (iv) Claims for breaches of Section 8.7
(a) shall survive for 30 days after the expiration of the applicable statute of
limitations, as such statutory period may be extended from time to time. A Party
will not be responsible with respect to any Claim for damages or indemnification
with respect to any inaccuracy in any of such Party's representations or
warranties unless such Party receives notice of the Claim with respect to such
inaccuracy before such representation and warranty expires. With respect to any
such Claim received before the expiration of a particular representation or
warranty, the Party responsible for such representation or warranty will remain
responsible for any damage or indemnification amounts claimed notwithstanding
the subsequent expiration of such representation or warranty.
Section 11.14 Negligence and Strict Liability. THE PROVISIONS OF THIS
AGREEMENT CONCERNING CLAIMS FOR DAMAGES AND INDEMNIFICATION WILL APPLY WHETHER
OR NOT THE PARTY OR OTHER PERSON CLAIMING SUCH DAMAGES OR INDEMNIFICATION WAS
NEGLIGENT, GROSSLY NEGLIGENT, OR STRICTLY LIABLE IN CONNECTION WITH THE EVENTS
GIVING RISE TO SUCH CLAIM.
ARTICLE XII.
THE SELLER REPRESENTATIVE
By virtue of their execution of this Agreement, each of the Sellers
shall be deemed to have agreed that:
Section 12.1 Authorization of the Seller Representative. E. Malcolm
York (the "SELLER REPRESENTATIVE") (and each successor appointed in accordance
with Section 12.2), hereby is appointed, authorized and empowered to act, on
behalf of the Sellers, in connection with, and to facilitate the consummation of
the transactions contemplated by, this Agreement, and in connection with the
activities to be performed on behalf of the Sellers under this Agreement and the
Escrow Agreement, for the purposes and with the powers and authority hereinafter
set forth in this Article XII and in the Escrow Agreement, which shall include
the power and authority:
(a) To execute and deliver the Escrow Agreement (with such
modifications or changes therein as to which the Seller Representative, in its
reasonable discretion, shall have consented to) and to agree to such amendments
or modifications thereto as the Seller Representative, in its reasonable
discretion, may deem necessary or desirable to give effect to the matters set
forth in this Article XII;
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(b) To execute and deliver such waivers and consents in
connection with this Agreement and the consummation of the transactions
contemplated hereby as the Seller Representative, in its reasonable discretion,
may deem necessary or desirable to give effect to the intentions of this
Agreement;
(c) As the Seller Representative of the Sellers, to enforce
and protect the rights and interests of such Sellers and to enforce and protect
the rights and interests of the Seller Representative arising out of or under or
in any manner relating to this Agreement and the Escrow Agreement (including,
but not limited to, in connection with any and all Claims for indemnification
brought by any Indemnitee under Article XI of this Agreement) and, in connection
therewith, to (i) assert any Claim or institute any Action; (ii) investigate,
defend, contest or litigate any Claim or Action initiated by any Indemnitee, or
any other Person, against the Sellers (or any one of them) and/or the Escrow
Assets, and receive process on behalf of any or all of the Sellers in any such
Claim or Action and compromise or settle on such terms as the Seller
Representative shall determine to be appropriate, give receipts, releases and
discharges on behalf of all of the Sellers (or any one of them) with respect to
any such Claim or Action; (iii) file any proofs, debts, Claims or petitions as
the Seller Representative may deem advisable or necessary; (iv) settle or
compromise any Claims asserted under Article XI of this Agreement; (v) assume,
on behalf of all of the Sellers, the defense of any Claim that is the basis of
any Claim asserted under Article XI of this Agreement; and (vi) file and
prosecute appeals from any decision, judgment or award rendered in any of the
foregoing Actions, it being understood that the Seller Representative shall not
have any obligation to take any such actions, and shall not have liability for
any failure to take any such action;
(d) To enforce payment from the Escrow Assets on behalf of the
Sellers (or any one of them), in the name of the Seller Representative or, if
the Seller Representative so elects, upon at least 15 days' prior written notice
to the Sellers and in the absence of written instructions to the contrary, in
the names of one or more of the Sellers;
(e) To cause to be paid out of the Escrow Assets the full
amount of any judgment or judgments and legal interest and costs awarded in
favor of Purchaser or Representative of Purchaser arising out of the
indemnification provisions set forth in Article XI of this Agreement;
(f) To refrain from enforcing any right of the Sellers or any
one of them and/or of the Seller Representative arising out of or under or in
any manner relating to this Agreement or the Escrow Agreement;
(g) To make, execute, acknowledge and deliver all such other
agreements, guarantees, orders, receipts, endorsements, notices, requests,
instructions, certificates, stock powers, letters and other writings, and, in
general, to do any and all things and to take any and all action that the Seller
Representative, in its sole and absolute discretion, may consider necessary or
proper or convenient in connection with or to carry out the activities described
in paragraphs (a) through (f) above and the transactions contemplated by this
Agreement and the Escrow Agreement.
The grant of authority provided for in this Section 12.1: (i) is
coupled with an interest and is being granted, in part, as an inducement to
Purchaser to enter into this Agreement and
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shall be irrevocable and survive the death, incompetency, bankruptcy or
liquidation of any Seller and shall be binding on any successor thereto; (ii)
subject to the provisions of Section 12.2 below, may be exercised by the Seller
Representative acting by signing as Seller Representative of each of the
Sellers; and (iii) shall survive any distribution from the Escrow Agent.
Section 12.2 Removal and Replacement of Seller Representative;
Successor Seller Representative; Action by Seller Representative.
(a) If Seller Representative is unable or unavailable to
perform his duties hereunder, a Seller Representative, who shall be a Seller or
a representative of a non-individual Seller, shall be appointed by the Sellers
who, immediately prior to the Closing Date, hold a majority of the Shares,
unless such Person is unable or unwilling to accept such appointment.
(b) Any Seller Representative, or all of them, may be removed
at any time by a written notice delivered by Sellers who, immediately prior to
the Closing Date, hold a majority of the Shares to the Seller Representative,
the other Sellers and the Purchaser. A Seller Representative so removed shall be
replaced promptly by the Sellers who, immediately prior to the Closing Date,
hold a majority of the Shares by written notice delivered to all of the other
Sellers and Purchaser.
(c) If any successor Seller Representative is appointed as
contemplated in Sections 12.2(a) or 12.2(b), written notice of such appointment
executed by the Sellers who, immediately prior to the Closing Date, hold a
majority of the Shares shall be delivered to the Seller Representative, the
other Sellers and Purchaser. Any successor Seller Representative shall have all
of the authority and responsibilities conferred upon or delegated to a Seller
Representative pursuant to this Article XII.
Section 12.3 Reliance; Limitation as to Purchaser.
(a) Purchaser and the Escrow Agent may conclusively and
absolutely rely, without inquiry, and until the receipt of written notice of a
change of the Seller Representative under Section 12.2 may continue to rely,
without inquiry, upon the action of the Seller Representative as the action of
each of the Sellers in all matters referred to in this Article XII.
(b) Each of the Parties hereby acknowledges and agrees that,
except as set forth in this Section 12.3, the provisions of this Article XII
create no binding obligations between Purchaser, on the one hand, and the
Sellers, on the other hand; provided, however, that if Purchaser is given
written notice of the appointment of a successor Seller Representative as
contemplated in Section 12.2, Purchaser shall be obligated to recognize, and
shall only be able to so rely upon the action of, such successor Seller
Representative as the Seller Representative for all purposes under this
Agreement.
ARTICLE XIII.
ARBITRATION AND EQUITABLE REMEDIES
Section 13.1 Settlement Meeting. The Parties will attempt in good faith
to resolve promptly through negotiations any dispute under this Agreement (other
than disagreements governed by Section 6.7, 8.7(f) or 14.12 or as otherwise
provided in Section 13.5). If any such
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<PAGE> 47
dispute should arise, the Parties will meet at least once to attempt to resolve
the matter (the "SETTLEMENT MEETING"). Any Party may request the other Parties
to attend a Settlement Meeting at a mutually agreed time and place within 10
days after delivery of a notice of a dispute. The occurrence of a Settlement
Meeting with respect to a dispute will be a condition precedent to seeking any
arbitration or judicial remedy, provided that if a Party refuses to attend a
Settlement Meeting the other Parties may proceed to seek such remedy.
Section 13.2 Arbitration Proceedings. If the Parties have not resolved
a dispute at the Settlement Meeting any Party may submit the matter to
arbitration. A panel of three arbitrators will conduct the arbitration
proceedings in accordance with the provisions of the Federal Arbitration Act (99
U.S.C. Section 1 et seq.) and the Commercial Arbitration Rules of the American
Arbitration Association (the "ARBITRATION RULES"). The decision of a majority of
the panel will be the decision of the arbitrators.
(a) Arbitration Notice. To submit a dispute to arbitration, a
Party will furnish the other Parties and the American Arbitration Association
with a notice (the "ARBITRATION NOTICE") containing (i) the name and address of
such Party, (ii) the nature of the dispute in reasonable detail, (iii) the
Party's intent to commence arbitration proceedings under this Agreement, and
(iv) the other information required under the Federal Arbitration Act and the
Arbitration Rules.
(b) Selection of Arbitrators. Within ten days after delivery
of the Arbitration Notice, Purchaser and the Sellers, as a group, will each
select one arbitrator from the list of the American Arbitration Association's
National Panel of Commercial Arbitrators. Within 10 days after the selection of
the last of those two arbitrators, those two arbitrators will select the third
arbitrator from such list. If the first two arbitrators cannot select a third
arbitrator within such ten day period, the American Arbitration Association will
select a third arbitrator from the list. Each arbitrator will be an individual
not subject to disqualification under Rule No. 19 of the Arbitration Rules with
experience in settling complex litigation involving mergers and acquisitions.
(c) Arbitration Final. The arbitration of the matters in
controversy and the determination of any amount of damages or indemnification
will be final and binding upon the Parties to the maximum extent permitted by
Law, provided that any Party may seek any equitable remedy available under Law
as provided in this Agreement. This agreement to arbitrate is irrevocable.
Section 13.3 Place of Arbitration. Any arbitration proceedings will be
conducted in Dallas, Texas or at such other location as the Parties may agree.
The arbitrators will hold the arbitration proceedings within 60 days after the
selection of the third arbitrator.
Section 13.4 Discovery. During the period beginning with the selection
of the third arbitrator and ending upon the conclusion of the arbitration
proceedings, the arbitrators will have the authority to permit the Parties to
conduct such discovery as the arbitrators consider appropriate.
Section 13.5 Equitable Remedies. Notwithstanding anything else in this
Agreement to the contrary, after the Settlement Meeting, a Party will be
entitled to seek any equitable remedies
40
<PAGE> 48
available under Law or this Agreement, including an injunction prohibiting a
breach of the provisions of Section 6.7 or an Order requiring a Seller to
perform this Agreement pursuant to Section 14.12. Any such equitable remedies
will be in addition to any damages or indemnification rights that such Party may
assert in an arbitration proceeding.
Section 13.6 Exclusive Jurisdiction. The Parties agree that any claim
for equitable relief relating to this Agreement will be instituted in a federal
or state court sitting in Dallas, Texas, which courts and their respective
appellate courts will be the exclusive venue for any such claim. Each Party
waives any objection that it may have to the laying of such venue, and
irrevocably submits to the jurisdiction of any such court with respect to any
such claim. Any service of process and other notice in any such case will be
effective against a Party when transmitted in accordance with Section 14.7,
provided that a Party also may serve process in any manner permitted by Law.
Section 13.7 Judgments. Any arbitration award under this Agreement will
be final and binding. Any court having jurisdiction may enter judgment on such
arbitration award upon application of a Party.
Section 13.8 Expenses. If any Party commences arbitration proceedings
or court proceedings seeking equitable relief with respect to this Agreement,
the prevailing Party in such arbitration proceedings or case may receive as part
of any award or judgment reimbursement of such Party's reasonable attorneys'
fees and expenses to the extent that the arbitrators or court considers
appropriate.
Section 13.9 Cost of the Arbitration. The arbitrators will assess the
costs of the arbitration proceedings, including their fees, to the Parties in
such proportions as the arbitrators consider reasonable under the circumstances.
Section 13.10 Exclusivity of Remedies. To the extent permitted by Law,
the arbitration and judicial remedies set forth in this Article XII will be the
exclusive remedies available to the Parties with respect to any dispute under
this Agreement (other than remedies provided in Sections 6.7, 8.7(f) or 14.12).
ARTICLE XIV.
MISCELLANEOUS
Section 14.1 Amendment. No amendment of this Agreement will be
effective unless in a writing signed by the Parties.
Section 14.2 Counterparts; Fax Signatures. This Agreement may be
executed in any number of counterparts, each of which will be deemed to be an
original agreement, but all of which will constitute one and the same agreement.
Any Party may execute and deliver this Agreement by an executed signature page
transmitted by a facsimile machine. If a Party transmits its signature page by a
facsimile machine, such Party will promptly thereafter deliver an originally
executed signature page to the other Parties, provided that any failure to
deliver such an originally executed signature page will not affect the validity,
legality, or enforceability of this Agreement.
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<PAGE> 49
Section 14.3 Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the Parties and supersedes all prior
agreements and understandings, both written and oral, and all contemporaneous
oral agreements and understandings with respect to the subject matter of this
Agreement.
Section 14.4 Governing Law. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS
OF THE STATE OF TEXAS REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
THE CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE.
Section 14.5 No Assignment. No Party may assign its benefits or
delegate its duties under this Agreement without the prior written consent of
the other Parties. Any attempted assignment or delegation without such prior
written consent shall be void. Notwithstanding this prohibition against
assignment and delegation, Purchaser may assign its rights and delegate its
duties under this Agreement to an Affiliate of Purchaser without the Sellers'
consent. Upon Purchaser's assignment of its benefits and delegation of its
duties under this Agreement to an Affiliate, Purchaser shall be released from
any obligations under this Agreement, except with respect to its obligations to
repay the Notes for which it shall remain liable. In addition, after the
Closing, Purchaser may assign its rights under this Agreement (but not its
obligations with regard to the Notes) to a purchaser of all of the assets or
equity of Purchaser, or any other successor-in-interest to Purchaser, without
the Sellers' consent, and any such purchaser and any subsequent purchasers of
all of the assets or equity of Purchaser may similarly assign such rights.
Section 14.6 No Third Party Beneficiaries. This Agreement is solely for
the benefit of the Parties and no other Person will have any right, interest, or
claim under this Agreement.
Section 14.7 Notices. Unless otherwise provided elsewhere in this
Agreement, all claims, consents, designations, notices, waivers, and other
communications in connection with this Agreement shall be in writing. Such
claims, consents, designations, notices, waivers, and other communications will
be considered received (a) on the day of actual transmittal when transmitted by
hand delivery, (b) on the day of actual transmittal when transmitted by
facsimile with written confirmation of such transmittal, (c) on the next
business day following actual transmittal when transmitted by a nationally
recognized overnight courier, or (d) on the third business day following actual
transmittal when transmitted by certified or registered United States mail,
postage prepaid, return receipt requested; in each case when transmitted to a
Party at its address or location set forth below (or to such other address to
which such Party has notified the other Parties in accordance with this Section
to send such claims, consents, designations, notices, waivers, and other
communications).
Purchaser: Richmont Marketing Specialists, Inc.
17855 N. Dallas Parkway
Dallas, Texas 75287
Attn: Bruce Butler, President and COO
Nancy K. Jagielski, Esq.
Telephone: (972) 349-6253
Facsimile: (972) 349-6448
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<PAGE> 50
Copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201
Attn: Alan M. Utay
Telephone: (214) 969-4256
Facsimile: (214) 969-4343
Company: Paul Inman Associates, Inc.
30095 Northwestern Highway
Farmington Hills, Michigan 48334
Attn: Ronald K. Fairchild
Telephone: (248) 626-8300
Facsimile: (248) 626-6893
Sellers: E. Malcolm York
Seller Representative
35018 Old Timber Road
Farmington Hills, MI 48331-1437
Copy to: Miro Weiner & Kramer
500 N. Woodward Avenue
Suite 100
Bloomfield Hills, Michigan 48304
Attn: Roberta Granadier, Esq.
Telephone: (248) 258-1218
Facsimile: (248) 646-2681
Section 14.8 Public Announcements. The Parties will agree on the terms
of any press releases or other public announcements related to this Agreement,
and will consult with each other before issuing any press releases or other
public announcements related to this Agreement. The parties agree, to the extent
practicable, to consult with each other regarding any such public announcement
in advance thereof.
Section 14.9 Representation by Legal Counsel. Each Party is a
sophisticated Person that was advised by experienced legal counsel and other
advisors in the negotiation and preparation of this Agreement.
Section 14.10 Schedules. All references in this Agreement to schedules
will mean the schedules identified in this Agreement, which are incorporated
into this Agreement and will be deemed a part of this Agreement for all
purposes. Each Section of this Agreement that refers to a schedule will have a
separate schedule. In addition, any disclosure under a particular Section's
schedule will be made under the heading of any relevant subsection of such
Section. A disclosure of an item in a schedule for a particular Section or under
a heading in a schedule corresponding to a particular subsection will not be a
disclosure under any other Section's schedule or any other subsection, unless so
noted specifically on such schedule. The Sellers have made available or
delivered to Purchaser a correct and complete copy of each document
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<PAGE> 51
described on each schedule to this Agreement and a correct and complete written
description of each unwritten arrangement or other item described on each such
schedule.
Section 14.11 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction will not invalidate the
remaining provisions of this Agreement or affect the validity or enforceability
of such provision in any other jurisdiction. In addition, any such prohibited or
unenforceable provision will be given effect to the extent possible in the
jurisdiction where such provision is prohibited or unenforceable.
Section 14.12 Specific Performance. Each Seller acknowledges that the
benefits that Purchaser will derive from the transactions contemplated by this
Agreement are unique and irreplaceable. Accordingly, if such Seller improperly
abandons or terminates this Agreement, Purchaser would not have an adequate
remedy at law. Purchaser therefore will be entitled to a court order requiring
such Seller to perform this Agreement. No Seller will be entitled to specific
performance of this Agreement.
Section 14.13 Successors. This Agreement will be binding upon and will
inure to the benefit of each Party and its heirs, legal representatives,
permitted assigns, and successors, provided that this Section will not permit
the assignment or other transfer of this Agreement, whether by operation of law
or otherwise, if such assignment or other transfer is not otherwise permitted
under this Agreement.
Section 14.14 Time of the Essence. Time is of the essence in the
performance of this Agreement and all dates and periods specified in this
Agreement.
Section 14.15 Waiver. No provision of this Agreement will be considered
waived unless such waiver is in writing and signed by the Party that benefits
from the enforcement of such provision. No waiver of any provision in this
Agreement, however, will be deemed a waiver of a subsequent breach of such
provision or a waiver of a similar provision. In addition, a waiver of any
breach or a failure to enforce any term or condition of this Agreement will not
in any way affect, limit, or waive a Party's rights under this Agreement at any
time to enforce strict compliance thereafter with every term and condition of
this Agreement.
Section 14.16 No Waiver Relating to Claims of Fraud. The liability of
any Party under Article XI shall be in addition to, and not exclusive of, any
other liability that such Party may have at law or equity based on such Party's
willful breach of any covenant set forth in this Agreement or such Party's
fraudulent acts or omissions. None of the provisions set forth in this
Agreement, including but not limited to the provisions set forth in Section
11.8, 11.9 and 11.10, shall be deemed a waiver by any Party to this Agreement of
any right or remedy which such party may have at law or equity based on any
other Party's willful breach of any covenant set forth in this Agreement or any
Party's fraudulent acts or omissions, nor shall any such provisions limit, or be
deemed to limit, (a) the amounts of recoveries sought or awarded in any Claim
based on any other Party's willful breach of any covenant set forth in this
Agreement or any Party's fraudulent acts or omissions, (b) the time period
during which a Claim based on any other Party's willful breach of any covenant
set forth in this Agreement or any Party's fraudulent acts or omissions may be
brought, or (c) the recourse which any party may seek against another party with
respect to a Claim based on any other Party's fraudulent acts or omissions;
provided, that
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<PAGE> 52
with respect to such rights and remedies at law or equity, the Parties further
acknowledge and agree that none of the provisions of this Section 14.16 nor any
reference to this Section 14.16 throughout this Agreement, shall be deemed a
waiver of any defenses which may be available in respect to Actions or Claims
based on any other Party's willful breach of any covenant set forth in this
Agreement or any Party's fraudulent acts or omissions, including, but not
limited to, defenses of statutes of limitations or limitations of damages.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 53
IN WITNESS WHEREOF, each Party executed, or caused a duly authorized
officer to execute, this Agreement as of the Signing Date.
PURCHASER: RICHMONT MARKETING SPECIALISTS INC.,
a Delaware corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
COMPANY: PAUL INMAN ASSOCIATES, INC., a Michigan
corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
SELLERS: PAUL INMAN ASSOCIATES, INC., EMPLOYEE
STOCK OWNERSHIP PLAN & TRUST
By: Comerica Bank, Trustee
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
-----------------------------------------
Richard W. Domine
-----------------------------------------
Kenneth A. Elwert
-----------------------------------------
Ronald K. Fairchild
<PAGE> 54
Philip G. Fischioni Trust
By:
--------------------------------------
Philip G. Fischioni, Trustee
-----------------------------------------
Dennis M. Hoppe
-----------------------------------------
Raymond J. Peuler, Jr.
-----------------------------------------
Charles W. Pountney
Joseph C. and Diana L. Rimarcik Trust
By:
--------------------------------------
Joseph C. Rimarcik, Trustee
E. Malcolm York Charitable Remainder
Trust UTA dated January 16, 1997
By:
--------------------------------------
E. Malcolm York, Trustee
E. Malcolm York Trust UTA dated
July 9, 1975
By:
--------------------------------------
E. Malcolm York, Trustee
<PAGE> 55
RESTRICTED PERSONS:
-----------------------------------------
Joseph C. Rimarcik, for the purposes set
forth in Section 6.7 only
-----------------------------------------
Philip G. Fischioni, for the purposes set
forth in Section 6.7 only
-----------------------------------------
E. Malcolm York, for the purposes set
forth in Section 6.7 only
<PAGE> 56
APPENDIX A
DEFINITIONS AND RULES OF INTERPRETATION
Definitions. Unless the context otherwise requires, the terms defined
in this Appendix will have the meanings specified below for all purposes of this
Agreement:
(a) "ACCOUNTS RECEIVABLE" will have the meaning set forth in Section
4.11.
(b) "ACTION" means any action, arbitration proceeding, cause of action,
charge, counterclaim, cross claim, inquiry, investigation, legal action,
litigation, Order, proceeding, or suit.
(c) "ACQUISITION PROPOSAL" means any proposal or offer, other than a
proposal or offer by Purchaser with respect to (a) any merger, reorganization,
recapitalization, consolidation, share exchange, business combination,
liquidation, dissolution or other similar transaction involving Company (b) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of 5% or
more of the assets of Company, in a single transaction or series of transactions
(whether related or unrelated), other than inventory sold, leased, exchanged,
mortgaged, pledged, transferred or otherwise disposed of in the ordinary course
of business, (c) any sale of, tender offer or exchange offer for 5% or more of
the outstanding shares of any class of Company's capital stock or any class of
Company's debt securities or the filing of a registration statement under the
Securities Act in connection therewith, (d) the acquisition by any Person of
beneficial ownership of 5% or more of the then outstanding shares of any class
of Company's capital stock or any class of Company's debt securities or (e) any
public announcement of a proposal, plan or intention to do any of the foregoing
or any agreement to engage in any of the foregoing.
(d) "AFFILIATE" will mean any Person who, at the time such
determination is being made, is Controlling, Controlled by or under common
Control with, such Person. As used in this Agreement, the term "Control,"
whether used as a noun or verb, refers to the possession, directly or
indirectly, of the power to direct, or cause the direction of, the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise, and Control will be presumed to exist, with respect to
any Person, where any other Person of which the securities or other ownership
interests representing fifty percent (50%) or more of the equity or fifty
percent (50%) made, owned, Controlled or held, directly or indirectly, by such
Person.
(e) "AGREEMENT" will have the meaning set forth in the first paragraph.
(f) "ARBITRATION NOTICE" will have the meaning set forth in Section
12.2(a).
(g) "ARBITRATION RULES" will have the meaning set forth in Section
12.2.
(h) "ASSETS" will have the meaning set forth in Section 4.10(a).
(i) "BALANCE SHEET DATE" will have the meaning set forth in Section
4.7(a).
(j) "BANK ACCOUNTS" will have the meaning set forth in Section 4.26.
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<PAGE> 57
(k) "BOOKS AND RECORDS" will mean all the books and records maintained
by or for Company, including all accounting records, minute books, stock
records, computerized records and storage media and the software used in
connection therewith.
(l) "BUSINESS" will have the meaning set forth in Preliminary Statement
A.
(m) "BUSINESS DAY" will mean any day other than a day on which
commercial banks in Dallas, Texas are authorized to close under applicable Law.
(n) "CHARTER DOCUMENTS" will mean (i) in the case of a corporation, its
articles or certificate of incorporation and its bylaws, (ii) in the case of a
partnership, its partnership certificate and its partnership agreement, and
(iii) in the case of any other Person, its organic and governing documents, in
each case as such document has been amended or supplemented from time to time
prior to the Signing Date.
(o) "CLAIM" will mean any arbitration award, assessment, charge,
citation, claim, damage, demand, directive, expense, fine, interest, joint or
several liability, lawsuit, notice, obligation, payment, penalty, or summons of
any kind or nature whatsoever, including any damages incurred because of the
claimant's negligence or gross negligence or any strict liability imposed upon
the claimant, any consequential or punitive damages, and any reasonable
attorneys' fees and expenses. A Claim will be considered to exist even though it
may be conditional, contingent, indirect, potential, secondary, unaccrued,
unasserted, unknown, unliquidated, or unmatured.
(p) "CLOSING" will have the meaning set forth in Section 2.1.
(q) "CLOSING DATE" will have the meaning set forth in Section 2.1.
(r) "CODE" will mean the Internal Revenue Code of 1986.
(s) "COMERICA LOAN" means all obligations of Company to Comerica which
exist as of, or may accrue after, the Signing Date.
(t) "COMMON STOCK" will have the meaning set forth in Preliminary
Statement B.
(u) "COMPANY" will have the meaning set forth in the first paragraph.
(v) "COMPANY EMPLOYEE BENEFIT PLANS" will have the meaning set forth in
the Section 4.24(d).
(w) "COMPANY'S KNOWLEDGE" will mean the actual knowledge as of the date
that a specific representation or warranty is made or deemed made, after
reasonable inquiry, of Richard M. Domine, Kenneth A. Elwert, Ronald K.
Fairchild, Philip G. Fischioni, Dennis M. Hoppe, Raymond J. Peuler, Jr., Charles
W. Pountney, Joseph C. Rimarcik and/or E. Malcolm York.
(x) "COMPANY PENSION BENEFIT PLANS" will have the meaning set forth in
Section 4.24(b)
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<PAGE> 58
(y) "COMPANY WELFARE BENEFIT PLANS" will have the meaning set forth
Section 4.24(a).
(z) "CONFIDENTIAL INFORMATION" means any proprietary information, and
any information which Purchaser reasonably considers to be proprietary,
pertaining to Company's and Purchaser's past, present or prospective business
secrets, methods or policies, earnings, finances, security holders, lenders, key
employees, nature of services performed by such entity's sales personnel,
procedures, standards and methods, information relating to arrangements with
suppliers, the identity and requirements of arrangements with principals, the
type, volume or profitability of services or products for principals, drawings,
records, reports, documents, manuals, techniques, ratings, information, data,
statistics and trade secrets, whether or not reduced to writing, except to the
extent that such information is generally available to the public or the
industry in which Company operates.
(aa) "CONSENT" will mean a consent, approval, order, authorization or
waiver from, notice to or declaration, registration or filing with any Person.
(bb) "EMPLOYEE BENEFIT PLAN" will mean any (i) Pension Benefit Plan,
(ii) Welfare Benefit Plan, (iii) accident, dental, disability, health, life,
medical, or vision plan or insurance policy, (iv) bonus, executive, incentive or
deferred compensation plan, (v) change in control plan, (vi) fringe benefits and
perquisites, (vii) holiday, sick pay, leave, vacation, moving or tuition
reimbursement or other similar policy, (viii) stock option, stock purchase,
phantom stock, restricted stock or stock appreciation plan, (ix) severance plan,
or (x) other employee arrangement, commitment, custom, policy or practice.
(cc) "EMPLOYEES" will have the meaning set forth in Section 4.23(a).
(dd) "ENCUMBERED INSTRUMENT" will mean any contract and lease that by
its terms requires Consent from a third party in order to transfer the rights
and obligations thereunder.
(ee) "ENCUMBRANCE" will mean any title defect or objection, mortgage,
lien, deed of trust, equity, judgment, claim, restrictive covenant, use
restriction, charge, pledge, security interest or other encumbrance of any
nature whatsoever, including all leases, chattel mortgages, conditional sales
contracts, collateral security arrangements and other title or interest
retention arrangements.
(ff) "ENVIRONMENTAL LAW" will mean (i) the Clean Air Act (42 U.S.C.
Section 7401 et seq.), (ii) the Clean Water Act or Federal Water Pollution
Control Act (33 U.S.C. Section 1251 et seq.), (iii) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601 et
seq.), (iv) the Hazardous Materials Transportation Act (49 U.S.C. Section 5101
et seq.), (v) the National Environmental Policy Act (42 U.S.C. Section 4321 et
seq.), (vi) the Oil Pollution Act of 1990 (33 U.S.C. Section 2701 et seq.),
(vii) the Resource Conservation and Recovery Act, as amended by the Hazardous
and Solid Waste Amendments of 1984 (42 U.S.C. Section 6901 et seq.), (viii) the
Safe Drinking Water Act (42 U.S.C. Section 300f et seq.), (ix) the Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.), the Emergency Planning
and Community Right-to-Know Act of 1986 (42 USC Section 11001 et seq.), the
Federal Insecticide,
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Fungicide, and Rodenticide Act (7 U.S.C Section 136 et seq.), the Occupational
Safety and Health Act (29 U.S.C. Section 651 et seq.); (x) any state, local,
tribal, or foreign law, ordinance, regulation, or statute analogous to any of
the foregoing statutes, (xi) any regulations promulgated pursuant thereto, or
(xii) any other federal, state, local, tribal, or foreign law, ordinance,
regulation, rule or statute prohibiting, regulating, rule or restricting the
disposal, generation, handling, placement, recycling, release, storage,
transportation or treatment of any contaminant, liquid, mass, material, matter,
pollutant, solid, substance, or waste classified or considered to be hazardous
or toxic to human health or the environment or otherwise related to
environmental protection or health and safety.
(gg) "ERISA" will mean the Employee Retirement Income Security Act of
1974, as amended.
(hh) "ESCROW AGENT" will mean Chase Bank of Texas and includes its
successors or assigns.
(ii) "ESCROW AGREEMENT" will have the meaning set forth in Section 2.2.
(jj) "ESCROW DEPOSIT" will have the meaning set forth in Section
1.3(b).
(kk) "ESOP" will have the meaning set forth in the first paragraph.
(ll) "ESOP PAYMENT" will have the meaning set forth in Section 1.3(a).
(mm) "GOVERNMENTAL AUTHORITY" will mean any federal, state, local,
tribal, foreign or other governmental agency, department, branch, commission,
board, bureau, court, instrumentality or body.
(nn) "HAZARDOUS MATERIAL" will mean (i) any contaminant, liquid, mass,
material, matter, pollutant, solid, substance, or waste for which any
Environmental Law limits, prohibits, or regulates its disposal, generation,
handling, placement, recycling, release, storage, transportation or treatment,
(ii) any carcinogenic, corrosive, explosive, flammable, infectious, mutagenic,
radioactive, or toxic substance, (iii) any diesel fuel, gasoline, or other
petroleum product in an unconfined manner, (iv) any substance that contains
polychlorinated biphenyls, (v) any substance that contains asbestos, (vi) any
substance that contains urea formaldehyde foam installation, (vii) any substance
that constitutes a nuisance upon any property, (viii) any substance that imposes
a hazard to the health or safety of any individual; or (ix) any material that is
defined as a "hazardous waste," "hazardous substance," "hazardous material,"
"restricted hazardous waste," "industrial waste," "solid waste," "special
waste," "toxic waste," or "toxic substance" under any Environmental Law.
(oo) "INDEMNITEE" will have the meaning set forth in Section 11.3(a).
(pp) "INDEMNITOR" will have the meaning set forth in Section 11.3(a).
(qq) "INDEPENDENT PERSON" will have the meaning set forth in Section
8.7(f).
A-4
<PAGE> 60
(rr) "INITIAL MAXIMUM SHAREHOLDER ESCROW AMOUNT" shall mean with
respect to any Seller the amount listed on Schedule 1.1 opposite the name of
such Seller.
(ss) "INSURANCE POLICIES" will have the meaning set forth in Section
4.16.
(tt) "INTANGIBLE ASSET" will mean any patent, trademark, trademark
license, computer software (including, without limitation, the algorithms of
such software), trade name, masthead, brand name, slogan, copyright, reprint
right, franchise, license, process, authorization, invention, know-how, formula,
trade secret and other intangible asset, together with any pending application,
continuation-in-part or extension therefor or common law rights thereto,
regardless of whether the same is registered or unregistered.
(uu) "INTERIM BALANCE SHEET" will have the meaning set forth in Section
4.7(b).
(vv) "INTERIM FINANCIAL STATEMENTS" will have the meaning set forth in
Section 4.7(b).
(ww) "LAW" will mean any applicable code, statute, law, common law,
rule, regulation, ordinance or Order, writ or injunction of any Governmental
Authority.
(xx) "LAW AFFECTING CREDITORS' RIGHTS" will mean any bankruptcy,
fraudulent conveyance or transfer, insolvency, moratorium, reorganization, or
other law affecting the enforcement of creditors' rights generally, and any
general principles of equity.
(yy) "MARKET DEVELOPMENT FUND ACCOUNTS" will have the meaning set forth
in Section 4.35.
(zz) "MATERIAL ADVERSE CHANGE (OR EFFECT)" means a change (or effect),
in the condition (financial or otherwise), properties, assets, liabilities,
rights, obligations, operations, business or prospects, which change (or
effect), individually or in the aggregate, is materially adverse to such
condition, properties, assets, liabilities, rights, obligations, operations,
business or prospects.
(aaa) "MATERIAL CONTRACTS" will have the meaning set forth in Section
4.17.
(bbb) "MAXIMUM SHAREHOLDER ESCROW AMOUNT" means, with respect to any
Person, such Person's Initial Maximum Shareholder Escrow Amount, as the same may
be increased or decreased pursuant to the Escrow Agreement.
(ccc) "MERKERT" will have the meaning set forth in Section 2.1.
(ddd) "NON-COMPETITION PARTY" will mean each of the Sellers and
Restricted Persons.
(eee) "NON-ESOP PAYMENT" will have the meaning set forth in Section
1.3(b).
(fff) "NOTE" will have the meaning set forth in Section 1.3(b).
A-5
<PAGE> 61
(ggg) "ORDER" will mean any consent decree, decree, determination,
injunction, judgment, order, or writ of any arbitrator or Governmental
Authority.
(hhh) "OWNED REAL PROPERTY" will have the meaning set forth in Section
4.13(a).
(iii) "PARTY" will have the meaning set forth in the first paragraph.
(jjj) "PENSION BENEFIT PLAN" will mean (i) an "employee pension benefit
plan" as defined in Section 3(2) of ERISA, and (ii) a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA.
(kkk) "PERMIT" will mean any license, approval, certificate, franchise,
registration, permit or authorization issuable by any Governmental Authority.
(lll) "PERMITTED ENCUMBRANCE" will mean any Encumbrance directly
related to (i) Taxes that are not yet due and payable or Taxes that are being
contested in good faith by an appropriate proceeding, and in each case as to
which adequate reserves have been established in accordance with normal,
customary and reasonable accounting practices applied by Company on a consistent
basis, (ii) Encumbrances shown on the Interim Balance Sheet as securing
specified Claims with respect to which no breach or default exists, (iii)
workers', repairmen's and similar Encumbrances imposed by Law that have been
incurred in the ordinary course of business, and (iv) any other Encumbrance that
is not material arising since the date of the Interim Balance Sheet in the
ordinary course of business and consistent with past practices.
(mmm) "PERSON" will mean any association, bank, business trust,
corporation, estate, general partnership, Governmental Authority, individual,
joint stock company, joint venture, labor union, limited liability company,
limited partnership, non-profit corporation, professional association,
professional corporation, trust, or any other organization or entity.
(nnn) "PERSONAL PROPERTY LEASES" will have the meaning set forth in
Section 4.14(b).
(ooo) "PLAN" will mean any bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance, hospitalization or other
medical, life or other insurance, supplemental unemployment benefit, profit
sharing, pension, or retirement plan, program, agreement or arrangement.
(ppp) "PURCHASE PRICE" will have the meaning set forth in Section 1.2.
(qqq) "PURCHASER" will have the meaning set forth in first paragraph.
(rrr) "REAL PROPERTY LEASES" will have the meaning set forth in Section
4.13(b).
(sss) "RESTRICTED PERSONS" will have the meaning set forth in the first
paragraph.
(ttt) "REPRESENTATIVES" will mean, with respect to a Person, such
Person's directors, employees, officers, agents, accountants, affiliates,
consultants, investment bankers, attorneys, lenders, representatives and
shareholders.
A-6
<PAGE> 62
(uuu) "REQUIRED CONSENTS" will have the meaning set forth in Section
8.2(b).
(vvv) "REQUIRED PERMITS" will have the meaning set forth in Section
8.3(b).
(www) "RETURNS" will have the meaning set forth in Section 4.25(a).
(xxx) "REVIEWED FINANCIAL STATEMENTS" will have the meaning set forth
in Section 4.7(a).
(yyy) "RMSI CREDIT AGREEMENT" will mean that certain Amended and
Restated Credit Agreement dated as of December 1, 1997, among Purchaser, as
borrower, The Chase Manhattan Bank, individually and as agent for itself and the
other banks listed therein, and each of the banks or other lending institutions
which are signatories thereto, as amended and modified from time to time.
(zzz) "RMSI INDENTURE" will mean that certain Indenture dated as of
December 19, 1991, by and between Purchaser, as Issuer, and Texas Commerce Bank
National Association, as trustee, relating to $100,000,000 of 10 1/8 % Senior
Subordinated Notes due 2007.
(aaaa) "SECURITIES ACT" shall mean the Securities Act of 1933, or any
similar federal statute, and the rules and regulations of the Securities and
Exchange Commission thereunder, all as the same shall be in effect at the time.
(bbbb) "SELLER" will have the meaning set forth in the first paragraph.
(cccc) "SETTLEMENT MEETING" will have the meaning set forth in Section
12.1.
(dddd) "SHARES" will have the meaning set forth in Section 1.1.
(eeee) "SIGNING DATE" will have the meaning set forth in the first
paragraph.
(ffff) "SYSTEM" will have the meaning set forth in Section 4.42(a).
(gggg) "TAX" will mean any assessment, charge, duty, fee, impost, levy,
tariff, or tax of any nature whatsoever imposed by any Governmental Authority or
payable pursuant to any tax sharing agreement, including any income, payroll,
withholding, excise, gift, alternative minimum, capital gain, added value,
social security, sales, use, real and personal property, use and occupancy,
business and occupation, mercantile, real estate, capital stock, and franchise
tax or charge, together with any related interest, penalties or additions
thereon.
(hhhh) "TRANSACTION DOCUMENTS" will mean this Agreement, the Notes, and
all other documents and instruments executed and delivered pursuant to or in
furtherance of this Agreement (including all employment agreement,
non-competition agreements).
(iiii) "WELFARE BENEFIT PLAN" will mean an "employee welfare benefit
plan" as defined in Section 3(1) of ERISA, including an employee welfare benefit
plan which is a "multiemployer welfare plan" as defined in Section 3(37) of
ERISA and a "multiple employer welfare arrangement" as defined in Section 3(40)
of ERISA.
A-7
<PAGE> 63
(jjjj) "YEAR-END BALANCE SHEET" will have the meaning set forth in
Section 4.7(a).
Accounting Terms. Except as otherwise provided in this Agreement, all
accounting terms defined in this Agreement, whether defined in this Article or
otherwise, will be construed in accordance with GAAP applied on a consistent
basis.
Articles, Sections, Exhibits and Schedules. Except as otherwise
specifically stated, references to Articles, Sections, Exhibits and Schedules
refer to the Articles, Sections, Exhibits and Schedules of this Agreement.
Attorneys' Fees. Whenever this Agreement refers to a Person's
"attorneys' fees and expenses," such reference also will include any fees and
expenses of accountants, experts, investigators, and other professional advisors
whose services such Person's attorney considered advisable in connection with
the prosecution or defense of the particular matter.
Breach. The term "breach" with respect to any contract or instrument
means any breach or violation of, or default under, such contract or instrument,
any conflict with another contract or instrument or any emergence of a right of
another party to such contract or instrument to accelerate, cancel, modify or
terminate such contract or instrument, including any such breach, violation,
default, conflict, or right that will arise after notice or lapse of time.
Disclosure Thresholds. The establishment of any monetary thresholds for
the disclosure of particular items will not create a materiality standard under
this Agreement.
Drafting. Neither this Agreement nor any provision set forth in this
Agreement will be interpreted in favor of or against any Party because such
Party or its legal counsel drafted this Agreement or such provision. No prior
draft of this Agreement or any provision set forth in this Agreement will be
used when interpreting this Agreement or its provisions.
Headings. Article and section headings are used in this Agreement only
as a matter of convenience and will not have any effect upon the construction or
interpretation of this Agreement.
Include. The term "include" or any derivative of such term does not
mean that the items following such term are the only types of such items.
Or. The term "or" will not be interpreted as excluding any of the items
described.
Plural and Singular Words. Whenever the plural form of a word is used
in this Agreement, that word will include the singular form of that word.
Whenever the singular form of a word is used in this Agreement, that word will
include the plural form of that word.
Pronouns. Whenever a pronoun of a particular gender is used in this
Agreement, if appropriate that pronoun also will refer to the other gender and
the neuter. Whenever a neuter pronoun is used in this Agreement, if appropriate
that pronoun also will refer to the masculine and feminine gender.
A-8
<PAGE> 64
Representations and Warranties. Sellers' representations and warranties
under this Agreement will mean the representations and warranties set forth in
Articles III and IV and the reaffirmation of Sellers' representations and
warranties in certificates delivered pursuant to Sections 2.2(a) and 2.3(a).
Purchaser's representations and warranties under this Agreement will mean the
representations and warranties set forth in Article V.
Statutes. Any reference to Laws or any specific statute will include
any changes to such Law or statute after the Signing Date, any successor Law or
statute, and any regulations and rules promulgated under such Law or statute and
any successor law or statute, whether promulgated before or after the Signing
Date.
A-9
<PAGE> 65
SCHEDULE 1.1
Ownership of the Shares and Allocation of Purchase Price
<TABLE>
<CAPTION>
Initial Maximum
Shareholder
Name and Address Certificate Number Cash Payment At Escrow Principal
Of Shareholder Tax I.D. Numbers Of Shares Closing Amount Amount of Note
-------------- -------- ------- --------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Paul Inman Associates, Inc. 38-1617717
Employee Stock Ownership Plan &
Trust
Comerica Bank, Trustee
P.O. Box 75000
Detroit, Michigan 48275-3431
Tracy L. Harden, Trust Officer
Profit Sharing Plan 199 27,190 1,297,106.13 62,393.87 0.00
Stock Bonus Plan 202, 209, 226, 145,100 6,922,033.82 332,966.18 0.00
227, 228, 229
Richard W. Domine ###-##-#### 185, 203, 211, 3,400 77,197.90 7,802.10 85,000.00
2400 Rockhill Dr. NE 221, 230
Grand Rapids, MI 49505
Kenneth A. Elwert ###-##-#### 200 2,000 45,410.53 4,589.47 50,000.00
7087 Lindenmere
Bloomfield Hills, MI 48301
Ronald K. Fairchild ###-##-#### 186, 204, 212, 8,900 202,076.85 20,423.15 222,500.00
39635 Muirfield Lane 222, 231
Northville, MI 48167
Philip G. Fischioni Trust ###-##-#### 237, 238 11,680 265,197.48 26,802.52 292,000.00
Philip G. Fischioni, Trustee
28825 Salem
Farmington Hills, MI 48334
Dennis M. Hoppe ###-##-#### 189, 206, 215, 4,720 107,168.85 10,831.15 118,000.00
6356 Trailridge Court 224, 232, 240
Loveland, OH 45140-8156
Raymond J. Peuler, Jr. ###-##-#### 249, 256 800 95,410.53 4,589.47 0.00
7349 Old Lantern Dr. SE Option 1,200
Caledonia, MI 49316
Charles W. Pountney ###-##-#### 239, 248, 259 1,200 95,410.53 4,589.47 0.00
7491 Old Lantern Dr. SE Option 800
Caledonia, MI 49316
Joseph C. and Diana L. ###-##-#### 235 2,000 45,410.53 4,589.47 50,000.00
Rimarcik, Trust
Joseph C. Rimarcik, Trustee
1926 Grayslake Drive
Rochester Hills, MI 48306
E. Malcolm York, Trustee 38-3329781 254 3,300 157,427.37 7,572.63 0.00
E. Malcolm York Charitable
Remainder Trust UTA dated
1/16/97
E. Malcolm York, Trustee
E. Malcolm York Trust
UTA dated July 9, 1975
35018 Old Timber Road
Farmington Hills, MI 48331-1437
E. Malcolm York, Trustee 38-6335222 254 2,200 44,649.48 12,850.52 222,500.00
35018 Old Timber Road 255 3,400
Farmington Hills, MI 48331-1437
------- -------------- ----------- -------------
TOTAL 217,890 $9,354,5000.00 $500,000.00 $1,040,000.00
======= ============== =========== =============
</TABLE>
<PAGE> 66
SCHEDULE 9.1(h)
Employment Agreements
Ronald K. Fairchild
Richard Scott Hatfield
Robert Weber
Jere D. Roudebush
Dennis M. Hoppe
Phillip G. Fischioni
Raymond J. Peuler, Jr.
Charles W. Pountney
<PAGE> 67
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (this "AMENDMENT") is
dated as of August 13, 1999, by and among Richmont Marketing Specialists Inc., a
Delaware corporation, (the "PURCHASER"), Paul Inman Associates, Inc., a Michigan
corporation (the "COMPANY"), and the other Persons listed on the signature pages
attached hereto (collectively, the "SHAREHOLDERS").
PRELIMINARY STATEMENTS
A. The parties have entered into that certain Stock Purchase Agreement
dated as of May 14, 1999 (the "AGREEMENT") by and among Purchaser, the Company
and the Shareholders, pursuant to which the Purchaser has agreed to purchase
from the Shareholders, and the Shareholders have agreed to sell to the
Purchaser, all of the issued and outstanding capital stock of the Company,
subject to the terms and conditions of the Agreement. All capitalized terms used
but not otherwise defined herein shall have the meaning ascribed to them in the
Agreement.
B. Charles W. Pountney ("POUNTNEY") is one of the Shareholders and a
party to the Agreement with certain rights and obligations thereunder.
C. The Company has redeemed all of the stock and options of Pountney
(the "REDEMPTION") in connection with the termination of his employment from the
Company.
D. As a result of the Redemption, the parties hereto desire to amend
the Agreement as set forth in this Amendment
NOW, THEREFORE, based on the foregoing, in consideration of the mutual
promises contained herein and in the Purchase Agreement (as amended hereby), and
subject to the terms and conditions set forth herein and in the Purchase
Agreement (as amended hereby), the parties hereto agree as follows:
STATEMENT OF AGREEMENT
1. Section 1.2 of the Agreement is hereby amended and restated in its
entirety as follows:
Section 1.2 Purchase Price. The total consideration for the
Shares will be the sum of $10,794,500, subject to any adjustment
pursuant to Section 1.4 (as so adjusted, the "PURCHASE PRICE").
2. Section 1.3 of the Agreement is hereby amended and restated in its
entirety as follows:
1
<PAGE> 68
Section 1.3 Payment of Purchase Price.
(a) ESOP Shares. Subject to any adjustment
pursuant to Section 1.4, for and in full consideration of this
Agreement and the transactions contemplated herein, at the
Closing, Purchaser will pay to the ESOP an aggregate amount
equal to $8,614,500, payable as follows: (i) the amount of
$8,215,477.35 (the "ESOP PAYMENT") by wire transfer of
immediately available funds to the bank account set forth on a
notice given by the ESOP to Purchaser no later than three days
prior to the Closing Date; and (ii) the amount of $399,022.65
(the "ESOP ESCROW DEPOSIT") to an account with the Escrow
Agent to be held in escrow and distributed pursuant to the
terms of this Agreement and the Escrow Agreement.
(b) Non-ESOP Shares. Subject to any
adjustment pursuant to Section 1.4, for and in full
consideration of this Agreement and the transactions
contemplated herein, at the Closing, Purchaser will pay to the
Sellers (other than the ESOP) an aggregate amount equal to
$2,180,000, payable as follows: (i) the amount of $100,977.35
(the "NON-ESOP ESCROW DEPOSIT," and together with the ESOP
Escrow Deposit, the "ESCROW DEPOSIT," as the same may be
increased or decreased from time to time pursuant to the terms
of the Escrow Agreement) to an account with the Escrow Agent
to be held in escrow and distributed pursuant to the terms of
this Agreement and the Escrow Agreement; (ii) the amount of
$1,039,022.65 (the "NON-ESOP PAYMENT") by wire transfer of
immediately available funds in the amounts set forth on
Schedule 1.1 (as the same may be revised to reflect any
adjustment to the Purchase Price) opposite the name of each
Seller (other than the ESOP) to the bank accounts set forth on
a notice given by each such Seller to Purchaser no later than
three business days prior to the Closing Date; and (iii) the
aggregate principal amount of $1,040,000 by delivering to each
Seller (other than the ESOP) a promissory note substantially
in the form attached hereto as Exhibit 1.3(b) with a principal
amount equal to the amount set forth on Schedule 1.1 (as the
same may be revised to reflect any adjustment to the Purchase
Price) opposite the name of such Seller (collectively, the
"NOTES").
3. Schedule 1.1 of the Agreement is amended and restated in its
entirety as set forth in Schedule 1.1 to this Amendment.
4. Schedule 9.1(h) of the Agreement is amended and restated in its
entirety as set forth in Schedule 9.1(h) to this Amendment.
5. The parties hereto hereby acknowledge and agree that (i) Pountney
shall have no further rights or obligations under the Agreement, (ii) the term
"Seller" as used in the Agreement shall mean only those Persons listed on
Schedule 1.1 hereto, and (iii) the term "Parties" as used in the Agreement shall
not include, and shall be deemed to have never included, Pountney.
2
<PAGE> 69
6. Except as specifically provided in this Amendment, there are no
amendments, revisions or other modifications to the Agreement. All other terms
and conditions of the Agreement are hereby incorporated by reference and shall
remain in full force and effect and apply fully to this Amendment.
7. This Amendment may be executed in any number of counterparts, each
of which will be deemed to be an original agreement, but all of which will
constitute one and the same agreement. Any party hereto may execute and deliver
this Amendment by an executed signature page transmitted by a facsimile machine.
If a party transmits its signature page by a facsimile machine, such party will
promptly thereafter deliver an originally executed signature page to the other
parties, provided that any failure to deliver such an originally executed
signature page will not affect the validity, legality, or enforceability of this
Amendment.
8. THIS AMENDMENT IS GOVERNED BY THE LAWS OF THE STATE OF TEXAS
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER THE CONFLICTS OF LAWS
PRINCIPLES OF SUCH STATE.
[SIGNATURE PAGE FOLLOWS]
3
<PAGE> 70
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
PURCHASER: RICHMONT MARKETING SPECIALISTS INC.,
a Delaware corporation
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
COMPANY: PAUL INMAN ASSOCIATES, INC., a Michigan
corporation
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
SELLERS: PAUL INMAN ASSOCIATES, INC., EMPLOYEE
STOCK OWNERSHIP PLAN & TRUST
By: Comerica Bank, Trustee
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
------------------------------------------
Richard W. Domine
------------------------------------------
Kenneth A. Elwert
------------------------------------------
Ronald K. Fairchild
<PAGE> 71
Philip G. Fischioni Trust
By:
---------------------------------------
Philip G. Fischioni, Trustee
------------------------------------------
Dennis M. Hoppe
------------------------------------------
Raymond J. Peuler, Jr.
------------------------------------------
Charles W. Pountney
------------------------------------------
Joseph C. and Diana L. Rimarcik Trust
By:
---------------------------------------
Joseph C. Rimarcik, Trustee
E. Malcolm York Charitable Remainder Trust
UTA dated January 16, 1997
By:
---------------------------------------
E. Malcolm York, Trustee
E. Malcolm York Trust UTA dated July 9, 1975
By:
---------------------------------------
E. Malcolm York, Trustee
<PAGE> 72
SCHEDULE 1.1
Ownership of the Shares and Allocation of Purchase Price
<TABLE>
<CAPTION>
Initial Maximum
Name and Address Certificate Number Cash Payment Shareholder Principal
Of Shareholder Tax I.D. Numbers Of Shares At Closing Escrow Amount Amount of Note
-------------- -------- ------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Paul Inman Associates, Inc. 38-2135687
Employee Stock Ownership Plan &
Trust
Comerica Bank, Trustee
P.O. Box 75000
Detroit, Michigan 48275-3431
Tracy L. Harden, Trust Officer
Profit Sharing Plan 199 27,190 1,296,528.12 62,971.88 0.00
Stock Bonus Plan 202, 209, 226, 145,100 6,918,949.23 336,050.77 0.00
227, 228, 229
Richard W. Domine ###-##-#### 185, 203, 211, 3,400 77,125.62 7,874.38 85,000.00
2400 Rockhill Dr. NE 221, 230
Grand Rapids, MI 49505
Kenneth A. Elwert ###-##-#### 200 2,000 45,368.01 4,631.99 50,000.00
7087 Lindenmere
Bloomfield Hills, MI 48301
Ronald K. Fairchild ###-##-#### 186, 204, 212, 8,900 201,887.65 20,612.35 222,500.00
39635 Muirfield Lane 222, 231
Northville, MI 48167
Philip G. Fischioni Trust ###-##-#### 237, 238 11,680 264,949.19 27,050.81 292,000.00
Philip G. Fischioni, Trustee
28825 Salem
Farmington Hills, MI 48334
Dennis M. Hoppe ###-##-#### 189, 206, 215, 4,720 107,068.51 10,931.49 118,000.00
6356 Trailridge Court 224, 232, 240
Loveland, OH 45140-8156
Raymond J. Peuler, Jr. ###-##-#### 249, 256 Option 800 95,368.01 4,631.99 0.00
7349 Old Lantern Dr. SE 1,200
Caledonia, MI 49316
Joseph C. and Diana L. ###-##-#### 235 2,000 45,368.01 4,631.99 50,000.00
Rimarcik, Trust
Joseph C. Rimarcik, Trustee
1926 Grayslake Drive
Rochester Hills, MI 48306
E. Malcolm York, Trustee 38-3329781 254 3,300 157,357.22 7,642.78 0.00
E. Malcolm York Charitable
Remainder Trust UTA dated
1/16/97
35018 Old Timber Road
Farmington Hills, MI 48331-1437
E. Malcolm York, Trustee 38-6335222 254 2,200 44,530.43 12,969.57 222,500.00
E. Malcolm York Trust 255 3,400
UTA dated July 9, 1975
35018 Old Timber Road
Farmington Hills, MI 48331-1437
------- ------------- ----------- -------------
TOTAL 215,890 $9,254,500.00 $500,000.00 $1,040,000.00
======= ============= =========== =============
</TABLE>
<PAGE> 73
SCHEDULE 9.1(h)
Employment Agreements
Ronald K. Fairchild
Richard Scott Hatfield
Robert Weber
Jere D. Roudebush
Dennis M. Hoppe
Phillip G. Fischioni
Raymond J. Peuler, Jr.
<PAGE> 74
SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT (this "AMENDMENT") is
dated as of August 18, 1999, by and among Marketing Specialists Corporation, a
Delaware corporation (formerly known as Merkert American Corporation, a Delaware
corporation) (the "PURCHASER"), successor-in-interest by way of merger to
Richmont Marketing Specialists Inc., a Delaware corporation ("RMSI"), Paul Inman
Associates, Inc., a Michigan corporation (the "COMPANY"), and the other Persons
listed on the signature pages attached hereto (collectively, the
"SHAREHOLDERS").
PRELIMINARY STATEMENTS
A. Pursuant to that certain Stock Purchase Agreement dated as of May
14, 1999 by and among RMSI, the Company and the Shareholders, as amended by the
First Amendment thereto dated as of August 13, 1999 (as so amended, the
"AGREEMENT"), RMSI agreed to purchase from the Shareholders, and the
Shareholders agreed to sell to the Purchaser, all of the issued and outstanding
capital stock of the Company, subject to the terms and conditions of the
Agreement. All capitalized terms used but not otherwise defined herein shall
have the meaning ascribed to them in the Agreement.
B. The parties hereto desire to amend the Agreement as set forth in
this Amendment.
NOW, THEREFORE, based on the foregoing, in consideration of the mutual
promises contained herein and in the Agreement (as amended hereby), and subject
to the terms and conditions set forth herein and in the Agreement (as amended
hereby), the parties hereto agree as follows:
STATEMENT OF AGREEMENT
1. Any and all references in the Agreement to Richmont Marketing
Specialists Inc. or the "Purchaser" shall be deemed henceforth to refer to
Marketing Specialists Corporation, a Delaware corporation.
2. Section 1.2 of the Agreement is hereby amended and restated in its
entirety as follows:
Section 1.2 Purchase Price. The total consideration for the
Shares will be the sum of $10,794,500 (the "PURCHASE PRICE").
3. Section 1.3 of the Agreement is hereby amended and restated in its
entirety as follows:
Section 1.3 Payment of Purchase Price.
(a) ESOP Shares. For and in full
consideration of this Agreement and the transactions
contemplated herein, at the Closing,
1
<PAGE> 75
Purchaser will pay to the ESOP an aggregate amount equal to
$8,614,500, payable as follows: (i) the amount of
$8,215,477.35 (the "ESOP PAYMENT") by wire transfer of
immediately available funds to the bank account set forth on a
notice given by the ESOP to Purchaser no later than three days
prior to the Closing Date; and (ii) the amount of $399,022.65
(the "ESOP ESCROW DEPOSIT") to an account with the Escrow
Agent to be held in escrow and distributed pursuant to the
terms of this Agreement and the Escrow Agreement.
(b) Non-ESOP Shares. For and in full
consideration of this Agreement and the transactions
contemplated herein, at the Closing, Purchaser will pay to the
Sellers (other than the ESOP) an aggregate amount equal to
$2,180,000, payable as follows: (i) the amount of $100,977.35
(the "NON-ESOP ESCROW DEPOSIT," and together with the ESOP
Escrow Deposit, the "ESCROW DEPOSIT," as the same may be
increased or decreased from time to time pursuant to the terms
of the Escrow Agreement) to an account with the Escrow Agent
to be held in escrow and distributed pursuant to the terms of
this Agreement and the Escrow Agreement; (ii) the amount of
$1,039,022.65 (the "NON-ESOP PAYMENT") by wire transfer of
immediately available funds in the amounts set forth on
Schedule 1.1 opposite the name of each Seller (other than the
ESOP) to the bank accounts set forth on a notice given by each
such Seller to Purchaser no later than three business days
prior to the Closing Date; and (iii) the aggregate principal
amount of $1,040,000 by delivering to each Seller (other than
the ESOP) a promissory note substantially in the form attached
hereto as Exhibit 1.3(b) with a principal amount equal to the
amount set forth on Schedule 1.1 opposite the name of such
Seller (collectively, the "NOTES").
4. Section 1.4 of the Agreement is hereby deleted in its entirety and
any and all references to Section 1.4 in the Agreement are hereby stricken.
5. Section 2.1 of the Agreement is hereby amended and restated in its
entirety as follows:
Section 2.1 The Closing. The consummation of the
transactions contemplated by this Agreement (the "CLOSING")
will take place either at the offices of Paul Inman
Associates, Inc., 30095 Northwestern Highway, Farmington
Hills, Michigan 48334, or Miro Weiner & Kramer, 500 North
Woodward Avenue, Suite 100, Bloomfield Hills, Michigan 48303
on September 30, 1999 or such other date mutually agreed to by
the parties but in any event no later than November 9, 1999;
provided that all of the conditions set forth in Article IX,
to the extent not waived, are satisfied. The date on which the
Closing actually occurs is hereinafter referred to as the
"CLOSING DATE."
2
<PAGE> 76
6. Section 6.5 is hereby amended by deleting the words "within 179 days
of the Signing Date" from the third line thereof and inserting in place thereof
the words "on or prior to November 9, 1999."
7. Section 9.1(c) of the Agreement is hereby amended and restated in
its entirety as follows:
(c) Absence of Certain Changes. (i) Ronald K.
Fairchild shall not have voluntarily terminated (not including
by death or disability) his employment with Company; and (ii)
the assets and liabilities of Company will not be materially
different from those set forth on the Year-End Balance Sheet
other than changes from the Year-End Balance Sheet as a result
of positive or negative differences in the annualized
commissions of Company since the Balance Sheet Date. For
purposes of this Section 9.1(c) only, "annualized commissions
of Company" shall mean all commissions, bonuses, retail
service fees, and outside warehouse commissions of Company
based on sales or services to or on behalf principals of
Company, regardless of whether such principals were principals
of Company on or after the Signing Date.
8. Section 9.1(h) of the Agreement is hereby amended and restated in
its entirety as follows:
(h) Employment Agreements. Effective as of the
Closing Date, Company shall assign to Purchaser, or an
Affiliate of Purchaser, all of Company's rights, title and
interest in, to and under its employment agreements (true,
correct and current copies of which have been provided to
Purchaser) with the individuals set forth on Schedule 9.1(h),
as such schedule may be amended prior to the Closing.
9. Section 10.1(b) of the Agreement is hereby amended and restated in
its entirety as follows:
(b) by Purchaser if Ronald K. Fairchild voluntarily
terminates (not including termination by death or disability)
his employment with Company prior to the Closing Date;
10. Schedule 9.1(h) of the Agreement is hereby renamed "Key Employees."
11. Exhibit 9.1(h) of the Agreement is hereby deleted in its entirety
and any and all references to Exhibit 9.1(h) in the Agreement are hereby
stricken.
12. Except as specifically provided in this Amendment, there are no
amendments, revisions or other modifications to the Agreement. All other terms
and conditions of the Agreement are hereby incorporated by reference and shall
remain in full force and effect and apply fully to this Amendment.
3
<PAGE> 77
13. This Amendment may be executed in any number of counterparts, each
of which will be deemed to be an original agreement, but all of which will
constitute one and the same agreement. Any party hereto may execute and deliver
this Amendment by an executed signature page transmitted by a facsimile machine.
If a party transmits its signature page by a facsimile machine, such party will
promptly thereafter deliver an originally executed signature page to the other
parties, provided that any failure to deliver such an originally executed
signature page will not affect the validity, legality, or enforceability of this
Amendment.
14. THIS AMENDMENT IS GOVERNED BY THE LAWS OF THE STATE OF TEXAS
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER THE CONFLICTS OF LAWS
PRINCIPLES OF SUCH STATE.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE> 78
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
PURCHASER: MARKETING SPECIALISTS CORPORATION, a
Delaware corporation
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
COMPANY: PAUL INMAN ASSOCIATES, INC., a Michigan
corporation
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
SELLERS: PAUL INMAN ASSOCIATES, INC., EMPLOYEE
STOCK OWNERSHIP PLAN & TRUST
By: Comerica Bank, Trustee
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
-----------------------------------------------------
Richard W. Domine
-----------------------------------------------------
Kenneth A. Elwert
-----------------------------------------------------
Ronald K. Fairchild
<PAGE> 79
Philip G. Fischioni Trust
By:
--------------------------------------------------
Philip G. Fischioni, Trustee
-----------------------------------------------------
Dennis M. Hoppe
-----------------------------------------------------
Raymond J. Peuler, Jr.
Joseph C. and Diana L. Rimarcik Trust
By:
--------------------------------------------------
Joseph C. Rimarcik, Trustee
E. Malcolm York Charitable Remainder Trust UTA dated
January 16, 1997
By:
--------------------------------------------------
E. Malcolm York, Trustee
E. Malcolm York Trust UTA dated July 9, 1975
By:
--------------------------------------------------
E. Malcolm York, Trustee
<PAGE> 1
EXHIBIT 10.19
STOCK PURCHASE AGREEMENT
by and among
MERKERT AMERICAN CORPORATION
as Buyer
UNITED BROKERAGE COMPANY
d/b/a
THE SELL GROUP - GRAND RAPIDS, TOLEDO, DETROIT
INDIANAPOLIS AND FORT WAYNE
as the Company
and
THE STOCKHOLDERS OF THE COMPANY
As of April 26, 1999
<PAGE> 2
STOCK PURCHASE AGREEMENT
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. SALE OF SHARES AND PURCHASE PRICE...............................1
1.1 Transfer of Company Shares......................................1
1.2 Purchase Price and Payment......................................2
1.3 Place of Closing................................................2
1.4 Stockholders' Representative....................................3
1.5 Further Assurances..............................................4
1.6 Transfer Taxes..................................................4
1.7 Deliveries at Closing...........................................4
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
STOCKHOLDERS....................................................5
2.1 Making of Representations and Warranties........................5
2.2 Organization and Qualifications of the Company..................5
2.3 Capital Stock of the Company; Beneficial Ownership..............6
2.4 Subsidiaries; Acquisitions......................................6
2.5 Authority of the Company and the Stockholders...................7
2.6 No Conflicts....................................................7
2.7 Real and Personal Property......................................8
2.8 Financial Statements...........................................10
2.9 Taxes..........................................................12
2.10 Collectibility of Accounts Receivable..........................13
2.11 Inventories....................................................13
2.12 Absence of Certain Changes.....................................13
2.13 Ordinary Course................................................15
2.14 Approvals; Consents............................................15
2.15 Banking Relations..............................................15
2.16 Intellectual Property..........................................15
2.17 Year 2000......................................................17
2.18 Contracts......................................................17
2.19 Litigation.....................................................19
2.20 Compliance with Laws...........................................19
2.21 Insurance......................................................19
2.22 Powers of Attorney.............................................20
2.23 Finder's Fee...................................................20
2.24 Permits; Burdensome Agreements.................................20
2.25 Corporate Records; Copies of Documents.........................20
2.26 Transactions with Interested Persons...........................20
2.27 Employee Benefit Programs......................................21
2.28 Environmental Matters..........................................24
2.29 List of Directors, Officers and Employees......................25
2.30 Employees; Labor Matters.......................................26
2.31 Principals.....................................................26
2.32 Absence of Improper Payments...................................28
2.33 Transfer of Shares.............................................28
2.34 Stock Repurchase...............................................28
2.35 Disclosure.....................................................28
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BUYER..........................29
3.1 Making of Representations and Warranties.........................29
3.2 Organization of Buyer............................................29
3.3 Authority of Buyer...............................................29
3.4 Litigation.......................................................29
3.5 Finder's Fee.....................................................29
3.6 No Conflicts.....................................................29
3.7 Purchase for Investment..........................................30
SECTION 4. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.....................30
4.1 Survival of Warranties...........................................30
4.2 Confidentiality..................................................30
SECTION 5. INDEMNIFICATION..................................................31
5.1 Indemnification by the Stockholders..............................31
5.2 Limitations on Indemnification by the Stockholders...............32
5.3 Indemnification by Buyer.........................................33
5.4 Limitation on Indemnification by Buyer...........................33
5.5 Notice; Defense of Claims........................................33
5.6 Satisfaction of Stockholder Indemnification Obligations..........34
5.7 Offset Against Lease Payments....................................34
5.8 Life Insurance Policies..........................................35
SECTION 6. DEFINITIONS......................................................35
SECTION 7. MISCELLANEOUS....................................................39
7.1 Fees and Expenses................................................39
7.2 Governing Law....................................................39
7.3 Notices..........................................................39
7.4 Entire Agreement.................................................40
7.5 Assignability; Binding Effect....................................41
7.6 Execution in Counterparts........................................41
7.7 Amendments.......................................................41
7.8 Publicity and Disclosures........................................41
7.9 Dispute Resolution; Consent to Jurisdiction......................41
7.10 Consent to Jurisdiction..........................................42
7.11 No Third-Party Beneficiaries.....................................42
7.12 Severability.....................................................43
7.13 No Stock Restrictions............................................43
</TABLE>
<PAGE> 4
LIST OF EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Exhibit A: List of Stockholders, Stockholdings and Consideration to be Paid
Exhibit B: Omitted
Exhibit C: Form of Opinion of Counsel for the Company and the Stockholders
Exhibit D: Form of General Release
Exhibit E: Form of Opinion of Buyer's Counsel
Exhibit F: Addendum to Deferred Compensation Plan
Schedule 2.3 Capital Stock of the Company; Beneficial Ownership
2.4(b) Acquisition Rights
2.7(a) Real Property
2.7(b) Personal Property
2.8(a)-(d) Financial Statements and Projections
2.9 Taxes
2.10 Collectibility of Accounts Receivable
2.12 Absence of Certain Changes
2.14 Approval; Consents
2.15 Banking Relations
2.16 Intellectual Property and Intellectual Property Rights
2.18 Contracts, etc.
2.19 Litigation
2.20 Compliance with Laws
2.21 Insurance
2.22 Powers of Attorney
2.24 Permits, Burdensome Agreements
2.26 Transactions with Interested Persons
2.27 Employee Benefit Programs
2.28 Environmental Matters
2.29 List of Officers and Directors
2.31 Principals
2.31(e) Principals
2.31(f) Principals
2.32 Promotional Funds
2.34 Stock Repurchases
3.6 No Conflicts
</TABLE>
<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") entered into as of
April 26, 1999 by and among Merkert American Corporation, a Delaware corporation
("Buyer"), United Brokerage Company, a Michigan corporation, doing business as
The Sell Group - Grand Rapids, Toledo, Detroit, Indianapolis and Fort Wayne (the
"Company"), and the holders of the Company's capital stock listed on Exhibit A
such stockholders being herein collectively referred to as the "Stockholders"
and individually as a "Stockholder"). The Stockholders other than John
Huetteman, III and Gary Van Overloop are referred to herein as "Minority
Stockholders."
W I T N E S S E T H
WHEREAS, the Stockholders own, or will own as of the Closing (as
defined below), of record and beneficially all of the issued and outstanding
shares (the "Company Shares") of the common stock, par value $1.00 per share
(the "Common Stock"), of the Company;
WHEREAS, the Company Shares constitute all the issued and outstanding
capital stock of the Company; and
WHEREAS, the Stockholders desire to sell all of the Company Shares to
Buyer, and Buyer desires to acquire all of the Company Shares.
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
SECTION 1. SALE OF SHARES AND PURCHASE PRICE.
1.1 Transfer of Company Shares. Upon the terms and subject to the
conditions set forth in this Agreement, Buyer hereby purchases, and each
Stockholder hereby sells, assigns, conveys, transfers and delivers to Buyer all
of such Stockholder's right, title and interest in any and all of the Company
Shares owned beneficially or of record by such Stockholder free and clear of any
and all liens, encumbrances, charges, claims or adverse interests of any kind at
an aggregate purchase price for all of the Company Shares as set forth in
Section 1.2(a) hereof. At the Closing, each Stockholder shall deliver or cause
to be delivered to Buyer certificates representing all of the Company Shares
owned by such Stockholder, as set forth in Exhibit A attached hereto. Such stock
certificates shall be duly endorsed in blank for transfer or shall be presented
with stock powers duly executed in blank, with such signature guarantees and
such other documents as may be reasonably required by Buyer to effect a valid
transfer of such Company Shares by such Stockholder in accordance with this
Agreement. Each Stockholder by execution of this Agreement hereby appoints Buyer
as his attorney-in-fact to effectuate transfer of the Company Shares at the
Closing.
<PAGE> 6
1.2 Purchase Price and Payment.
(a) In consideration of the sale by Stockholders to Buyer of
the Company Shares and in reliance upon the representations and warranties of
the Company and the Stockholders herein contained, Buyer agrees that, subject to
certain adjustments set forth in this Agreement and on Exhibit A attached hereto
at the Closing it will pay to the Stockholders an aggregate amount equal
$4,862,145.00 (Four Million, Eight Hundred Sixty-Two Thousand One Hundred
Forty-Five Dollars) (the "Total Consideration") which shall be paid by Buyer by
delivering one-fortieth (1/40) of such amount in cash on June 30, September 30,
December 31 and March 31 of each year beginning on June 30, 1999 and ending on
March 31, 2009. The Total Consideration shall be allocated among and paid to the
Stockholders in accordance with Exhibit A, attached hereto, subject to Sections
5.6, 5,7, 5.8 and 7.1 hereof.
(b) Each Stockholder hereby specifically acknowledges and
agrees that Buyer's obligation to pay the amounts due hereunder is, and at all
times hereafter will be, junior and subordinate in right of payment and exercise
of remedies to the prior payment in full in cash of all obligations owed in
respect of all Senior Debt (as defined below), and that the subordination of the
obligations to each Stockholder under this Agreement is for the benefit of all
holders of Senior Debt whether such Senior Debt is outstanding on the date
hereof or incurred, created or arising hereafter, effective upon receipt of
written notice to such Stockholder. Each Stockholder hereby specifically
acknowledges and agrees that upon the occurrence and during the continuation of
any default or event of default under any Senior Debt, Buyer will have no
obligation to make, and such Stockholder will not accept or receive, any payment
of any portion of the Total Consideration until such delinquent Senior Debt has
been paid in full. Should any payment, distribution, security, or proceeds
thereof be received by any Stockholder contrary to the terms hereof, such
Stockholder immediately will deliver the same to the holders of the Senior Debt
in precisely the form received (except for the endorsement or assignment of such
Stockholder where necessary), for application on or to secure the Senior Debt,
whether it is due or not due, and until so delivered the same shall be held in
trust by such Payee as property of the holders of the Senior Debt. Nothing in
this paragraph (b) shall prohibit any Stockholder from receiving and retaining
any amount due to such Stockholder hereunder provided that at the time such
amount is paid to such Stockholder there shall not have occurred or be
continuing any default or event of default under any Senior Debt.
(c) Notwithstanding anything to the contrary in this
Agreement, no payment of any portion of the Total Consideration will be made to
any Stockholder until the Company shall have received from the following former
employees of the Company an executed Addendum to Deferred Compensation Plan in
the form attached hereto as Exhibit F: James Cross, Leonard LaBine, Robert
Glass, Jim Kinsey, Reginald Primeau, Michael Hessen and William Huke.
1.3 Place of Closing. The closing of the purchase and sale provided for
in this Agreement (herein called the "Closing") shall be held at the offices of
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109 or at
such other place as may be mutually agreed upon by the parties.
2
<PAGE> 7
1.4 Stockholders' Representative.
(a) In order to administer efficiently (i) the implementation
of the Agreement by the Stockholders and (ii) the settlement of any dispute with
respect to the Agreement, the Stockholders hereby designate Gary Van Overloop as
their representative (the "Stockholders' Representative").
(b) The Stockholders hereby authorize the Stockholders'
Representative (i) to take all action necessary in connection with the
implementation of the Agreement on behalf of the Stockholders or the settlement
of any dispute, (ii) to give and receive all notices required to be given under
the Agreement and (iii) to take any and all additional action as is contemplated
to be taken by or on behalf of the Stockholders by the terms of this Agreement,
including without limitation, the execution and delivery of documents to
transfer the Company Shares to Buyer.
(c) In the event that the Stockholders' Representative dies,
becomes legally incapacitated or resigns from such position, John Huetteman, III
shall fill such vacancy and shall be deemed to be the Stockholders'
Representative for all purposes of this Agreement; however, no change in the
Stockholders' Representative shall be effective until Buyer is given notice of
it by the Stockholders.
(d) By their execution of this Agreement, the Stockholders
agree that:
(i) Buyer shall be able to rely conclusively on the
instructions and decisions of the Stockholders' Representative as to
any actions required or permitted to be taken by the Stockholders or
the Stockholders' Representative hereunder, and no party hereunder
shall have any cause of action against Buyer for any action taken by
Buyer in reliance upon the instructions or decisions of the
Stockholders' Representative;
(ii) all actions, decisions and instructions of the
Stockholders' Representative shall be conclusive and binding upon all
of the Stockholders and no Stockholder shall have any cause of action
against the Stockholders' Representative for any action taken, decision
made or instruction given by the Stockholders' Representative under
this Agreement, except for fraud or willful breach of this Agreement by
the Stockholders' Representative;
(iii) remedies available at law for any breach of the
provisions of this Section 1.4 are inadequate; therefore, Buyer shall
be entitled to temporary and permanent injunctive relief without the
necessity of proving damages if Buyer brings an action to enforce the
provisions of this Section 1.4; and
3
<PAGE> 8
(iv) the provisions of this Section 1.4 are
independent and severable, shall constitute an irrevocable power of
attorney, coupled with an interest and surviving death, granted by the
Stockholders to the Stockholders' Representative and shall be binding
upon the executors, heirs, legal representatives and successors of each
Stockholder.
(e) All fees and expenses incurred by the Stockholders'
Representative shall be paid by the Stockholders, except as provided in Section
7.1 hereof.
1.5 Further Assurances. The Stockholders from time to time after the
Closing at the request of Buyer and without further consideration shall execute
and deliver further instruments of transfer and assignment and take such other
action as Buyer may reasonably require to more effectively transfer and assign
to, and vest in, Buyer the Company Shares and all rights thereto, and to fully
implement the provisions of this Agreement.
1.6 Transfer Taxes. All transfer taxes, fees and duties under
applicable law incurred in connection with the sale and transfer of the Company
Shares under this Agreement will be borne and paid by the Stockholders, and the
Stockholders shall promptly reimburse the Company and Buyer for any such tax,
fee or duty which any of them is required to pay under applicable law.
1.7 Deliveries at Closing.
(a) As of the Closing, the Company shall deliver to Buyer:
(i) a certificate of the Company's Secretary dated as
of the date hereof certifying: (i) the Company's Articles of
Incorporation as in effect on the date hereof; (ii) the Company's
by-laws, as in effect on the date hereof; (iii) resolutions duly
adopted by the Company's Board of Directors authorizing the
transactions contemplated hereby; and (v) incumbency of the Company's
officers.
(ii) an opinion from Butzel Long, P.C., counsel for
the Company and the Stockholders, dated as of the Closing Date,
substantially in the form attached hereto as Exhibit C;
(iii) the resignations of all the Directors and
Officers of the Company, such resignations to be effective at the
Closing;
(iv) general releases signed by each of the
Stockholders and each optionholder of the Company of all claims which
any of them may have against the Company in the form attached hereto as
Exhibit D; and
4
<PAGE> 9
(v) a certificate of good standing with respect to
the Company from the Secretary of State of Michigan and each other
jurisdiction in which the Company is qualified to do business.
(b) As of the Closing the Buyer shall deliver to the Stockholders:
(i) a certificate of Buyer's President and Chief
Financial Officer dated as of the Closing Date to the effect that the
Board of Directors of the Company has taken all action necessary for
the purpose of authorizing the Company to consummate the transactions
contemplated by this Agreement in accordance with the terms thereof;
(ii) Releases from Comerica Bank of any and all
personal guarantees given by any Stockholder with respect to the
Company's indebtedness to Comerica Bank.
(iii) An opinion from Goodwin, Procter & Hoar LLP,
counsel for the Buyer, dated as of the Closing Date, substantially in
the form attached hereto as Exhibit E.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS.
2.1 Making of Representations and Warranties. As a material inducement
to Buyer to enter into this Agreement and consummate the transactions
contemplated hereby, the Company and each of the Stockholders jointly and
severally hereby make to Buyer the representations and warranties contained in
this Section 2, provided, however, that the representations and warranties of
the Minority Stockholders in Sections 2.3(b), 2.5 and 2.6 hereof are only made
severally by each Minority Stockholder with respect to himself, herself or
itself. For the purposes of this Agreement, to the extent that any disclosure
made by the Company or any Stockholder would be required to be made on more than
one Schedule delivered hereunder, the Company and each Stockholder may make such
disclosure by a cross-reference to information set forth on any other Schedule
delivered hereunder. Capitalized terms used and not otherwise defined in the
Schedules shall have the meanings ascribed thereto in this Agreement.
2.2 Organization and Qualifications of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Michigan with full corporate power and authority to own or lease
its properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is currently conducted or
proposed to be conducted. The copies of the Company's Articles of Incorporation,
as amended to date, certified by the Secretary of State of the State of
Michigan, and of the Company's By-laws, as amended to date, certified by the
Company's
5
<PAGE> 10
Secretary, and heretofore delivered to Buyer's counsel, are complete and
correct, and no amendments thereto are pending. The Company is not in violation
of any term of its Articles of Incorporation or By-laws. The Company is
qualified to do business as a foreign corporation in all jurisdictions in which
the nature of the business conducted by the Company or the characters of the
assets owned or leased by it make such qualification necessary or prudent except
for those jurisdictions wherein a failure to be so qualified would not have an
effect that is or would be materially adverse to the business, results of
operations, financial condition, assets or prospects of the Company, excluding
general economic conditions (a "Material Adverse Effect").
2.3 Capital Stock of the Company; Beneficial Ownership.
(a) The authorized capital stock of the Company consists of
(i) 550,000 shares of Common Stock, of which 341,389 shares are duly and validly
issued, outstanding, fully paid and non-assessable and of which 208,611 shares
are authorized but unissued. No person or entity other than the Stockholders
holds any shares of the capital stock of the Company. Except as set forth on
Schedule 2.3 there are no outstanding subscriptions, calls, options, warrants,
rights, commitments, preemptive rights, arrangements or agreements of any kind
for or relating to the issuance sale transfer, registration or voting of, or
outstanding securities convertible into, exchangeable for or carrying the right
to purchase, subscribe for or otherwise acquire, any shares of capital stock of
any class or any other equity security of the Company or outstanding warrants,
options or other rights to acquire any such convertible securities. None of the
Company's capital stock has been issued in violation of any applicable federal
or state securities law. Except as set forth in the Schedule 2.3 attached
hereto, there are no voting trusts, voting agreements, proxies or other
agreements, instruments or undertakings with respect to the voting of the
Company Shares to which the Company or any of the Stockholders is a party.
(b) As of November 30, 1998 and as of the Closing, each of the
Stockholders owns beneficially and of record the Company Shares set forth
opposite such Stockholder's name on Exhibit A hereto free and clear of any lien,
security interest, charge, pledge, restriction, encumbrance or adverse interest
of any kind or nature (collectively, "Liens").
2.4 Subsidiaries; Acquisitions. (a) Except as set forth on Schedule
2.4(b), the Company does not have and has never had any subsidiaries or
investments in any other corporation or business organization ("Subsidiaries").
(b) Except as set forth in Schedule 2.4(b) attached hereto, the Company
does not have any rights, warrants or options (the "Acquisition Rights") to
purchase or acquire the capital stock or all or substantially all of the assets
of any other corporation or business organization (an "Acquisition"). Schedule
2.4(b) attached hereto sets forth the name of each
6
<PAGE> 11
of the entities subject to any Acquisition Rights, the type of transaction
contemplated by the parties in each Acquisition, the termination rights, if any,
associated with such Acquisition Rights, and whether or not the consummation of
the transactions contemplated by this Agreement requires the consent of any
other party to such transaction. Each of the Acquisition Rights is fully
enforceable, and will remain so, after the Closing.
2.5 Authority of the Company and the Stockholders. The Company has full
right, authority and corporate power, and each Stockholder has full right,
power, authority and capacity, to enter into this Agreement and each agreement,
document and instrument to be executed and delivered by the Company or any
Stockholder pursuant to this Agreement and to carry out the transactions
contemplated hereby and thereby. The execution, delivery and performance by the
Company and each Stockholder of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action of the
Company and/or such Stockholder and no other action on the part of the Company
or any Stockholder is required in connection therewith.
2.6 No Conflicts. This Agreement and each agreement, document and
instrument executed and delivered by the Company and/or any Stockholder pursuant
to this Agreement constitutes, or when executed and delivered will constitute,
valid and binding obligations of the Company and/or such Stockholder enforceable
in accordance with their terms. The execution, delivery and performance by the
Company of this Agreement and each other agreement, document or instrument to be
executed, delivered or performed by the Company or any Stockholder (the
"Transaction Documents") does not and will not, with or without the giving of
notice or the lapse of time or both, (i) does not and will not violate any
provision of the Articles of Incorporation or By-laws of the Company; and (ii)
does not and will not violate any laws of the United States or any state or
other jurisdiction applicable to the Company or any Stockholder or require the
Company or any Stockholder to obtain any approval, consent or waiver of, or make
any filing with, any person or entity (governmental or otherwise) that has not
been obtained or made. Neither the course of conduct of the Company or any
Stockholder in connection with the negotiation, execution and delivery of this
Agreement or any other Transaction Document nor the execution, delivery or
performance by the Company or any Stockholder of this Agreement or any
Transaction Document does or will result in a breach of, constitute a default
under, accelerate any obligation under, or give rise to a right of termination
of any indenture or loan or credit agreement or any other agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award to which the Company or
any Stockholder is a party or by which the property of the Company or any
Stockholder is bound or affected, or result in the creation or imposition of any
mortgage, pledge, or other Lien in any of the Company's assets or the Company
Shares.
7
<PAGE> 12
2.7 Real and Personal Property.
(a) Real Property. The Company does not own and, except as set
forth on Schedule 2.7(a), has never owned, any real property. All of the real
property leased by the Company is identified on Schedule 2.7(a) (herein referred
to as the "Real Property"). Copies of each lease as currently in effect with
respect to the Leased Real Property are attached hereto. The terms of each such
lease are not less favorable to the Company than could be obtained in an arm's
length lease of a comparable property from an unaffiliated third party.
(i) Title. Except as set forth on Schedule 2.7(a) the
Company has good, valid, record and marketable title to enforceable
leasehold interests in the Real Property in each case, free and clear
of all easements, covenants, restrictions, leases, mortgages, liens,
assessments, claims, rights, judgments, encroachments or other matters
affecting title (collectively, "Encumbrances"), other than:
(x) easements, covenants, restrictions and
similar encumbrances that do not and could
not reasonably be expected to interfere with
the use of the Owned Real Property as
currently used and improved,
(y) minor encroachments that do not and could not
reasonably be expected to adversely affect
the value or use of the Owned Real Property
as currently used and improved and that could
be removed without material cost, and
(z) liens for Taxes (as defined below) not yet
due or delinquent or being contested in good
faith pursuant to appropriate proceedings and
statutory liens arising in the ordinary
course of business by operation of law that
are not yet due or delinquent.
((x), (y) and (z) are collectively referred to as "Permitted
Encumbrances"). To the Knowledge of the Company, the Lessors of leased
Real Property have good, clear, record and marketable title to the such
Real Property.
(ii) Status of Leases. All leases relating to Real
Property are identified on Schedule 2.7(a), and true and complete
copies thereof have been delivered to Buyer. Each of said leases has
been duly authorized and executed by the parties and is in full force
and effect. The Company is not in default under any of said leases, nor
has any event occurred which, with notice or the passage of time, or
both, would give rise to such a default. To the Company's Knowledge,
the other party to each of said leases is not in default under any of
said leases and there is no event which, with notice or the passage of
time, or both, would give rise to such a default. For purposes of this
Agreement, the "Knowledge" of any person other than the Company shall
mean that
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such person had actual knowledge of the facts at issue and the
Knowledge of the Company shall mean that the President or Chief
Operating Officer of the Company knew or should have known the facts at
issue after inquiry of the officers or employees of the Company who
would reasonably be expected to know the matters covered by the
statement in question.
(iii) Consents. Except as set forth in Schedule 2.7(a), no
consent or approval is required with respect to the transactions
contemplated by this Agreement from the other parties to any lease of
Real Property, from the holder of any Encumbrance on any Real Property,
or from any regulatory authority, no filing with any regulatory
authority is required in connection therewith, and to the extent that
any such consents, approvals or filings are required, the Company or
the Stockholders will obtain or complete them before the Closing.
(iv) Condition of Real Property. Except as set forth in
Schedule 2.7(a), there are no material defects in the physical
condition of any land, buildings or improvements constituting part of
the Real Property, including without limitation, structural elements,
mechanical systems, parking and loading areas, and all such buildings
and improvements are in good operating condition and repair, have been
well maintained and are free from infestation by rodents or insects.
Except as set forth on Schedule 2.7(a), none of the Real Property is
located in an area designated by any governmental authority as being
within a flood plain or subject to special flood or other hazards.
Access to the Real Property is by a public way or public street. All
water, sewer, gas, electric, telephone, drainage and other utilities
required by law or necessary for the current or planned operation of
the Real Property by the Company have been connected under valid
permits and pursuant to valid easements where required, and are
sufficient to service the Real Property and in good operating
condition.
(v) Compliance with Laws. The Company has received no notice
from any governmental authority of any violation of any law, ordinance,
regulation, license, permit or authorization issued with respect to any
Real Property that has not been heretofore corrected and no such
violation exists which could reasonably be expected to have an adverse
affect on the operation or value of any Real Property. All improvements
located on or constituting part of the Real Property and their use and
operation by the Company were and are now in compliance in all respects
with all applicable laws, ordinances, regulations, licenses, permits
and authorizations, except as could not, individually or in the
aggregate, have a Material Adverse Effect and as set forth in Schedule
2.7(a). No approval or consent to the transactions contemplated by this
Agreement is required of any governmental authority with jurisdiction
over any aspect of the Real Property or its use or operations except
where the failure to obtain such approval or consent could not,
individually or in the aggregate, have a Material Adverse Effect. The
Company has received no notice of any real estate tax deficiency
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<PAGE> 14
or assessment or is aware of any proposed deficiency, claim or
assessment with respect to any of the Real Property, or any pending or
threatened condemnation thereof.
(b) Personal Property. A complete description of the machinery
and equipment of the Company is contained in Schedule 2.7(b) hereto. The
material terms of each lease pursuant to which the Company leases personal
property, as in effect on the date hereof, are set forth on Schedule 2.7(b). The
Company's total obligation with respect to automobile leases is set forth on
Schedule 2.7(b). Except as specifically disclosed in said Schedule or in the
Base Balance Sheet (as hereinafter defined), the Company has good and marketable
title to all of its personal property. None of such personal property or assets
is subject to any mortgage, pledge, conditional sale agreement or Lien except as
specifically disclosed in said Schedule or in the Base Balance Sheet. The Base
Balance Sheet reflects all personal property of the Company. Except as otherwise
specified in Schedule 2.7(b) hereto, the leasehold improvements, furnishings,
machinery and equipment of the Company taken as a whole are in good repair
(ordinary wear and tear excepted), have been well maintained, and substantially
comply with all applicable laws, ordinances and regulations, and such machinery
and equipment is in good working order. Neither the Company nor any of the
Stockholders has Knowledge of any pending or threatened change of any such law,
ordinance or regulation which could, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
2.8 Financial Statements.
(a) The Company has delivered to Buyer the following financial
statements, copies of which are attached hereto as Schedule 2.8:
(i) Balance sheets of the Company for its fiscal
years ended November 30, 1993, 1994, 1995, 1996, 1997, 1998 and
statements of income, retained earnings and cash flows for the five
years then ended, which consolidated statements have been reviewed by
Beene Garter LLP, independent public accountants (such financial
statements, the "Reviewed Financial Statements"). The Company's
compiled consolidated balance sheet as of November 30, 1998, is
sometimes referred to herein as the "Base Balance Sheet").
(ii) The balance sheet of the Company as of February
28, 1999 (herein the "Interim Balance Sheet") and statements of income,
retained earnings and cash flows for the three-month period then ended,
certified by the Company's chief financial officer (the "Interim
Financial Statements").
(iii) The balance sheet of the Company as of March
31, 1999 and statements of income, retained earnings and cash flows for
the three-month period then ended, certified by the Company's chief
financial officer (the "March 31 Financial
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<PAGE> 15
Statements"). The Reviewed Financial Statements, the Interim Financial
Statements and the March 31 Financial Statements are referred to
herein, collectively, as the "Financial Statements."
Except as set forth on Schedule 2.8(a), said Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied consistently during the periods covered thereby ("GAAP"), are
complete and correct in all material respects and present fairly the financial
condition of the Company at the dates of said statements and the results of its
operations for the periods covered thereby.
(b) Except as set forth on Schedule 2.8(b), as of the date of
the Base Balance Sheet, the Company had no liabilities of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted, known or
unknown (including without limitation, liabilities as guarantor or otherwise
with respect to obligations of others, liabilities for taxes due or then accrued
or to become due, or contingent or potential liabilities relating to activities
of the Company or the conduct of its business prior to the date of the Base
Balance Sheet regardless of whether claims in respect thereof had been asserted
as of such date), except liabilities stated or adequately reserved against on
the Base Balance Sheet, or reflected in Schedules furnished to Buyer hereunder
as of the date hereof.
(c) As of the date hereof, the Company does not have any
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
asserted or unasserted, known or unknown (including without limitation,
liabilities as guarantor or otherwise with respect to obligations of others, or
liabilities for taxes due or then accrued or to become due or contingent or
potential liabilities relating to activities of the Company or the conduct of
its business prior to the date hereof or the Closing, as the case may be,
regardless of whether claims in respect thereof had been asserted as of such
date), except liabilities (i) stated or adequately reserved against on the
Interim Balance Sheet or the notes thereto, (ii) reflected in Schedules
furnished to Buyer hereunder on the date hereof, (iii) set forth on Schedule
2.8(c) hereto, or (iv) incurred after March 31, 1999 in the ordinary course of
business of the Company consistent with the terms of this Agreement.
(d) The itemized projections of commission revenues for the 12
months ending March 31, 2000 which have been separately prepared by the Company
and presented to the Buyer are attached hereto as Schedule 2.8(d) and have been
based upon assumptions which are set forth therein and which were reasonable
when made and continue to be reasonable and give effect to the gains and losses
of principal accounts disclosed on Schedules 2.31(e) and 2.31(f) hereto.
(e) The outstanding balance under the Company's Comerica Line
of Credit as of the Closing Date does not exceed $639,322.04.
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2.9 Taxes.
(a) The Company has paid or caused to be paid all federal,
state, local, foreign, and other taxes, including without limitation, income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, value-added taxes, gross receipts taxes, franchise taxes, capital
stock taxes, employment and payroll-related taxes, withholding taxes, stamp
taxes, transfer taxes, windfall profit taxes, environmental taxes and property
taxes, whether or not measured in whole or in part by net income, and all
deficiencies, or other additions to tax, interest, fines and penalties owed by
it (collectively, "Taxes"), required to be paid by it through the date hereof
whether disputed or not.
(b) The Company has in accordance with applicable law filed
all federal, state, local and foreign tax returns required to be filed by it
through the date hereof, and all such returns correctly and accurately set forth
the amount of any Taxes relating to the applicable period. A list of all
federal, state, local and foreign income tax returns filed with respect to the
Company for taxable periods ended on or after December 31, 1993 is set forth in
Schedule 2.9 attached hereto, and said Schedule indicates those returns that
have been audited or currently are the subject of an audit. For each taxable
period of the Company ended on or after December 31, 1993, the Company has
delivered to Buyer correct and complete copies of all federal, state, local and
foreign income tax returns, examination reports and statements of deficiencies
assessed against or agreed to by the Company.
(c) Neither the United States Internal Revenue Service (the
"IRS") nor any other governmental authority is now asserting or, to the
Knowledge of the Company or any Stockholder, has threatened to assert against
the Company any deficiency or claim for additional Taxes. No claim has ever been
made in writing by an authority in a jurisdiction where the Company does not
file reports and returns that the Company is or may be subject to taxation by
that jurisdiction. There are no security interests on any of the assets of the
Company that arose in connection with any failure (or alleged failure) to pay
any Taxes. The Company has never entered into a closing agreement pursuant to
Section 7121 of the United States Internal Revenue Code of 1986, as amended (the
"Code").
(d) Except as set forth in Schedule 2.9 attached hereto, there
has not been any audit of any tax return filed by the Company, no such audit is
in progress, and the Company has not been notified by any tax authority that any
such audit is contemplated or pending. Except as set forth in Schedule 2.9, no
extension of time with respect to any date on which a tax return was or is to be
filed by the Company is in force, and no waiver or agreement by the Company is
in force for the extension of time for the assessment or payment of any Taxes.
(e) The Company has never been (or has ever had any liability
for unpaid Taxes because it once was) a member of an "affiliated group" (as
defined in Section 1504(a) of
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<PAGE> 17
the Code). Except as set forth in Schedule 2.9, the Company has never filed, and
has never been required to file, a consolidated, combined or unitary tax return
with any other entity. Except as set forth in Schedule 2.9, the Company does not
own and has never owned a direct or indirect interest in any trust, partnership,
corporation or other entity. Except as set forth in Schedule 2.9 attached
hereto, the Company is not a party to any tax sharing agreement.
(f) For purposes of this Agreement, all references to Sections
of the Code shall include any predecessor provisions to such Sections and any
similar provisions of federal, state, local or foreign law.
2.10 Collectibility of Accounts Receivable. All of the accounts
receivable of the Company shown or reflected on the Interim Balance Sheet or
existing at the date hereof (less the reserve therefor set forth on the Interim
Balance Sheet) are or will be at the Closing valid and enforceable claims, fully
collectible and subject to no set off or counterclaim. The Company has no
accounts or loans receivable from any person, firm or corporation which is
affiliated with the Company or from any director, officer or employee of the
Company, except as disclosed on Schedule 2.10 hereto, and all accounts and loans
receivable from any such person, firm or corporation shall be paid in cash prior
to the Closing.
2.11 Inventories. [Intentionally omitted.]
2.12 Absence of Certain Changes. Except as disclosed in Schedule 2.12
attached hereto, since the date of the Base Balance Sheet there has not been:
(a) Any change in the condition (financial or otherwise),
properties, assets, liabilities, business, operations or prospects of the
Company, which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, could reasonably be
expected to have a Material Adverse Effect;
(b) Any amendment or termination, or to the Knowledge of the
Company, proposed or threatened amendment or termination, whether written or
oral, of any Contract (as defined in Section 2.17) or material lease;
(c) Any contingent liability incurred by the Company as
guarantor or otherwise with respect to the obligations of others or any
cancellation of any material debt or claim owing to, or waiver of any material
right of, the Company;
(d) Any Encumbrance or Lien placed on any of the properties of
the Company which remains in existence on the date hereof or will remain on the
Closing Date;
(e) Any obligation or liability of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted, known or
unknown (including without
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limitation liabilities for Taxes due or to become due or contingent or potential
liabilities relating to products or services provided by the Company or the
conduct of the business of the Company since the date of the Base Balance Sheet
regardless of whether claims in respect thereof have been asserted), incurred by
the Company other than obligations and liabilities incurred in the ordinary
course of business consistent with the terms of this Agreement (it being
understood that product or service liability claims shall not be deemed to be
incurred in the ordinary course of business);
(f) Any purchase, sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of any of the
properties or assets of the Company other than in the ordinary course of
business;
(g) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of the Company;
(h) Any declaration, setting aside or payment of any dividend
by the Company, or the making of any other distribution in respect of the
capital stock of the Company, or any direct or indirect redemption, purchase or
other acquisition by the Company of its own capital stock;
(i) Any labor trouble or claim of unfair labor practices
involving the Company; any change in the compensation payable or to become
payable by the Company to any of its officers, employees, agents or independent
contractors other than normal merit increases in accordance with its usual
practices; or any bonus payment or arrangement made to or with any of such
officers, employees, agents or independent contractors;
(j) Any change with respect to the officers or management of
the Company ;
(k) Any payment or discharge of a material lien or liability
of the Company which was not shown on the Base Balance Sheet or incurred in the
ordinary course of business thereafter;
(l) Any obligation or liability incurred by the Company to any
of its officers, directors, stockholders or employees, or any loans or advances
made by the Company to any of its officers, directors, stockholders or
employees, except normal compensation and expense allowances payable to officers
or employees;
(m) Any resignation or termination of the Company's
representation of any Principal (with respect to all or any of the products of
such Principal or with respect to any Customers), or any reduction in commission
rate paid by any Principal, or any notice of same (for purposes of this
Agreement, "Principal" shall mean any manufacturer, grower, processor, producer,
distributor or other wholesaler, or any supplier whose goods, products or lines
are
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offered for sale or for retail merchandising by the Company, and "Customer"
shall mean any individual, firm, corporation or other business entity from which
the Company obtains product orders on behalf of its Principals);
(n) Any change in accounting methods or practices, credit
practices or collection policies used by the Company;
(o) Any other transaction entered into by the Company other
than transactions in the ordinary course of business; or
(p) Any agreement or understanding whether in writing or
otherwise, for the Company to take any of the actions specified in paragraphs
(a) through (o) above.
2.13 Ordinary Course. Since the date of the Base Balance Sheet, the
Company has conducted its business only in the ordinary course and consistently
with its prior practices.
2.14 Approvals; Consents. Except as set forth on Schedule 2.14 attached
hereto, no approval, consent, authorization or exemption from or filing with any
person or entity not a party to this Agreement is required to be obtained or
made by the Company in connection with the execution and delivery of this
Agreement and the Transaction Documents or the consummation of the transactions
contemplated hereby and thereby.
2.15 Banking Relations. All of the arrangements which the Company has
with any banking institution are completely and accurately described in Schedule
2.15 attached hereto, indicating with respect to each of such arrangements the
type of arrangement maintained (such as checking account, borrowing
arrangements, safe deposit box, etc.) and the person or persons authorized in
respect thereof.
2.16 Intellectual Property.
(a) Except as described in Schedule 2.16, the Company has
exclusive ownership of, or exclusive license to use, all material patent,
copyright, trade secret, trademark, or other proprietary rights (collectively,
"Intellectual Property") used or to be used in the business of the Company as
presently conducted or contemplated. All of the rights of the Company in such
Intellectual Property are freely transferable. There are no claims or demands of
any other person pertaining to any of such Intellectual Property and no
proceedings have been instituted, or are pending or threatened, which challenge
the rights of the Company in respect thereof. Except as described in Schedule
2.16, the Company has the right to use, free and clear of claims or rights of
other persons, all customer lists, designs, processes, computer software,
systems, data compilations, research results and other information required for
or incident to its products or its business as presently conducted or
contemplated.
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(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to the Company or used to be used by the Company in their businesses as
presently conducted or contemplated, and all other items of Intellectual
Property which are material to the business or operations of the Company, are
listed in Schedule 2.16. All of such patents, patent applications, trademark
registrations, trademark applications and registered copyrights have been duly
registered in, filed in or issued by the United States Patent and Trademark
Office, the United States Register of Copyrights, or the corresponding offices
of other jurisdictions as identified on said Schedule, and have been properly
maintained and renewed in accordance with all applicable provisions of law and
administrative regulations of the United States and each such jurisdiction.
(c) There are no licenses or other agreements under which the Company
is granted rights in Intellectual Property except with respect to off-the-shelf
computer software. All said licenses or other agreements are in full force and
effect, there is no material default by any party thereto, and, except as set
forth on Schedule 2.16, all of the rights of the Company thereunder will
continue in full force and effect upon consummation of the transactions
contemplated hereby. To the actual knowledge of the Company and the
Stockholders, the licensors under said licenses and other agreements have and
had all requisite power and authority to grant the rights purported to be
conferred thereby. True and complete copies of all such licenses or other
agreements, and any amendments thereto, have been provided to Buyer.
(d) All licenses or other agreements under which the Company has
granted rights to others in Intellectual Property owned or licensed by the
Company are listed in Schedule 2.16. All of said licenses or other agreements
are in full force and effect, there is no material default by any party thereto,
and, except as set forth on Schedule 2.16, all of the rights of the Company
thereunder will continue in full force and effect upon consummation of the
transactions contemplated hereby. True and complete copies of all such licenses
or other agreements, and any amendments thereto, have been provided to Buyer.
(e) The Company has taken all steps required in accordance with prudent
business practice to establish and preserve its ownership of all material
Intellectual Property rights with respect to its products, services and
technology. The Company has not made any valuable non-public information of the
Company available to any person other than employees of Company except pursuant
to written agreements requiring the recipients to maintain the confidentiality
of such information and appropriately restricting the use thereof. The Company
has no Knowledge of any infringement by others of any material Intellectual
Property rights of the Company.
(f) The present and, as of the date hereof, contemplated business,
activities and products of the Company do not infringe any Intellectual Property
of any other person.
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No proceeding charging the Company with infringement of any adversely held
Intellectual Property has been filed or, to the Company's Knowledge, is
threatened to be filed. The Company is not making any unauthorized use of any
confidential information or trade secrets of any person, including without
limitation, to the Company's Knowledge, any former employer of any past or
present employee of Company. Except as set forth in Schedule 2.16, neither the
Company nor, to the Knowledge of the Company, any of its employees have any
agreements or arrangements with any persons other than the Company related to
confidential information or trade secrets of such persons or restricting any
such employee's ability to engage in business activities of any nature. The
activities of its employees on behalf of the Company do not violate any such
agreements or arrangements known to the Company.
2.17 Year 2000.
(a) (i) The Company has (x) undertaken a comprehensive and
detailed inventory, review and assessment of all areas within its
business and operations to address the "Year 2000 Problem" (i.e., the
risk that applications and/or hardware used by the Company may be
unable to recognize and properly perform date-sensitive functions
involving certain dates prior to and any date on or after January 1,
2000), (y) developed a detailed plan and time line for becoming Year
2000 Compliant on a timely basis, and (z) to date, implemented that
plan in accordance with its timetable in all material respects;
(ii) The Company's Year 2000 program includes feasible
contingency plans to ensure uninterrupted and unimpaired business
operation, including liquidity needs, in the event of its own failure
to be Year 2000 Compliant;
(iii) The Company reasonably believes that the Year 2000
Problem will not have a Material Adverse Effect .
(b) For purposes of this Section, "Year 2000 Compliant" means,
with respect to the operations of the Company, that all computer-controlled
processes, electronic communications interfaces, software, hardware, machinery,
equipment, programs, and tools operate for all date-sensitive functions before,
on or after January 1, 2000 consistently, predictably, accurately and
unambiguously, without interruption or manual intervention;
2.18 Contracts. Except for contracts, commitments, plans, agreements
and licenses described in Schedule 2.18 or disclosed in another schedule hereto
and cross-referenced to the relevant subsection of this Section 2.18 (true and
complete copies of which have been delivered to Buyer), the Company is not a
party to or subject to:
(a) any agreement for the sale, lease or other disposition of
products or other assets not made in the ordinary course of business;
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<PAGE> 22
(b) any plan or contract providing for bonuses, pensions,
options, stock purchases, deferred compensation, retirement payments, profit
sharing, collective bargaining or the like, or any contract or agreement with
any labor union;
(c) any employment contract or contract for services which
requires the payment of more than $20,000 annually or which is not terminable
within 30 days by the Company without liability for any penalty or severance
payment;
(d) any contract or agreement for the purchase of any
commodity, material or equipment except purchase orders in the ordinary course
for less than $5,000 each, such orders not exceeding $20,000 in the aggregate;
(e) any other contracts or agreements creating any obligations
of the Company of $5,000 or more on an individual basis or $20,000 or more on an
aggregate basis, with respect to any such contract or agreement not specifically
disclosed elsewhere under this Agreement;
(f) any contract or agreement providing for the purchase of
all or substantially all of its requirements of a particular product from a
supplier;
(g) any contract or agreement which by its terms does not
terminate or is not terminable without penalty by the Company or its successor
within one year after the date hereof;
(h) any contract or arrangement with any sales agent or
distributor of products of the Company;
(i) any contract containing covenants limiting the freedom of
the Company to compete in any line of business or with any person or entity;
(j) any contract or agreement for the purchase of any fixed
asset for a price in excess of $5,000 whether or not such purchase is in the
ordinary course of business;
(k) any license agreement (as licensor or licensee) except
standard computer software license agreements for off-the-shelf software;
(l) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money; or
(m) any contract or agreement with any officer, employee,
director or stockholder of the Company or with any persons or organizations
controlled by or affiliated with any of them.
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The Company is not in default under any such contracts, commitments,
plans, agreements or licenses described in said Schedule (individually a
"Contract" and collectively the "Contracts") and the Company has no Knowledge of
conditions or facts which with notice or passage of time, or both, would
constitute a default, except where any such default could not reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect.
Each of the Contracts is valid and in full force and effect, and will be
enforceable by the Company against the other party thereto in accordance with
its terms, except for any non-competition provision or agreement limiting the
freedom of any party thereto to compete in any line of business or with any
person or entity, the benefits of which run to the Company, the enforceability
of which may be limited by the principles governing the availability of
equitable remedies.
2.19 Litigation. Schedule 2.19 hereto lists all currently pending
litigation and governmental or administrative proceedings or investigations to
which the Company is a party. There is no litigation or governmental or
administrative proceeding or investigation pending or, to the Knowledge of the
Company or the Stockholders, threatened against the Company or its affiliates
and there is no litigation or governmental or administrative proceeding or
investigation pending or, to the Knowledge of the Company or the Stockholders,
threatened against any Stockholder relating to the business of the Company which
may individually or in the aggregate, have a Material Adverse Effect have or
which would prevent or hinder the consummation of the transactions contemplated
by this Agreement. With respect to each matter set forth therein, Schedule 2.19
sets forth a description of the matter, the forum (if any) in which it is being
conducted, the parties thereto and the type and amount of relief sought. Except
as disclosed in Schedule 2.19 hereto, there are no (i) existing product
liability, warranty or other similar claims, against the Company for products or
services which are defective or fail to meet any product or service warranties,
(ii) to the Company's Knowledge, claims of such nature which have been
threatened or (iii) to the Knowledge of the Company or the any Stockholder, any
facts upon which a material claim of such nature reasonably could be based.
Except as disclosed in Schedule 2.19, no claim has been asserted against the
Company or any of its Subsidiaries for renegotiation or price redetermination of
any business transaction, and there are no facts upon which any such claim could
be based.
2.20 Compliance with Laws. Except as set forth in Schedule 2.20 hereto,
the Company is in compliance with all applicable statutes, ordinances, orders,
judgements, decrees, rules and regulations promulgated by any federal, state,
municipal entity, agency, court or other governmental authority which apply to
the Company or to the conduct of its business, and the Company has received no
notice of a violation or alleged violation of any such statute, ordinance,
order, rule or regulation except as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
2.21 Insurance. The physical properties and assets of the Company are
insured to the extent disclosed in Schedule 2.21 attached hereto and all such
insurance policies and
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arrangements are disclosed in said Schedule. Said insurance policies and
arrangements are in full force and effect, all premiums with respect thereto are
currently paid, and the Company is in compliance in all material respects with
the terms thereof. Said insurance is adequate and customary for the business
engaged in by the Company and is sufficient for compliance by the Company with
all requirements of law and all agreements and leases to which the Company is a
party except as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
2.22 Powers of Attorney. Except as set forth on Schedule 2.22, neither
the Company nor any Stockholder has granted to any other person or entity any
outstanding power of attorney.
2.23 Finder's Fee. The Company has not incurred or become liable for
any broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.
2.24 Permits; Burdensome Agreements. Schedule 2.24 lists all permits,
registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from federal, state or local
authorities in order for the Company to conduct its business. The Company has
obtained all such Approvals, which are valid and in full force and effect, and
is operating in compliance therewith. Such Approvals include, but are not
limited to, those required under federal, state, or local statutes, ordinances,
orders, requirements, rules, regulations, or laws pertaining to environmental
protection, public health and safety or worker health and safety. Except as
disclosed in Schedule 2.24, the Company is not subject to or bound by any
agreement, judgment, decree or order which could reasonably be expected to have
a Material Adverse Effect.
2.25 Corporate Records; Copies of Documents. The corporate record books
of the Company accurately record all corporate action taken by their respective
stockholders and board of directors and committees. The copies of the corporate
records of the Company, as made available to Buyer for review, are true and
complete copies of the originals of such documents. The Company has made
available for inspection and copying by Buyer and its counsel true and correct
copies of all documents referred to in this Section or in the Schedules
delivered to Buyer pursuant to this Agreement.
2.26 Transactions with Interested Persons. Except as set forth in
Schedule 2.26 hereto, neither the Company nor any Stockholder, officer,
supervisory employee or director of the Company nor, to the Knowledge of
Company, any of their respective spouses or family members, owns directly or
indirectly on an individual or joint basis any material interest in, or serves
as an officer or director or in another similar capacity of, any competitor or
supplier of Company, or any organization which has a material contract or
arrangement with the Company.
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2.27 Employee Benefit Programs.
(a) Schedule 2.27 sets forth a list of every Employee Program
that has been maintained by the Company or an Affiliate (including, without
limitation, any entity or business which the Company has acquired by asset
purchase, stock purchase, merger, consolidation or other similar transaction) at
any time during the six-year period ending on the Closing Date.
(b) Each Employee Program which has ever been maintained by
the Company or an Affiliate and which has been intended to qualify under Section
401(a) or 501(c)(9) of the Code has received a favorable determination or
approval letter from the IRS regarding its qualification under such section and
has, in fact, been qualified under the applicable section of the Code from the
effective date of such Employee Program through and including the Closing Date
(or, if earlier, the date that all of such Employee Program's assets were
distributed). No event or omission has occurred which would cause any such
Employee Program to lose its qualification or otherwise fail to satisfy the
relevant requirements to provide tax-favored benefits under the applicable Code
Section (including without limitation Code Sections 105, 125, 401(a) and
501(c)(9)). Each asset held under any such Employee Program may be liquidated or
terminated without the imposition of any redemption fee, surrender charge or
comparable liability. No partial termination (within the meaning of Section
411(d)(3) of the Code) has occurred with respect to any Employee Program.
(c) Neither the Company nor any Affiliate knows, nor should
any of them reasonably know, of any failure of any party to comply with any laws
applicable with respect to the Employee Programs that have ever been maintained
by the Company or any Affiliate. With respect to any Employee Program ever
maintained by the Company or any Affiliate, there has been no (i) "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or Code Section 4975, (ii) failure to
comply with any provision of ERISA, other applicable law, or any agreement, or
(iii) non-deductible contribution, which, in the case of any of (i), (ii), or
(iii), could subject the Company or any Affiliate to liability either directly
or indirectly (including, without limitation, through any obligation of
indemnification or contribution) for any damages, penalties, or taxes, or any
other loss or expense. No litigation or governmental administrative proceeding
(or investigation) or other proceeding (other than those relating to routine
claims for benefits) is pending or threatened with respect to any such Employee
Program. All payments and/or contributions required to have been made (under the
provisions of any agreements or other governing documents or applicable law)
with respect to all Employee Programs ever maintained by the Company or any
Affiliate, for all periods prior to the Closing Date, either have been made or
have been accrued (and all such unpaid but accrued amounts are described on
Schedule 2.27).
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(d) Neither the Company nor any Affiliate has incurred any
liability under title IV of ERISA which has not been paid in full prior to the
Closing. There has been no "accumulated funding deficiency" (whether or not
waived) with respect to any Employee Program ever maintained by the Company or
any Affiliate and subject to Code Section 412 or ERISA Section 302. With respect
to any Employee Program maintained by the Company or any Affiliate and subject
to Title IV of ERISA, there has been no (nor will there be any as a result of
the transactions contemplated by this Agreement) (i) "reportable event," within
the meaning of ERISA Section 4043 or the regulations thereunder, for which the
notice requirement is not waived by the regulations thereunder, and (ii) event
or condition which presents a material risk of a plan termination or any other
event that may cause the Company or any Affiliate to incur liability or have a
lien imposed on its assets under Title IV of ERISA. Except as described in
Schedule 2.27, no Employee Program maintained by the Company or any Affiliate
and subject to Title IV of ERISA (other than a Multiemployer Plan) has any
"unfunded benefit liabilities" within the meaning of ERISA Section 4001(a)(18),
as of the Closing Date. Neither the Company nor any Affiliate has ever
maintained a Multiemployer Plan. None of the Employee Programs ever maintained
by the Company or any Affiliate has ever provided health care or any other
non-pension benefits to any employees after their employment is terminated
(other than as required by part 6 of subtitle B of title I of ERISA) or has ever
promised to provide such post-termination benefits.
(e) With respect to each Employee Program maintained by the
Company within the six years preceding the Closing Date, complete and correct
copies of the following documents (if applicable to such Employee Program) have
previously been delivered to Buyer: (i) all documents embodying or governing
such Employee Program, and any funding medium for the Employee Program
(including, without limitation, trust agreements) as they may have been amended
to the date hereof; (ii) the most recent IRS determination or approval letter
with respect to such Employee Program under Code Section 401(a) or 501(c)(9),
and any applications for determination or approval subsequently filed with the
IRS; (iii) the six most recently filed IRS Forms 5500, with all applicable
schedules and accountants' opinions attached thereto; (iv) the six most recent
actuarial valuation reports completed with respect to such Employee Program; (v)
the summary plan description for such Employee Program (or other descriptions of
such Employee Program provided to employees) and all modifications thereto; (vi)
any insurance policy (including any fiduciary liability insurance policy or
fidelity bond) related to such Employee Program; (vii) any registration
statement or other filing made pursuant to any federal or state securities law
and (viii) all correspondence to and from any state or federal agency within the
last six years with respect to such Employee Program.
(f) Each Employee Program required to be listed on Schedule
2.27 may be amended, terminated, or otherwise modified by the Company to the
greatest extent permitted by applicable law, including the elimination of any
and all future benefit accruals under any Employee Program and no employee
communications or provision of any Employee Program
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document has failed to effectively reserve the right of the Company or the
Affiliate to so amend, terminate or otherwise modify such Employee Program.
(g) Each Employee Program ever maintained by the Company
(including each non-qualified deferred compensation arrangement) has been
maintained in compliance with all applicable requirements of federal and state
securities laws including (without limitation, if applicable) the requirements
that the offering of interests in such Employee Program be registered under the
Securities Act of 1933, as amended, and/or state "Blue Sky" laws.
(h) Each Employee Program ever maintained by the Company or an
Affiliate has complied with the applicable notification and other applicable
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985,
Health Insurance Portability and Accountability Act of 1996, the Newborns' and
Mothers' Health Protection Act of 1996, the Mental Health Parity Act of 1996 and
the Women's Health and Cancer Rights Act of 1998.
(i) For purposes of this section:
(i) "Employee Program" means (A) all employee benefit
plans within the meaning of ERISA Section 3(3), including, but
not limited to, multiple employer welfare arrangements (within
the meaning of ERISA Section 3(40)), plans to which more than
one unaffiliated employer contributes and employee benefit
plans (such as foreign or excess benefit plans) which are not
subject to ERISA; (B) all stock option plans, stock purchase
plans, bonus or incentive award plans, severance pay policies
or agreements, deferred compensation agreements, supplemental
income arrangements, vacation plans, and all other employee
benefit plans, agreements, and arrangements (including any
informal arrangements) not described in (A) above, including
without limitation, any arrangement intended to comply with
Code Section 120, 125, 127, 129 or 137; and (C) all plans or
arrangements providing compensation to employee and
non-employee directors. In the case of an Employee Program
funded through a trust described in Code Section 401(a) or an
organization described in Code Section 501(c)(9), or any other
funding vehicle, each reference to such Employee Program shall
include a reference to such trust, organization or other
vehicle.
(ii) An entity "maintains" an Employee Program if
such entity sponsors, contributes to, or provides benefits
under or through such Employee Program, or has any obligation
(by agreement or under applicable law) to contribute to or
provide benefits under or through such Employee Program, or if
such Employee Program provides benefits to or otherwise covers
employees of such entity (or their spouses, dependents, or
beneficiaries).
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(iii) An entity is an "Affiliate" of the Company if
it would have ever been considered a single employer with the
Company under ERISA Section 4001(b) or part of the same
"controlled group" as the Company for purposes of ERISA
Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means an employee pension
or welfare benefit plan to which more than one unaffiliated
employer contributes and which is maintained pursuant to one
or more collective bargaining agreements.
(j) The Company's liabilities with respect to deferred compensation as
of the Closing Date do not exceed $1,660,066.00 in the aggregate.
(k) Schedule 2.27 accurately sets forth the current salaries and hourly
rates of the Company's employees as of the Closing Date together with a
reasonable estimate of the annualized salaries payable to the Company's
part-time employees. The aggregate amount of full-time salaries as of the
Closing is set forth on Schedule 2.27.
2.28 Environmental Matters.
(a) Except as set forth in Schedule 2.28 hereto, (i) neither
the Company nor any of its Subsidiaries has never generated, transported, used,
stored, treated, disposed of, or managed any Hazardous Waste (as defined below);
(ii) the Company has never spilled, released, or disposed of any Hazardous
Material (as defined below) at any site presently or formerly owned, operated,
leased, or used by the Company or any of its Subsidiaries, and to the Knowledge
of the Company and the Stockholders, no Hazardous Material has ever been located
in the soil or groundwater at any such site or spilled, released or disposed of
at such site; (iii) the Company has never transported any Hazardous Material
from any site presently or formerly owned, operated, leased, or used by the
Company or any of its Subsidiaries for treatment, storage, or disposal at any
other place; (iv) to the Knowledge of the Company and the Stockholders, the
Company does not presently own, operate, lease, or use, nor has it previously
owned, operated, leased, or used any site on which underground storage tanks are
or were located; and (v) to the Knowledge of the Company and the Stockholders,
no lien has ever been imposed by any governmental agency on any property,
facility, machinery, or equipment owned, operated, leased, or used by the
Company or any of its Subsidiaries in connection with the presence of any
Hazardous Material.
(b) Except as set forth in Schedule 2.28 hereto, (i) the
Company has no liability under, nor has it ever violated, any Environmental Law
(as defined below); (ii) the Company, any property owned, operated, leased, or
used by the Company or any of its Subsidiaries, and any facilities and
operations thereon, are presently in compliance with all applicable
Environmental Laws, except as a result of activities occurring prior to the date
as of which the Company first owned or leased such property of which the Company
has no
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Knowledge; (iii) the Company has never entered into or been subject to any
judgment, consent decree, compliance order, or administrative order with respect
to any environmental or health and safety matter or received any request for
information, notice, demand letter, administrative inquiry, or formal or
informal complaint or claim with respect to any environmental or health and
safety matter or the enforcement of any Environmental Law; and (iv) the Company
has no reason to believe that any of the items enumerated in clause (iii) of
this subsection will be forthcoming.
(c) Except as set forth in Schedule 2.28 hereto, to the
Knowledge of the Company and the Stockholders, no site owned, operated, leased,
or used by the Company or any of its Subsidiaries contains any asbestos or
asbestos-containing material, any polychlorinated biphenyls (PCBs) or equipment
containing PCBs, or any urea formaldehyde foam insulation.
(d) The Company has provided to Buyer copies of all documents,
records, and information reasonably available to the Company concerning any
environmental or health and safety matter relevant to the Company, whether
generated by the Company or others, including without limitation, environmental
audits, environmental risk assessments, site assessments, documentation
regarding off-site disposal of Hazardous Materials, spill control plans, and
reports, correspondence, permits, licenses, approvals, consents, and other
authorizations related to environmental or health and safety matters issued by
any governmental agency.
(e) For purposes of this Section 2.28, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant,
contaminant, or other substance which may pose a threat to the environment or to
human health or safety, as defined or regulated under any Environmental Law;
(ii) "Hazardous Waste" shall mean and include any hazardous waste as defined or
regulated under any Environmental Law; (iii) "Environmental Law" shall mean any
environmental or health and safety-related law, regulation, rule, ordinance, or
by-law at the foreign, federal, state, or local level, whether existing as of
the date hereof, previously enforced, or subsequently enacted; and (iv)
"Company" shall mean and include the Company and all other entities for whose
conduct the Company is or may be held responsible under any Environmental Law.
2.29 List of Directors, Officers and Employees. Schedule 2.29 hereto
contains a true and complete list of all current directors and officers of the
Company. In addition, Schedule 2.29 hereto contains a list of all managers,
employees and consultants of the Company, in each case such Schedule includes
the current job title, current compensation rate and aggregate compensation
during the preceding twelve (12) months of each such individual.
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2.30 Employees; Labor Matters. The Company employs a total of 56
full-time employees and 127 part-time employees and generally enjoys good
employer-employee relationships. The Company is not delinquent in payments to
any of its employees for any wages, salaries, commissions, bonuses or other
direct compensation for any services performed for it to the date hereof or
amounts required to be reimbursed to such employees. Upon termination of the
employment of any of said employees, neither the Company, nor Buyer will by
reason of the transactions contemplated under this Agreement or anything done
prior to the Closing be liable to any of said employees for so-called "severance
pay" or any other payments. The Company has no policy, plan or program of paying
severance pay or any form of severance compensation in connection with the
termination of employment. The Company is in compliance with all applicable laws
and regulations respecting labor, employment, fair employment practices, work
place safety and health, terms and conditions of employment, and wages and
hours. There are no charges of employment discrimination or unfair labor
practices, nor are there any strikes, slowdowns, stoppages of work, or any other
concerted interference with normal operations which are existing, pending or, to
the knowledge of the Company or any Stockholder, threatened against or involving
the Company. No question concerning representation exists respecting any
employees of the Company. There are no grievances, complaints or charges that
have been filed against the Company under any dispute resolution procedure
(including, but not limited to, any proceedings under any dispute resolution
procedure under any collective bargaining agreement) that could, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect, and
there is no arbitration or similar proceeding pending and no claim therefor has
been asserted. No collective bargaining agreement is in effect or is currently
being or is about to be negotiated by the Company. The Company has received no
information indicating that any of its employment policies or practices is
currently being audited or investigated by any federal, state or local
government agency. The Company is, and at all times since November 6, 1986 has
been, in compliance with the requirements of the Immigration Reform Control Act
of 1986.
2.31 Principals.
(a) The list of the Company's Principals and the aggregate
brokerage commission revenues received by the Company during the period from
November 30, 1997 to the Closing Date from each such Principal, attached hereto
as Schedule 2.31, is true, correct and complete. The Company has delivered to
Buyer true and complete copies of all those written brokerage agreements and/or
letters of appointment with or from the Company's Principals that exist and in
effect as of the date of this Agreement. Set forth on Schedule 2.31 is a list of
all other agreements and documents with or involving any person or entity and
relating to financial obligations of the Company with respect to commissions or
other payments received by the Company (or an affiliate of the Company) from
Principals. Except as set forth on Schedule 2.31, since November 30, 1997, the
Company has had no commitment, understanding or agreement with any Principal or
any other person or entity relating to payments to be made by the Company to any
person or entity computed in whole or in part with respect to sales of or
commissions paid or to be paid by any Principal.
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(b) Except as set forth on Schedule 2.31, the Company is not
currently, and since November 30, 1997 has not been, subject to any notice of
probation from any Principal. Except as set forth on Schedule 2.31, since
November 30, 1997, the Company has not received any oral or written
communication from any Principal which places the Company on probation or
otherwise suggests, threatens or implies possible termination of the Company's
appointment as broker for such Principal, any reduction in the commission rate
paid to the Company or any reduction as to the geographic area, Customers or
products represented by the Company, conditionally or unconditionally.
(c) To the Knowledge of the Company and the Stockholders, no
Principal intends to, or is considering, amending the terms of the Company's
brokerage agreement with such Principal in order or reappoint, or continue the
appointment of, the Company as broker with respect to a lesser portion of the
applicable territory than the greatest portion of such area in which, or with
respect to fewer than the greatest number of product items or Customers than,
the Company acted as broker for such Principal during the period from November
30, 1997 through the Closing Date, or at a lower commission rate than the
highest rate paid by such Principal to the Company with respect to sales during
such period. The relationships of the Company with its Principals are good
commercial working relationships.
(d) Except as set forth on Schedule 2.31, there are, and since
November 30, 1997 there have been, no disputes or claims involving individually
in excess of $5,000 or in the aggregate in excess of $20,000, (i) between the
Company and any Principal, (ii) between the Company and any Customer, or (iii)
to the Knowledge of the Company, between any Principal and any Customer. As used
in this Section 2.30(d), the terms "disputes" or "claims" shall mean (A) matters
which, to the Knowledge of the Company, have been referred to counsel or are the
subject of litigation, or (B) matters as to which a Principal has threatened to
seek recourse against the Company, or may be reasonably expected to seek
recourse against the Company, if such matter is not resolved to the satisfaction
of such Principal.
(e) With respect to all Principals (i) which, since November
30, 1997, have terminated such party's brokerage relationship with the Company
or (ii) which, since November 30, 1997, have reduced or otherwise adversely
modified the geographic territory in which the Company acts as broker or the
product item(s) represented by the Company or (iii) from which, since November
30, 1997, the Company has resigned, in whole or in part, its representation as a
food broker, Schedule 2.31(e) sets forth (A) the name of such Principal and the
effective date of such termination, reduction or resignation and (B) the
Company's estimated annualized commission revenues from each such Principal for
the twelve months ending March 31, 2000 in the absence of such modification,
termination or resignation, which estimates were reasonable when made and
continue to be reasonable.
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(f) With respect to all Principals which, since November 30,
1997, have entered into a brokerage relationship with the Company, or have
substantially increased an existing brokerage relationship with the Company,
Schedule 2.31(f) sets forth (i) the name of such Principal and the date on which
such Principal entered into a brokerage agreement with the Company and (ii) the
Company's estimated annualized commission revenues attributable to such
Principal for the twelve months ending March 31, 2000, which estimates were
reasonable when made and continue to be reasonable.
2.32 Absence of Improper Payments.
(a) Since January 1, 1989 the Company: (i) has not made any
contributions, payments or gifts of its property to or for the
private use of any governmental official, employee or agent
where either the payment or the purpose of such contribution,
payments or gift is illegal under the laws of the United
States, any state thereof or any other jurisdiction (foreign
or domestic), (ii) has not established or maintained any
unrecorded fund or asset for any purpose, or made any false or
artificial entries on its books or records for any reason,
(iii) has not made any payments to any person where the
Company intended or understood that any part of such payment
was to be used for any other purpose other than that described
in the documents supporting the payment, (iv) has not made any
contribution, or reimbursed any political gift or contribution
made by any other person, to candidates for public office,
whether federal, state or local, where such contribution would
be in violation of applicable law or (v) has not misused,
misapplied or improperly handled, administered or managed
market development or promotional funds or market development
or promotional fund accounts in any material respect.
(b) Schedule 2.32 sets forth each of the Company's promotional
funds.
2.33 Transfer of Shares. No holder of stock of the Company has at any
time transferred any of such stock to any employee of the Company, which
transfer constituted or could reasonably be expected to be viewed as
compensation for services rendered to the Company by said employee.
2.34 Stock Repurchase. Except as set forth on Schedule 2.34, the
Company has not redeemed or repurchased, or entered into any written or oral
agreement to redeem or repurchase, any of its capital stock.
2.35 Disclosure. The representations, warranties and statements
contained in this Agreement and in the agreements, certificates, exhibits and
schedules delivered by the Company pursuant to this Agreement to Buyer do not
contain any untrue statement of a
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material fact, and, when taken together, do not omit to state a material fact
required to be stated therein or necessary in order to make such
representations, warranties or statements not misleading in light of the
circumstances under which they were made. To the Knowledge of the Company and
the Stockholders, there are no facts which presently or could reasonably be
expected in the future to have a Material Adverse Effect which have not been
specifically disclosed herein or in a Schedule furnished herewith, other than
general economic conditions affecting the industries in which the Company
operates.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BUYER.
3.1 Making of Representations and Warranties. As a material inducement
to the Company and the Stockholders to enter into this Agreement and consummate
the transactions contemplated hereby, Buyer hereby makes the representations and
warranties to the Company and the Stockholders contained in this Section 3.
3.2 Organization of Buyer. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power to own or lease its properties and to conduct its
business in the manner and in the places where such properties are owned or
leased or such business is conducted by it.
3.3 Authority of Buyer. Buyer has full right, authority and power to
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by Buyer pursuant to this Agreement and to carry out the
transactions contemplated hereby. The execution, delivery and performance by
Buyer of this Agreement and each such other agreement, document and instrument
have been duly authorized by all necessary corporate action of Buyer and no
other action on the part of Buyer is required in connection therewith. This
Agreement and each other agreement, document and instrument executed and
delivered by Buyer pursuant to this Agreement constitute, or when executed and
delivered will constitute, valid and binding obligations of Buyer enforceable in
accordance with their terms.
3.4 Litigation. There is no litigation pending or, to the Buyer's
Knowledge, threatened against Buyer which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
3.5 Finder's Fee. Except for the arrangement between the Buyer and
Monroe & Company, LLC as previously disclosed to the Company, Buyer has not
incurred or become liable for any broker's commission or finder's fee relating
to or in connection with the transactions contemplated by this Agreement.
3.6 No Conflicts. The execution, delivery and performance by Buyer of
this Agreement and each other agreement contemplated by this Agreement to which
such entity is a
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party does not and will not with or without the giving of notice or the lapse of
time or both, (a) violate any provision of Buyer's Certificate of Incorporation,
as amended to date, (b) constitute a violation of, or conflict with or result in
any breach of, acceleration of any obligation under, right of termination under,
or default under, any agreement or instrument to which Buyer is a party or by
which either of them is bound, (c) to the Knowledge of Buyer violate any
judgment, decree, order, statute, law, rule or regulation applicable to Buyer
(d) except as set forth on Schedule 3.6 attached hereto, require Buyer to obtain
any approval, consent or waiver of, or to make any filing with, any person or
entity (governmental or otherwise) that has not been obtained or made or (e)
result in the creation or imposition of any Lien on any of property or assets of
Buyer.
3.7 Purchase for Investment. Buyer is acquiring the Company Shares
pursuant to this Agreement for its own account and not with a view to a public
distribution thereof and acknowledges that the Company Shares being so acquired
have not been registered under the Securities Act of 1933 or any state
securities act and cannot be transferred or sold unless registered under all
such applicable laws or pursuant to an available exemption from the registration
requirements thereof.
SECTION 4. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
4.1 Survival of Warranties. Each of the representations and warranties
herein or in any schedule, exhibit, certificate or financial statement delivered
by any party to the other party incident to the transactions contemplated hereby
are material, shall be deemed to have been relied upon by the other party and
shall survive the Closing regardless of any investigation and shall not merge in
the performance of any obligation by either party hereto.
4.2 Confidentiality. The Company and the Stockholders shall hold in
strict confidence, and will not use, any confidential or proprietary data or
information obtained from Buyer with respect to the Buyer's business or
financial condition. Information generally known in the Buyer's industry or
which has been disclosed to the Company or any Stockholder by third parties
which have a right to do so shall not be deemed confidential or proprietary
information for purposes of this Agreement. At Buyer's request, the Company and
each Stockholder will return to the Buyer all copies of such data and
information, including but not limited to financial information, customer lists,
business and corporate records, worksheets, test reports, tax returns, lists,
memoranda, and other documents prepared by or made available to the Company or
any Stockholder in connection with the transaction.
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SECTION 5. INDEMNIFICATION.
5.1 Indemnification by the Stockholders. The Stockholders jointly and
severally agree subsequent to the Closing to indemnify and hold the Company,
Buyer and their respective subsidiaries and affiliates and persons serving as
officers, directors, partners or employees of any of the foregoing (individually
a "Buyer Indemnified Party" and collectively the "Buyer Indemnified Parties")
harmless from and against any damages, liabilities, losses, taxes, fines,
penalties, costs, and expenses (including, without limitation, reasonable fees
of counsel) of any kind or nature whatsoever (whether or not arising out of
third-party claims and including all amounts paid in investigation, defense or
settlement of the foregoing) which may be sustained or suffered by any of them
arising out of or based upon any of the following matters:
(a) fraud, intentional misrepresentation or a deliberate or
wilful breach by the Company or any Stockholder of any of their representations,
warranties or covenants under this Agreement or in any agreement, document,
instrument, certificate, schedule or exhibit delivered pursuant hereto;
(b) any other breach of any representation, warranty or
covenant of the Company or any Stockholder under this Agreement or in any
agreement, document, instrument, certificate, schedule or exhibit delivered
pursuant hereto, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing constituting a breach of such
representations or warranties; provided, however, that with respect to any
breach of the representations contained in Sections 2.3(b), 2.5 and 2.6, the
indemnification obligations of each Minority Stockholder shall be only with
respect to breaches of any such representation by such Minority Stockholder.
(c) any liability of the Company for Taxes arising from an
event or transaction prior to the Closing or as a result of the Closing which
have not been paid or provided for or adequately reserved against by the
Company, including without limitation, any increase in Taxes due to the
unavailability of any loss or deduction claimed by the Company (except to the
extent such unavailability is solely attributable to the actions or
circumstances of Buyer).
(d) any liability relating to the operation, activities or
conduct of the business of the Company on or prior to the Closing Date, other
than (i) liabilities or obligations of the Company reflected on the Base Balance
Sheet or incurred thereafter in the ordinary course of business (except for any
such liability required to be disclosed on a Schedule to this Agreement that is
not so disclosed), (ii) liabilities under the Contracts or any contract,
agreement or arrangement not required to be disclosed on any Schedule to this
Agreement and (iii) other liabilities disclosed in this Agreement or any
Schedule furnished pursuant hereto; and
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(e) any liability of the Company in respect of any claim made
by any third party and relating to, arising out of or in connection with any
event occurring on or prior to the Closing Date, except to the extent reserved
or reflected on the Financial Statements or set forth on Schedule 2.8(c) hereto.
(f) Each Stockholder hereby acknowledges and agrees that no
Stockholder shall have any right of indemnity or contribution from the Company
with respect to any breach of any representation or warranty hereunder.
5.2 Limitations on Indemnification by the Stockholders.
(a) Threshold. Subject to the exceptions set forth in Section
9.2(b) below, no indemnification shall be payable by the Stockholders with
respect to claims except to the extent that the cumulative amount of all such
claims first exceed Twenty-Five Thousand Dollars ($25,000) in the aggregate (the
"Threshold Amount"), whereupon the Buyer Indemnified Parties shall be entitled
to dollar-for-dollar indemnification from the first dollar in accordance with
the terms hereof.
(b) Maximum Indemnification. Subject to the exceptions set
forth in Section 9.2(c) below, the Stockholders shall not be obligated to
indemnify any Indemnified Party for any amount of otherwise indemnifiable losses
in excess of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000.00)
(the "Maximum Indemnification") and no Stockholder shall be obligated to
indemnify Company Indemnified Parties for an aggregate amount greater than the
aggregate amount of the Total Consideration which such Stockholder would
otherwise have been entitled to receive pursuant to Exhibit A hereto (the
"Stockholder Limit").
(c) No Limitation on Certain Claims. Notwithstanding anything
herein to the contrary, Buyer Indemnified Parties (i) shall be entitled to
dollar-for-dollar indemnification from the first dollar, (ii) shall not be
subject to the Threshold Amount, (iii) shall not be subject to the Maximum
Indemnification, and (iv) shall not be subject to the Stockholder Limit in
seeking indemnification from the Stockholders with respect to any of the
following:
(i) Losses involving a breach by the Company or any
Stockholder of any of the representations and warranties contained in
Section 2.3, 2.5, 2.8(b) or (c), 2.9, 2.22, 2.27, 2.28 or 2.32; or
(ii) Losses described in Sections 5.1(a) or
5.1(c)-(e), inclusive.
(d) Time Limitation. No indemnification shall be payable to a
Buyer Indemnified Party with respect to claims asserted pursuant to Subsection
5.1(b) after the date which is the second anniversary of the Closing Date (the
"Indemnification Cut-Off Date"); provided that (i) any claim as to which notice
is given by a Buyer Indemnified Party to the
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<PAGE> 37
Stockholders prior to the Indemnification Cut-Off Date shall survive the
Indemnification Cut-Off Date until final resolution of such claim; (ii) claims
based upon or related to a breach of any representation or warranty contained in
Sections 2.5, 2.9, 2.22, 2.23, 2.27, 2.28 or 2.32 or in Sections 5.1(c)-5.1(e),
inclusive may be asserted until the 60th day following expiration of the statute
of limitations (if any) applicable to such claim; and (iii) claims based upon a
breach of any representation or warranty contained in Section 2.3 or pursuant to
Section 5.1(a) shall continue without limitation as to time.
5.3 Indemnification by Buyer. Buyer agrees to indemnify and hold the
Stockholders (individually a "Stockholder Indemnified Party" and collectively
the "Stockholder Indemnified Parties") harmless from and against any damages,
liabilities, losses and expenses (including, without limitation, reasonable fees
of counsel) of any kind or nature whatsoever (whether or not arising out of
third-party claims and including all amounts paid in investigation, defense or
settlement of the foregoing) which may be sustained or suffered by any of them
arising out of or based upon any breach of any representation or warranty made
by Buyer in this Agreement or in any certificate delivered by Buyer hereunder,
or by reason of any claim, action or proceeding asserted or instituted growing
out of any matter or thing constituting such a breach.
5.4 Limitation on Indemnification by Buyer. Notwithstanding the
foregoing, no indemnification shall be payable to the Stockholders with respect
to claims asserted pursuant to Section 9.3 above after the Indemnification
Cut-Off Date.
5.5 Notice; Defense of Claims. An indemnified party may make claims for
indemnification hereunder by giving written notice thereof to the indemnifying
party within the period in which indemnification claims can be made hereunder.
If indemnification is sought for a claim or liability asserted by a third party,
the indemnified party shall also give written notice thereof to the indemnifying
party promptly after it receives notice of the claim or liability being
asserted, but the failure to do so shall not relieve the indemnifying party from
any liability except to the extent that it is prejudiced by the failure or delay
in giving such notice. Such notice shall summarize the bases for the claim for
indemnification and any claim or liability being asserted by a third party.
Within 20 days after receiving such notice the indemnifying party shall give
written notice to the indemnified party stating whether it disputes the claim
for indemnification and whether it will defend against any third party claim or
liability at its own cost and expense. If the indemnifying party fails to give
notice that it disputes an indemnification claim within 20 days after receipt of
notice thereof, it shall be deemed to have accepted and agreed to the claim,
which shall become immediately due and payable. The indemnifying party shall be
entitled to direct the defense against a third party claim or liability with
counsel selected by it (subject to the consent of the indemnified party, which
consent shall not be unreasonably withheld) as long as the indemnifying party is
conducting a good faith and diligent defense. The indemnified party shall at all
times have the right to fully participate in the defense of a third party claim
or liability at its own expense directly or through counsel; provided, however,
that if the named parties to the action or
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<PAGE> 38
proceeding include both the indemnifying party and the indemnified party and the
indemnified party is advised that representation of both parties by the same
counsel would be inappropriate under applicable standards of professional
conduct, the indemnified party may engage separate counsel at the expense of the
indemnifying party. If no such notice of intent to dispute and defend a third
party claim or liability is given by the indemnifying party, or if such good
faith and diligent defense is not being or ceases to be conducted by the
indemnifying party, the indemnified party shall have the right, at the expense
of the indemnifying party, to undertake the defense of such claim or liability
(with counsel selected by the indemnified party), and to compromise or settle
it, exercising reasonable business judgment. If the third party claim or
liability is one that by its nature cannot be defended solely by the
indemnifying party, then the indemnified party shall make available such
information and assistance as the indemnifying party may reasonably request and
shall cooperate with the indemnifying party in such defense, at the expense of
the indemnifying party.
5.6 Satisfaction of Stockholder Indemnification Obligations. In order
to satisfy the indemnification obligations of the Stockholders pursuant to
Section 5.1 above and without limiting any right of any Buyer Indemnified Party
with respect to any claim for indemnification thereunder, subject to the
limitations set forth in Section 5.2, claims for indemnity by a Buyer
Indemnified Party hereunder shall first be recovered by offset against any
portion of the Total Consideration outstanding and payable to the Stockholders
hereunder and may not be asserted against the assets of any Stockholder except
to the extent that the amount recoverable exceeds the portion of the Total
Consideration available to be offset. Nothing herein shall limit the right of a
Stockholder to challenge or dispute a claim for indemnification.
5.7 Offset Against Lease Payments.
(a) To the extent that the Company is required under the terms
of those certain leases between Patton Company and U.B.C. Marketing with respect
to the property at 4267 Canal Avenue, Grandville, Michigan 49418 and between
Huettehoff Properties and United Brokerage Corporation, with respect to the
property at 8200 Old Thirteen Mile, Warren, Michigan 48093, each as amended to
date (the "Leases"), to make rental payments for periods occurring more than six
(6) months after the Company provides notice of its election to terminate such
lease or leases, the Company shall have the right to offset the amounts of all
such rental payments against any portion of the Total Consideration outstanding
and payable to the Stockholders hereunder.
(b) If the Company at any time gives at least six (6) months'
notice to the lessor under that certain lease between LaCross Company and the
Company with respect to the property designated Lot Number Five (5) in Holiday
Park, a subdivision in Perrysburg Township, Wood County, Ohio, that the Company
intends to vacate such leased premises, and the Company in fact vacates such
premises, the Company shall have the right to offset the amounts of all rental
payments with respect to such property for all periods from and after date the
Company vacates such premises against any portion of the Total Consideration
outstanding and payable to the Stockholders hereunder.
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<PAGE> 39
5.8 Life Insurance Policies. The Stockholders jointly and severally
agree subsequent to the Closing to indemnify and hold each Buyer Indemnified
Party harmless from and against any damages, liabilities, losses, taxes, fines,
penalties, costs, and expenses (including, without limitation, reasonable fees
of counsel) of any kind or nature whatsoever (whether or not arising out of
third-party claims and including all amounts paid in investigation, defense or
settlement of the foregoing) which may be sustained or suffered by any of them
arising out of or based upon any breach of the representations of the Company
contained in this Section 5.8. Such indemnification shall not be subject to the
Maximum Indemnification, the Threshold Amount, the Stockholder Limit or the
Indemnification Cut-Off Date. The Company represents and warrants to the Buyer
that: (i) the aggregate cash surrender value of life insurance policies owned by
the Company as of the Closing Date is $293,771.18 (the "CSV Amount"); (ii) the
Company has the right to terminate each applicable life insurance policy to
obtain the CSV amount in cash, (iii) the Company has no obligation to continue
any payments with respect to any life insurance policy after the Closing Date,
and (iv) upon termination of each such life insurance policy owned by the
Company and receipt of the CSV Amount by the Company, the Company will have all
right, title and interest in and to the CSV Amount, and no natural person or
entity of any type will have any valid claim to any portion of the CSV Amount.
The Company, Buyer and the Stockholders acknowledge that certain life insurance
policies owned by the Company will be distributed to certain Stockholders to
satisfy deferred compensation obligations of the Company to such Stockholders.
SECTION 6. DEFINITIONS.
For the purposes of this Agreement, the capitalized terms set forth
below shall have the meanings indicated.
"Accountants" shall have the meaning set forth in Section 1.2 hereof.
"Accumulated Funding Deficiency" shall have the meaning set forth in
Section 2.27 hereof.
"Acquisition" shall have the meaning set forth in Section 2.4 hereof.
"Acquisition Rights" shall have the meaning set forth in Section 2.4
hereof.
"Affiliate" shall have the meaning set forth in Section 2.27 hereof.
"Affiliated Group" shall have the meaning set forth in Section 2.9
hereof.
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<PAGE> 40
"Agreement" shall have the meaning set forth in the Recitals hereto.
"Approvals" shall have the meaning set forth in Section 2.24 hereof.
"Base Balance Sheet" shall have the meaning set forth in Section 2.8
hereof.
"Blue Sky" shall have the meaning set forth in Section 2.27 hereof.
"Buyer" shall have the meaning set forth in the Recitals hereto.
"Buyer Indemnified Party" and "Buyer Indemnified Parties" shall have
the meaning set forth in Section 5.1 hereof.
"Closing" shall have the meaning set forth in Section 1.3 hereof.
"Closing Date" shall mean the date on which the Closing occurs.
"Code" shall have the meaning set forth in Section 2.9 hereof.
"Common Stock" shall have the meaning set forth in the Recitals hereto.
"Company" shall have the meaning set forth in the Recitals hereto.
"Company Shares" shall have the meaning set forth in the Recitals
hereto.
"Contract" and "Contracts" shall have the meaning set forth in Section
2.18 hereof.
"Controlled Group" shall have the meaning set forth in Section 2.27
hereof.
"CPR Rules" shall have the meaning set forth in Section 7.10 hereof.
"Customers" shall have the meaning set forth in Section 2.12 hereof.
"Employee Program" shall have the meaning set forth in Section 2.27
hereof.
"Encumbrances" shall have the meaning set forth in Section 2.7 hereof.
"Environmental Law" shall have the meaning set forth in Section 2.28
hereof.
"ERISA" shall have the meaning set forth in Section 2.27 hereof.
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<PAGE> 41
"Financial Statements" shall have the meaning set forth in Section 2.8
hereof.
"GAAP" shall have the meaning set forth in Section 2.8 hereof.
"Hazardous Material" shall have the meaning set forth in Section 2.28
hereof.
"Hazardous Waste" shall have the meaning set forth in Section 2.28
hereof.
"Indemnified Cut-Off Date" shall have the meaning set forth in Section
5.2 hereof.
"Intellectual Property" shall have the meaning set forth in Section
2.16 hereof.
"Interim Balance Sheet" shall have the meaning set forth in Section 2.8
hereof.
"Interim Financial Statements" shall have the meaning set forth in
Section 2.8 hereof.
"IRS" shall have the meaning set forth in Section 2.9 hereof.
"Knowledge" shall have the meaning set forth in Section 2.7 hereof.
"Liens" shall have the meaning set forth in Section 2.3 hereof.
"Maintains" shall have the meaning set forth in Section 2.27 hereof.
"Material Adverse Effect" shall have the meaning set forth in Section
2.2 hereof.
"Maximum Indemnification" shall have the meaning set forth in Section
5.
"Minority Stockholders" shall have the meaning set forth in the
Recitals hereto.
"Multiemployer Plan" shall have the meaning set forth in Section 2.27
hereof.
"Permitted Encumbrances" shall have the meaning set forth in Section
2.7 hereof.
"Principal" shall have the meaning set forth in Section 2.11.
"Products" shall have the meaning set forth in Section 2.16 hereof.
"Prohibited Transaction" shall have the meaning set forth in Section
2.27 hereof.
"Real Property" shall have the meaning set forth in Section 2.7 hereof.
"Reportable Event" shall have the meaning set forth in Section 2.27
hereof.
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<PAGE> 42
"Reviewed Financial Statements" shall have the meaning set forth in
Section 2.8 hereof.
"Senior Debt" shall mean and include all principal of, interest on,
premium, if any, and other obligations of Buyer with respect to any (i)
indebtedness to any bank, trust company, insurance company or other
institutional lender providing financing to Buyer whether outstanding
on the date hereof or incurred, created or arising hereafter pursuant
to any agreement or instrument which Buyer may have executed and
delivered prior to the date hereof, or may execute and deliver as of
the date hereof or at any time hereafter, including, without
limitation, the indebtedness of Buyer under that certain Credit
Agreement, as amended from time to time, dated as of December 18, 1998,
by and between Buyer, First Union National Bank, as agent and certain
other lenders named therein, (ii) indebtedness of Buyer for monies
borrowed from other entities, (iii) obligations of Buyer as lessee
under leases of real or personal property, (iv) principal of, interest
on and premium, if any, relating to any indebtedness or obligations of
others of the kinds described (i), (ii) and (iii) above assumed or
guaranteed in any manner by Buyer, and (v) any amendment, modification,
supplement, restatement, refinancing, deferral, renewal, extension or
refunding of any such indebtedness described in (i), (ii), (iii), and
(iv) above (including, without limitation, any of the foregoing having
the effect of increasing the principal amount of the indebtedness
outstanding or available thereunder) as may be entered into by Buyer
from time to time. Each Stockholders agrees, and each successor or
assign of such Stockholder by the acceptance of this Agreement agrees,
to execute any subordination agreement(s) consistent with the terms of
this Agreement that Buyer and the holders of any Senior Debt may
request to better reflect the subordination of the indebtedness
evidenced hereby to any Senior Debt incurred by Buyer.
"Severance Pay" shall have the meaning set forth in Section 2.31
hereof.
"Stockholder" and "Stockholders" shall have the meaning set forth in
the Recitals hereto.
"Stockholder Indemnified Party and "Stockholder Indemnified Parties"
shall have the meaning set forth in Section 5.3 hereof.
"Stockholders' Representative" shall have the meaning set forth in
Section 1.4 hereof.
"Taxes" shall have the meaning set forth in Section 2.9 hereof.
"Threshold Amount" shall have the meaning set forth in Section 5.2
hereof.
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<PAGE> 43
"Transaction Documents" shall have the meaning set forth in Section 2.6
hereof.
"Unfunded Benefit Liabilities" shall have the meaning set forth in
Section 2.27 hereof.
SECTION 7. MISCELLANEOUS.
7.1 Fees and Expenses.
(a) Buyer shall pay all of its fees, expenses and costs
incurred in connection with the preparation and negotiation of this Agreement
and the consummation of the transactions contemplated hereby.
(b) The Company shall pay the fees, expenses and costs
incurred by the Stockholders prior to the Closing in connection with the
preparation and negotiation of this Agreement and the consummation of the
transactions contemplated hereby. The Stockholders will reimburse the Buyer for
any such fees, expenses and costs paid by the Company. The Buyer shall offset
the amount of any such fees, costs and expenses against all amounts payable to
the Stockholders hereunder or in connection herewith (pro rata among the
Stockholders in proportion to the amount of the Total Consideration payable to
each Stockholder) and no amount shall be paid to any Stockholder hereunder or in
connection herewith until the Buyer shall have been fully reimbursed for all
such fees, expenses and costs.
(c) The Stockholders will pay all fees, expenses and costs
incurred subsequent to the Closing in connection with the transfer of the
Company Shares to Buyer as contemplated by this Agreement, including without
limitation, all transfer taxes and charges applicable to such transfer, and all
costs of obtaining permits, waivers, registrations or consents with respect to
any assets, rights or contracts of the Company.
7.2 Governing Law. This Agreement shall be construed under and governed
by the internal laws of the Commonwealth of Massachusetts without regard to its
conflict of laws provisions.
7.3 Notices. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been given if delivered or sent by facsimile transmission, upon receipt, if sent
by a nationally recognized overnight courier for next day delivery, on the next
business day following delivery to such overnight courier, or if sent by
registered or certified mail, upon the sooner of the date on which receipt is
acknowledged or the expiration of three days after deposit in United States post
office facilities properly addressed with postage prepaid. All notices to a
party will be sent to the addresses set forth below or to such other address or
person as such party may designate by notice to each other party hereunder:
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<PAGE> 44
TO BUYER: Merkert American Corporation
490 Turnpike Street
Canton, Massachusetts 02021
Attn: Chief Executive Officer
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn.: Stuart M. Cable, P.C.
TO COMPANY: The Sell Group - Grand Rapids, Toledo, Detroit,
Indianapolis and Fort Wayne
4267 Canal Avenue
Grandville, Michigan 49418
Attn: Gary Van Overloop
With a copy to: Butzel Long, P.C.
150 West Jefferson
Suite 900
Detroit, Michigan 48226-4430
Attn: Justin G. Klimko, Esq.
TO ANY STOCKHOLDER: The Sell Group - Grand Rapids, Toledo, Detroit,
Indianapolis and Fort Wayne
4267 Canal Avenue
Grandville, Michigan 49418
Attn: Gary Van Overloop
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
7.4 Entire Agreement. This Agreement, including the Schedules and
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby, is complete, reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous written
or oral negotiations, commitments and writings. No promises, representations,
understandings, warranties and agreements have been made by any of the parties
hereto except as referred to herein or in such Schedules and Exhibits or in such
other writings; and all inducements to the making of this Agreement relied upon
by either party hereto have been expressed herein or in such Schedules or
Exhibits or in such other writings.
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<PAGE> 45
7.5 Assignability; Binding Effect. This Agreement shall only be
assignable by Buyer to a corporation, partnership or other entity controlling,
controlled by or under common control with Buyer upon written notice to the
Company and the Stockholders. This Agreement may not be assigned by the
Stockholders or the Company without the prior written consent of Buyer. This
Agreement shall be binding upon and enforceable by, and shall inure to the
benefit of, the parties hereto and their respective successors and permitted
assigns.
7.6 Execution in Counterparts. For the convenience of the parties and
to facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
7.7 Amendments. This Agreement may not be amended or modified, nor may
compliance with any condition or covenant set forth herein be waived, except by
a writing duly and validly executed by each party hereto, or in the case of a
waiver, the party waiving compliance.
7.8 Publicity and Disclosures. No press releases or public disclosure,
either written or oral, of the transactions contemplated by this Agreement,
shall be made by a party to this Agreement without the prior knowledge and
written consent of Buyer and the Company.
7.9 Dispute Resolution; Consent to Jurisdiction.
(a) Except as provided below, any dispute arising out of or
relating to this Agreement or the breach, termination or validity hereof shall
be finally settled by arbitration conducted expeditiously in accordance with the
Center for Public Resources Rules for Nonadministered Arbitration of Business
Disputes (the "CPR Rules"). The Center for Public Resources shall appoint a
neutral advisor from its National CPR Panel. The arbitration shall be governed
by the United States Arbitration Act, 9 U.S.C. Sections 1-16, and judgment upon
the award rendered by the arbitrators may be entered by any court having
jurisdiction thereof.
(b) Any such arbitration shall be conducted in accordance with
the following:
(i) The arbitrator shall be authorized, but not
required, award to the prevailing party the costs of arbitration,
including the reasonable fees and expenses of attorneys and
accountants.
(ii) The arbitrator shall not be authorized or
empowered to award damages in excess of compensatory damages.
(iii) The arbitrator shall enforce the following
agreed upon procedures: (A) mandatory exchange of all relevant
documents to be accomplished
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<PAGE> 46
within 30 days of the initiation of the arbitration procedure; (B)
hearings before the arbitrator shall be limited to a summary
presentation by each party not to exceed six hours for each party; (C)
all hearings shall have concluded not more than 60 days after the
initiation of the arbitration procedure; and (D) the arbitrator's
decision shall be rendered not more than 10 days after the conclusion
of such hearings.
(c) Notwithstanding anything to the contrary contained herein,
the provisions of this Section 7.9 shall not apply with regard to any equitable
remedies to which any party may be entitled hereunder.
(d) Each of the parties hereto (i) hereby irrevocably submits
to the jurisdiction of the any state or federal court sitting in Boston,
Massachusetts for the purpose of enforcing the award or decision in any such
proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a
defense, or otherwise, in any such suit, action or proceeding, any claim that it
is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court, and (iii) hereby waives
and agrees not to seek any review by any court of any other jurisdiction which
may be called upon to grant an enforcement of the judgment of any such court.
Each of the parties hereto hereby consents to service of process by registered
mail at the address to which notices are to be given. Each of the parties hereto
agrees that its submission to jurisdiction and its consent to service of process
by mail is made for the express benefit of the other parties hereto. Final
judgment against any party hereto in any such action, suit or proceeding may be
enforced in other jurisdictions by suit, action or proceeding on the judgment,
or in any other manner provided by or pursuant to the laws of such other
jurisdiction; provided, however, that any party hereto may at its option bring
suit, or institute other judicial proceedings, in any state or federal court of
the United States or of any country or place where the other parties or their
assets, may be found.
7.10 Consent to Jurisdiction. Each of the parties hereby consents to
the exclusive personal jurisdiction, service of process and venue in the federal
or state courts sitting in Boston, Massachusetts for any claim, suit or
proceeding arising under this Agreement, or in the case of a third party claim
subject to indemnification hereunder, in the court where such claim is brought.
The provisions of this Section 7.10 shall be subject to the mandatory dispute
resolution provisions of Section 7.9 hereof.
7.11 No Third-Party Beneficiaries. This Agreement is intended solely
for the benefit of the parties hereto. Neither this Agreement nor any of the
transactions contemplated hereby shall be deemed to create or enlarge any rights
in any party not a party hereto.
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<PAGE> 47
7.12 Severability. The parties agree that, in the event that any
provision of this Agreement or the application of any such provision to any
party is held by a court of competent jurisdiction to be contrary to law, the
provision in question shall be construed so as to be lawful and the remaining
provisions of this Agreement shall remain in full force and effect.
7.13 No Stock Restrictions. The Company and each Stockholder hereby
waives the application of any Stock Purchase and Option Agreement or similar
agreement between the Company and such stockholder to the transactions
contemplated hereby.
[Remainder of Page Intentionally Left Blank]
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<PAGE> 48
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date first set forth above by their duly authorized
representatives.
MERKERT AMERICAN
CORPORATION
By:
-------------------------------
Name:
Title:
UNITED BROKERAGE COMPANY
By:
-------------------------------
Name:
Title:
STOCKHOLDERS:
----------------------------------
David L. Bassett
----------------------------------
Donald J. Beverwyk
----------------------------------
Christian E. Bunse
----------------------------------
Steven R. Cole
----------------------------------
Jon G. Cross
<PAGE> 49
----------------------------------
Richard D. Egloff
----------------------------------
Joseph A. Fuller
----------------------------------
Robert E. Host
----------------------------------
John Huetteman III
----------------------------------
Robert C. Kemmer
----------------------------------
David W. McIntosh
----------------------------------
Dennis F. Nagel
----------------------------------
Roger E. Osmun
----------------------------------
Mark A. Petrell
----------------------------------
Ted S. Reiter
<PAGE> 50
----------------------------------
Michael L. Schofield
----------------------------------
Gerald D. Schwark
----------------------------------
Douglas L. Smith
----------------------------------
Kenneth E. Sobecki
----------------------------------
David A. Vander Meer
----------------------------------
Everet VanKuiken
----------------------------------
Gary H. Van Overloop
<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This AGREEMENT (the "Agreement") is entered into as of April 27, 1999, by
and between Merkert American Corporation, a Delaware corporation (the
"Employer"), and Gerald R. Leonard (the "Executive"). This Agreement will become
effective on the Effective Date (as defined in Section 3 hereof) and until the
Effective Date, neither the Employer nor Executive shall have any rights or
obligations hereunder. Upon the Effective Date, this Agreement will supersede
and replace in its entirety the Employment and Noncompetition Agreement dated as
of December 18, 1998 by and between the Employer and the Executive and neither
party will have any further rights or obligations thereunder. This Agreement
will terminate upon, and will not become effective in the event of, any
termination of the Agreement and Plan of Merger dated as of April 27, 1999 by
and among the Employer, Richmont Marketing Specialists, Inc. and the other
parties thereto (as amended from time to time, the "Merger Agreement"). In
consideration of the mutual covenants contained in this Agreement, the Employer
and the Executive agree as follows:
1. Employment. The Employer agrees to employ the Executive and the
Executive agrees to be employed by the Employer on the terms and conditions set
forth in this Agreement.
2. Capacity. The Executive shall serve the Employer as Chief Executive
Officer. In such capacity, the Executive shall perform such services and duties
in connection with the business, affairs and operations of the Employer
consistent with such position as may be assigned or delegated to the Executive
from time to time by or under the authority of the Board of Directors of the
Employer (the "Board of Directors").
3. Term. Subject to the provisions of Section 6, the term of employment
pursuant to this Agreement shall be five (5) years from the Effective Date (the
"Initial Term") and shall continue from month to month thereafter (the "Extended
Term"), subject to either party's thirty (30) day advance notice of non-renewal
(a "Non-renewal Notice"). The Effective Date of this Agreement shall be the date
on which the transactions contemplated by the Merger Agreement, including the
Merger (as defined therein), are consummated.
4. Compensation and Benefits. The regular compensation and benefits
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under this
Agreement, the Employer shall pay the Executive a salary (the "Salary") at
the annual rate of FOUR HUNDRED FIFTY THOUSAND DOLLARS ($450,000), subject
to increase from time to time in the discretion of the Board of Directors
or the Compensation Committee of the Board of Directors (the "Compensation
Committee"). The Salary shall be payable in periodic installments in
accordance with the Employer's usual practice for its senior executives.
<PAGE> 2
(b) Bonus. The Executive shall be entitled to participate in annual
incentive program established by the Board of Directors or the Compensation
Committee with such terms as may be established in the sole discretion of
the Board of Directors or Compensation Committee; provided that such annual
incentive plan shall be adopted on or before the closing of the Merger and
shall provide for annual cash bonus incentives commensurate with the
Executive's position.
(c) Stock Options. On the Effective Date, the Employer will grant to
the Executive options to purchase sixty thousand (60,000) shares of common
stock of the Employer. Such stock options shall have a per share exercise
price equal to the greater of (i) Fair Market Value (as defined in the
Employer's 1998 Stock Option and Incentive Plan (the "Plan")) at the date
of grant and (ii) $13.50, shall vest ratably over a five (5) year period,
and shall be subject to the terms and conditions of the Plan.
(d) Regular Benefits. From and after the commencement of the Initial
Term, the Executive shall continue to participate in such employee benefit
plans of the Employer in which the Executive participated prior to the
Merger (the "Predecessor Plans"). The Executive may continue to participate
in each such Predecessor Plan, in accordance with and subject to each such
Predecessor Plan's terms and conditions, as may be modified or amended from
time to time by the Employer, until such time as the Employer terminates
any such Predecessor Plan. Thereafter, the Executive shall be entitled to
participate in any employee benefit plans, including, without limitation,
medical insurance plans, life insurance plans, disability income plans,
retirement plans, and other benefit plans, which the Employer may from time
to time have in effect for all or most of its senior executives.
Notwithstanding the foregoing, the Employer will keep in place the current
disability policy in effect for the Executive for the duration of his
employment. During the Initial Term, the Employer shall provide the
Executive with medical insurance coverage that is substantially equivalent
to the medical insurance coverage applicable to the Executive immediately
prior to the Merger. The Executive's participation in any employee benefit
plan shall at all times be subject to the terms of the applicable plan
documents, generally applicable policies of the Employer, applicable law
and the discretion of the Board of Directors, the Compensation Committee or
any administrative or other committee provided for in or contemplated by
any such plan. Nothing contained in this Agreement shall be construed to
create any obligation on the part of the Employer to establish any such
plan or to maintain the effectiveness of any such plan which may be in
effect from time to time.
(e) Other Benefits and Perquisites.
(i) Expenses. The Employer shall reimburse the Executive for
expenses reasonably incurred by the Executive in furtherance of
his duties for the Employer hereunder. The Employer's obligation
to reimburse the Executive for such expenses shall be subject to
the
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<PAGE> 3
Employer's expense reimbursement policies, as established,
modified or amended by the Employer from time to time, and the
submission by the Executive of documentation in a form acceptable
to the Employer.
(ii) Automobile. During the Initial Term, the Executive shall be
entitled to use an automobile supplied by the Employer and to
receive reimbursement from the Employer for business-related
automobile expenses to the extent that and subject to
substantially equivalent terms and conditions on which the
Employer provided such benefits to the Executive immediately
prior to the Merger.
(iii) Vacation. The Executive shall be entitled to four (4) weeks
of paid vacation per year which shall accrue on a pro rata basis.
The Executive's entitlement to carry-over unused vacation from
year to year shall be subject to vacation policies established,
and as modified or amended, from time to time by the Employer;
provided, that nothing contained herein shall be construed to
require the Employer to permit the carry-over of unused vacation.
The number of days of paid vacation accrued for the Executive as
of the Effective Date will carry forward until used and will be
deemed to be used after all accrued vacation under this Agreement
has been used.
(f) Taxation of Payments and Benefits. The Employer shall undertake
to make deductions, withholdings and tax reports with respect to payments
and benefits under this Agreement to the extent that it reasonably and in
good faith believes that it is required to make such deductions,
withholdings and tax reports. Payments under this Agreement shall be
reduced by any such deductions or withholdings. Nothing in this Agreement
shall be construed to require the Employer to make any payments to
compensate the Executive for any adverse tax effect associated with any
payments or benefits or for any deduction or withholding from any payment
or benefit.
(g) Exclusivity of Salary and Benefits. The Executive shall not be
entitled to any payments or benefits other than those provided under this
Agreement.
5. Extent of Service. During the Executive's employment under this
Agreement, the Executive shall, subject to the direction and supervision of the
Board of Directors, devote the Executive's full business time, best efforts and
business judgment, skill and knowledge to the advancement of the Employer's
interests and to the discharge of the Executive's duties and responsibilities
under this Agreement. The Executive shall not engage in any other business
activity, except as may be approved by the Board of Directors; provided that
nothing in this Agreement shall be construed as preventing the Executive from:
(a) investing the Executive's assets in any company or other entity
in a manner not prohibited by Section 7(d) and in such form or manner as
shall not require
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<PAGE> 4
any material activities on the Executive's part in connection with the
operations or affairs of the companies or other entities in which such
investments are made; or
(b) engaging in religious, charitable or other community or
non-profit activities that do not impair the Executive's ability to fulfill
the Executive's duties and responsibilities under this Agreement.
6. Termination and Termination Benefits. Notwithstanding the provisions
of Section 3, the Executive's employment under this Agreement shall terminate
under the following circumstances set forth in this Section 6.
(a) Termination by the Employer for Cause. The Executive's employment
under this Agreement may be terminated for cause without further liability
on the part of the Employer effective immediately upon a vote of the Board
of Directors and written notice to the Executive. Only the following shall
constitute "cause" for such termination:
(i) intentional dishonest statements or acts of the Executive
with respect to the Employer or any affiliate of the Employer which
constitute material disloyalty or dishonesty toward the Employer or
any affiliate of the Employer or cause significant damage to the
Employer or any affiliate of the Employer, including damage to the
business reputation of the Employer or any affiliate of the Employer;
(ii) the conviction of the Executive for (A) a felony or (B) any
crime involving moral turpitude, deceit, dishonesty or fraud;
(iii) subject to the provisions of subsection (e) below, failure
or refusal to perform to the reasonable satisfaction of the Board of
Directors a substantial portion of the Executive's duties and
responsibilities reasonably assigned or delegated under this
Agreement, which failure continues, in the reasonable judgement of the
Board of Directors, after the Board of Directors has given written
notice to the Executive detailing the substance of the alleged failure
or refusal and the Executive has been given a reasonable opportunity
to cure such alleged failure or refusal;
(iv) gross negligence or willful misconduct of the Executive with
respect to the Employer or any affiliate of the Employer which is
repeated or continued by the Executive, in the reasonable judgment of
the Board of Directors, after the Board of Directors has given written
notice to the Executive detailing the substance of the alleged
negligence or misconduct and the Executive has been given a reasonable
opportunity to cure such alleged negligence or misconduct; or
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<PAGE> 5
(v) material breach by the Executive of any of the Executive's
other material obligations under this Agreement, which breach is
repeated or continued by the Executive, in the reasonable judgment of
the Board of Directors, after the Board of Directors has given written
notice to the Executive detailing the substance of the alleged breach
and the Executive has been given a reasonable opportunity to cure such
alleged breach.
(b) Termination by the Executive. The Executive's employment under
this Agreement may be terminated by the Executive by written notice to the
Board of Directors at least thirty (30) days prior to such termination.
(c) Termination by the Employer Without Cause. Subject to the payment
of Termination Benefits pursuant to Section 6(d), the Executive's
employment under this Agreement may be terminated by the Employer without
cause upon written notice to the Executive of a vote by the Board of
Directors to terminate delivered to the Executive at least thirty (30) days
prior to such termination, provided that, the Employer, in its sole
discretion, may elect to earlier terminate the Executive without such
notice upon payment to the Executive of additional compensation for the
number days by which thirty (30) exceeds the number of days by which such
notice preceded the date of such termination. Notwithstanding anything
herein to the contrary, the Employer shall be deemed to have terminated the
Executive under this Section 6(c), thereby entitling him to all of the
rights and benefits set forth herein for termination under this Section
6(c), if the Employer, without the Executive's prior written consent, (i)
changes the Executive's position or title set forth in Section 2 hereof or
the level of responsibilities generally accorded to the Chief Executive
Officer, (ii) breaches its obligations to the Executive under this
Agreement, or (iii) moves the primary location of his employment or directs
the Executive to work more than two weeks in any calender month at, a
location which is outside of a 50-mile radius of the city limits of Canton,
Massachusetts.
(d) Certain Termination Benefits. Unless otherwise specifically
provided in this Agreement or otherwise required by law, all compensation
and benefits payable to the Executive under this Agreement shall terminate
on the date of termination of the Executive's employment under this
Agreement pursuant to this Section 6 or due to delivery of a Non-renewal
Notice from either party to the other. Notwithstanding the foregoing, in
the event of termination of the Executive's employment with the Employer
pursuant to Section 6(c) above, the Employer shall provide to the Executive
the following termination benefits ("Termination Benefits"):
(i) continuation of the Salary at the rate then in effect
pursuant to Section 4(a);
(ii) continuation of group health plan benefits, (A) if permitted
by Employer's health plan or if Employer self-insures (provided
that
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Employer shall have no obligation to self-insure), until the
expiration of the Initial Term, or (B) if not permitted by
Employer's health plan, to the extent authorized by and
consistent with 29 U.S.C Section 1161 et seq. (commonly known as
"COBRA"), in either case with the cost of the regular premium for
such benefits shared in the same relative proportion by the
Employer and the Executive as in effect on the date of
termination; and
(iii) continuation of automobile benefits as in effect on the
date of termination pursuant to Section 4(d)(ii).
The Termination Benefits set forth in (i) above shall continue effective
until the later of (A) the expiration of the Initial Term or (B) for twelve
months from the date of termination of employment, provided that the Executive
shall not have materially breached, (1) as of the date of termination, any of
his or her covenants or agreements contained in Sections 7 and 8 of this
Agreement or (2) thereafter, any of his or her covenants or agreements contained
in this Agreement. The Termination Benefits set forth in (ii) and (iii) above
shall continue effective until the expiration of the Initial Term, provided that
the Executive shall not have materially breached, (x) as of the date of
termination, any of his or her covenants or agreements contained in Section 7
and 8 of this Agreement or (y) thereafter, any of his or her covenants or
agreements contained in this Agreement. Notwithstanding the foregoing, nothing
in this Section 6(d) shall be construed to affect the Executive's right to
receive COBRA continuation entirely at the Executive's own cost to the extent
that the Executive may continue to be entitled to COBRA continuation after the
Executive's right to cost sharing under Section 6(d)(ii) ceases.
(e) Disability. Notwithstanding the provisions of subsection (a)(iii)
above, if the Executive shall be disabled so as to be unable to perform the
essential functions of the Executive's then existing position or positions
under this Agreement with or without reasonable accommodation, the Board of
Directors may remove the Executive from any responsibilities and/or
reassign the Executive to another position with the Employer for the
remainder of the Initial Term or, if the Initial Term has expired, any
Extended Term, or during the period of such disability. Notwithstanding any
such removal or reassignment, the Executive shall continue to receive the
Executive's full Salary (less any disability pay or sick pay benefits to
which the Executive may be entitled under the Employer's policies) and
benefits under Section 4 of this Agreement (except to the extent that the
Executive may be ineligible for one or more such benefits under applicable
plan terms) for a period of time equal to the remainder of the Initial Term
or, if the Initial Term has expired, any Extended Term, provided that the
Executive remains employed by the Employer during such period. In the event
that the Employer terminates the Executive's employment without cause
pursuant to Section 6(c) or the Employer delivers a Non-renewal Notice to
the Executive, in either case due to the Executive's continuing inability
to perform the essential functions of the Executive's then existing
position or positions, the Executive shall be eligible to receive
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Termination Benefits subject to and in accordance with the terms and
conditions of Section 6(d), provided that the Executive's Termination
Benefit additionally shall be subject to reduction by the amount of any
payments the Executive receives under any disability benefit plan or plans
or insurance policies the Employer maintains for the Executive, or under
worker's compensation, or state or federal disability benefit programs. If
any question shall arise as to whether during any period the Executive is
disabled so as to be unable to perform the essential functions of the
Executive's then existing position or positions with or without reasonable
accommodation, the Executive may, and at the request of the Employer shall,
submit to the Employer a certification in reasonable detail by a physician
selected by the Employer to whom the Executive or the Executive's guardian
has no reasonable objection as to whether the Executive is so disabled or
how long such disability is expected to continue, and such certification
shall for the purposes of this Agreement be conclusive of the issue. The
Executive shall cooperate with any reasonable request of the physician in
connection with such certification. If such question shall arise and the
Executive shall fail to submit such certification, the Employer's
determination of such issue shall be binding on the Executive. Nothing in
this Section 6(e) shall be construed to waive the Executive's rights, if
any, under existing law including, without limitation, the Family and
Medical Leave Act of 1993, 29 U.S.C. Section 2601 et seq. and the Americans
with Disabilities Act, 42 U.S.C. Section 12101 et seq.
7. Confidential Information, Noncompetition and Cooperation.
(a) Confidential Information. As used in this Agreement,
"Confidential Information" means information belonging to the Employer
which is of value to the Employer in the course of conducting its business
and the disclosure of which could result in a competitive or other
disadvantage to the Employer. Confidential Information includes, without
limitation, financial information, reports, and forecasts; market or sales
information, plans, methods and techniques; pricing policies; customer
lists; price lists; inventions, improvements and other intellectual
property; trade secrets; know-how; designs, processes or formulae;
software; and business plans, prospects and opportunities (such as possible
acquisitions or dispositions of businesses or facilities) which have been
discussed or considered by the management of the Employer. Confidential
Information includes information developed by the Executive in the course
of the Executive's employment by the Employer, as well as other information
to which the Executive may have access in connection with the Executive's
employment. Confidential Information also includes the confidential
information of others with which the Employer has a business relationship,
including without limitation its principals, packers and suppliers.
Notwithstanding the foregoing, Confidential Information does not include
information in the public domain, unless due to breach of the Executive's
duties under Section 7(b).
(b) Confidentiality. The Executive understands and agrees that the
Executive's employment creates a relationship of confidence and trust
between the
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Executive and the Employer with respect to all Confidential Information. At
all times, both during the Executive's employment with the Employer and
after its termination, the Executive will keep in confidence and trust all
such Confidential Information, and will not use or disclose any such
Confidential Information without the written consent of the Employer,
except as may be necessary in the ordinary course of performing the
Executive's duties to the Employer.
(c) Documents, Records, etc. All documents, records, data, apparatus,
equipment and other physical property, whether or not pertaining to
Confidential Information, which are furnished to the Executive by the
Employer or are produced by the Executive in connection with the
Executive's employment will be and remain the sole property of the
Employer. The Executive will return to the Employer all such materials and
property as and when requested by the Employer. In any event, the Executive
will return all such materials and property immediately upon termination of
the Executive's employment for any reason. The Executive will not retain
with the Executive any such material or property or any copies thereof
after such termination.
(d) Noncompetition and Nonsolicitation. During the Initial Term and
any Extended Term(s) and for one (1) year thereafter (or during the period
during which the Executive is entitled to receive Termination Benefits, if
longer) (the "Restricted Period"), the Executive (i) will not, directly or
indirectly, whether as owner, partner, shareholder, advisor, consultant,
agent, employee, co-venturer, creditor, officer, director, trustee or
otherwise, engage, participate, assist or invest in any Restricted Business
within the Territory (as those terms are hereinafter defined); (ii) will
refrain from directly or indirectly employing, attempting to employ,
recruiting or otherwise soliciting, inducing or influencing any person to
leave employment with the Employer (other than terminations of employment
of subordinate employees undertaken in the course of the Executive's
employment with the Employer); and (iii) (other than on behalf of the
Employer) will refrain from directly or indirectly, in any manner,
providing Services to any principal, customer or supplier of the Employer,
soliciting such principal, customer or supplier of the Employer where a
purpose or effect of such solicitation is to provide Services directly or
indirectly, from soliciting or encouraging any principal, customer or
supplier to terminate or otherwise modify adversely its business
relationship with the Employer. The Executive understands that the
restrictions set forth in this Section 7(d) are intended to protect the
Employer's interest in its Confidential Information and established
employee, customer and supplier relationships and goodwill, and agrees that
such restrictions are reasonable and appropriate for this purpose.
For purposes of this Agreement, the term "Restricted Business" shall mean
any person, business or entity that provides Services.
For purposes of this Agreement, the term "Services" shall mean:
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(A) any business actively conducted by the Employer on the date of
the termination of Executive's employment with the Employer, and
(B) any business conducted by the Employer within the twelve (12)
month period immediately preceding the termination of Executive's
employment with the Employer, and
(C) any business the Employer actively considered entering within
twelve (12) months preceding the date of the termination of
Executive's employment with the Employer if the Executive had
knowledge of such consideration and the Employer in fact commences
conducting such business during the Initial Term, any Extended Term(s)
or during the six-month period thereafter, provided that any business
included under this clause (C) will cease to be included if the
Employer ceases to engage in such business.
Notwithstanding the foregoing, (i) the term "Services" shall exclude
any business which derives all of its revenues from the sale of products
which are manufactured by such business and (ii) the Executive may own up
to one percent (1%) of the outstanding stock of a publicly held corporation
which constitutes or is affiliated with a Restricted Business.
For purposes of this Agreement, the term "Territory" shall mean:
(A) any geographic area in which the Employer engaged in business and
for which the Executive had any responsibility at the time of the
termination of the Executive's employment or within the twelve (12)
month period preceding termination, and
(B) any geographic area in which the Employer engaged in business at
the time of the termination of the Executive's employment or within
the twelve (12) month period preceding termination, and
(C) any geographic area in which the Employer actively considered
conducting business within twelve (12) months preceding the date of
the termination of Executive's employment with the Employer if the
Executive had knowledge of such consideration and the Employer in fact
commences conducting business therein during the Initial Term, any
Extended Term(s) or during the six-month period thereafter, provided
that any geographic area included under this clause (C) will cease to
be included if the Employer ceases to engage in business in such
geographic area.
The parties acknowledge and agree that for purpose of this Section 7,
the term "Employer" includes the Employer, its related and affiliated
entities, and their respective predecessors, successors and assigns.
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(e) Principals and Customers. For purposes of construing the
provisions of this Section 7, any and all persons, firms and entities for
whom the Employer performs services, to whom the Employer sells or from
whom the Employer solicits and obtains orders, in the course of its
business, are and shall be deemed the principals and/or customers of the
Employer (or its principals), both during and after the period of the
Executive's employment with the Employer, notwithstanding the fact that
some or all of said persons, firms or entities may have been induced to
give their business to the Employer by the solicitation by the Executive,
or by someone on his or her behalf, either during the usual working hours
of the Executive or otherwise, and notwithstanding the fact that all or
some of such persons, firms or entities may have previously been principals
or customers of (i) the Executive, (ii) any corporation or other entity
with which the Executive was formerly employed or which was controlled or
owned, in whole or in part, by the Executive, or (iii) any principal of
such corporation or entity.
(f) Third-Party Agreements and Rights. The Executive hereby confirms
that the Executive is not bound by the terms of any agreement with any
previous employer or other party which restricts in any way the Executive's
use or disclosure of information or the Executive's engagement in any
business. The Executive represents to the Employer that the Executive's
execution of this Agreement, the Executive's employment with the Employer
and the performance of the Executive's proposed duties for the Employer
will not violate any obligations the Executive may have to any such
previous employer or other party. In the Executive's work for the Employer,
the Executive will not disclose or make use of any information in violation
of any agreements with or rights of any such previous employer or other
party, and the Executive will not bring to the premises of the Employer any
copies or other tangible embodiments of non-public information belonging to
or obtained from any such previous employment or other party.
(g) Litigation and Regulatory Cooperation. During and after the
Executive's employment, the Executive shall cooperate fully with the
Employer in the defense or prosecution of any claims or actions now in
existence or which may be brought in the future against or on behalf of the
Employer which relate to events or occurrences that transpired while the
Executive was employed by the Employer. The Executive's full cooperation in
connection with such claims or actions shall include, but not be limited
to, being reasonably available to meet with counsel to prepare for
discovery or trial and to act as a witness on behalf of the Employer at
mutually convenient times. During and after the Executive's employment, the
Executive also shall cooperate fully with the Employer in connection with
any investigation or review of any federal, state or local regulatory
authority as any such investigation or review relates to events or
occurrences that transpired while the Executive was employed by the
Employer. The Employer shall reimburse the Executive for any reasonable
out-of-pocket expenses incurred in connection with the Executive's
performance of obligations pursuant to this Section 7(g).
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(h) Injunction. The Executive agrees that it would be difficult to
measure any damages caused to the Employer which might result from any
breach by the Executive of the promises set forth in this Section 7, and
that in any event money damages would be an inadequate remedy for any such
breach. Accordingly, subject to Section 8 of this Agreement, the Executive
agrees that if the Executive breaches, or proposes to breach, any portion
of this Agreement, the Employer shall be entitled, in addition to all other
remedies that it may have, to an injunction or other appropriate equitable
relief to restrain any such breach without showing or proving any actual
damage to the Employer.
8. Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in Boston, Massachusetts in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the rules and
procedures applicable to the selection of arbitrators. In the event that any
person or entity other than the Executive or the Employer may be a party with
regard to any such controversy or claim, such controversy or claim shall be
submitted to arbitration subject to such other person or entity's agreement.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. This Section 8 shall be specifically enforceable.
Notwithstanding the foregoing, this Section 8 shall not preclude either party
from pursuing a court action for the sole purpose of obtaining a temporary
restraining order or a preliminary injunction in circumstances in which such
relief is appropriate; provided that any other relief shall be pursued through
an arbitration proceeding pursuant to this Section 8.
9. Consent to Jurisdiction. To the extent that any court action is
permitted consistent with or to enforce Section 8 of this Agreement, the parties
hereby consent to the jurisdiction of the courts of the Commonwealth of
Massachusetts and (to the extent subject matter jurisdiction exists therefor) of
the United States District Court for the District of Massachusetts. Accordingly,
with respect to any such court action, the Executive (a) submits to the personal
jurisdiction of such courts; (b) consents to service of process; and (c) waives
any other requirement (whether imposed by statute, rule of court, or otherwise)
with respect to personal jurisdiction or service of process.
10. Integration. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties with respect to any related subject matter.
11. Assignment; Successors and Assigns, etc. Neither the Employer nor the
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided that the
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Employer may assign its rights under this Agreement without the consent of the
Executive in the event that the Employer shall effect a reorganization,
consolidate with or merge into any other corporation, partnership, organization
or other entity, or transfer all or substantially all of its properties or
assets to any other corporation, partnership, organization or other entity. This
Agreement shall inure to the benefit of and be binding upon the Employer and the
Executive and their respective successors, executors, administrators, heirs and
permitted assigns.
12. Enforceability. If any portion or provision of this Agreement
(including, without limitation, any portion or provision of any section of this
Agreement) shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
13. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
14. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Chief Executive Officer, and shall be effective on the date of delivery in
person or by courier or three (3) days after the date mailed.
15. Amendment. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by a duly authorized representative of
the Employer.
16. Governing Law. This is a Massachusetts contract and shall be construed
under and be governed in all respects by the laws of the Commonwealth of
Massachusetts, without giving effect to the conflict of laws principles of such
Commonwealth. With respect to any disputes concerning federal law, such disputes
shall be determined in accordance with the law as it would be interpreted and
applied by the United States Court of Appeals for the First Circuit.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.
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18. Promissory Note. The outstanding Promissory Note of the Executive to
the Employer in the original principal amount of $1,500,000 due and payable
April, 2004, shall, upon the Effective Date, be amended to provide that, upon
the occurrence of a change in control of the Employer subsequent to the
Effective Date, all amounts outstanding under such Note (including principal and
interest) will be forgiven, cancelled and deemed discharged in full.
19. Pledged Shares. Upon the Effective Date, a number of shares of common
stock of the Employer owned by the Executive which have been pledged to the
Employer to secure the payment of the Note referred to in Section 18 shall be
released from such pledge. The number of shares to be released shall equal that
number of shares having a fair market value, determined as of January 11, 1999,
equal to $1,500,000. The Executive shall have the right to designate which of
the pledged shares remain encumbered and which of such shares shall be released.
[End of text]
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IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Employer, by its duly authorized officer, and by the Executive, as of the
Effective Date.
EMPLOYER:
MERKERT AMERICAN CORPORATION
By:
------------------------------------
Joseph T. Casey
Chief Financial Officer
EXECUTIVE:
----------------------------------------
Gerald R. Leonard
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<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Place of Percentage of Voting
Name of Subsidiary Organization Securities Owned
- ------------------ ------------ --------------------
<S> <C> <C>
Marketing Specialists Sales Texas 100%
Corporation
Paul Inman Associates, Inc. Michigan 100%
Bromar, Inc. California 100%
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 3, 2000, except for note 17 as to which the
date is March 30, 2000, included in Marketing Specialist Corporation's Annual
Report on Form 10-K for the year ended December 31, 1999, into Marketing
Specialists Corporation's previously filed registration statement No. 333-85523
on Form S-8. It should be noted that we have performed no audit procedures
subsequent to March 3, 2000, the date of our report, except with respect to the
note 17 as to which the date is March 30, 2000. Furthermore, we have not audited
any financial statements of Marketing Specialists Corporation as of any date or
for any period subsequent to December 31, 1999.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
April 13, 2000
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