<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 1999
REGISTRATION NO. 333-74261
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
RICHMONT
MARKETING SPECIALISTS INC.
AND THE ADDITIONAL REGISTRANTS AS NAMED IN THE ATTACHED TABLE OF CO-REGISTRANTS
(EXACT NAME OF CO-REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
-------------------------
<TABLE>
<S> <C> <C>
DELAWARE 5141 75-2728359
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
-------------------------
<TABLE>
<S> <C>
(FOR CO-REGISTRANTS, PLEASE SEE "TABLE OF CO-REGISTRANTS" ON THE FOLLOWING PAGE)
</TABLE>
17855 North Dallas Parkway
Suite 200
Dallas, TX 75287
(972) 349-6200
(Address, Including Zip Code and Telephone Number, Including
Area Code, of Co-Registrants' Principal Executive Offices)
-------------------------
Nancy K. Jagielski, Esq.
Richmont Marketing Specialists Inc.
17855 North Dallas Parkway
Suite 200
Dallas, TX 75287
(972) 349-6200
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
-------------------------
Copy to:
Eileen Nugent Simon, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
(212) 735-3000
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
- ---------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
- ---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF CLASS OF SECURITIES AMOUNT TO MAXIMUM OFFERING AGGREGATE REGISTRATION
TO BE REGISTERED BE REGISTERED PRICE PER SECURITY(1) OFFERING PRICE(1) FEE(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 1/8% Series B Senior Subordinated Notes due
2007 $100,000,000 100% $100,000,000 $27,800
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) promulgated under the Securities Act of 1933, as
amended.
-------------------------
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CO-REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION
OF PRIMARY STANDARD IRS
INCORPORATION INDUSTRIAL EMPLOYER
OR CLASSIFICATION IDENTIFICATION
NAME FORMATION CODE NUMBER NUMBER
---- -------------- ---------------- --------------
<S> <C> <C> <C>
Marketing Specialists Sales Company................ Texas 5141 75-0733956
Bromar, Inc. ...................................... California 5141 94-0650800
Brokerage Services, Inc. .......................... California 5141 33-0709258
Atlas Marketing Company, Inc. ..................... North Carolina 5141 56-0942690
Century Food Brokers of Hickory, Inc. ............. North Carolina 5141 56-1599147
East Coast Food Brokerage, Inc. ................... North Carolina 5141 56-1645770
Ultimate Food Sales, Inc. ......................... North Carolina 5141 56-1498849
Cumberland Food Brokers, Inc. ..................... North Carolina 5141 56-1983346
Meatmaster Brokerage, Inc. ........................ Virginia 5141 54-1287116
</TABLE>
<PAGE> 3
PROSPECTUS
SUBJECT TO COMPLETION -- DATED APRIL 20, 1999
RICHMONT MARKETING LOGO
EXCHANGE OFFER FOR
$100,000,000
10 1/8% SENIOR SUBORDINATED NOTES DUE 2007
THIS EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME,
ON , 1999, UNLESS EXTENDED.
TERMS OF THE EXCHANGE OFFER:
- - We will exchange all outstanding notes that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
- - You may withdraw tendered outstanding notes at any time prior to the
expiration of the exchange offer.
- - We believe that the exchange of outstanding notes will not be a taxable
exchange for United States federal income tax purposes, but you should see the
section entitled "Material Federal Income Tax Consequences" on page 89 for
more information.
- - The terms of the notes to be issued are substantially identical to the terms
of the outstanding notes, except for transfer restrictions and registration
rights relating to the outstanding notes.
- - We will not receive any proceeds from the exchange offer.
- - There is no existing market for the notes to be issued, and we do not intend
to apply for their listing on any securities exchange.
See the "Description of Notes" section on page 52 for more information
about the notes to be issued in this exchange offer.
THIS INVESTMENT INVOLVES RISKS. SEE THE SECTION ENTITLED "RISK FACTORS" THAT
BEGINS ON PAGE 9 FOR A DISCUSSION OF THE RISKS THAT YOU SHOULD CONSIDER PRIOR TO
TENDERING YOUR OUTSTANDING NOTES FOR EXCHANGE.
* * *
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES AND
EXCHANGE COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR THE ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Summary Historical Financial Data........................... 8
Risk Factors................................................ 9
Forward Looking Information................................. 16
The Transactions............................................ 16
Use of Proceeds............................................. 18
Capitalization.............................................. 19
The Exchange Offer.......................................... 20
Selected Historical Financial Data.......................... 28
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 29
The Business................................................ 34
Where You Can Find More Information......................... 42
Management.................................................. 42
Beneficial Ownership of Stock............................... 49
Relationships and Related Transactions...................... 50
Description of Notes........................................ 52
Brief Description of the Notes and the Subsidiary
Guarantees............................................. 52
Principal, Maturity and Interest.......................... 53
Methods of Receiving Payments on the Notes................ 53
Paying Agent and Registrar for the Notes.................. 53
Transfer and Exchange..................................... 54
Subordination............................................. 54
Subsidiary Guarantees..................................... 55
Optional Redemption....................................... 56
Repurchase at the Option of Holders....................... 56
Selection and Notice...................................... 59
Covenants................................................. 59
Events of Default......................................... 68
Amendments and Waivers.................................... 69
Defeasance................................................ 70
Concerning the Trustee.................................... 71
Governing Law............................................. 71
Definitions............................................... 71
Description of Other Debt................................... 85
Plan of Distribution........................................ 88
Material Federal Income Tax Consequences.................... 89
Book Entry.................................................. 91
Legal Matters............................................... 93
Experts..................................................... 93
Index to Historical Financial Statements.................... F-1
</TABLE>
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus includes the basic terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage you
to read this prospectus in its entirety.
References in this prospectus to "Richmont Marketing Specialists" refer to
Richmont Marketing Specialists Inc. and, for any period before October 1997, to
Marketing Specialists Sales Company, the predecessor of Richmont Marketing
Specialists.
References in this prospectus to our market position and to industry trends
are based on information supplied by or found in the Association of Sales and
Marketing Companies, PROGRESSIVE GROCER, Cannondale Associates, Information
Resources Inc., SUPERMARKET NEWS, BRANDWEEK, GROCERY HEADQUARTERS, AND MMR.
ABOUT RICHMONT MARKETING SPECIALISTS
Richmont Marketing Specialists is one of the largest food brokers in the
country. We represent over 1700 manufacturers of consumer goods and products,
called "principals," primarily across the western, southeastern, south central
and mid-Atlantic regions. We sell and market our principals' products to
retailers and wholesalers, called "customers." We provide a full array of sales,
marketing, merchandising and order management services to our principals and
customers.
We are well-positioned to take advantage of the consolidations occurring in
the food distribution industry because of our wide geographic coverage of the
country. We have expanded our coverage significantly through 13 strategic
acquisitions that we have completed since the beginning of 1996. We intend to
continue to grow and expand our presence through further acquisitions in 1999.
Our strong market position is also due to our innovative use of information
technology and our dedicated client support. Our account service and business
development personnel work closely with our principals to develop sales and
promotional strategies. Our retail representatives collect local market data and
store-specific information used by our account service and business development
personnel to customize these strategies. This client support and specialized
market data allows our principals and customers to maximize sales volume.
A chart detailing our organizational structure is set forth below. Richmont
Marketing Specialists is a holding company, and our primary operating
subsidiaries are Marketing Specialists Sales Company and Atlas Marketing
Company, Inc. All of our subsidiaries set forth on the chart below are
guarantors of these notes.
[ORGANIZATINAL CHART]
Our executive offices are located at 17855 North Dallas Parkway, Suite 200,
Dallas, Texas 75287. Our telephone number is (972) 349-6200. Richmont Marketing
Specialists is a Delaware corporation.
3
<PAGE> 6
ABOUT THIS TRANSACTION
On December 19, 1997, we privately placed $100 million of 10 1/8% Senior
Subordinated Notes due 2007. These notes are guaranteed by all of our
wholly-owned operating subsidiaries.
Simultaneously with the private placement, we entered into an exchange and
registration rights agreement with the initial purchasers of the outstanding
notes, in which we agreed to deliver this prospectus to you and to complete this
exchange offer on or before June 19, 1999. If we do not complete this exchange
before June 19, 1999, we must pay liquidated damages until the exchange offer is
completed. In this exchange offer, you may exchange your outstanding notes for
new notes which have substantially the same terms. You should read the
discussion under the heading "The Exchange Offer" and "Description of Notes" for
further information regarding the notes to be issued in the exchange offer.
We issued the outstanding notes primarily to help finance our acquisition
of Atlas Marketing Company, Inc. for a purchase price of approximately $45.7
million. Atlas is a food broker operating in markets throughout the southeastern
and mid-Atlantic regions of the country. We have used a portion of the remaining
proceeds from the sale of the outstanding notes for working capital and general
corporate purposes. We may also use those proceeds to finance future
acquisitions. At December 31, 1998, approximately $25 million of the proceeds
remain available for use.
ABOUT THE EXCHANGE OFFER
Securities Offered......... $100 million in principal amount of new 10 1/8%
Senior Subordinated Notes due 2007, which have been
registered under the Securities Act of 1933. The
terms of the notes offered in the exchange offer
are substantially identical to those of the
outstanding notes, except that certain transfer
restrictions, registration rights and liquidated
damages provisions relating to the outstanding
notes do not apply to the new registered notes.
The Exchange Offer......... We are offering to issue registered notes in
exchange for a like principal amount of our
outstanding notes. We are offering to issue these
registered notes to satisfy our obligations under
an exchange and registration rights agreement that
we entered into with the initial purchaser of the
outstanding notes when we sold them in a
transaction exempt from the registration
requirements of the Securities Act. You may tender
your outstanding notes for exchange by following
the procedures described under the heading "The
Exchange Offer."
Tenders; Expiration Date;
Withdrawal............... The exchange offer will expire at midnight, New
York City time, on , 1999, unless we
extend it. If you decide to exchange your
outstanding notes for new notes, you must
acknowledge that you are not engaging in, and do
not intend to engage in, a distribution of the new
notes. You may withdraw any notes that you tender
for exchange at any time prior to ,
1999. If we decide for any reason not to accept any
notes you have tendered for exchange, those notes
will be returned to you without cost promptly after
the expiration or termination of the exchange
offer. See "The Exchange Offer -- Terms of the
Exchange Offer" for a more complete description of
the tender and withdrawal provisions.
United States Federal
Income Tax Consequences.... Your exchange of outstanding notes for notes to be
issued in the exchange offer will not result in any
gain or loss to you for United States federal
income tax purposes. See "Material Federal Income
4
<PAGE> 7
Tax Consequences" for a general summary of material
United States federal income tax consequences
associated with the exchange of outstanding notes
for the notes to be issued in the exchange offer
and the ownership and disposition of those new
notes.
Use of Proceeds............ We will not receive any cash proceeds from the
exchange offer.
Exchange Agent............. Chase Bank of Texas, National Association.
CONSEQUENCES OF NOT EXCHANGING YOUR OUTSTANDING NOTES
If you do not exchange your outstanding notes in the exchange offer, they
will continue to be subject to the restrictions on transfer that are described
in the legend on the notes. In general, you may offer or sell your outstanding
notes only if they are registered under, or offered or sold under an exemption
from, the Securities Act and applicable state securities laws. We do not
currently intend to register the outstanding notes under the Securities Act.
If outstanding notes are tendered and accepted in the exchange offer, it
may become more difficult for you to sell or transfer your unexchanged notes. In
addition, if you do not exchange your outstanding notes in the exchange offer,
you will no longer be entitled to have those notes registered under the
Securities Act.
CONSEQUENCES OF EXCHANGING YOUR OUTSTANDING NOTES
Based on interpretations of the staff of the Securities and Exchange
Commission, we believe that you may offer for resale, resell or otherwise
transfer the notes that we issue in the exchange offer without complying with
the registration and prospectus delivery requirements of the Securities Act if:
- you acquire the notes issued in the exchange offer in the ordinary course
of your business;
- you are not participating, do not intend to participate, and have no
arrangement or undertaking with anyone to participate, in the
distribution of the notes issued to you in the exchange offer; and
- you are not an "affiliate" of Richmont Marketing Specialists, as defined
in Rule 405 of the Securities Act.
If any of these conditions are not satisfied and you transfer any notes issued
to you in the exchange offer without delivering a proper prospectus or without
qualifying for a registration exemption, you may incur liability under the
Securities Act. We will not be responsible for or indemnify you against any
liability you may incur.
Any broker-dealer that acquires notes in the exchange offer for its own
account in exchange for outstanding notes, which it acquired through
market-making or other trading activities, must acknowledge that it will deliver
a prospectus when it resells or transfers any notes issued in the exchange
offer. See "Plan of Distribution" for a description of the prospectus delivery
obligations of broker-dealers in the exchange offer.
5
<PAGE> 8
ABOUT THE NOTES
The terms of the notes we are issuing in this exchange offer and the
outstanding notes are identical in all material respects, except:
(1) the notes issued in the exchange offer will have been registered
under the Securities Act;
(2) the notes issued in the exchange offer will not contain transfer
restrictions and registration rights that relate to the outstanding notes;
and
(3) the notes issued in the exchange offer will not contain provisions
relating to the payment of liquidated damages to be made to the holders of
the outstanding notes under circumstances related to the timing of the
exchange offer.
A brief description of the material terms of the notes follows:
Securities Offered......... $100 million in principal amount of 10 1/8% Senior
Subordinated Notes due 2007, registered under the
Securities Act.
Maturity................... December 15, 2007.
Interest Payment Dates..... June 15 and December 15 of each year, beginning on
June 15, 1998.
Guarantor Subsidiaries..... The notes issued in the exchange offer will be
fully and unconditionally guaranteed by the
guarantor subsidiaries, which constitute all of our
principal operating subsidiaries. If we cannot make
payments on the notes when they are due, the
guarantor subsidiaries must make them instead.
Ranking.................... The notes being issued in the exchange offer and
the subsidiary guarantees are unsecured senior
subordinated obligations of Richmont Marketing
Specialists and the guarantor subsidiaries.
They rank junior in right of payment to our and our
guarantor subsidiaries' current and future senior
indebtedness, except indebtedness that expressly
provides that it is not senior to the notes and the
guarantees.
As of December 31, 1998, these notes and the
subsidiary guarantees:
- were subordinated to a letter of credit in the
amount of $1,371,777 of senior debt;
- ranked equally with $57,254,165 of other senior
subordinated debt and deferred obligations; and
- ranked senior to $11,988,245 of junior debt and
deferred obligations.
As of December 31, 1998, we also had trade payables
outstanding in the amount of $5,085,651, and
accrued expenses in the amount of $8,980,959.
Optional Redemption........ On or after December 15, 2002, we may redeem some
or all of the notes being issued in the exchange
offer at any time at the redemption prices listed
in the section "Description of Notes" under the
heading "Optional Redemption."
Before December 15, 2000, we may redeem up to $35
million of the notes with the proceeds of public
offerings of equity in our company at the prices
listed in the section "Description of Notes" under
the heading "Optional Redemption."
6
<PAGE> 9
Mandatory Redemption....... If we sell assets or Richmont Marketing Specialists
experiences specific kinds of changes in control of
it by its stockholders, we must offer to repurchase
the notes being issued in the exchange offer at the
prices listed in the section "Description of Notes"
under the heading "Repurchase at the Option of
Holders."
Basic Covenants of
Indenture.................. We will issue the notes being offered in the
exchange offer under an indenture with Chase Bank
of Texas, National Association, formerly known as
Texas Commerce Bank National Association, as
trustee. This is the same indenture under which the
outstanding notes were issued. The indenture, among
other things, restricts our ability and the ability
of our subsidiaries to:
- borrow money;
- pay dividends on stock or purchase stock;
- make investments;
- use assets as security in other transactions; and
- sell a specified dollar amount of assets or merge
with or into other companies.
See the section "Description of Notes" under the
heading "Covenants" for a more comprehensive
description of the covenants contained in the
indenture.
Use of Proceeds............ We used a portion of the proceeds from the offering
of the outstanding notes in December 1997 to
finance the acquisition of Atlas Marketing Company,
Inc. See the section entitled "Use of Proceeds" for
a complete breakdown of how the proceeds have been
used by Richmont Marketing Specialists.
7
<PAGE> 10
SUMMARY HISTORICAL FINANCIAL DATA
In the table below we provide you with summary historical financial data
for Richmont Marketing Specialists and its subsidiaries. The statement of
operations data presented for each of the years in the 3 years ended December
31, 1998 and the balance sheet data as of December 31, 1998, 1997 and 1996 have
been derived from our audited financial statements for those periods. These
audited financial statements are included in this prospectus.
The statement of operations and balance sheet data includes the operating
results and assets and liabilities of Bromar, Inc. since its acquisition on
October 31, 1996, Tower Marketing, Inc. since its acquisition on May 31, 1997
and Atlas since its acquisition on December 19, 1997. Richmont Marketing
Specialists has accounted for the Atlas acquisition effective December 31, 1997
for financial reporting purposes. The results of operations of Atlas during the
period December 19, 1997 through December 31, 1997 were not material.
We encourage you to review the audited financial statements and the
accompanying notes, as well as the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which is also contained in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................................... $218,294 $155,932 $73,447
Operating expenses........................................ 235,051 159,995 74,969
-------- -------- -------
Operating loss............................................ (16,757) (4,063) (1,522)
OTHER FINANCIAL DATA:
Cash flow from operations................................. $ 1,652 $ 219 $ 4,663
EBITDA(a)................................................. 17,814 11,168 4,540
Depreciation and amortization............................. 32,735 14,355 5,554
Capital expenditures...................................... 6,843 2,784 1,489
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents................................. 26,634 41,395 --
Total assets.............................................. 174,762 211,530 84,655
Long-term obligations, including current maturities....... 171,230 177,916 51,661
Shareholders' equity (deficit)............................ (23,028) 9,309 11,736
</TABLE>
(a) EBITDA is defined as net income (loss) before interest, income taxes
(benefit), depreciation and amortization expense. EBITDA is presented
because it is commonly used by certain investors and analysts to analyze
and compare operating performance and to determine a company's ability to
service and incur debt. 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 data prepared in
accordance with generally accepted accounting principles, or as a measure
of profitability or liquidity. EBITDA may not be comparable to similarly
titled measures reported by other companies.
RISK FACTORS
You should consider carefully all of the information set forth in this
prospectus and, in particular, the specific factors set forth under the "Risk
Factors" section beginning on page 9 before deciding to tender your outstanding
notes in the exchange offer.
8
<PAGE> 11
RISK FACTORS
This prospectus contains forward-looking statements, particularly those
relating to our plans, strategies and prospects. While we believe that our
plans, intentions and expectations reflected in the forward-looking statements
are reasonable, we can give no assurances that these plans, intentions or
expectations will be achieved. The risk factors listed below could cause our
results to differ materially from the forward-looking statements.
You should consider carefully the following risks and all of the
information set forth in this prospectus before tendering your notes for
exchange in the exchange offer. The risk factors set forth below, other than
those which discuss the consequences of failing to exchange your outstanding
notes in the exchange offer, are generally applicable to both the outstanding
notes and the notes issued in the exchange offer. The risks described below are
not the only risks that could affect us or our notes.
YOU MAY HAVE DIFFICULTY SELLING THE NOTES WHICH YOU DO NOT EXCHANGE.
If you do not exchange your outstanding notes for the notes offered in this
exchange offer, you will continue to be subject to the restrictions on the
transfer of your notes. Those transfer restrictions are described in the
indenture and in the legend contained on the outstanding notes, and arose
because we originally issued the outstanding notes under exemptions from, and in
transactions not subject to, the registration requirements of the Securities Act
of 1933.
In general, you may offer or sell your outstanding notes only if they are
registered under the Securities Act and applicable state securities laws, or if
they are offered and sold under an exemption from those requirements. We do not
intend to register the outstanding notes under the Securities Act.
If a large number of outstanding notes are exchanged for notes issued in
the exchange offer, it may be more difficult for you to sell your unexchanged
notes. In addition, if you do not exchange your outstanding notes in the
exchange offer, you will no longer be entitled to have those notes registered
under the Securities Act.
See "The Exchange Offer -- Consequences of Failure to Exchange Outstanding
Notes" for a discussion of the possible consequences of failing to exchange your
notes.
OUR SUBSTANTIAL INDEBTEDNESS COULD HAVE AN ADVERSE IMPACT ON OUR FINANCIAL
HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THESE NOTES.
We have now and, after the exchange offer, will continue to have a
significant amount of indebtedness. While the exchange offer will not increase
the amount of our outstanding debt, there are significant risks associated with
these high levels of indebtedness.
The following chart shows certain important credit statistics for Richmont
Marketing Specialists as of the dates or periods indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1998
---------------
<S> <C>
Total Indebtedness................................... $171,230,266
Stockholders' Deficit................................ $(23,027,838)
Debt to Equity Ratio................................. --
</TABLE>
Presentation of a Debt to Equity Ratio is not meaningful because of
the existence of a stockholders' deficit.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Ratio of Earnings to Fixed Charges.................. -- --
</TABLE>
Earnings were insufficient to cover fixed charges by $32.4 million
for the year ended December 31, 1998 and $8.6 million for the year
ended December 31, 1997.
9
<PAGE> 12
Our substantial indebtedness and the restrictions it imposes could have
important consequences for you. For example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the outstanding notes and the notes issued in the exchange offer;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to obtain additional financing to fund future working
capital, capital expenditures, acquisitions or other general corporate
needs or to satisfy our contractual commitments, including those under
the stockholders agreement;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, reducing the availability of
our cash flow for other purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
See "Description of Notes -- Repurchase at Option of Holder -- Change of
Control" and "Description of Other Debt -- Revolving Credit Facility" for a
discussion of the restrictions imposed by our debt.
TO SERVICE OUR DEBT, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. WE DEPEND ON
THE CASH FLOW OF OUR SUBSIDIARIES TO MEET OUR NEEDS.
Richmont Marketing Specialists is a holding company that conducts all its
business through its direct and indirect subsidiaries. We hold no significant
assets other than our investments in the capital stock of, and advances to, our
subsidiaries. We depend on receipt of funds from our subsidiaries to meet our
own obligations, including payments on these notes. Our ability to use the cash
flow of our subsidiaries will depend on their operating performance and
financial results, which may be subject to factors beyond their control, such as
prevailing economic and industry conditions, as well as the level of their
indebtedness.
We cannot assure you that our business and the business of our subsidiaries
will generate sufficient cash flow from operations to cover our fixed charges
and meet our future liquidity needs including scheduled payments of interest and
principal on our indebtedness. We also are unable to assure you that future
borrowings will be available to us under our senior credit facility that will
allow us to service our debt. We may need to refinance all or a portion of our
indebtedness, including the notes, on or before maturity. We cannot assure you
that we will be able to refinance any of our debt to meet these needs.
YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS JUNIOR TO OUR EXISTING SENIOR
INDEBTEDNESS. FURTHER, THE GUARANTEES OF THESE NOTES ARE JUNIOR TO THE SENIOR
INDEBTEDNESS OF EACH GUARANTOR.
These notes and the subsidiary guarantees rank behind all of our existing
and future senior debt and all of the existing and future senior debt of the
guarantors. As a result, if we declare bankruptcy, liquidate or reorganize, we
must repay all senior debt before we will be able to make any payments on these
notes. Similarly, if any guarantor declares bankruptcy, liquidates or
reorganizes, that guarantor must repay all of its senior debt before it may make
any payment under its guarantee.
In addition, all payments on the notes and the guarantees, including
interest payments, will be blocked in the event of a payment default on any
senior debt, and may be blocked for up to 179 of 360 consecutive days in the
event of a non-payment default on senior debt.
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<PAGE> 13
As of December 31, 1998, we had $1,371,777 in an outstanding letter of
credit issued under our senior credit facility that ranked senior to the notes,
and the guarantors collectively had no senior debt outstanding that ranked
senior to the guarantees. As of December 31, 1998, we also had trade payables
outstanding in the amount of $5,085,651, and accrued expenses in the amount of
$8,980,959.
See "Description of Notes -- Subordination" for a description of the
subordination provisions contained in the indenture.
YOUR RIGHT TO PAYMENT OF THESE NOTES IS NOT SECURED BY ANY COLLATERAL.
Our obligations under our senior credit facility are secured by our assets
and the stock in our subsidiaries. Our subsidiaries have also guaranteed our
senior credit facility and pledged their assets to secure those guarantees. The
notes and the guarantees are not secured and do not have the benefit of any
collateral. In any insolvency or liquidation affecting us or any guarantor, the
lenders under our senior credit facility will be entitled to payment in full
from any proceeds from the collateral before any payment is made on these notes
or the guarantees. The collateral may be insufficient to satisfy all of our
creditors, including you as a holder of these notes.
See "Description of Other Debt" for a discussion of the collateral securing
our senior indebtedness.
DESPITE OUR CURRENT LEVELS OF INDEBTEDNESS, WE MAY STILL BE ABLE TO INCUR
ADDITIONAL DEBT. THIS COULD FURTHER INCREASE THE RISKS DESCRIBED ABOVE.
We and our subsidiaries are permitted to incur substantial additional
indebtedness in the future. While the terms of the indenture and our senior
credit facility limit our ability to incur additional debt, they do not
completely prohibit us from doing so in all circumstances. In addition, some of
the additional debt that we incur may rank senior to the notes. As of December
31, 1998, we had approximately $12.1 million available for borrowing as
additional senior debt under our credit facility. In addition, the indenture
under which these notes will be issued allows us to issue up to $50 million of
additional notes having the same terms as these notes if we comply with the
requirements contained in the indenture. If new debt is added to our current
debt levels, or to the debt levels of our subsidiaries, the related risks that
we and they now face could intensify.
See "Description of Notes -- Covenants -- Limitations on Indebtedness" and
"Description of Other Debt -- Revolving Credit Facility" for a discussion of the
restrictions placed on our ability to incur more debt.
OUR SENIOR CREDIT FACILITY CONTAINS RESTRICTIONS THAT ARE MORE STRINGENT THAN
THOSE CONTAINED IN THE INDENTURE.
In many cases, the restrictions contained in the senior credit facility are
more restrictive than similar covenants contained in the indenture. In addition,
our credit facility requires us to maintain a fixed charge coverage ratio of at
least 0.80:1.00 through March 31, 1999, at least 1.00:1.00 through December 31,
1999, and at least 1.25:1.00 thereafter. We are also required to maintain an
interest coverage ratio of at least 1.50:1.00 through December 1, 1999; the
required interest coverage ratio increases to 1.75:1.00 on January 1, 2000 and
to 2.00:1.00 on January 1, 2001. If we fail to maintain those ratios, our
lenders under the senior credit facility may prohibit us from making any
payments on these notes, or may declare the amounts loaned under the senior
credit facility immediately due and payable. If we are unable to pay the amounts
due, the senior lenders could proceed against the collateral that secures that
debt. We failed to meet our required fixed charge coverage ratio for the first
quarter of 1999. We are engaged in negotiations with our lenders in order to
obtain a waiver related to our failure to meet our required coverage ratio.
See "Description of Other Debt -- Revolving Credit Facility" for a detailed
discussion of the covenants contained in our senior credit facility.
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<PAGE> 14
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon the occurrence of specific kinds of change of control events, we will
be required to offer to repurchase all notes that are outstanding at that time
at a price which may be higher than the then-current market value of the notes.
However, it is possible that we will not have sufficient funds at the time of
the change of control to make the required repurchase of notes or that
restrictions in our senior credit facility will not allow such repurchases.
See "Description of Notes -- Repurchase at the Option of Holders" for a
discussion of our obligations to repurchase the notes in the event a change of
control occurs.
OUR GROWTH STRATEGY IS BASED ON ACQUISITIONS, WHICH MAY NOT PROVIDE THE DESIRED
ECONOMIC BENEFITS AND MAY IMPAIR OUR FINANCIAL CONDITION.
We plan to grow by pursuing acquisitions in the food brokerage business.
However, we cannot guarantee that we will be able to consummate any acquisitions
on favorable terms. If we do complete any acquisitions, we cannot be certain
that we will realize any anticipated benefits from those acquisitions.
In addition, acquisitions may require significant financial resources. We
are not certain that we will be able to obtain the necessary financing or that
any additional financing will be permitted by our senior credit facility or by
the indenture. The incurrence of additional debt and other expenses related to
any acquisitions could materially adversely affect our financial condition and
operating results.
OUR FUTURE OPERATIONS MAY BE IMPAIRED BY OUR RAPID GROWTH.
We have grown rapidly since the beginning of 1996, expanding our operations
from coast to coast. Our growth has been primarily as a result of the 13
acquisitions we have completed in that time period. Our future operations and
financial strength depend largely upon our ability to successfully manage this
growing business. We cannot guarantee to you that our growth will lead to
profitability.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMBINE THE OPERATIONS OF THE COMPANIES WE
ACQUIRE WITH OUR CURRENT OPERATIONS.
While we believe there are significant opportunities for cost savings and
efficiencies as a result of acquisitions, we cannot be sure that we will
recognize any cost-savings or desired economic benefits from our acquisitions.
We have experienced difficulties in integrating some of the companies we have
acquired in the past due to decentralized information systems and because of
poor management of working capital at the acquired company level. Our ability to
realize any cost-savings or other economic benefits may be limited by similar
problems and by the following factors:
- loss of principals due to conflicts and changes of control;
- turnover of higher levels of personnel than anticipated due to change of
control;
- additional expenses incurred by us as we combined the operations of
acquired companies, including but not limited to severance costs paid to
terminated employees, costs associated with lease abandonment for
redundant office space, and costs incurred to upgrade the information
systems of acquired companies; and
- unexpected and increased costs due to post-closing discovery of financial
obligations and third parties' rights not previously identified during
our due diligence process or included in our projections.
Consequently, we cannot be sure that our acquisitions will result in the
economic benefits that we expect on a timely basis or at all.
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<PAGE> 15
WE HAVE A RECENT HISTORY OF OPERATING LOSSES.
Richmont Marketing Specialists and its predecessors have reported operating
losses of $16.8 million in 1998, $4.1 million in 1997, $1.5 million in 1996, and
$0.6 million in 1995. Our ability to be profitable in the future will be
dependent upon a number of factors, including:
- our ability to increase revenues by attracting and retaining national
principals and customers;
- our ability to realize cost-savings by successfully integrating companies
that we acquire; and
- various other factors beyond our control, including economic, financial
and competitive conditions, including the ongoing consolidation occurring
within the food distribution industry.
We cannot guarantee that we will achieve profitability in the future or be
able to generate cash flow sufficient to meet our payment obligations, including
on the notes.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of our recent operating history.
MOST OF OUR PRINCIPALS DO NOT ALLOW US TO REPRESENT THEIR COMPETITORS IN THE
SAME TERRITORY.
Most of our principals do not allow us to market and sell their
competitors' products in our assigned territories. Some principals 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 of our
principals object to our representing another principal which produces a similar
product for sale in a region where we do not represent that principal. In some
cases where we are unable to resolve a conflict with a principal, we must
terminate our relationship with the competing principal.
SUBSTANTIALLY ALL OF OUR CONTRACTS WITH PRINCIPALS ARE SHORT-TERM AGREEMENTS.
Substantially all of the contracts with our principals have 30 day terms.
As a result, our principals can transfer their business to another food broker
upon short notice. While we have enjoyed long-term relationships with many of
our principals, we could lose relationships with these principals due to
consolidations within the industry or our inability to meet their sales and
performance objectives.
COMPUTER PROBLEMS RELATED TO THE YEAR 2000 MAY CAUSE OPERATING PROBLEMS.
The year 2000 issue exists because some computer systems and telephone
equipment have embedded chips or processors which use only 2 digits to represent
the year. As a result, they may be unable to accurately process data during and
after the year 2000.
Our business depends largely upon the ability of our customers to
electronically place orders through us for our principals' products. We also
rely upon our computer systems to process these orders and to track and
calculate our commissions. The failure of these computer systems to function
properly could have a materially adverse impact on our business and operations.
We can provide no assurance that our plans, or the plans of our customers and
principals, particularly the smaller ones, have eliminated the risk of systems
failures.
ONE SHAREHOLDER HAS EFFECTIVE CONTROL OF RICHMONT MARKETING SPECIALISTS.
Currently, 60% of our common stock is owned by MS Acquisition Limited, a
Texas limited partnership. Pursuant to a stockholders' agreement, this
shareholder has the right to elect 4 of Richmont Marketing Specialists' 7
directors. Consequently, since MS Acquisition Limited has exercised its right to
elect 4 directors, it controls our board of directors and may control our
affairs in a manner contrary to your interests.
See "Relationships and Related Transactions -- Stockholders Agreement" for
a description of the stockholders agreement.
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<PAGE> 16
WE DEPEND ON CERTAIN KEY PERSONNEL IN THE CONDUCT OF OUR BUSINESS.
Our business depends upon our retention of employees who maintain key
relationships with our larger customers and principals. The loss of any of these
employees to a competitor could have a significant adverse impact on our
business if any of our major principals follow these employees.
See "Ownership and Management" for the identification of some of our key
employees and "The Business -- Description of Services Provided by Richmont
Marketing Specialists" for a discussion of the functions performed by our
employees.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy laws and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee; and
- was insolvent or rendered insolvent by reason of the incurrence of such
guarantee; or
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets;
- if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute
and mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its
guarantee of these notes, will not be insolvent, will not have unreasonably
small capital for the business in which it is engaged and will not have incurred
debts beyond its ability to pay such debts as they mature. There can be no
assurance, however, as to what standard a court would apply in making such
determinations or that a court would agree with our conclusions in this regard.
Therefore, the indenture limits the liability of each guarantor under the
guarantees so as not to result in a fraudulent conveyance or transfer. This
limitation may reduce the amount guaranteed by any guarantor below the amount
owed under the notes. Because of this limitation, we cannot assure you that the
total amount of all the guarantees will be enough to pay all amounts due under
the notes.
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<PAGE> 17
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NOTES
ISSUED IN THIS EXCHANGE OFFER.
While the outstanding notes are eligible for trading in PORTAL, the Private
Offering, Resale and Trading through Automated Linkages Market of the National
Association of Securities Dealers, Inc., a screen-based automated market for
trading securities for qualified institutional buyers, there is no public market
for the notes to be issued in the exchange offer. Chase Securities, Inc., the
initial purchaser of the outstanding notes, has informed us that it intends to
make a market in the notes to be issued in the exchange offer, but it may cease
its market-making at any time.
We do not intend to apply for a listing of any of the notes on any
securities exchange. We do not know if an active public market will develop for
the notes or, if developed, will continue. If an active market is not developed
or maintained, the market price and the liquidity of the notes may be adversely
affected.
In addition, the liquidity and the market price of the notes to be offered
in the exchange offer may be adversely affected by changes in the overall market
for high yield securities and by changes in our financial performance or
prospects, or in the prospects for companies in our industry. As a result, you
cannot be sure that an active trading market will develop for these notes.
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<PAGE> 18
FORWARD-LOOKING INFORMATION
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections about future events, based on the
information currently available to us. These statements involve known and
unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity or performance to be materially different from any
future results, levels of activity or performance expressed or implied by the
forward-looking statements. Such factors include, among other things, those
listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terms such as
"may," "will," "should," "could," "expects," "plans," "anticipates," "believes,"
"projected," "predicts," "potential" or "continue" or the negative of these and
similar terms.
These statements are only predictions. The forward-looking events discussed
in this prospectus may not occur and results may differ materially and are
subject to risks, uncertainties and assumptions about us. We are under no duty
to update any of the forward-looking statements after the date of this
prospectus, whether as a result of new information, future events or otherwise.
THE TRANSACTIONS
On December 19, 1997, we completed the offering of $100 million of the
outstanding notes. Simultaneously with this offering, Richmont Marketing
Specialists completed the acquisition of Atlas Marketing Company, Inc. We used a
portion of the proceeds from the offering of the notes to complete the Atlas
acquisition and pay related expenses.
The Atlas Acquisition
Under the terms of 2 stock purchase agreements, each dated as of November
6, 1997, by and among Richmont Marketing Specialists, Atlas and certain
stockholders and affiliates of Atlas, we acquired all of the outstanding capital
stock of Atlas through our wholly-owned subsidiary, MSSC Carolina, Inc. We paid
a total of $45.7 million for Atlas, including approximately $31.9 million in
cash and notes payable to acquire all of the outstanding stock of Atlas, and
approximately $13.8 million to repay the outstanding indebtedness of Atlas. MSSC
Carolina, Inc. was subsequently merged into Atlas, with Atlas remaining as the
surviving corporation.
Approximately $12.1 million of the purchase price was paid in the form of
promissory notes issued to Atlas shareholders. These Atlas notes were issued in
two series, each bearing interest at a rate of 10% per annum and each amortizing
in equal monthly installments over 5 years. Payments of principal and interest
on the first series of Atlas notes, issued in an aggregate principal amount of
$11.4 million, began in September, 1998. Approximately $11.1 million principal
amount was outstanding on the first series of notes at December 31, 1998. The
second series of Atlas notes, in aggregate principal amount of $0.7 million,
began amortization on April 15, 1998. Approximately $0.6 million principal
amount was outstanding on the second series of notes at December 31, 1998.
Payments on the Atlas notes are expressly subordinate to payment on the notes
offered by this prospectus.
Approximately $0.8 million of the Atlas purchase price was paid in the form
of deferred obligations payable to certain Atlas employees. Approximately $0.3
million of these deferred obligations remained payable at December 31, 1998.
Payments of the deferred obligations are also expressly subordinate to payment
on the notes offered by this prospectus.
Except for the integration of computer systems related to order management,
which we expect to complete by June 30, 1999, we have completed the integration
of the operations and business of Atlas as of December 31, 1998.
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The Financing
In addition to the cash paid in connection with the Atlas acquisition, we
used approximately $9.5 million of the proceeds from the offering of the
outstanding notes to repay borrowings under our senior credit facility.
Concurrently with the repayment of these amounts, the agreement governing the
facility was amended to provide for, among other things, an increase in
commitments up to $25 million.
Other Recent Transactions
PeopleSoft Conversion. In 1998, Richmont Marketing Specialists made a
substantial investment in upgrading its financial and human resources systems.
Richmont Marketing Specialists purchased application software from PeopleSoft
and hired a consulting firm to assist in the implementation of these new
systems. We used approximately $3.1 million of the proceeds from the outstanding
notes to purchase the software license and for installation in connection with
this upgrade.
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<PAGE> 20
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. All outstanding
notes that are tendered in the exchange offer will be retired and cancelled.
Accordingly, the issuance of the notes in the exchange offer will not result in
any proceeds to us.
The proceeds that we received from the issuance of the outstanding notes in
December 1997 were used as follows:
- approximately $33.6 million was used to fund the Atlas acquisition,
including $19.8 million to purchase Atlas stock and $13.8 million to
retire Atlas debt;
- approximately $9.5 million was used to repay borrowings under our senior
credit facility;
- approximately $6 million was used to repay our other borrowings;
- approximately $5.3 million was used to pay fees and expenses relating to
the offering;
- approximately $3.1 million was used to purchase and install software for
accounting and human resource applications;
- the remaining $42.5 million was used to provide working capital and for
general corporate purposes, and will be used to fund future acquisitions.
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<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of Richmont Marketing
Specialists as of December 31, 1998. This table should be read in conjunction
with the historical financial statements of Richmont Marketing Specialists and
the related notes which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1998
-----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............... $ 26,633,832
============
Long-term obligations (including current
maturities):
Senior credit facility(1)............. $ --
Notes payable......................... 24,124,405
Capital lease obligations............. 1,987,856
Deferred obligations(2)............... 45,118,005
Outstanding notes..................... 100,000,000
------------
Total long-term obligations... $171,230,266
Shareholders' deficit................... (23,027,838)
------------
Total capitalization.......... $148,202,428
============
</TABLE>
- ---------------
(1) The senior credit facility is a revolving credit facility under which
Richmont Marketing Specialists had borrowing availability of approximately
$12.1 million at December 31, 1998, net of an outstanding letter of credit
in the amount of approximately $1.4 million.
(2) Deferred obligations consist of obligations of approximately $26.9 million
under covenants not to compete, and obligations of approximately $18.2
million under deferred payment and compensation plans. See "Financial
Statements" and the accompanying notes for an explanation of these items and
for further detail.
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<PAGE> 22
THE EXCHANGE OFFER
Purpose of the Exchange Offer
When we sold the outstanding notes in December 1997, we entered into an
exchange and registration rights agreement with the initial purchasers of those
notes. Under the exchange and registration rights agreement, we agreed to file a
registration statement regarding the exchange of the outstanding notes for notes
which are registered under the Securities Act of 1933. We also agreed to use our
reasonable best efforts to cause the registration statement to become effective
with the Securities and Exchange Commission, and to conduct this exchange offer
after the registration statement is declared effective. We will use our best
efforts to keep this registration statement effective until the exchange offer
is completed. The exchange and registration rights agreement provides that we
will be required to pay liquidated damages to the holders of the outstanding
notes if:
(1) the registration statement is not filed by April 19, 1999;
(2) the registration statement is not declared effective by May 19,
1999; or
(3) the exchange offer has not been completed by June 19, 1999.
A copy of the exchange and registration rights agreement is filed as an exhibit
to the registration statement to which this prospectus is a part.
Terms of the Exchange Offer
This prospectus and the accompanying letter of transmittal together
constitute the exchange offer. Upon the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal, we will accept for
exchange outstanding notes which are properly tendered on or before the
expiration date and are not withdrawn as permitted below. The expiration date
for this exchange offer is midnight, New York City time, on , 1999,
or such later date and time to which we, in our sole discretion, extend the
exchange offer.
The form and terms of the notes being issued in the exchange offer are the
same as the form and terms of the outstanding notes, except that:
(1) the notes being issued in the exchange offer will have been
registered under the Securities Act;
(2) the notes issued in the exchange offer will not bear the
restrictive legends restricting their transfer under the Securities Act;
and
(3) the notes being issued in the exchange offer will not contain the
registration rights and liquidated damages provisions contained in the
outstanding notes.
Notes tendered in the exchange offer must be in denominations of the
principal amount of $1,000 and any integral multiple thereof.
We expressly reserve the right, in our sole discretion:
(1) to extend the expiration date;
(2) to delay accepting any outstanding notes;
(3) if any of the conditions set forth below under " -- Conditions to
the Exchange Offer" have not been satisfied, to terminate the exchange
offer and not accept any notes for exchange; or
(4) to amend the exchange offer in any manner.
We will give oral or written notice of any extension, delay,
non-acceptance, termination or amendment as promptly as practicable by a public
announcement, and in the case of an extension, no later than
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<PAGE> 23
9:00 a.m., New York City time, on the next business day after the previously
scheduled expiration date.
During an extension, all outstanding notes previously tendered will remain
subject to the exchange offer and may be accepted for exchange by us. Any
outstanding notes not accepted for exchange for any reason will be returned
without cost to the holder that tendered them as promptly as practicable after
the expiration or termination of the exchange offer.
How to Tender Notes for Exchange
When the holder of outstanding notes tenders, and we accept, notes for
exchange, a binding agreement between us and the tendering holder is created,
subject to the terms and conditions set forth in this prospectus and the
accompanying letter of transmittal. Except as set forth below, a holder of
outstanding notes who wishes to tender notes for exchange must do so on or prior
to the expiration date:
(1) transmit a properly completed and duly executed letter of
transmittal, including all other documents required by such letter of
transmittal, to Chase Bank of Texas, National Association (the "exchange
agent") at the address set forth below under the heading "Exchange Agent";
or
(2) if notes are tendered pursuant to the book-entry procedures set
forth below, the tendering holder must transmit an agent's message to the
exchange agent at the address set forth below under the heading "Exchange
Agent."
In addition, either:
(1) the exchange agent must receive the certificates for the
outstanding notes and the letter of transmittal;
(2) the exchange agent must receive, prior to the expiration date, a
timely confirmation of the book-entry transfer of the notes being tendered
into the exchange agent's account at the Depository Trust Company (the
"DTC"), along with the letter of transmittal or an agent's message; or
(3) the holder must comply with the guaranteed delivery procedures
described below.
The term "agent's message" means a message, transmitted to the DTC and received
by the exchange agent and forming a part of a book-entry transfer (a "book-entry
confirmation"), which states that the DTC has received an express acknowledgment
that the tendering holder agrees to be bound by the letter of transmittal and
that we may enforce the letter of transmittal against such holder.
THE METHOD OF DELIVERY OF THE OUTSTANDING NOTES, THE LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF
SUCH DELIVERY IS BY MAIL, WE RECOMMEND REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR NOTES SHOULD BE SENT
DIRECTLY TO US.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the notes surrendered for exchange are
tendered:
(1) by a holder of outstanding notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions"
on the letter of transmittal; or
(2) for the account of an eligible institution.
An "eligible institution" is a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
If signatures on a letter of transmittal or notice of withdrawal are
required to be guaranteed, the guarantor must be an eligible institution. If
notes are registered in the name of a person other than the signer of the letter
of transmittal, the notes surrendered for exchange must be endorsed by, or
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as
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<PAGE> 24
determined by us in our sole discretion, duly executed by the registered holder
with the holder's signature guaranteed by an eligible institution.
We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of notes tendered for exchange in our
sole discretion. Our determination will be final and binding. We reserve the
absolute right to:
(1) reject any and all tenders of any note improperly tendered;
(2) refuse to accept any note if, in our judgment or the judgment of
our counsel, acceptance of the note may be deemed unlawful; and
(3) waive any defects or irregularities or conditions of the exchange
offer as to any particular note either before or after the expiration date,
including the right to waive the ineligibility of any holder who seeks to
tender notes in the exchange offer.
Our interpretation of the terms and conditions of the exchange offer as to any
particular notes either before or after the expiration date, including the
letter of transmittal and the instructions to it, will be final and binding on
all parties. Holders must cure any defects and irregularities in connection with
tenders of notes for exchange within such reasonable period of time as we will
determine, unless we waive such defects or irregularities. Neither we, the
exchange agent nor any other person shall be under any duty to give notification
of any defect or irregularity with respect to any tender of notes for exchange,
nor shall any of us incur any liability for failure to give such notification.
If a person or persons other than the registered holder or holders of the
outstanding notes tendered for exchange signs the letter of transmittal, the
tendered notes must be endorsed or accompanied by appropriate powers of
attorney, in either case signed exactly as the name or names of the registered
holder or holders that appear on the outstanding notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any notes or any power of attorney,
such persons should so indicate when signing, and you must submit proper
evidence satisfactory to us of such person's authority to so act unless we waive
this requirement.
By tendering, each holder will represent to us that, among other things,
that the person acquiring notes in the exchange offer is obtaining them in the
ordinary course of its business, whether or not such person is the holder, and
that neither the holder nor such other person has any arrangement or
understanding with any person to participate in the distribution of the notes
issued in the exchange offer. If any holder or any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of Richmont
Marketing Specialists, or is engaged in or intends to engage in or has an
arrangement or understanding with any person to participate in a distribution of
such notes to be acquired in the exchange offer, such holder or any such other
person:
(1) may not rely on the applicable interpretations of the staff of the
SEC; and
(2) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction.
Each broker-dealer who acquired its outstanding notes as a result of
market-making activities or other trading activities and thereafter receives
notes issued for its own account in the exchange offer, must acknowledge that it
will deliver a prospectus in connection with any resale of such notes issued in
the exchange offer. The letter of transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. See "Plan of
Distribution" for a discussion of the exchange and resale obligations of
broker-dealers in connection with the exchange offer.
22
<PAGE> 25
Acceptance of Outstanding Notes for Exchange; Delivery of Notes Issued in the
Exchange Offer
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all outstanding notes
properly tendered and will issue notes registered under the Securities Act. For
purposes of the exchange offer, we shall be deemed to have accepted properly
tendered outstanding notes for exchange when, as and if we have given oral or
written notice to the exchange agent, with written confirmation of any oral
notice to be given promptly thereafter. See "-- Conditions to the Exchange
Offer" for a discussion of the conditions that must be satisfied before we
accept any notes for exchange.
For each outstanding note accepted for exchange, the holder will receive a
note registered under the Securities Act having a principal amount equal to that
of the surrendered outstanding note. Accordingly, registered holders of notes
issued in the exchange offer on the relevant record date for the first interest
payment date following the consummation of the exchange offer will receive
interest accruing from the most recent date to which interest has been paid or,
if no interest has been paid on the outstanding notes, from December 19, 1997.
Outstanding notes that we accept for exchange will cease to accrue interest from
and after the date of consummation of the exchange offer. Under the exchange and
registration rights agreement, we may be required to make additional payments in
the form of liquidated damages to the holders of the outstanding notes under
circumstances relating to the timing of the exchange offer.
In all cases, we will issue notes in the exchange offer for outstanding
notes that are accepted for exchange only after the exchange agent timely
receives:
(1) certificates for such outstanding notes or a timely book-entry
confirmation of such outstanding notes into the exchange agent's account at
the DTC;
(2) a properly completed and duly executed letter of transmittal or an
agent's message; and
(3) all other required documents.
If for any reason set forth in the terms and conditions of the exchange
offer we do not accept any tendered outstanding notes, or if a holder submits
outstanding notes for a greater principal amount than the holder desires to
exchange, we will return such unaccepted or non-exchanged notes without cost to
the tendering holder. In the case of notes tendered by book-entry transfer into
the exchange agent's account at the DTC, such non-exchanged notes will be
credited to an account maintained with the DTC. We will return the notes or have
them credited to the DTC account as promptly as practicable after the expiration
or termination of the exchange offer.
Book Entry Transfers
The exchange agent will make a request to establish an account with respect
to the outstanding notes at the DTC for purposes of the exchange offer within 2
business days after the date of this prospectus. Any financial institution that
is a participant in the DTC's systems must make book-entry delivery of
outstanding notes by causing the DTC to transfer such outstanding notes into the
exchange agent's account at the DTC in accordance with the DTC's procedures for
transfer. Such participant should transmit its acceptance to the DTC on or prior
to the expiration date or comply with the guaranteed delivery procedures
described below. DTC will verify such acceptance, execute a book-entry transfer
of the tendered outstanding notes into the exchange agent's account at DTC and
then send to the exchange agent confirmation of such book-entry transfer. The
confirmation of such book-entry transfer will include an agent's message
confirming that DTC has received an express acknowledgment from such participant
that such participant has received and agrees to be bound by the letter of
transmittal and that we may enforce the letter of transmittal against such
participant. Delivery of notes issued in the exchange offer may be effected
through book-entry transfer at DTC. However, the letter of transmittal or
facsimile thereof or an agent's message, with any required signature guarantees
and any other required documents, must:
(1) be transmitted to and received by the exchange agent at the
address set forth below under "-- Exchange Agent" on or prior to the
expiration date; or
(2) comply with the guaranteed delivery procedures described below.
23
<PAGE> 26
Guaranteed Delivery Procedures
If a holder of outstanding notes desires to tender such notes and the
holder's notes are not immediately available, or time will not permit such
holder's notes or other required documents to reach the exchange agent before
the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if:
(1) the holder tenders the notes through an eligible institution;
(2) prior to the expiration date, the exchange agent receives from
such eligible institution a properly completed and duly executed notice of
guaranteed delivery, substantially in the form we have provided, by
telegram, telex, facsimile transmission, mail or hand delivery, setting
forth the name and address of the holder of the notes being tendered and
the amount of the notes being tendered. The notice of guaranteed delivery
shall state that the tender is being made and guarantee that within 3 New
York Stock Exchange trading days after the date of execution of the notice
of guaranteed delivery, the certificates for all physically tendered notes,
in proper form for transfer, or a book-entry confirmation, as the case may
be, together with a properly completed and duly executed letter of
transmittal or agent's message with any required signature guarantees and
any other documents required by the letter of transmittal will be deposited
by the eligible institution with the Exchange Agent; and
(3) the exchange agent receives the certificates for all physically
tendered outstanding notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, together with a properly completed and
duly executed letter of transmittal or agent's message with any required
signature guarantees and any other documents required by the letter of
transmittal, within 3 New York Stock Exchange trading days after the date
of execution of the notice of guaranteed delivery.
Withdrawal Rights
You may withdraw tenders of your outstanding notes at any time prior to
5:00 p.m., New York City time, on the expiration date.
For a withdrawal to be effective, you must send a written notice of
withdrawal to the exchange agent at one of the addresses set forth below under
"-- Exchange Agent." Any such notice of withdrawal must:
(1) specify the name of the person having tendered the outstanding
notes to be withdrawn;
(2) identify the outstanding notes to be withdrawn, including the
principal amount of such outstanding notes; and
(3) where certificates for outstanding notes are transmitted, specify
the name in which outstanding notes are registered, if different from that
of the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and signed notice of withdrawal with
signatures guaranteed by an eligible institution unless such holder is an
eligible institution. If notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the DTC to be credited with the withdrawn
notes and otherwise comply with the procedures of such facility. We will
determine all questions as to the validity, form and eligibility (including time
of receipt) of such notices and our determination will be final and binding on
all parties. Any tendered notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the exchange offer. Any notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder. In the case
of notes tendered by book-entry transfer into the exchange agent's account at
the DTC, the notes withdrawn will be credited to an account maintained with the
DTC for the outstanding notes. The notes will be returned or credited to the DTC
account as soon as practicable after withdrawal, rejection of tender or
24
<PAGE> 27
termination of the exchange offer. Properly withdrawn notes may be re-tendered
by following one of the procedures described under "-- How to Tender Notes for
Exchange" above at anytime on or prior to midnight, New York City time, on the
expiration date.
Conditions to the Exchange Offer
We are not required to accept for exchange, or to issue notes in the
exchange offer for any outstanding notes. We may terminate or amend the exchange
offer, if at any time before the acceptance of such outstanding notes for
exchange:
(1) any federal law, statute, rule or regulation shall have been
adopted or enacted which, in our judgment, would reasonably be expected to
impair our ability to proceed with the exchange offer;
(2) any stop order shall be threatened or in effect with respect to
the registration statement of which this prospectus constitutes a part or
the qualification of the indenture under the Trust Indenture Act of 1939,
as amended; or
(3) there shall occur a change in the current interpretation by staff
of the Securities and Exchange Commission which permits the notes issued in
the exchange offer in exchange for the outstanding notes to be offered for
resale, resold and otherwise transferred by such holders, other than
broker-dealers and any such holder which is an "affiliate" of Richmont
Marketing Specialists within the meaning of Rule 405 under the Securities
Act, without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such notes acquired in the
exchange offer are acquired in the ordinary course of such holder's
business and such holder has no arrangement or understanding with any
person to participate in the distribution of such notes issued in the
exchange offer.
The preceding conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any such condition. We may waive
the preceding conditions in whole or in part at any time and from time to time
in our sole discretion. If we do so, the exchange offer will remain open for at
least 3 business days following any waiver of the preceding conditions. Our
failure at any time to exercise the foregoing rights shall not be deemed a
waiver of any such right and each such right shall be deemed an ongoing right
which we may assert at any time and from time to time.
The Exchange Agent
Chase Bank of Texas, National Association has been appointed as our
exchange agent for the exchange offer. All executed letters of transmittal
should be directed to our exchange agent at the address set forth below.
Questions and requests for assistance, requests for additional copies of this
prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery should be directed to the exchange agent addressed as
follows:
Main Delivery To:
Chase Bank of Texas, National Association, as Exchange Agent
<TABLE>
<S> <C>
By mail, hand or overnight courier to: By Facsimile (for eligible institutions
only):
Chase Bank of Texas, National Association (214) 965-3577
2200 Ross Avenue, 5th Floor
Dallas, TX 75201 Confirm by telephone:
Att: Michael A. Scrivner (214) 965-3531
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS
SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.
25
<PAGE> 28
Fees and Expenses
We will not make any payment to brokers, dealers, or others soliciting
acceptance of the exchange offer except for reimbursement of mailing expenses.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us and are estimated in the aggregate to be approximately
$[ ].
Transfer Taxes
Holders who tender their outstanding notes for exchange will not be
obligated to pay any transfer taxes in connection with the exchange. If,
however, notes issued in the exchange offer are to be delivered to, or are to be
issued in the name of, any person other than the holder of the notes tendered,
or if a transfer tax is imposed for any reason other than the exchange of
outstanding notes in connection with the exchange offer, then the holder must
pay any such transfer taxes, whether imposed on the registered holder or on any
other person. If satisfactory evidence of payment of, or exemption from, such
taxes is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to the tendering holder.
Consequences of Failure to Exchange Outstanding Notes
Holders who desire to tender their outstanding notes in exchange for notes
registered under the Securities Act should allow sufficient time to ensure
timely delivery. Neither the exchange agent nor Richmont Marketing Specialists
is under any duty to give notification of defects or irregularities with respect
to the tenders of notes for exchange.
Outstanding notes that are not tendered or are tendered but not accepted
will, following the consummation of the exchange offer, continue to be subject
to the provisions in the indenture regarding the transfer and exchange of the
outstanding notes and the existing restrictions on transfer set forth in the
legend on the outstanding notes and in the offering circular dated December 19,
1997, relating to the outstanding notes. Except in limited circumstances with
respect to specific types of holders of outstanding notes, we will have no
further obligation to provide for the registration under the Securities Act of
such outstanding notes. In general, outstanding notes, unless registered under
the Securities Act, may not be offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. We do not currently anticipate that we will take any
action to register the outstanding notes under the Securities Act or under any
state securities laws.
Upon completion of the exchange offer, holders of the outstanding notes
will not be entitled to any further registration rights under the exchange and
registration rights agreement, except under limited circumstances.
Holders of the notes issued in the exchange offer and any outstanding notes
which remain outstanding after consummation of the exchange offer will vote
together as a single class for purposes of determining whether holders of the
requisite percentage of the class have taken certain actions or exercised
certain rights under the indenture.
Consequences of Exchanging Outstanding Notes
Based on interpretations of the staff of the SEC, as set forth in no-action
letters to third parties, we believe that the notes issued in the exchange offer
may be offered for resale, resold or otherwise transferred by holders of such
notes, other than by any holder which is an "affiliate" of Richmont Marketing
Specialists within the meaning of Rule 405 under the Securities Act. Such notes
may be offered for resale, resold or otherwise transferred without compliance
with the registration and prospectus delivery provisions of the Securities Act,
if:
(1) such notes issued in the exchange offer are acquired in the
ordinary course of such holder's business; and
26
<PAGE> 29
(2) such holder, other than broker-dealers, has no arrangement or
understanding with any person to participate in the distribution of such
notes issued in the exchange offer.
However, the SEC has not considered the exchange offer in the context of a
no-action letter and we cannot guarantee that the staff of the SEC would make a
similar determination with respect to the exchange offer as in such other
circumstances.
Each holder, other than a broker-dealer, must furnish a written
representation, at our request, that:
(1) it is not an affiliate of Richmont Marketing Specialists;
(2) it is not engaged in, and does not intend to engage in, a
distribution of the notes issued in the exchange offer and has no
arrangement or understanding to participate in a distribution of notes
issued in the exchange offer; and
(3) it is acquiring the notes issued in the exchange offer in the
ordinary course of its business.
Each broker-dealer that receives notes issued in the exchange offer for its
own account in exchange for outstanding notes must acknowledge that such
outstanding notes were acquired by such broker-dealer as a result of
market-making or other trading activities and that it will deliver a prospectus
in connection with any resale of such notes issued in the exchange offer. See
"Plan of Distribution" for a discussion of the exchange and resale obligations
of broker-dealers in connection with the exchange offer.
In addition, to comply with state securities laws of certain jurisdictions,
the notes issued in the exchange offer may not be offered or sold in any state
unless they have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and complied with by
the holders selling the notes. We have agreed in the exchange and registration
rights agreement that, prior to any public offering of transfer restricted
securities, we will register or qualify the transfer restricted securities for
offer or sale under the securities laws of any jurisdiction requested by a
holder. Unless a holder requests, we currently do not intend to register or
qualify the sale of the notes issued in the exchange offer in any state where an
exemption from registration or qualification is required and not available.
"Transfer restricted securities" means each note until:
(1) the date on which such note has been exchanged by a person other
than a broker-dealer for a note in the exchange offer;
(2) following the exchange by a broker-dealer in the exchange offer of
a note for a note issued in the exchange offer, the date on which the note
issued in the exchange offer is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of this
prospectus;
(3) the date on which such note has been effectively registered under
the Securities Act and disposed of in accordance with a shelf registration
statement that we file in accordance with the exchange and registration
rights agreement; or
(4) the date on which such note is distributed to the public in a
transaction under Rule 144 of the Securities Act.
27
<PAGE> 30
SELECTED HISTORICAL FINANCIAL DATA
In the table below, we provide you with selected historical financial data
for Richmont Marketing Specialists. We have prepared this information using the
consolidated financial statements of Richmont Marketing Specialists or its
predecessor Marketing Specialists Sales Company ("MSSC") for the five years
ended December 31, 1998. The statement of operations data for the 4 years ended
December 31, 1998 and the balance sheet data at December 31, 1998, 1997, 1996
and 1995 has been derived from our audited financial statements for those
periods. The information for the year ended December 31, 1994 and the balance
sheet data at December 31, 1994 is unaudited.
The statement of operations and balance sheet data includes the operating
results and assets and liabilities of Bromar since its acquisition on October
31, 1996, Tower since its acquisition on May 31, 1997 and Atlas since its
acquisition on December 19, 1997. Richmont Marketing Specialists has accounted
for the Atlas acquisition effective December 31, 1997 for financial reporting
purposes. The results of operations of Atlas during the period December 19, 1997
through December 31, 1997 were not material.
When you read this historical financial data, it is important that you read
along with it the historical financial statements and related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," all of which are included in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
% OF % OF % OF % OF % OF
1998 REV 1997 REV 1996 REV 1995 REV 1994 REV
-------- ----- -------- ----- ------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................... $218,294 100% $155,932 100% $73,447 100% $49,612 100% $46,359 100%
Operating expenses:
Salaries, fringe benefits
and bonuses................... 135,934 62.3% 98,036 62.9% 46,486 63.3% 31,805 64.1% 30,722 66.3%
Automobiles and
related expenses.............. 18,989 8.7% 14,477 9.3% 6,944 9.4% 4,369 8.8% 4,223 9.1%
Sales and marketing
expense....................... 13,866 6.4% 11,122 7.1% 5,181 7.1% 3,718 7.5% 1,880 4.1%
Lease restructure charge........ 1,700 0.8% -- --% -- --% -- --% -- --%
General and administrative
expense....................... 31,827 14.5% 22,005 14.1% 10,804 14.7% 7,582 15.3% 6,265 13.5%
Depreciation and amortization... 32,735 15.0% 14,355 9.2% 5,554 7.6% 2,786 5.6% 2,551 5.5%
-------- -------- ------- ------- -------
Total expenses............ 235,051 107.7% 159,995 102.6% 74,969 102.1% 50,260 101.3% 45,641 98.5%
-------- -------- ------- ------- -------
Operating (loss) income........... (16,757) (7.7)% (4,063) (2.6)% (1,522) (2.1)% (648) (1.3)% 718 1.5%
Interest expense.................. 17,489 8.0% 5,409 3.5% 2,671 3.6% 1,998 4.0% 1,742 3.7%
Other income (expense)............ 1,836 0.8% 876 0.6% 509 0.7% 505 1.0% (9) 0.0%
-------- -------- ------- ------- -------
Loss before taxes................. (32,410) (14.9)% (8,596) (5.5)% (3,684) (5.0)% (2,141) (4.3)% (1,033) (2.2)%
Income tax expense (benefit)...... (74) 0.0% (1,169) (0.7)% (552) (0.7)% 138 0.3% 60 0.1%
-------- -------- ------- ------- -------
Net loss.......................... $(32,337) (14.9)% $ (7,427) (4.8)% $(3,132) (4.3)% $(2,279) (4.6)% (1,093) (2.3)%
======== ======== ======= ======= =======
Net loss per share................ (234.95) (53.96) (34.80) (23.43) (8.27)
======== ======== ======= ======= =======
BALANCE SHEET DATA (END OF
PERIOD):
Total assets...................... $174,764 $211,530 $84,655 $23,893 $21,719
Long-term obligations, including
current maturities.............. 171,230 177,916 51,661 26,923 21,505
Shareholders' equity (deficit).... (23,028) 9,309 11,736 (8,838) (4,820)
OTHER FINANCIAL DATA:
Ratio of earnings to fixed
charges(a)...................... -- -- -- -- --
</TABLE>
- ---------------
(a) For purposes of this calculation, "earnings" consist of income (loss) before
income taxes (benefit) and fixed charges. "Fixed charges" consist of
interest expense, amortization of deferred financing fees and the component
of rental expense believed by management to be representative of the
interest factor thereon (deemed to be one-third of rental expense). Earnings
were insufficient to cover fixed charges by $32.4 million, $8.6 million,
$3.7 million, $2.1 million, and $1 million for the years ended December 31,
1998, 1997, 1996, 1995 and 1994, respectively.
28
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis includes the historical results of
our operations and financial condition. Richmont Marketing Specialists, which
has no independent operations, was formed for the purpose of serving as the
holding company for MSSC and its subsidiaries and Atlas and its subsidiaries.
Richmont Marketing Specialists is the primary obligor with respect to certain
debt obligations, including the notes described in this prospectus. This
discussion and analysis should be read in conjunction with Richmont Marketing
Specialists' historical financial statements and accompanying footnote
disclosures.
HISTORICAL RESULTS OF OPERATIONS
General
Richmont Marketing Specialists is one of the largest food brokers in the
United States, with operations covering the western, southeastern, south
central, and mid-Atlantic regions of the United States. Richmont Marketing
Specialists provides a comprehensive array of sales, marketing, merchandising,
and order management services to over 1700 manufacturers, known as "principals,"
of consumer goods and products. Richmont Marketing Specialists markets the
products of these principals to leading retailers and wholesalers, known as
"customers," operating in a variety of trade channels, including grocery stores,
mass merchandisers, membership warehouses, drug stores and convenience stores.
Richmont Marketing Specialists is generally paid a percentage of product sales
made by principals to customers. This percentage varies but typically is within
a range of 3-4% for principal accounts in which we render full services.
Richmont Marketing Specialists does not assume ownership of the products it
markets for principals.
As part of its growth strategy, Richmont Marketing Specialists has been a
leader in pursuing consolidation opportunities within the food brokerage
industry. Since the beginning of 1996, Richmont Marketing Specialists has
completed 13 acquisitions of local and regional food brokerage companies,
including the acquisitions of Bromar, Tower, and Atlas. Richmont Marketing
Specialists acquired Bromar in October 1996 for total consideration of
approximately $29.8 million and assumed approximately $16.5 million in long-term
debt and operating lines of credit. Richmont Marketing Specialists acquired
Tower in May 1997 for total consideration of approximately $14.4 million and
assumed approximately $8.9 million in long-term debt. Richmont Marketing
Specialists acquired Atlas in December 1997 for total consideration of
approximately $45.7 million and assumed approximately $1.7 million in long-term
debt. The food brokerage companies that Richmont Marketing Specialists has
acquired have generally had operating cost structures which include large
salaries and fringe benefits paid to the owners and other senior managers of
these companies and operating expenses relating to facilities and order
management, sales and other administrative functions redundant to those
performed by Richmont Marketing Specialists.
On a historical basis, Richmont Marketing Specialists' revenue has been
fairly consistent throughout the year, with some seasonal increase realized
during the fourth quarter of each year due to increased sales during the holiday
season. Richmont Marketing Specialists does not believe that its revenues have
been materially affected by inflation or changing prices.
29
<PAGE> 32
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenue increased to $218.3 million for the year ended December 31, 1998,
as compared to $155.9 million for the year ended December 31, 1997. Richmont
Marketing Specialists' revenue for the year ended December 31, 1998, include
$49.4 million attributable to Atlas. Revenue excluding Atlas for the year ended
December 31, 1998, increased $13 million (8.3%) from revenue for the year ended
December 31, 1997 primarily as a result of the acquisition of Tower in May,
1997. Revenue included revenue attributable to Tower of $26.2 million for 1998
and $15.2 million for 1997.
Total operating expenses increased to $235.1 million for the year ended
December 31, 1998, as compared to $160 million for the year ended December 31,
1997. The increase was due primarily to the inclusion of the Tower and Atlas
operating expenses for the year ended December 31, 1998. As a percentage of
revenue, however, operating expenses, excluding amortization, depreciation and
the lease restructure change, decreased to 91.9% of revenue for the year ended
December 31, 1998, down from 93.4% of revenue for the year ended December 31,
1997. This decrease was primarily attributable to the ongoing integration of
acquired businesses and the reduction of headcount appropriate for the current
revenue base resulting in a reduction of salaries, associated fringe benefits,
automobiles, and sales and marketing expense. Depreciation and amortization
increased to $32.7 million (15% of revenue) in 1998 from $14.4 million (9.2% of
revenue) in 1997. Approximately $8.9 million of the increase is due to the
amortization of intangible assets resulting from the Tower and Atlas
acquisitions and approximately $9.4 million of the increase is due to the
reduction of the estimated useful lives of goodwill and trained workforce. The
1998 results also include a nonrecurring lease restructure charge of $1.7
million. As a result of these factors, our operating loss increased to $16.8
million for the year ended December 31, 1998, as compared to an operating loss
of $4.1 million for the year ended December 31, 1997. See "-- Accounting and
Financial Disclosure" for a discussion of the reduction of our amortization
periods and an explanation of the lease restructure charge.
Operating income before depreciation, amortization, and the lease
restructure charge increased to $17.7 million for the year ended December 31,
1998, as compared to $10.3 million for the year ended December 31, 1997, as a
result of the factors noted above.
Interest expense increased to $17.5 million in the year ended December 31,
1998, as compared to $5.4 million for the year ended December 31, 1997,
primarily due to the issuance of the notes and increases in outstanding debt
associated with acquisitions.
Net loss increased to $32.3 million in the year ended December 31, 1998, as
compared to a net loss of $7.4 million in the year ended December 31, 1997, as a
result of the factors noted above.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenue increased to $155.9 million for the year ended December 31, 1997,
as compared to $73.4 million for the year ended December 31, 1996. The increase
was primarily attributable to the operations of Bromar and Tower, which were
acquired by Richmont Marketing Specialists in October 1996 and May 1997,
respectively. Revenue for the year ended December 31, 1997 included $71.2
million attributable to Bromar and approximately $15.2 million attributable to
Tower. Richmont Marketing Specialists' revenue for 1996 included Bromar revenue
of $11.3 million for the two months ended December 31, 1996. Excluding revenue
attributable to Bromar and Tower, revenue for the year ended December 31, 1997
increased 11.9% from the year ended December 31, 1996, as the result of several
smaller acquisitions.
Total operating expenses increased to $160 million for the year ended
December 31, 1997, as compared to $75 million for the year ended December 31,
1996. The increase was due primarily to the addition of Bromar's operating
expenses for the entire year and Tower's operating expenses from June 1, 1997.
As a percentage of revenues, operating expenses excluding amortization and
depreciation did not change significantly from the previous year, decreasing to
93.4% for 1997, from 94.5% for 1996.
30
<PAGE> 33
Operating income before depreciation and amortization increased to $10.3
million in 1997, as compared to $4 million in 1996, primarily due to the
inclusion of a full year of Bromar operating activity and seven months of Tower
operating activity. Operating loss increased to $4.1 million for the year ended
December 31, 1997, as compared to an operating loss of $1.5 million for the year
ended December 31, 1996, due to additional amortization expenses associated with
the Bromar and Tower acquisitions.
Interest expense increased to $5.4 million in 1997, as compared to $2.7
million in 1996, primarily due to increases in outstanding debt associated with
acquisitions completed during the year, increases in operating lines of credit,
and the issuance of the notes.
Net loss increased to $7.4 million in 1997, as compared to a net loss of
$3.1 million in 1996, as a result of the factors noted above.
LIQUIDITY AND CAPITAL RESOURCES
On December 19, 1997, Richmont Marketing Specialists completed a $100
million offering of notes. The proceeds were used to acquire the common stock of
Atlas for $19.8 million in cash, repay approximately $13.8 million of existing
Atlas indebtedness, repay approximately $15.5 million of existing Richmont
Marketing Specialists indebtedness, pay various debt issue costs of
approximately $5.3 million, and purchase and install software for accounting and
human resource applications totaling $3.1 million. Richmont Marketing
Specialists intends to use the remaining proceeds primarily for anticipated
future acquisitions, working capital, and general corporate purposes.
Net cash provided by operating activities was $1.7 million for the year
ended December 31, 1998, as compared to net cash provided by operating
activities of $0.2 million for the same period in 1997. Results for 1998 include
semi-annual interest payments aggregating $10 million during the year related to
the notes.
Net cash used in investing activities was $4.6 million for the year ended
December 31, 1998, as compared to $35.9 million for the year ended December 31,
1997. The decrease was due primarily to the $33.6 million cash paid toward the
purchase of Atlas in 1997. Total capital expenditures for the year ended
December 31, 1998 were $6.8 million as compared to $2.8 million for the year
ended December 31, 1997. This increase was due to Richmont Marketing
Specialists' continued effort to significantly improve computers, software and
communications infrastructure. Richmont Marketing Specialists estimates its
future requirements for capital expenditures will be approximately $5 million
per year. Capital expenditures for information technology and systems will be
made by Richmont Marketing Specialists to keep pace with the rapid changes
occurring in information technology.
Net cash used in financing activities was $11.8 million for the year ended
December 31, 1998, as compared to net cash provided by financing activities of
$77 million for the year ended December 31, 1997. In the year ended December 31,
1998, Richmont Marketing Specialists received no proceeds from borrowings or
contributed capital, as compared to net borrowings of $91.8 million and a
capital contribution of $2.4 million for the year ended December 31, 1997. In
the year ended December 31, 1997, we paid various debt issue costs of
approximately $2 million compared to $0.3 million for the year ended December
31, 1998. In the years ended December 31, 1998 and 1997, Richmont Marketing
Specialists made principal payments on debt, deferred payment agreements and
capital lease obligations of $11.5 million and $15.1 million, respectively.
Payments in 1997 include a non-recurring payment of approximately $1.2 million
for an acquisition-related note assumed by Richmont Marketing Specialists.
Richmont Marketing Specialists' long-term obligations totaled $161.8
million as of December 31, 1998, as compared to $167.2 million as of December
31, 1997. Our long term obligations at December 31, 1998 consist of $100 million
due under the outstanding notes, approximately $19.5 million payable under
promissory notes relating to the purchase price of acquired companies,
approximately $24.4 million due under covenants not to compete, approximately
$16.5 million payable in deferred payment and compensation arrangements and
approximately $1.4 million in capital lease obligations. Reductions from 1997
levels are primarily attributable to scheduled repayments having been made.
Richmont Marketing
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Specialists estimates that the total principal and interest payments under these
various obligations will be approximately $23.2 million in 1999, $23.0 million
in 2000, $22.6 million in 2001, $21.5 million in 2002 and $18.2 million in 2003.
Effective with the issuance of the notes, the lenders' commitment under
Richmont Marketing Specialists' senior credit facility was increased to $25
million, subject to borrowing base limitations and compliance with the covenant
restrictions contained in the credit agreement governing the senior credit
facility. As of December 31, 1998, no borrowings were outstanding under this
facility. The amount available under the facility, as amended, was approximately
$12.1 million, net of an outstanding letter of credit in the amount of $1.4
million. See "Description of Other Debt" for a discussion of the material terms
of, and restrictions imposed by, our senior credit facility and our other
indebtedness.
Richmont Marketing Specialists believes that cash flows provided by our
operations, together with our existing cash and amounts available under the
senior credit facility, should be sufficient to fund our planned acquisitions,
debt service requirements, working capital needs, capital expenditures, and
other operating expenses for the next twelve months. We intend to use our
existing cash to pay the cash portion of the purchase price for the planned
acquisitions. Richmont Marketing Specialists future operating performance and
ability to service or refinance the notes will be subject to future economic
conditions and to financial, business, and other factors, many of which are
beyond our control.
The year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the century date
change occurs, date sensitive systems recognize the year 2000 as 1900 or not at
all. The inability to recognize or properly respond to the year 2000 issue may
cause information technology (IT) systems and non-IT systems to incorrectly
process data resulting in among other things, a temporary inability to process
transactions or otherwise engage in normal business activities. Non-IT systems
include telephone systems, climate control, copy machines and other comparable
systems.
Our business depends largely upon the ability of customers, including
grocery stores and mass merchandisers, to place orders through us for our
principals' products. Approximately eighty percent of all sales placed through
us are done so electronically. Upon our receipt of these orders, we process and
forward these orders electronically to our principals. This order management
system only works efficiently if our computer systems and those of our customers
and principals are functioning properly. Through our order management system, we
also maintain records regarding the sales volume we place, which is necessary in
determining our earned commissions.
We have completed our assessment of both our IT and non-IT systems for
potential exposure to problems associated with year 2000 issues. Our assessment
and evaluation efforts have included extensive testing of both IT and non-IT
systems, discussions with third parties, participation in industry-wide
committees dedicated to addressing year 2000 issues and other research.
Primarily as a result of the implementation of upgrades of the order
management system and the conversion to PeopleSoft financial systems in 1998, we
believe that we have substantially reduced our potential exposure to operational
disruptions resulting from year 2000 issues. Both the upgrades to the order
management system and PeopleSoft are year 2000 compliant. PeopleSoft includes
accounting and human resources applications. The conversion to PeopleSoft was
part of our overall plan to integrate the operations of recently acquired
businesses and not in response to year 2000 issues. Similarly, all of the costs
incurred relating to the improvement of our order management system were
incurred in connection with planned upgrading activities rather than in response
to the results of our year 2000 compliance evaluation.
The order management system for our operations acquired from Atlas has not
yet been converted, but is scheduled to be upgraded in June 1999. Replacements
for personal computers, which were not year 2000 compliant, have recently been
purchased at a cost of approximately $128,000. Following this upgrade and these
installations, we believe all of our IT systems will be compliant.
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In addition to our IT systems, we are upgrading our non-IT systems. Testing
was conducted on our telephone systems in each of our offices. Fourteen systems
were found to be non-compliant. Each of these systems will be replaced with new
systems by September 30, 1999 at an approximate total cost of $200,000. We have
engaged in communications with the property management companies of our leased
properties to assess their plans to ensure that our facilities will be year 2000
compliant. We will continue these communications until we gain assurances that
the systems within our facilities will be fully operational in the year 2000.
Assuming the satisfactory operations of universal providers, such as
utility and telephone companies, our most reasonably likely worst case will be
the failure by our principals and customers to remedy their own year 2000
issues. Although we have initiated efforts to communicate with these parties
regarding their year 2000 plans, we have not received written assurances that
they have addressed and corrected all expected year 2000 problems which may have
a material adverse effect on us. Our own testing and evaluation efforts of our
IT systems, including our order management system, have included some of our key
principals and customers. All test orders have been completed successfully. We
will continue this testing and our efforts to gain assurances these third
parties' systems, particularly those related to electronic order management,
will be operational.
We have not completed a comprehensive written contingency plan in the event
that we have not achieved year 2000 compliance including the receipt of
sufficient assurances from our customers, principals and third-party vendors
that they are ready. We expect to have one completed by August 1, 1999. Our
order management system currently includes the ability to fax orders, which some
customers currently use. In preparation for the possibility that all or some
orders may not be capable of being electronically transmitted, approximately 15
additional fax machines will be installed and trained personnel in place to
receive, process and transmit orders by fax. Future contingency plans will also
include a plan to have employees personally pick up and deliver orders if
necessary.
We have not delayed any planned projects as a result of year 2000 issues.
ACCOUNTING AND FINANCIAL DISCLOSURE
Effective January 1, 1998, Richmont Marketing Specialists reduced the
amortization period of goodwill from 10 years to 5 years to more accurately
reflect the current estimated useful life of the recorded intangibles.
Richmont Marketing Specialists routinely conducts assessments of its
personnel, equipment and property to achieve maximum cost efficiencies and
streamline operations. In connection with this assessment, management approved a
plan to consolidate redundant offices that had resulted from prior business
acquisitions and to vacate the offices. Richmont Marketing Specialists vacated
these offices prior to June 30, 1998. The lease terminations occurred in Dallas,
Houston and San Antonio, Texas, as well as Charlotte, North Carolina. We
recorded a charge of $1.7 million for the rental payments under the respective
lease agreements because the abandoned office space had no substantive benefit
to us.
LEGAL PROCEEDINGS
In the ordinary course of business, various suits and claims are filed
against Richmont Marketing Specialists. We are not a party to any legal
proceedings that will, in the opinion of our management, have a material adverse
effect on our business or financial condition.
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THE BUSINESS
OVERVIEW
Richmont Marketing Specialists is one of the largest food brokers in the
United States. We represent manufacturers of consumer goods and products. These
manufacturers are known in the food brokerage industry as "principals." We sell
and market our principals' products to retailers and wholesalers known in the
industry as "customers." These customers include grocery stores, mass
merchandisers (such as Wal-Mart), membership warehouses (such as Sam's Club),
drug stores and convenience stores. We provide a comprehensive array of sales,
marketing, merchandising and order management services to our principals and
customers. Our goal is to maximize the sales volume of our principals' products
through the various services and technology we provide.
Richmont Marketing Specialists has long-term relationships with a large
number of major principals and customers. We employ over 1000 account service
and business development personnel. These employees work closely with principals
developing and planning sales programs. We also have over 2300 retail and
merchandising employees who implement these sales programs at the customers'
retail stores, by providing display, shelf management, schematic design, pricing
and promotional services. We believe that we have built and maintained long-term
principal and customer relationships by:
- providing superior sales, marketing, retail and order management
services;
- utilizing information technology to collect and analyze local market data
to optimize sales; and
- providing wide geographic coverage of the country.
BUSINESS STRENGTHS
Our management believes that Richmont Marketing Specialists benefits from
the following competitive advantages:
An Industry Leader. Richmont Marketing Specialists has operations primarily
in the western, southeastern, south central and mid-Atlantic regions of the
United States. Our size and market penetration enable us to effectively develop
and execute product sales plans across multiple geographic regions for our
principals and customers. Our knowledge of local and regional markets allows us
to customize these plans for our principals and customers based on local
conditions.
Dedicated Client Support of Principals and Customers. Richmont Marketing
Specialists' reputation for quality and service, as well as our broad geographic
presence, has enabled us to establish and strengthen our long-term relationships
with our principals and customers. Senior account executives maintain primary
relationships with principals and customers and work with them to develop sales
programs. We employ retail representatives to support our principals'
merchandising efforts in the retail stores. These employees gain a working
knowledge of their principals' accounts and develop a close working relationship
with store managers. This dedicated client support to principals and customers
gives us a competitive advantage over competitors that provide similar services
through temporary workers less knowledgeable about the local markets.
Innovative Marketing Through Use of Technology and Market
Information. Richmont Marketing Specialists has access to extensive local market
data which tracks the sales performance of our principals' products. We use both
retail information that we collect and data that we receive from national
marketing research companies, including Nielsen and Information Resources Inc.
We developed an information technology system that collects and downloads
individual store sales data into a central reporting system. We use
store-specific product information, local demographic information and
information about store conditions to understand consumer buying habits in local
markets. From this knowledge, we develop and execute targeted consumer
promotions for our principals' products and strategic marketing plans for
principals and customers. Category analysts work inside many major grocery
stores to assist the retailers with shelf schematics, category layouts and total
store space plans. We maximize the efficiency of our
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communications with principals and customers through local and wide area
networks. We also utilize an electronic data interchange system, commonly
referred to as "EDI", to process customer orders. This system allows us to
process orders in a more timely and efficient manner. We believe that our
customer relationships are strengthened by providing these services, which also
serves to attract new principals.
BUSINESS STRATEGY
Richmont Marketing Specialists was an early leader in pursuing
consolidation opportunities within the food brokerage industry. In addition to
the acquisitions we have completed, we plan to provide a local presence in each
location where customers purchase products, referred to within the industry as
"procurement points", and retail coverage for our principals' products. We
expect to maintain our high level of service to principals and customers while
we continue our growth strategy. We intend to achieve our strategy through the
following measures:
Pursue Consolidation Strategy. Richmont Marketing Specialists intends to
continue to acquire local and regional food brokerage companies. We have
identified several potential companies which operate in areas in which we
currently do not have a strong presence. We also intend to acquire food brokers
in our existing markets to enhance our current operations. Potential target
companies must have strong account service relationships, complementary product
lines and compatible financial strengths. We have been engaged in negotiations
and have recently entered into letters of intent with 3 regional food brokerage
companies, two of which have branch offices located throughout the midwest and
the third which has operations in the northwest. We intend to finance these
acquisitions with combinations of cash and notes. One of the acquisitions in the
midwest is currently scheduled to be consummated by the end of April 1999. No
closing date has been set for the other 2 acquisitions. The acquisitions are
discussed further under the heading "Recent Developments" below.
National principals generally prefer to deal with fewer brokers with an
ability to cover a large region of the country. Richmont Marketing Specialists
therefore believes that additional strategic acquisitions will allow us to
better service our existing principals and attract new principals seeking
nationwide coverage. Our 1997 acquisition of Atlas allowed us to expand our
coverage into the southeast and mid-Atlantic regions of the United States. We
now anticipate expanding our coverage into the midwest region with the
consummation of 2 pending acquisitions, and expanding our existing coverage in
the northwest with the consummation of the third acquisition.
Develop Principal Relationships and Increase Customer Coverage. Richmont
Marketing Specialists expects to expand our principal base through acquisitions.
We also believe we can attract new principals which recognize our ability to
provide superior marketing services on both a national and local basis at a cost
much lower than what a principal could provide through its own sales force.
Additionally, we believe that 30 retailers and wholesalers will represent
approximately 80% of grocery store revenue within 3 to 5 years. Our presence in
as many geographic areas as possible will allow us to both maintain our current
customer relationships and develop new ones during these anticipated retailer
consolidations.
Richmont Marketing Specialists' Channel Marketing division represents
principals that sell their products in non-grocery classes of trade. This
division will continue developing relationships with mass merchandisers and
membership warehouses and expand existing principals' products into these
non-grocery outlets. Our current relationships include Wal-Mart, Sam's Club,
Kmart and Target. This division currently provides retail services to
non-grocery customers located in every state.
Increase Hybrid Service Agreements with Principals. Richmont Marketing
Specialists generally provides customers with a full range of account, retail,
marketing and sales services and order management on behalf of its principals.
We receive commissions from principals based on a percentage of product sales.
In the last several years, we also have entered into agreements with principals
to provide only specified retail services (referred to as "hybrid" agreements).
We are compensated by a percentage of sales, by a flat fee per service provided,
or a combination of both. We believe that manufacturers with sales personnel
that previously did not utilize brokers are beginning to outsource retail
services to eliminate the expense of maintaining their own retail
representatives. We believe we are well positioned to take advantage of this
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trend due to our broad geographic coverage and knowledge of local markets.
Hybrid agreements currently represent nearly 8% of Richmont Marketing
Specialists' revenue. We anticipate that hybrid agreements will, in the future,
generate significant revenue and attract new principals.
COMPANY HISTORY
Richmont Marketing Specialists' predecessor was a food brokerage business
formed in 1947. Our business, until the beginning of 1996, was primarily limited
to Texas, Florida and Georgia. Since that time, we have expanded our operations
beyond these states through several strategic acquisitions, and we now service
markets in 33 states.
ACQUISITION ACTIVITIES
Richmont Marketing Specialists has been a leader in pursuing consolidation
opportunities within the food brokerage industry. Our strategy is to make future
acquisitions in areas where we do not currently operate, including the midwest
and northeast regions, to better service our principals and customers.
Our recent acquisitions have enabled us to increase the number of leading
national principals and customers we serve and expand our operations onto the
east and west coasts. We have been able to improve the operations of the
acquired companies through:
(1) the end of high compensation to owners and senior management in some of
the companies;
(2) the reduction of personnel performing redundant job functions; and
(3) the consolidation of local offices and computer support facilities.
Our 2 largest acquisitions since the beginning of 1997 were the
acquisitions of Tower Marketing, Inc. and Atlas, for total consideration of
$14.4 million and approximately $45.7 million, respectively. Tower served
principals and customers primarily in Texas. Atlas was based in Charlotte, North
Carolina and served principals and customers in the southeast and mid-Atlantic
regions of the United States. Effective December 31, 1997, we merged the
operations of Tower into our wholly-owned subsidiary Marketing Specialists Sales
Company.
Richmont Marketing Specialists did not make any acquisitions in 1998, but
we have identified potential target companies for acquisition in 1999. We have
been engaged in negotiations and have recently entered into letters of intent
with 3 regional food brokerage companies. Two of the companies have a strong
presence in the midwest and the third has a strong presence in the northwest. We
intend to finance these acquisitions through combinations of cash and notes. One
of the acquisitions is currently scheduled to be consummated by the end of April
1999 and the other 2 are expected to be completed at a later date in 1999.
Historically, we have purchased local and regional food brokers for a
combination of cash and deferred obligations. Deferred obligations consist of
covenants not to compete and deferred payment and compensation plans. As of
December 31, 1998, Richmont Marketing Specialists had outstanding $26.9 million
in covenants not to compete and $18.2 million in total deferred payment and
compensation plans.
FOOD BROKERAGE INDUSTRY
Overview
Food brokers offer sales, marketing, merchandising and order management
services to principals and customers. They are generally paid by principals
based on a percentage of product sales made to customers. Sales are primarily
made to grocery stores operated by customers. The grocery store industry is
characterized by stable growth based on modest price and population increases.
Progressive Grocer magazine defines "supermarkets" as grocery stores with annual
sales equal to at least $2 million. According to Progressive Grocer, grocery
store revenue has grown from $292.2 billion, inclusive of
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supermarket revenue of $210, in 1985 to $436.3 billion, inclusive of supermarket
revenue of $334.5, in 1997. Industry sources report that, during that same
period, the percentage of total grocery store revenue generated from the sale of
products placed by food brokers rose from 45% to 60%.
The services provided by food brokers can generally be divided into 4
functions:
- Account Service and Business Development: an overall sales planning
function involving the coordination of all food broker services provided
to principals and customers;
- Retail Services: executing sales and merchandising plans at the store
level;
- Marketing Services: providing marketing recommendations targeted to local
market conditions based on retail data management and analysis; and
- Order Management: receiving orders from customers, reconciling principal
invoices with customer orders, and processing promotional allowances and
other credits for customers.
Principals use food brokers as a cost-effective alternative to a direct
sales force. Principals 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 customers to
efficiently source products from multiple principals, reduce in-store personnel
and benefit from food brokers' merchandising and promotional expertise and
knowledge of local market conditions.
Trends
The food brokerage industry has historically been comprised of many small
food brokers serving local markets and a few large food brokers serving multiple
regions of the country. There are 2 major trends in the food brokerage industry:
(1) consolidation within the industry, including among principals and
customers; and
(2) increasing demands for the application of technology.
The entire food distribution chain has been consolidating over the past 10
years. Since 1990, the number of food brokers has decreased from approximately
1700 to approximately 1100. We believe that the consolidation of food brokers is
primarily the result of a desire by principals and customers to manage their
businesses throughout the United States on a more efficient basis. As a result
of the consolidations, many national principals are favoring food brokers which
have strong relationships with major customers and wide-ranging geographic
coverage. The consolidation among principals and customers has further been
driven by the need to achieve economies of scale, and thus reduce costs, in an
increasingly competitive marketplace.
The increasing need for information technology to gather store information
regarding the performance of principals' products and local market conditions is
another trend in the food brokerage industry. Because of the increasing need for
information at the retail level, principals and customers are selecting food
brokers that have the technology, personnel and resources to deliver this
information across multiple geographic markets. Technology currently allows food
brokers to generate reports analyzing demographics and revenues by brand and
product group to allow principals and customers to respond to the different
needs of consumers in local markets. The costs of equipment, software and
personnel necessary to meet these technology requirements are beyond the means
of many small food brokers.
DESCRIPTION OF SERVICES PROVIDED BY RICHMONT MARKETING SPECIALISTS
The services provided by Richmont Marketing Specialists can be divided into
4 categories:
(1) account service and business development;
(2) retail services;
(3) marketing services; and
(4) order management.
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Traditionally, we have provided principals with a full array of these
services and we have been paid by principals based on a percentage of products
sold. This percentage varies, but is typically with a range of 3-4% for full
brokerage services. In recent years, we have entered into hybrid agreements
under which we provide only specified retail services. These arrangements are in
response to principals that have started outsourcing retail services. These
services primarily include initial retail shelf set-ups and follow-up shelf
management. In hybrid agreements, we are compensated for providing services
either as a percentage of product sales, a flat fee, or a combination of both.
We believe that offering hybrid services will attract new principals and may
result in sales of additional services to principals. For the end of 1998,
approximately 92% of our revenue was derived from full services and 8% of our
revenue was derived from hybrid services.
Account Service and Business Development. Richmont Marketing Specialists's
brand development managers and customer development managers are senior
executives who act as the primary interface between our largest principals and
customers. The brand development managers are dedicated to and work closely with
principals to develop strategic sales plans for particular products. They also
assist principals in achieving their merchandising goals, including those
related to product distribution and shelf placement. Customer development
managers serve specific customers at the headquarters level. They work with
customers in the development of category management initiatives and shelf
schematics. Category management involves the strategic grouping and positioning
of a principal's product among other similar type products. The sales plans
developed by brand development managers and customer development managers are
executed through the account executive service teams. These teams coordinate and
implement the specific sales initiatives on a local basis. For smaller
principals and customers, these services are performed on a local level by
account executives. Richmont Marketing Specialists currently employs
approximately 1000 account service personnel.
Retail Services. Richmont Marketing Specialists's retail and merchandising
service personnel provide principals and customers with an in-store presence in
order to assess product performance and merchandising conditions. Retail
representatives develop relationships with store managers and assist account
executives in developing sales plans for principals' products. Our Retail Sales
Organization executes sales plans at the store level by providing merchandising,
shelf management, display, schematic design, pricing and promotional program
services. It is also responsible for collecting and reporting in-store
conditions. Additionally, we assist customers with quality assurance and product
damage control. Richmont Marketing Specialists currently employs over 2300
retail and merchandising service personnel.
Marketing Services. Richmont Marketing Specialists's marketing services
group uses current retail information it collects, together with data received
from national marketing research companies to analyze local market conditions
and develop marketing strategies for our principals. Retail data is used to
determine how products should be priced and placed, the optimal mix of current
and new products, and the types of promotions desirable to increase sales. Our
marketing services group includes approximately 90 people, both at the
corporate, regional and local levels. The group also initiates and promotes
local market events, which often involve sponsorship by principals and customers
of charity promotions, to build brand equity for products.
Order Management. Richmont Marketing Specialists performs all major order
management functions to facilitate the movement of goods from our principals to
customers. All ordering responsibility begins at the local market. Richmont
Marketing Specialists has a centralized order management system responsible for
the receipt and transmission of electronic orders through EDI. We are able to
verify quantities, prices, pack sizes and promotions through the use of this
system. Our order management system also reconciles principal invoices with
customer purchase orders and processes promotional allowances and other credits
for customers. Approximately 20 employees work in the order management group at
the corporate level. We also employ account administrators and customer service
representatives who perform order management functions in the local markets.
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MARKETS
Richmont Marketing Specialists provides full-service brokerage services to
markets in 33 states throughout the western, southeastern, south central and
mid-Atlantic regions of the United States representing 29.5%, 17.6%, 22.2%, and
22.3% respectively, of our revenue for the year ended December 31, 1998. Within
these regions, California, Florida, Texas and North Carolina represent the
states in which we generate the largest revenue. We serve these markets through
51 local offices, which provide both principal and customer headquarters'
services and in-store retail and merchandising services.
NEW BUSINESS DEVELOPMENT
Richmont Marketing Specialists's sales and marketing efforts are designed
to develop new business in national, regional and local markets. Our brand
development managers and customer development managers are primarily responsible
for new business development through existing principals and customers. Through
their established relationships with principals and customers, the brand
development managers and customer development managers have an understanding of
the needs and objectives of these clients. From this information, we are able to
develop sales plans specifically designed to meet the new business needs and
objectives of both principals and customers. In addition, our senior management
takes an active leadership role in new business development both in pursuing new
relationships and fostering existing ones. Management believes that its
long-term relationships with senior management of leading national principals
and customers and its ability to create customized sales plans provide Richmont
Marketing Specialists with a competitive advantage in winning new business
within its existing client base.
PRINCIPALS
Richmont Marketing Specialists provides a comprehensive array of marketing,
retailing, merchandising and order management services to over 1700
manufacturers of consumer goods and products. We believe that we have been able
to establish numerous long-term relationships with some of the leading
principals in the United States due to our strong reputation, quality of service
and market coverage. Our top 5 principals include Del Monte, Great Springs Water
of America (Perrier), Nestle, Kal Kan and Ocean Spray. These principals
represent less than 15% of our revenue. Our principals provide a diverse and
stable base of revenue for Richmont Marketing Specialists across geographic
markets. We believe our ability to develop strong relationships with leading
national principals has been advanced by the establishment of relationships with
management and personnel at various levels within the principals' organizations.
While we enjoy long-term relationships with many of our principals, the
typical brokerage contract in the industry provides for a 30 day termination
clause. The principal and customer turnover that we have experienced has been
largely due to consolidations among principals and customers. Our broad
geographic coverage serves to reduce the risk of loss of principals and
customers resulting from the relocation of the post-consolidation headquarters.
CUSTOMERS
Richmont Marketing Specialists markets and sells its principals' products
to grocery stores, mass merchandisers, membership warehouses, drug stores and
convenience stores across the country. After a customer has decided to sell a
principal's product, we provide detailed sales planning and full in-store retail
and merchandising support.
Our 5 largest customers include Albertsons, Publix, Winn Dixie, Safeway and
Food Lion. These customers collectively represented approximately 34% of our
third and fourth quarter revenues in 1998. The remaining revenue is generated
from sales to other grocery stores, wholesalers, mass merchandisers and
membership warehouses, and drugstore chains.
We believe that the strength of our customer relationships has been driven
by our ability to provide superior sales, marketing and merchandising services,
technologically advanced order management and
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innovative promotional planning. Our relationships with customers are also based
upon our ability to satisfy a customer's geographic needs for services. Recent
consolidations among retailers have resulted in fewer, but larger customers that
operate in a greater number of geographic markets. These consolidations have
resulted in the geographic relocation of some customer procurement points.
In addition, we believe that consumers' purchase points for food and other
products, traditionally grocery stores, now include non-grocery outlets such as
mass-merchandisers and membership warehouses. Our Channel Marketing Division
markets and sells our principals' products through these alternative retail
outlets. This division is structured to provide services through teams dedicated
to a particular non-grocery customer. Our broad geographic presence and
technological capabilities have attracted large, national chains, such as
Wal-Mart, Kmart, Target and Sam's Club. We are a preferred provider to Wal-Mart.
Sales to alternative channel customers represented approximately 5.5% of our
1998 revenue.
MANAGEMENT INFORMATION SYSTEMS
A trend in the food brokerage industry has been the development of
technological advances. Richmont Marketing Specialists has invested in the
application of current retail technology to provide principals and customers
with the most efficient and useful information available.
Electronic Data Interchange. The EDI system streamlines order
communications between food brokers, customers and principals. Orders sent by
EDI are transmitted on-line from the customer to us. We then place the order
with the principal via EDI. The EDI system significantly reduces order input
errors and other inefficiencies. Currently, the majority of our larger
principals and customers utilize EDI and nearly 80% of all sales are made
through EDI orders.
Retail Information. Richmont Marketing Specialists utilizes an advanced
retail reporting system called RW3 Enterprise to provide principals with current
in-store data regarding their products. Retail representatives record in-store
merchandising conditions using small, hand-held computers. This information is
then downloaded to our retail reporting system. This system allows our retail
employees to access data from customers' retail outlets to effectively respond
to changing conditions.
PeopleSoft Conversion. In 1998, Richmont Marketing Specialists made a
substantial investment to upgrade its financial and human resources systems.
Richmont Marketing Specialists purchased application software from PeopleSoft
and hired a consulting firm to assist in the implementation of these new
systems. We used approximately $3.1 million of the proceeds from the outstanding
notes to purchase the software license and for installation in connection with
this upgrade.
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.
As a large broker, we compete with other food brokers for product lines
based primarily on breadth of geographic coverage and the level of services
provided. Our chief competitors are Kelly Clarke/Acosta/ PMI, Merkert American,
Cross Mark and Advantage Sales and Marketing. We also compete with third party
merchandising companies, such as PIA Merchandising Services, Inc. for retail
services only.
In addition, many manufacturers, including some of our principals, maintain
their own sales and marketing departments which sell directly to retailers.
FACILITIES
Richmont Marketing Specialists owns administrative facilities in Orange
County, California, Phoenix, Arizona and Charlotte, North Carolina. In August
1998, we relocated our headquarters from Irving, Texas to Dallas. Our lease
obligations continue on the Irving space. The Irving building is owned by a
limited partnership, of which Richmont Marketing Specialists's chief executive
officer, Ron Pederson, is the general partner. The partnership has recently
signed a purchase agreement with a prospective purchaser for
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<PAGE> 43
the sale of the building. The sale is currently expected to close, subject to
the purchaser's right to conduct due diligence, in June 1999. If the purchase is
consummated, we expect to be released from further liability under this lease.
Our headquarters are now located in a new office building in Dallas, Texas.
The headquarters are leased and consist of approximately 40,700 square feet. We
also lease office space in 62 other locations in 27 states. We currently occupy
53 facilities, including 3 properties owned by us. Nine leased facilities are
now vacant. As we complete acquisitions, we intend to systematically reduce the
number of leased facilities.
EMPLOYEES
As of December 31, 1998, Richmont Marketing Specialists had a total of 3869
employees, including 2958 full-time employees and 911 part-time employees. As a
result of internal growth and strategic acquisitions, we expect to have 4500
employees by the end of 1999. None of our employees are union members.
LEGAL PROCEEDINGS
Various suits and claims are filed against Richmont Marketing Specialists
in the ordinary course of business. We are not party to any legal proceeding
which, in the opinion of our management, will have a material adverse effect on
our business or financial condition.
RECENT DEVELOPMENTS
Planned Acquisitions. We have been engaged in negotiations and have
recently entered into letters of intent with 3 regional food brokerage
companies. Two of the companies have a strong presence in the midwest and the
third has a strong presence in the northwest. The purchase price for all of the
outstanding capital stock of the largest of the 3 companies will not exceed $14
million. The purchase prices for all of the outstanding capital stock of the
other target companies are $11 million and $4.2 million. In addition to the
payment of the purchase prices, we will be assuming all of the outstanding
liabilities of the acquired companies at closing. We intend to finance these
acquisitions with cash of approximately $13 million and notes. In addition to
the payment of the purchase prices stated above, we will be assuming all of the
outstanding liabilities of these 2 companies as of the date of closing. One of
the acquisitions is currently scheduled to be completed by the end of April 1999
and the other 2 are expected to be completed later in 1999.
Southeastern Food Service Operations. Richmont Marketing Specialists has
terminated its food service operations in Florida, Georgia and Tennessee. Our
food service division primarily sells products and related services to
restaurants and institutions such as hospitals and schools. We do not anticipate
any significant charges related to employee terminations, relocation costs or
facilities consolidation as a result of the closure of our food service
operations in Florida, Georgia, and Tennessee. At this time, we are maintaining
our food service operations in other areas of the country.
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<PAGE> 44
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act with respect to the notes offered
in this prospectus. This prospectus, which forms part of the registration
statement, does not contain all of the information that is included in the
registration statement. You will find additional information about Richmont
Marketing Specialists and the notes in the registration statement. Any
statements made in this prospectus concerning the provisions of legal documents
are not necessarily complete and you should read the documents that are filed as
exhibits to the registration statement for a more complete understanding of the
document or matter.
These documents are available without charge upon request from Nancy K.
Jagielski, General Counsel, 17855 N. Dallas Parkway, Suite 200, Dallas, Texas
75287, (972) 349-6200. To ensure the timely delivery of documents, any request
should be made by , 1999.
After the registration statement becomes effective, we will be subject to
the informational requirements of the Exchange Act, and will file periodic
reports, registration statements and other information with the SEC. You may
read and copy the registration statement and any of the other documents we file
with the SEC at the public reference facilities maintained by the SEC at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
SEC's regional offices located at 7 World Trade Center, New York, New York 10048
and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Please call the SEC at 1-800-SEC-0300 for more information on the public
reference rooms. In addition, reports and other filings are available to the
public on the SEC's web site at http://www.sec.gov.
If for any reason we are not subject to the reporting requirements of the
Securities Exchange Act of 1934 in the future, we will still be required under
the indenture governing the notes to furnish the holders of the notes with
certain financial and reporting information. See "Description of
Notes -- Covenants -- Reports" for a description of the information we are
required to provide.
MANAGEMENT
<TABLE>
<CAPTION>
NAME AGE TITLE(1)
- ---- --- --------
<S> <C> <C>
John P. Rochon....................................... 47 Chairman of the Board of
Directors
Ronald D. Pedersen................................... 59 President, Chief Executive
Officer and Director
Nick G. Bouras....................................... 46 Vice President, Assistant
Secretary and Director
Timothy M. Byrd...................................... 44 Chief Administrative Officer,
Assistant Treasurer and Director
Bruce A. Butler...................................... 50 Executive Vice President and
Director
Jeffrey B. Hill...................................... 44 Executive Vice President and
Director
Thomas J. Reynolds................................... 52 Director
Ronald L. Smith...................................... 52 Executive Vice President, Chief
Financial Officer and Assistant
Treasurer
Richard Silvers...................................... 58 Executive Vice President and
Chief Information Officer
Carrine K. Reilly.................................... 43 Vice President, Treasurer and
Assistant Secretary
Nancy K. Jagielski................................... 37 Secretary and General Counsel
</TABLE>
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<PAGE> 45
- ---------------
(1) Richmont Marketing Specialists does not have any employees, and none of the
directors or officers of Richmont Marketing Specialists receive compensation
from Richmont Marketing Specialists for their services.
John P. Rochon is the Chairman of the Board of Directors of Richmont
Marketing Specialists and has served in this capacity and as a Director since
1997. Mr. Rochon has served on MSSC's Board of Directors 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, Corporate Controller and Director of Manufacturing. Mr.
Rochon currently serves on the Board of Directors of Nu-kote Holding, Inc. and
Royal Appliance Company.
Ronald D. Pedersen is President, Chief Executive Officer and a Director of
Richmont Marketing Specialists. Mr. Pedersen has served as a director of
Richmont Marketing Specialists since 1997. Mr. Pedersen is also President, Chief
Executive Officer and a Director of MSSC. Mr. Pedersen has been in the food
industry for over 30 years, including three years with Anderson Clayton foods
and 7 years with Colgate Palmolive. He is a past Chairman and current member of
the Board of the Association of Sales and Marketing Companies.
Nick G. Bouras is Vice President, Assistant Secretary and a Director of
Richmont Marketing Specialists and 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 & Whinney and Touche Ross & Company. Mr.
Bouras has been a Director of Richmont Marketing Specialists since 1997.
Timothy M. Byrd is the Chief Administrative Officer, Assistant Treasurer
and a Director of Richmont Marketing Specialists. Mr. Byrd has served as a
Director of Richmont Marketing Specialists since 1997. Mr. Byrd has also served
as the 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 and Vice President and Controller. He is also a member of the Office of
the Chairman of Mary Kay Holding Corporation.
Thomas J. Reynolds is a Managing Director of Richmont Corporation and a
Director of Richmont Marketing Specialists. Mr. Reynolds has served as a
Director of Richmont Marketing Specialists since 1997, and has served on MSSC's
Board of Directors since 1996. Prior to joining Richmont in 1986, Mr. Reynolds
provided marketing, advertising and sales promotion expertise to clients
including S.C. Johnson & Son, Inc., Frito-Lay, Inc., Miller Brewing Company,
General Motors Corp., Ocean Spray Cranberries, Inc., Federal Express Corp., AT&T
Corp., International Business Machines Corp. and Coca-Cola Enterprises Inc. and
its subsidiaries. Mr. Reynolds is also a Professor Emeritus of Marketing and
former Director of the Morris Hite Center for Product Development and Marketing
Science at the University of Texas at Dallas.
Bruce A. Butler is Executive Vice President and a Director of Richmont
Marketing Specialists. Mr. Butler has served as a Director of Richmont Marketing
Specialists since 1997. Mr. Butler has held several positions since 1991
(including Vice President -- Branch Manager, Tampa Operations and Director of
Confection) and currently serves as MSSC's Executive Vice President. Mr. Butler
is responsible for all operating units in MSSC and is a member of the Board of
Directors of MSSC. 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.
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<PAGE> 46
Jeffrey B. Hill is Executive Vice President and a Director of Richmont
Marketing Specialists. Mr. Hill has served as a director of Richmont Marketing
Specialists since 1998. With MSSC, Mr. Hill has served as Executive Vice
President and President of the Western Division. Mr. Hill held various
management positions with Bromar (a company acquired by MSSC), including CEO. He
has also held management positions with Combe, Inc. and Johnson & Johnson.
Ronald L. Smith is Executive Vice President, Chief Financial Officer and
Assistant Treasurer of Richmont Marketing Specialists, a position he has held
since March 1999. From 1980 to 1998, Mr. Smith held various accounting,
financial and operations positions at Mary Kay Inc., including Chief Financial
Officer and Treasurer, Senior Vice President and Vice President International.
Most recently, Mr. Smith has served as Senior Vice President at Mary Kay
Corporation. Mr. Smith is a certified public accountant and member of various
accounting professional organizations.
Richard A. Silvers is Executive Vice President and Chief Information
Officer of Richmont Marketing Specialists, a position he has held since January
1998. Mr. Silvers has more than 25 years of technology-related experience,
working with leading retailers to provide technology solutions. He is the former
CIO of Tandy Corporation; Vice President, Management Information Systems (MIS)
for H.E. Butt; Vice President, MIS of Von's Grocery Company; and Vice President,
MIS for Associated Grocers of Arizona. He also held various MIS positions with
J. Weingarten and Harris-Teeter.
Carrine K. Reilly is Vice President and Treasurer of Richmont Marketing
Specialists. Prior to joining MSSC in October 1998, she was Vice President &
Controller of a real estate investment trust. Her previous experience includes
business and tax consulting with American Express and Arthur Andersen LLP. Ms.
Reilly is a certified public accountant.
Nancy K. Jagielski is Secretary and General Counsel of Richmont Marketing
Specialists. She joined MSSC in August 1998 as Corporate Counsel and was quickly
promoted to General Counsel to manage the legal department. Mrs. Jagielski has
over 12 years of legal experience and has worked in the corporate sections of
large law firms including Strasburger & Price L.L.P. and Akin, Gump, Strauss,
Hauer, & Feld, L.L.P. and in house as Executive Vice President and General
Counsel for a privately held healthcare business services company located in
Dallas, Texas.
All directors of Richmont Marketing Specialists serve one-year terms, and
are elected at the annual meeting of shareholders. Our directors do not receive
compensation from Richmont Marketing Specialists for serving as directors, nor
do they receive any compensation for their attendance at board meetings.
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<PAGE> 47
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The summary compensation table below sets forth information concerning
compensation paid in the fiscal year ended 1998 to Richmont Marketing
Specialists' Chief Executive Officer and Richmont Marketing Specialists' 5 other
most highly compensated executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------ ------------------------
VARIABLE OTHER SECURITIES
COMPEN- ANNUAL UNDERLYING ALL OTHER
SATION COMPEN- OPTIONS/SARS COMPEN-
SALARY BONUS SATION(1) GRANTED SATION(2)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------- ---- ------- -------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Ronald D. Pedersen................. 1998 451,000 -- -- 4,632
President, CEO and Director
Bruce A. Butler.................... 1998 317,153 -- 277,383 -- 5,618
Executive Vice President and
Director
Jeffrey B. Hill.................... 1998 310,000 -- 41,491 888 5,632
Executive Vice President and
Director
Richard Silvers.................... 1998 183,192 -- 43,708 533 2,660
Executive Vice President and
Chief Information Officer
(commenced employment January 26,
1998)
M. Brian Healy..................... 1998 123,077 -- 355 81
Executive Vice President, Chief
Financial Officer and Assistant
Treasurer (commenced employment
on May 18, 1998, and resigned on
March 22, 1999)
Gary Guffey........................ 1998 186,722 -- -- 4,230
Executive Vice President and
Director (resigned on June 15,
1998)
</TABLE>
- ---------------
(1) Other annual compensation includes reimbursement of $277,383, $43,708 and
$33,696 in moving expenses for Messrs. Butler, Silvers and Hill,
respectively.
(2) MSSC's matching contributions to the 401(k) Plan in 1998 for the executive
officers were as follows: Mr. Pedersen, $4,500; Mr. Butler, $5,486; Mr.
Hill, $5,493; Mr. Silvers, $2,538; Mr. Healy, $0; and Mr. Guffey, $4,153.80.
MSSC paid for life insurance in 1998 for the officers in the amounts as
follows: Mr. Pedersen, $132; Mr. Butler, $132; Mr. Hill, $132; Mr. Silvers,
$122; Mr. Healy, $84; and Mr. Guffey, $76.
COMPENSATION COMMITTEE
Our board of directors does not have a compensation committee. The board
approves the compensation of executive officers based on the recommendations
made by the human resources and financial planning and budgeting departments.
COMPENSATION PACKAGES
The primary element of our compensation program consists of fixed
compensation in the form of base salary and a discretionary bonus. Another
element of our compensation program consists of variable compensation in the
form of stock appreciation rights granted pursuant to our incentive plan. Our
45
<PAGE> 48
compensation policies with respect to each of these elements, including the
basis for the compensation awarded to Mr. Pedersen, our Chief Executive Officer,
are discussed below.
Base Salaries. Base salaries for executive officers are determined based on
several factors, including the responsibilities of the position held, the
experience and expertise of the individual, salary survey results for similarly
situated companies, salaries historically paid by our company, and our company
performance relative to our competition.
Discretionary Bonus. In the past, we have paid performance bonuses annually
in the sole discretion of our management. In 1998, performance bonuses were
specifically tied to overall revenue and EBITDA goals for our company without
regard to individual performance. Except for contractual obligations to pay
specific bonuses, we did not pay bonuses to executives for 1998. In order to
better motivate employees, beginning in 1999, our bonus policy will be based on
three factors: individual performance, the performance of the individual's
region and our overall company performance. In determining the amount of bonus
payable, these factors will be weighted as follows: 25% for individual
performance, 25% for regional performance and 50% for our overall company
performance.
Incentive Compensation Awards. The third component of non-shareholder,
executive officer compensation consists of stock appreciation rights awarded
under our incentive plan. These rights reflect our desire to provide an
equity-based incentive for the executive officers and key personnel of Richmont
Marketing Specialists. The incentive plan is administered by a committee
appointed by the board of directors to administer and monitor the plan. The
committee members are Messrs. Rochon, Byrd, Bouras and Butler. The committee has
responsibility for deciding which employees will receive stock appreciation
right awards, the number of stock appreciation rights to be received and the
terms of the stock appreciation rights.
Chief Executive Officer Compensation. In setting Mr. Pedersen's
compensation, the board of directors considers factors such as corporate
performance, without regard to any specific performance-related targets, and
individual experience and expertise. In addition, the board considered Mr.
Pedersen's salary history and compensation levels of chief executive officers of
other comparable companies. No particular weight is given by the board to any of
the foregoing factors.
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<PAGE> 49
OPTION/STOCK APPRECIATION RIGHT GRANTS IN LAST FISCAL YEAR
Pursuant to Richmont Marketing Specialists' Incentive Plan, we have awarded
senior management stock appreciation rights to 36 key employees. Each stock
appreciation right entitles the employee to realize the appreciation in value of
Richmont Marketing Specialists common stock over a 5 year period.
The stock appreciation rights vest 5 years after the date of their grant
and terminate 10 years from the date of their grant, unless sooner exercised or
cancelled. Once vested, 20% of the stock appreciation rights become immediately
exercisable and an additional 20% becomes exercisable each year thereafter for 4
years.
Upon a "change of control", as defined under Richmont Marketing
Specialists' Incentive Plan, all holders of outstanding stock appreciation
rights, whether vested or unvested, are deemed to have exercised their stock
appreciation rights immediately upon the occurrence of a change of control and
cash is immediately due and payable in respect of the stock appreciation rights.
The following table sets forth information regarding stock appreciation
rights granted to Richmont Marketing Specialists' Chief Executive Officer and
Richmont Marketing Specialists' 5 other most highly compensated executive
officers during fiscal 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL STOCK APPRECIATION RIGHT GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
TOTAL STOCK STOCK PRICE
NUMBER OF APPRECIATION RIGHTS APPRECIATION FOR
SECURITIES GRANTED TO STOCK APPRECIATION
UNDERLYING EMPLOYEES EXERCISE RIGHT TERM(1)
APPRECIATION RIGHTS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED(#) YEAR ($/SH) DATE 5%($) 10%($)
- ---- ------------------- ------------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ronald D. Pedersen........ -- -- -- -- -- --
Bruce M. Butler........... -- -- -- -- -- --
Jeffrey B. Hill........... 888 9.3% 518 12/31/07 289,790 731,375
Richard Silvers........... 533 5.6% 518 12/31/07 173,939 438,989
M. Brian Healy............ 355 3.7% 518 12/31/07 115,851 292,385
Gary Guffey............... -- -- -- -- -- --
</TABLE>
- ---------------
(1) The figures presented are based on the assumption that the stock price
underlying the stock appreciation rights will appreciate at rates of 5% and
10% per year, respectively, compounded over the full 10 year term of the
stock appreciation rights. However, the holding terms of the stock
appreciation rights and actual appreciation in the value of the underlying
stock, if any, may vary substantially from these assumptions.
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<PAGE> 50
AGGREGATED STOCK APPRECIATION RIGHT EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END SAR VALUES
The following table provides information on the number of stock
appreciation rights held by Richmont Marketing Specialists' Chief Executive
Officer and Richmont Marketing Specialists' 5 other most highly compensated
executive officers at fiscal year-end 1998.
AGGREGATED OPTION/STOCK APPRECIATION RIGHT EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/STOCK APPRECIATION RIGHT VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED STOCK IN-THE-MONEY STOCK
SHARES APPRECIATION RIGHTS AT APPRECIATION RIGHTS AT
ACQUIRED ON VALUE FISCAL YEAR END(#) FISCAL YEAR END($)
EXERCISE REALIZED --------------------------- ------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
- ---- ----------- -------- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Ronald D. Pedersen..... 0 -- 0 0 0 --
Bruce M. Butler........ 0 -- 0 0 0 --
Jeffrey B. Hill........ 0 -- 0 888 0 --
Richard Silvers........ 0 -- 0 533 0 --
M. Brian Healy......... 0 -- 0 355 0 --
Gary Guffey............ 0 -- 0 0 0 --
</TABLE>
- ---------------
(1) Because all outstanding stock appreciation rights have been issued for less
than 5 years, none of the outstanding stock appreciation rights have vested
or possess current value.
DEFERRED COMPENSATION
Richmont Marketing Specialists has entered into deferred compensation plans
with each of Messrs. Pedersen, Butler and Guffey. Under the plans, Mr. Pedersen
will be entitled to receive $2,750,000, and Mr. Butler will be entitled to
receive $1,250,000, upon the termination of their employment with Richmont
Marketing Specialists. Payments are to be made in monthly installments over a
period not to exceed 120 months. Mr. Guffey is currently receiving monthly
payments under the deferred compensation plan; total payments to be made to Mr.
Guffey over a ten year period will equal $950,000. See "Management Deferred
Compensation Plans" for a further description of the plans.
EMPLOYMENT AGREEMENTS
On April 2, 1996, Richmont Marketing Specialists entered into employment
agreements with Ronald D. Pedersen and Bruce A. Butler. Under the employment
agreements, the executives are employed in such executive capacity or capacities
as determined by Richmont Marketing Specialists' Board of Directors. On April 1,
1999, We entered into an employment agreement with Jeffrey B. Hill, under which
Mr. Hill will serve as President of Business Development of MSSC, or in any
other capacity designated by management from time to time. Mr. Pedersen receives
an annual base salary of $372,000, subject to annual adjustment; Mr. Butler and
Mr. Hill each receive an annual base salary of $330,000, subject to annual
adjustment. In addition to the base salary, each executive is eligible to
receive a bonus, pursuant to the company's bonus policy and subject to the sole
and exclusive discretion of the board of directors.
Mr. Pedersen's employment agreement provides for a 5 year term expiring on
April 2, 2001. The Initial term of Mr. Butler's employment agreement provides
for a 3 year term, and expired on April 2, 1999. At that time, Mr. Butler's
employment agreement was automatically renewed for a one-year period. Mr. Hill's
employment agreement provides for a 1 year term, expiring on April 1, 2000. Each
of Mr. Pederson's and Mr. Butler's employment agreements is automatically
renewed for a one-year period on its expiration date, and on each anniversary
thereof, unless the board of directors delivers to the executive a notice of
termination at least 1 year plus 120 days prior to the then-current expiration
date. Mr. Hill's employment agreement automatically renews for a one-year period
on the expiration date and on each anniversary thereof unless terminated by
Richmont Marketing Specialists in accordance with the terms of his agreement. If
Richmont Marketing Specialists terminates an executive without cause, such
executive
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<PAGE> 51
shall receive all compensation and benefits entitled him under his employment
agreement through the expiration date. In addition, if Mr. Hill's contract is
not renewed other than for cause, he is entitled to severance payments equal to
his annual salary. Following the expiration date, Mr. Hill may not compete with
Richmont Marketing Specialists for a period of 1 year; in addition, Messrs.
Pedersen and Butler may not compete with Richmont Marketing Specialists for a
period of 2 years following the expiration date in the event either is
terminated for cause.
BENEFICIAL OWNERSHIP OF STOCK
The following table sets forth the beneficial ownership of the common stock
of Richmont Marketing Specialists by:
- each person who is known by Richmont Marketing Specialists to own
beneficially more than 5% of the common stock of Richmont Marketing
Specialists;
- each of Richmont Marketing Specialists' directors and executive officers
who are shareholders; and
- all directors and executive officers of Richmont Marketing Specialists as
a group.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
OF SHARES OF SHARES
--------- ----------
<S> <C> <C>
STOCKHOLDERS OWNING 5% OR MORE OF RICHMONT MARKETING
SPECIALISTS COMMON STOCK
MS Acquisition Limited...................................... 82,581 60.0%
4300 Westgrove Drive
Dallas, Texas 75248
Jeffrey A. Watt............................................. 16,826 12.2%
OFFICERS AND DIRECTORS
John P. Rochon(1)........................................... -- --
Ronald D. Pedersen.......................................... 25,842 18.8%
Timothy M. Byrd(1).......................................... -- --
Nick G. Bouras(1)........................................... -- --
Bruce A. Butler............................................. 6,193 4.5%
Thomas J. Reynolds(1)....................................... -- --
All directors and executive officers of Richmont Marketing
Specialists as a group.................................... 32,035 23.3%
</TABLE>
- ---------------
(1) Messrs. Rochon, Bouras, Byrd and Reynolds may be deemed to share beneficial
ownership of the 82,581 shares of common stock owned by MS Acquisition
Limited, a Texas limited partnership, by virtue of their status as partners
in the partnership which is the managing general partner of Richmont Capital
Partners I, L.P., which controls MS Acquisition. Messrs. Rochon, Bouras,
Byrd and Reynolds disclaim beneficial ownership of such shares.
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<PAGE> 52
RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS AGREEMENT
On October 7, 1997, Richmont Marketing Specialists entered into a
stockholders agreement with MS Acquisition Limited, and Ronald D. Pederson,
Bruce A. Butler, Gary R. Guffey and Jeffrey A. Watt (collectively, the "Minority
Stockholders"). These parties constitute all of Richmont Marketing Specialists'
common stockholders. Among other things, the stockholders agreement:
(1) places significant restrictions on the ability of a Minority
Stockholder to transfer, pledge or otherwise dispose of his shares of
Richmont Marketing Specialists common stock prior to the initial public
offering of Richmont Marketing Specialists common stock;
(2) grants "tag-along" rights (i.e., rights to participate in a sale
of Richmont Marketing Specialists common stock on a pro rata basis) to each
Minority Stockholder in connection with the sale by MS Acquisition of more
than 5% of its common stock of Richmont Marketing Specialists;
(3) places on the Minority Stockholders "come along" obligations
(i.e., MS Acquisition has the right to require Minority Stockholders to
participate in a sale of all Richmont Marketing Specialists common stock)
with respect to all Richmont Marketing Specialists common stock held by the
Minority Stockholders, in connection with a sale by MS Acquisition of all
of its Richmont Marketing Specialists common stock to a non-affiliated
third party;
(4) grants to MS Acquisition, first, Richmont Marketing Specialists,
second and other Minority Stockholders, third, a right of first refusal in
the event that a Minority Stockholder or his transferee desires to transfer
any Richmont Marketing Specialists common stock;
(5) grants, at any time during the first 15 days of each fiscal
quarter occurring between January 1, 2001 and December 31, 2003, to each
Minority Stockholder who is no longer an employee an option to sell, and
requires Richmont Marketing Specialists to purchase, his Richmont Marketing
Specialists common stock, at a per share price generally based on a
negotiated multiple of Richmont Marketing Specialists' EBITDA less funded
debt, and payable in cash, notes, or a combination of both;
(6) grants, at any time during the first 15 days of the second full
fiscal quarter occurring after the death or disability of a Minority
Stockholder, to the legal guardian or representative of such deceased or
disabled Minority Stockholder, an option to sell, and requires Richmont
Marketing Specialists to purchase, the Richmont Marketing Specialists
common stock owned by such deceased or disabled Minority Stockholder, at a
per share price generally based on a negotiated multiple of Richmont
Marketing Specialists' EBITDA less funded debt, and payable in cash, notes,
or a combination of both; and
(7) grants to Richmont Marketing Specialists an option to repurchase,
at a purchase price described in the Stockholders Agreement, all or any of
the Richmont Marketing Specialists common stock owned by any Minority
Stockholder who has been terminated for cause by Richmont Marketing
Specialists or MSSC, has become disabled, or has transferred shares of
Richmont Marketing Specialists common stock to a third party by operation
of law pursuant to or otherwise in connection with any Minority
Stockholder's divorce, bankruptcy or death.
The terms of our senior credit facility and the notes currently restrict
the amount of funds we may use, or our ability to incur additional indebtedness,
each of which may be necessary to satisfy our commitments under the stockholders
agreement.
In addition, the stockholders agreement contains a voting agreement, under
which 3 members of Richmont Marketing Specialists' Board of Directors will be
nominated by Ronald D. Pedersen and 4 members will be nominated by MS
Acquisition. The stockholders agreement will terminate upon the
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occurrence of specific events, including an initial public offering of the
Richmont Marketing Specialists common stock.
As of December 31, 1998, 2 of the 4 Minority Stockholders, owning an
aggregate of 16.7% of Richmont Marketing Specialists common stock, were no
longer employed by Richmont Marketing Specialists.
REGISTRATION RIGHTS AGREEMENT
Under a registration rights agreement between Richmont Marketing
Specialists and MS Acquisition dated as of October 7, 1997, Richmont Marketing
Specialists granted demand registration rights and incidental registration
rights to MS Acquisition with respect to the sale of Richmont Marketing
Specialists common stock held by it. The registration rights agreement contains
customary cutback provisions which may limit the number of shares of common
stock that MS Acquisition may have registered in an underwritten offering.
EQUITY CONTRIBUTION AGREEMENT
In connection with Richmont Marketing Specialists' becoming the holding
company of MSSC, on October 7, 1997, all of the stockholders of MSSC exchanged
their MSSC common stock for an equivalent number of shares of Richmont Marketing
Specialists common stock.
GATEWAY LEASE AGREEMENT
On May 1, 1991, Richmont Marketing Specialists' predecessor entered into a
10 year lease with ABP Partners Ltd., a Texas partnership, relating to a 23,000
square foot building known as 2324 Gateway Drive in Irving, Texas. Ronald D.
Pedersen is a general partner of ABP Partners Ltd.
The Gateway lease contains customary covenants and provisions. Under the
terms of the Gateway lease, Richmont Marketing Specialists pays monthly rent of
$20,700. In August 1998, Richmont Marketing Specialists relocated its corporate
headquarters and therefore, no longer occupies this lease space. ABP Partners
Ltd. recently entered into a purchase agreement with a prospective purchaser for
the sale of the building. Subject to the prospective purchaser's right to
conduct due diligence, the sale is expected to close in June 1999. If the
building is sold, Richmont Marketing Specialists expects to be released from
further obligations under the Gateway lease.
MANAGEMENT DEFERRED COMPENSATION PLANS
Richmont Marketing Specialists has entered into deferred compensation plans
with the Minority Stockholders under which the Minority Stockholders will
receive payments upon termination of active employment with Richmont Marketing
Specialists. Payments of deferred compensation under these deferred compensation
plans are to be made in monthly installments over a period not to exceed 120
months. Pursuant to amendments to each of these deferred compensation plans,
dated November 20, 1995, the Minority Stockholders became fully vested in the
deferred compensation plans. The Minority Stockholders are to receive aggregate
deferred compensation of $6.9 million.
THE DEBT AGREEMENT
Pursuant to an agreement among MS Acquisition, the Minority Stockholders
and MSSC, dated as of September 12, 1997, promissory notes held by MS
Acquisition in the amount of $1.5 million and by the Minority Stockholders in
the amount $2 million were cancelled and contributed to the capital of Richmont
Marketing Specialists. In addition, MS Acquisition contributed $1.5 million in
cash. Following the consummation of the transaction contemplated by the
agreement, the stock ownership of MSSC did not change.
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DESCRIPTION OF NOTES
The outstanding notes were, and the notes to be issued in the exchange
offer will be, issued under an indenture dated as of December 19, 1997 between
Richmont Marketing Specialists, its subsidiaries and Chase Bank of Texas,
National Association, formerly known as Texas Commerce Bank National
Association, as trustee. A copy of the indenture is filed as an exhibit to the
registration statement which includes this prospectus and is available to you
upon request.
The terms of the outstanding notes and the notes to be issued in the
exchange offer include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939, as amended. You can
find the definitions of terms used in this description under the subheading
"Definitions" below.
The terms of the notes to be issued in the exchange offer are identical in
all material respects to the terms of the outstanding notes, except for transfer
restrictions relating to the outstanding notes. Any outstanding notes that
remain outstanding after the exchange offer, together with the notes issued in
the exchange offer, will be treated as a single class of securities under the
indenture for voting purposes. When we refer to the term "note" or "notes" in
this "Description of Notes" section, we are referring to both the outstanding
notes and the notes to be issued in the exchange offer. When we refer to
"holders" of the notes, we are referring to those persons who are the registered
holders of the notes on the books of the registrar appointed under the
indenture.
The indenture also contains provisions which would allow us to issue up to
$50 million of additional notes having the same terms as the notes described in
this section if we comply with the requirements contained in the indenture. If
any additional notes are issued, they will be considered part of the same issue
as the notes, and will vote on all matters with these notes. For purposes of
this "Description of Notes" section, however, reference to the "notes" does not
include the "additional notes."
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of these notes.
BRIEF DESCRIPTION OF THE NOTES AND THE SUBSIDIARY GUARANTEES
The Notes
The notes:
- are general, unsecured obligations of Richmont Marketing Specialists;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of Richmont Marketing Specialists;
- are senior in right of payment to all existing and future Subordinated
Obligations of Richmont Marketing Specialists; and
- are unconditionally guaranteed by the guarantor subsidiaries identified
immediately below.
The Subsidiary Guarantees
The notes are fully and unconditionally guaranteed by the following
subsidiaries of Richmont Marketing Specialists, each of which is referred to as
a "guarantor subsidiary":
- Marketing Specialists Sales Company
- Bromar, Inc.
- Brokerage Services, Inc.
- Atlas Marketing Company, Inc.
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- Century Food Brokers of Hickory, Inc.
- East Coast Food Brokerage, Inc.
- Ultimate Food Sales, Inc.
- Cumberland Food Brokers, Inc.
- Meatmaster Brokerage, Inc.
Future subsidiaries of Richmont Marketing Specialists will also be required
to guarantee the notes under the circumstances described below under the heading
"Covenants -- Additional Guarantor Subsidiaries."
The subsidiary guarantees:
- are general, unsecured obligations of each guarantor subsidiary;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of each guarantor subsidiary; and
- are senior in right of payment to all existing and future Subordinated
Obligations of each guarantor subsidiary.
As of December 31, 1998, Richmont Marketing Specialists and the guarantor
subsidiaries had an outstanding letter of credit issued under the senior credit
facility in the amount of $1,371,777. As indicated above and discussed in detail
under the heading "Subordination" below, payments on the notes and under the
subsidiary guarantees will be subordinated to the payment of Senior
Indebtedness, including the letter of credit. The indenture also permits
Richmont Marketing Specialists and the guarantor subsidiaries to incur
additional Senior Indebtedness.
As of the date of this prospectus, all of our subsidiaries are "Restricted
Subsidiaries." However, under the circumstances described below under the
heading "Covenants -- Designation of Restricted and Unrestricted Subsidiaries,"
we will be permitted to designate certain of our subsidiaries as "Unrestricted
Subsidiaries." Unrestricted Subsidiaries will not be subject to many of the
covenants contained in the indenture. Unrestricted Subsidiaries will not
guarantee these notes.
PRINCIPAL, MATURITY AND INTEREST
We have issued outstanding notes in the aggregate principal amount of
$100,000,000. The notes issued in the exchange offer will be treated as a
continuation of the outstanding notes. The notes mature on December 15, 2007.
The notes bear interest at a rate equal to 10 1/8% per annum, payable
semi-annually in arrears on June 15 and December 15 of each year. We will make
each interest payment to the holders of record of these Notes on the immediately
preceding June 1 or December 1.
Interest on the notes is computed on the basis of a 360 day year comprised
of twelve 30 day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
Principal and interest payments on the notes will be made at the corporate
trust office of the trustee, at 2200 Ross Avenue, 5th Floor, Dallas, Texas 75201
unless we elect to make interest payments by check mailed to the holders of the
notes at their registered addresses.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee has also been appointed to act as paying agent and registrar.
We may change the paying agent and registrar without prior notice to the holders
of the notes, and Richmont Marketing Specialists or any of our wholly-owned
subsidiaries may act as paying agent or registrar.
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TRANSFER AND EXCHANGE
Any holder of these notes may transfer and exchange notes in accordance
with the indenture. The registrar and the trustee may require a holder, among
other things, to furnish appropriate endorsements and transfer documents, and we
may require a holder to pay any taxes and fees required by law or permitted
under the indenture. We are not required to transfer or exchange any note that
has been selected for redemption. Also, we are not required to transfer or
exchange any note for a period of 15 days before a selection of notes to be
redeemed.
The registered holder of a note will be treated as the owner for all
purposes.
SUBORDINATION
The payment of principal, premium and interest, if any, on the notes:
- is subordinate in right of payment to all of Richmont Marketing
Specialists' existing and future Senior Indebtedness;
- ranks equal in right of payment with all of Richmont Marketing
Specialists' existing and future Senior Subordinated Indebtedness and all
Deferred Obligations that existed on or before December 19, 1997; and
- is senior in right of payment to all of Richmont Marketing Specialists'
existing and future Subordinated Obligations and any Deferred Obligations
incurred after December 19, 1997.
The notes are also effectively subordinated to any of Richmont Marketing
Specialists' Secured Indebtedness to the extent of the value of the assets
securing the Secured Indebtedness. However, payment on the notes made from the
trust described under the heading "Defeasance" below is not subordinated to any
Senior Indebtedness or subject to the payment restrictions described below.
Holders of Richmont Marketing Specialists' Senior Indebtedness will be
entitled to receive payment in full of all obligations due in respect of the
Senior Indebtedness before the holders of the notes will be entitled to receive
any payment on the notes in the event of any distribution to our creditors:
(1) in any liquidation or dissolution of Richmont Marketing
Specialists; or
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding affecting Richmont Marketing Specialists or its
property.
In addition, we may not make any payment on the notes, including any
defeasance or optional redemption of the notes, if:
(1) with respect to any of our Senior Indebtedness:
(a) a payment default occurs and is continuing beyond the
applicable grace period; or
(b) any other default occurs which causes the maturity of the
Senior Indebtedness to be accelerated in accordance with its terms; or
(2) with respect to any of Designated Senior Indebtedness, any default
occurs and is continuing that permits holders of the Designated Senior
Indebtedness to accelerate its maturity, and the trustee receives a notice
of the default (a "Payment Blockage Notice") from a representative of the
holders of the Designated Senior Indebtedness.
Payments on the notes shall be resumed:
(1) in the case of a payment default or a default under which the
maturity of the Senior Indebtedness is automatically accelerated, on the
date on which such default is cured or waived; or
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(2) in the case of a nonpayment default, on the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the date
on which the applicable Payment Blockage Notice is received, unless the
maturity of the Designated Senior Indebtedness has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice, provided that holders of Bank Indebtedness have the right to deliver a
Payment Blockage Notice at least once during every 360 day period.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee may be the basis for a
subsequent Payment Blockage Notice unless that nonpayment default has been cured
or waived for a period of not less than 90 consecutive days.
We must promptly notify the holders of Designated Senior Indebtedness if
payment on the notes is accelerated because of an Event of Default. We may not
pay the notes until 5 business days after the holders of the Designated Senior
Indebtedness receive that notice and, thereafter, we may pay the notes only if
the subordination provisions of the Indenture otherwise permit payment at that
time.
As a result of the subordination provisions described in this section, in
the event of a bankruptcy, liquidation or reorganization of Richmont Marketing
Specialists, Holders of the notes may recover less ratably than holders of our
Senior Indebtedness. See "Risk Factors" for a discussion of the risks to you
associated with the subordination of the notes.
Although the indenture contains limitations on the amount of additional
Indebtedness that we and the guarantor subsidiaries may incur in the future, the
amount of additional Indebtedness could be substantial. In any case, such
Indebtedness may be Senior Indebtedness that ranks senior in right of payment to
payments on the notes or the subsidiary guarantees. See
"Covenants -- Limitations on Indebtedness" below for a description of the
restrictions on our ability to incur additional debt.
SUBSIDIARY GUARANTEES
The guarantor subsidiaries have jointly and severally guaranteed our
obligations under the notes and the indenture. The guarantor subsidiaries have
also agreed to pay the expenses incurred by the trustee or the holders in
enforcing any rights under the subsidiary guarantees.
Payment under each subsidiary guarantee:
- is subordinate in right of payment to all existing and future Senior
Indebtedness of that guarantor subsidiary;
- ranks equal in right of payment with the existing and future Senior
Subordinated Indebtedness of that guarantor subsidiary and all Deferred
Obligations of that guarantor subsidiary existing on December 19, 1997;
and
- is senior in right of payment to all existing and future Subordinated
Obligations of that guarantor subsidiary and all Deferred Obligations of
that guarantor subsidiary incurred after December 19, 1997.
Each subsidiary guarantee will also be effectively subordinated to any
Secured Indebtedness of that guarantor subsidiary to the extent of the value of
the assets securing such Secured Indebtedness.
Each subsidiary guarantee is limited in amount so as not to constitute a
fraudulent conveyance or fraudulent transfer under applicable law. See "Risk
Factors" for a discussion of these limitations.
Future subsidiaries of Richmont Marketing Specialists will also be required
to guarantee the Notes if that subsidiary incurs any Indebtedness. See
"Covenants -- Future Guarantor Subsidiaries" for a discussion of our obligation
to have future subsidiaries become guarantors of these notes.
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The subsidiary guarantee of a guarantor subsidiary will be released:
(1) upon payment in full of all of the guaranteed obligations;
(2) upon any merger or consolidation of the guarantor subsidiary with
or into any Person other than Richmont Marketing Specialists or a
subsidiary of Richmont Marketing Specialists if the guarantor subsidiary is
not the surviving entity; or
(3) upon the sale by Richmont Marketing Specialists or any of its
subsidiaries of the capital stock of the guarantor subsidiary, resulting in
the guarantor subsidiary no longer being a subsidiary of Richmont Marketing
Specialists;
provided, in the case of any merger, consolidation or sale described in items
(2) or (3) above, any proceeds received by Richmont Marketing Specialists are
applied in accordance with the covenant described below under the subheading
"Repurchase at the Option of Holders -- Asset Sales and Sales of Subsidiary
Stock."
OPTIONAL REDEMPTION
At any time prior to December 15, 2000, Richmont Marketing Specialists may
on one or more occasions redeem up to 35% of the notes originally issued under
the indenture at a redemption price of 110.125% of the principal amount of the
notes redeemed, plus accrued and unpaid interest to the redemption date, with
the Net Cash Proceeds of one or more Public Equity Offerings; provided that at
least $65 million in aggregate principal amount of the notes remains outstanding
after each redemption.
Except pursuant to the preceding paragraph, we will not have the option of
redeeming the notes prior to December 15, 2002.
On and after December 15, 2002, we may redeem all or a part of the notes
upon not less than 30 nor more than 60 days' notice to the holders of the notes,
at the redemption prices (expressed as percentages of the principal amount) set
forth below, plus accrued and unpaid interest thereon, if any, to the applicable
redemption date, if redeemed during the 12 month period beginning on December 15
of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2002........................................................ 105.063%
2003........................................................ 103.375%
2004........................................................ 101.688%
2005 and thereafter......................................... 100.000%
</TABLE>
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
If a Change of Control occurs, each holder will have the right to require
Richmont Marketing Specialists to repurchase all or any part of the holder's
notes. The purchase price will equal 101% of the principal amount of the notes
redeemed, plus accrued and unpaid interest, if any, to the date of purchase.
Each of the following events constitutes a "Change of Control":
(1) prior to the first public offering of Voting Stock of Richmont
Marketing Specialists, the Permitted Holders either:
(A) 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 total voting power of the Voting Stock of Richmont
Marketing Specialists, whether as a result of any issuance of securities
of Richmont Marketing Specialists, any merger, consolidation,
liquidation or dissolution of
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Richmont Marketing Specialists, any direct or indirect transfer of
securities by any Permitted Holder or otherwise; or
(B) 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 item (1), the Permitted Holders shall be deemed to
"beneficially own" any Voting Stock of an entity held by any other entity
(the "parent entity") so long as the Permitted Holders beneficially own,
directly or indirectly, a majority of the voting power of the Voting Stock
of the parent entity;
(2) (A) 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 item (1) 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 Richmont Marketing Specialists; and
(B) the Permitted Holders "beneficially own" (as defined in item (1)
above), directly or indirectly, in the aggregate a lesser percentage of the
total voting power of the Voting Stock of Richmont Marketing Specialists
than the person referred to in clause (A), and the Permitted Holders 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 item (2), such other person shall be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation, if such other person "beneficially owns" (as defined in
this item (2)), 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 item (1) 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
(3) during any period of 2 consecutive years, individuals who at the
beginning of the 2 year period constituted the board of directors of
Richmont Marketing Specialists cease for any reason to constitute a
majority of the board of directors then in office. For purposes of this
item (3), the board of directors at the beginning of the 2 year period
shall be deemed to include any new directors whose election by the board of
directors or whose nomination for election by the Richmont Marketing
Specialists' shareholders was approved by a vote of a majority of the
directors 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.
Within 30 days following any Change of Control, unless we have previously
mailed a redemption notice with respect to all then-outstanding notes, we will
mail a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase the notes on a
specified repurchase date pursuant to the procedures required by the indenture
and described in that notice. We will comply with the requirements of Rule 14e-1
under the Exchange Act, and any other securities laws and regulations to the
extent such laws and regulations are applicable, in connection with the
repurchase of notes made as a result of a Change of Control.
On the repurchase date, we will purchase all the notes that have been
tendered in accordance with the procedures set forth in the notice delivered to
the holders. We will pay each holder that has tendered notes the purchase price
plus any accrued interest up to the date of the repurchase.
Prior to complying with any of the provisions described in this "Change of
Control" section, but in any event within 30 days following the Change of
Control, Richmont Marketing Specialists will (1) repay
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or offer to repay all Bank Indebtedness or (2) obtain the requisite consent
under the agreement governing the Bank Indebtedness to permit the repurchase of
the notes required by this covenant.
The provisions described above require us to make an offer to repurchase
notes in the event of a Change of Control regardless of whether or not any other
provisions of the indenture are applicable. Our obligations under this "Change
of Control" covenant may only be satisfied by completion of the change of
control offer described above, or waived by the holders of all the outstanding
notes. Except as described above with respect to a Change of Control, the
indenture does not require us to repurchase or redeem the notes in the event of
a takeover, recapitalization or similar transaction.
Our senior credit facility currently prohibits us from purchasing any
notes, and also provides that certain Change of Control events with respect to
us would constitute a default under our senior credit facility. Any future
agreements governing Senior Indebtedness may also contain similar restrictions.
In the event a Change of Control occurs at a time when we are prohibited from
purchasing notes, we may seek the consent of our senior lenders to purchase the
notes or attempt to refinance the borrowings that prohibit the purchase. If we
do not obtain such a consent or repay those borrowings, we will remain
prohibited from purchasing the notes. In that case, our failure to repurchase
the notes would constitute an Event of Default which would, in turn, constitute
a default under the agreements governing our Senior Indebtedness. In those
circumstances, the subordination provisions of the indenture would restrict
payments to the holders of the notes.
The Change of Control purchase feature is a result of negotiations between
us and the initial purchaser of the outstanding notes. We have no present
intention of engaging in a transaction involving a Change of Control, although
it is possible that we may decide to do so in the future. Subject to the
limitations contained in the indenture, we could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control, but that could
increase the amount of Indebtedness outstanding at that time or otherwise affect
our capital structure or credit ratings.
Richmont Marketing Specialists will not be required to make an offer to
repurchase the notes upon a Change of Control if a third party makes the offer
in the manner in compliance with the terms of the indenture, and that third
party purchases all notes validly tendered and not withdrawn pursuant to the
offer.
Asset Sales and Sales of Subsidiary Stock
We will not, and will not permit any of our Restricted Subsidiaries to,
make any Asset Disposition unless:
(1) Richmont Marketing Specialists (or its Restricted Subsidiary, as
the case may be) receives consideration at the time of the Asset
Disposition at least equal to the fair market value of the assets or shares
sold or disposed of; and
(2) at least 85%, or 100% in the case of lease payments, of the
consideration received by Richmont Marketing Specialists or the Restricted
Subsidiary is in the form of cash. For purposes of this provision, each of
the following are deemed to be cash:
(a) any Indebtedness of Richmont Marketing Specialists, other than
Disqualified Stock, or any Restricted Subsidiary that is assumed by the
transferee of the assets pursuant to a customary novation agreement that
releases Richmont Marketing Specialists or the Restricted Subsidiary
from further liability; and
(b) any securities received by Richmont Marketing Specialists or
any Restricted Subsidiary from the transferee that are promptly
converted by Richmont Marketing Specialists or such Restricted
Subsidiary into cash.
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In any year in which the aggregate amount of Net Available Cash from Asset
Dispositions exceeds $5 million, we will apply 100% of that excess as follows:
(1) first, within 60 days of the receipt of the Net Available Cash, to
repay Senior Indebtedness or other Indebtedness of any Wholly Owned
Subsidiary that requires repayment by its terms, other than Preferred
Stock; and
(2) second, within 270 days of the receipt of the Net Available Cash,
to reinvest in Additional Assets.
If there is at least $10 million in Net Available Cash from any Asset
Disposition that is not applied or invested as provided in the preceding
paragraph, we will make an offer to the holders of the notes and, if we so elect
or are required, to the holders of any other Indebtedness that ranks equal in
right of payment with the notes, to ratably purchase the notes and that other
Indebtedness. The offer price for the notes will be equal to 100% of the
principal amount of the notes plus any accrued but unpaid interest.
In the event there is insufficient Net Available Cash to repurchase all the
notes and other Indebtedness ranking equally in right of payment with the notes
that has been tendered, we will select the Notes and the other Indebtedness for
redemption on a pro rata basis. If any Net Available Cash remains after the
Notes and other Indebtedness are tendered and repurchased in accordance with the
preceding paragraph, we will repay our other Indebtedness or Indebtedness of our
Restricted Subsidiaries.
Richmont Marketing Specialists will comply with the requirements of Rule
14e-1 under the Exchange Act, and any other securities laws and regulations to
the extent such laws and regulations are applicable, in connection with the
repurchase of notes made in connection with an Asset Disposition.
SELECTION AND NOTICE
If Richmont Marketing Specialists redeems less than all of the notes at any
time, the trustee will select the notes for redemption on a pro rata basis, by
lot or by such other method as the trustee in its sole discretion deems to be
fair and appropriate.
Richmont Marketing Specialists will not redeem notes in denominations of
$1,000 or less in part. Notices of redemption shall be mailed by first class
mail at least 30 but not more than 60 days before the redemption date to each
holder of the notes to be redeemed at its registered address.
If any note is to be redeemed in part only, the notice of redemption
relating to such note will state the portion of the principal amount of the note
to be redeemed. A new note in principal amount equal to the unredeemed portion
will be issued in the name of the holder upon cancellation of the original note.
Notes called for redemption become due on the date fixed for redemption. On and
after the redemption date, interest ceases to accrue on notes or portions of
notes called for redemption.
COVENANTS
Limitations on Indebtedness
Richmont Marketing Specialists will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable, contingent
or otherwise, with respect to (collectively, "incur") any Indebtedness,
including Indebtedness deemed incurred by reason of any person becoming a
Restricted Subsidiary, unless:
(1) if such Indebtedness is incurred on or prior to December 31, 1999,
the Consolidated Coverage Ratio would be greater than 2.00:1.00; or
(2) if such Indebtedness is incurred after December 31, 1999, the
Consolidated Coverage Ratio would be greater than 2.25:1.00.
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The restrictions set forth in the preceding paragraph do not apply to any
of the following types of Indebtedness:
(1) Bank Indebtedness or Indebtedness incurred pursuant to any other
revolving credit, term loan or working capital financings; provided that
the aggregate principal amount of such Indebtedness at any time outstanding
does not exceed (x) the greater of $25 million and the Borrowing Base in
effect from time to time, less (y) the aggregate amount of all repayments
of principal on the Indebtedness that have been made with the Net Available
Cash from Asset Dispositions;
(2) Indebtedness between or among Richmont Marketing Specialists and
any of its Wholly-Owned Restricted Subsidiaries; provided, however, that
the following will be deemed to constitute the incurrence of Indebtedness:
(a) any subsequent issuance or transfer of any capital stock that
results in any Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary, or any other event having the same result; and
(b) any subsequent sale or transfer of any such Indebtedness,
except to Richmont Marketing Specialists or a Wholly Owned Subsidiary;
(3) Indebtedness of Richmont Marketing Specialists or its Restricted
Subsidiaries represented by the notes or the subsidiary guarantees;
(4) Indebtedness of Richmont Marketing Specialists or its Restricted
Subsidiaries outstanding on December 19, 1997 (other than Indebtedness
described in items (1) and (2) above);
(5) Indebtedness of a Restricted Subsidiary incurred and outstanding
on or prior to the date on which such Restricted Subsidiary was acquired by
Richmont Marketing Specialists, other than Indebtedness incurred as
consideration in, in contemplation of, or to provide all or any portion of
the funds or credit support utilized to consummate the transaction or
series of related transactions pursuant to which the Restricted Subsidiary
became a subsidiary; provided, however, that at the time the Restricted
Subsidiary is acquired, and after giving effect to the incurrence of such
Indebtedness, Richmont Marketing Specialists would have been able to incur
$1.00 of additional Indebtedness under the Consolidated Coverage Ratio test
in the first paragraph of this covenant;
(6) Indebtedness under performance bonds, bankers' acceptances,
letters of credit, surety or appeal bonds or guarantees resulting from the
endorsement of negotiable instruments provided by Richmont Marketing
Specialists and its Restricted Subsidiaries in the ordinary course of
business and which do not secure other Indebtedness;
(7) Indebtedness under Currency Agreements and Interest Rate
Agreements, in each case entered into for bona fide hedging purposes in the
ordinary course of business; provided that the Currency Agreements and
Interest Rate Agreements do not increase the Indebtedness outstanding at
any time other than as a result of fluctuations in foreign currency
exchange rates or interest rates or by reason of fees, indemnities and
compensation payable;
(8) Indebtedness of Richmont Marketing Specialists or any Restricted
Subsidiary consisting of obligations for purchase price adjustments in
connection with the acquisition or disposition of assets by Richmont
Marketing Specialists or any Restricted Subsidiary permitted under the
indenture, provided that the principal amount of all Indebtedness incurred
pursuant to this item (8), when taken together with all other outstanding
Indebtedness incurred pursuant to this item (8), shall not exceed $3
million;
(9) Indebtedness of Richmont Marketing Specialists or a Restricted
Subsidiary owed to any Person in connection with workers' compensation
insurance provided by such Person to Richmont Marketing Specialists or the
Restricted Subsidiary or pursuant to reimbursement or indemnification
obligations to such Person, in each case incurred in the ordinary course of
business;
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(10) Purchase Money Indebtedness, Attributable Debt and Capitalized
Lease Obligations in an aggregate principal amount not to exceed $2 million
at any time outstanding;
(11) Refinancing Indebtedness incurred in respect of any Indebtedness
described in items (3) through (10) above or in the first paragraph of this
covenant; and
(12) Indebtedness not otherwise permitted to be incurred by the first
paragraph of this covenant or by items (1) through (11) above, in an
aggregate principal amount at any time outstanding not in excess of $15
million.
Notwithstanding the preceding paragraph, neither Richmont Marketing
Specialists nor its Restricted Subsidiaries may incur Indebtedness qualifying
under items (1) through (12) above if the proceeds are used, directly or
indirectly, to repay or refinance any Subordinated Obligations unless that
Indebtedness will be subordinated to the notes to at least the same extent as
the Subordinated Obligations.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the types of
Indebtedness described in items (1) through (12) above, or is entitled to be
incurred pursuant to the first paragraph of this covenant, we will be permitted
to classify that item of Indebtedness in any manner that complies with this
covenant.
The maximum amount of Indebtedness that Richmont Marketing Specialists or
any Restricted Subsidiary may incur under this covenant shall not be deemed to
be exceeded solely as a result of fluctuations in the exchange rates of
currencies.
No Senior Subordinated Indebtedness
Richmont Marketing Specialists may not incur any Indebtedness that is
subordinate or junior in any respect to any Senior Indebtedness and senior in
right of payment to the notes. Richmont Marketing Specialists also may not
become liable with respect to any Deferred Obligations unless they are expressly
subordinated in right of payment to the notes.
No guarantor subsidiary may incur any Indebtedness that is subordinate or
junior in any respect to any of that guarantor subsidiary's Senior Indebtedness
and senior in right of payment to the subsidiary guarantees. No guarantor
subsidiary may become liable with respect to any Deferred Obligations unless
they are expressly subordinated in right of payment to the subsidiary
guarantees.
Restrictions on Secured Indebtedness
Richmont Marketing Specialists and the guarantor subsidiaries may not incur
any Secured Indebtedness that is not Senior Indebtedness, unless, at the time
the Secured Indebtedness is incurred:
- in the case of Secured Indebtedness that ranks equal in right of payment
to the notes or the subsidiary guarantees, the notes and the subsidiary
guarantees are secured equally and ratably with the Secured Indebtedness
for so long as the Secured Indebtedness is secured by a Lien; or
- in the case of Secured Indebtedness that is subordinated in right of
payment to the notes or the subsidiary guarantees, the notes and the
subsidiary guarantees are secured on a senior basis for so long as the
Secured Indebtedness is secured by a Lien.
Restricted Payments
Richmont Marketing Specialists will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on or in respect of its capital stock, including, without
limitation, any payment in connection with any merger or
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consolidation involving Richmont Marketing Specialists or any of its
Restricted Subsidiaries, except for:
(a) dividends or distributions payable solely in capital stock,
other than Disqualified Stock; and
(b) dividends or distributions payable to Richmont Marketing
Specialists or to another Restricted Subsidiary;
(2) purchase, redeem, retire or otherwise acquire for value any
capital stock of Richmont Marketing Specialists or its Restricted
Subsidiaries held by any party other than Richmont Marketing Specialists or
one of its Restricted Subsidiaries;
(3) purchase, redeem, defease, retire or otherwise acquire for value
any Subordinated Obligations prior to any scheduled maturity, repayment or
sinking fund payment, other than:
(a) purchases made in anticipation of satisfying a sinking fund
obligation, installment payment or final maturity payment, in each case
due within 1 year of the date of acquisition; and
(b) reductions of Subordinated Obligations consisting of purchase
price adjustments in connection with the acquisition or disposition of
assets by Richmont Marketing Specialists or one of its Restricted
Subsidiaries; and
(4) make any Investment other than a Permitted Investment (all such
payments and other actions set forth in clauses (1) through (4) above being
collectively referred to as "Restricted Payments"),
unless, at the time the Restricted Payment is made:
(1) no Default has occurred and is continuing, or would occur as a
consequence of the Restricted Payment;
(2) Richmont Marketing Specialists could, at the time such Restricted
Payment is made and after giving effect to the Restricted Payment, incur at
least $1.00 of additional Indebtedness under the Consolidated Coverage
Ratio test set forth in the first paragraph of the covenant described above
under the caption "-- Limitations on Indebtedness"; or
(3) the Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made after December 19, 1997, is less
than the sum of:
(a) 50% of the Consolidated Net Income accrued during the period
from December 19, 1997 to the end of the most recent fiscal quarter
ending prior to the date of the Restricted Payment for which financial
statements are then available, or, if the Consolidated Net Income for
that period is a deficit, minus 100% of such deficit;
(b) 100% of the aggregate Net Cash Proceeds received by Richmont
Marketing Specialists from the issuance or sale of its capital stock
(other than Disqualified Stock) subsequent to December 19, 1997, other
than Net Cash Proceeds received from the issuance or sale of its capital
stock to any of its subsidiaries or to an employee stock ownership plan
or other trust established by Richmont Marketing Specialists or any of
its subsidiaries;
(c) 100% of the aggregate Net Cash Proceeds received by Richmont
Marketing Specialists from the issuance or sale of its capital stock
(other than Disqualified Stock) to an employee stock ownership plan or
other trust subsequent to December 19, 1997; provided, however, that if
the plan or trust incurs any Indebtedness owing to, or guaranteed by,
Richmont Marketing Specialists or any Restricted Subsidiary to finance
the acquisition of the capital stock, the aggregate amount under this
subsection (c) shall be limited to:
(1) the Net Cash Proceeds received by Richmont Marketing
Specialists from the issuance of its capital stock, less
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(2) the Indebtedness incurred to or guaranteed by Richmont
Marketing Specialists or any Restricted Subsidiary, less
(3) any increase in Richmont Marketing Specialists' Consolidated
Net Worth resulting from principal repayments made by the plan or
trust with respect to the Indebtedness incurred to finance the
capital stock;
(d) the amount by which the Indebtedness of Richmont Marketing
Specialists or its Restricted Subsidiaries is reduced on Richmont
Marketing Specialists' balance sheet upon the conversion or exchange of
any Indebtedness of Richmont Marketing Specialists or its Restricted
Subsidiaries issued after December 19, 1997 into Richmont Marketing
Specialists' capital stock, less the amount of any cash or other
property distributed by Richmont Marketing Specialists or any Restricted
Subsidiary upon such conversion or exchange; and
(e) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from any of the following:
(1) payments of dividends, repayments of the principal of loans
or advances or other transfers of assets to Richmont Marketing
Specialists or any Restricted Subsidiary from Unrestricted
Subsidiaries;
(2) the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries; provided the amount of the net reduction in Investments
resulting from a redesignation described in this section is limited
to the amount of Investments previously made by Richmont Marketing
Specialists or any Restricted Subsidiary in that Unrestricted
Subsidiary, which amount was included in the calculation of the
amount of Restricted Payments; or
(3) the sale, liquidation or repayment of any Investment in
Unrestricted Subsidiaries, in an amount not to exceed lesser of (x)
the net cash proceeds received by Richmont Marketing Specialists or
any Restricted Subsidiary in connection with that sale, liquidation
or repayment and (y) the initial amount of that Investment, which
amount was included in the calculation of the amount of Restricted
Payments.
The preceding provisions do not prohibit:
(1) the purchase or redemption of Richmont Marketing Specialists'
capital stock or Subordinated Obligations in exchange for, or out of the
proceeds of the substantially concurrent sale of, Richmont Marketing
Specialists' capital stock, other than Disqualified Stock and capital stock
issued or sold to a subsidiary or an employee stock ownership plan or other
trust established by Richmont Marketing Specialists or any of its
subsidiaries; provided, however, that the amount of any Net Cash Proceeds
from the sale that are utilized for the purchase or redemption will be
excluded from clause (3)(b) or 3(c)of the preceding paragraph; and provided
further that the amount of any purchase or redemption will be excluded in
the calculation of the amount of Restricted Payments;
(2) the purchase or redemption of Richmont Marketing Specialists'
Subordinated Obligations in exchange for, or out of the proceeds of the
substantially concurrent sale of, any Indebtedness which is permitted to be
incurred pursuant to items (1) through (12) of the second paragraph of the
covenant described under "-- Limitations on Indebtedness"; provided,
however, that such a purchase or redemption will be excluded in the
calculation of the amount of Restricted Payments;
(3) the purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under the
heading "Repurchase at the Option of the Holders -- Asset Sales and Sales
of Subsidiary Stock"; provided, however, that such a purchase or redemption
will be excluded in the calculation of the amount of Restricted Payments;
(4) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration the dividend would have
complied with the provisions of this covenant; provided, however, that such
dividend will be included in the calculation of the amount of Restricted
Payments;
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(5) the repurchase of shares of, or options to purchase shares of,
common stock of Richmont Marketing Specialists or any of its subsidiaries
from any of their employees, former employees, directors or former
directors, or permitted transferees of such employees, former employees,
directors or former directors, pursuant to the terms of agreements or plans
approved by the board of directors under which such individuals purchase or
sell, or are granted the option to purchase or sell, shares of such common
stock; provided, however, that the aggregate amount of these repurchases
(other than repurchases made with respect to a deceased person that are
funded using the proceeds of a life insurance policy relating to such
person of which Richmont Marketing Specialists or a Restricted Subsidiary
is the beneficiary) shall not exceed $5 million in any calendar year;
provided further, however, that these repurchases shall be included in the
calculation of the amount of Restricted Payments;
(6) the purchase for total consideration not in excess of $10 million
of any of Richmont Marketing Specialists' common stock held by members of
its senior management who were not members of the board of directors on
December 19, 1997, so long as no Default has occurred or is continuing or
would result from the purchase; provided, however, that such purchase will
be included in the calculation of the amount of Restricted Payments;
(7) dividends, distributions or other payments made on or with respect
to capital stock to the extent payable in shares of capital stock of such
person, other than Disqualified Stock; or
(8) other Restricted Payments in an aggregate amount not to exceed $3
million.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
Richmont Marketing Specialists will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its capital stock
or pay any Indebtedness owed to Richmont Marketing Specialists;
(2) make any loans or advances to Richmont Marketing Specialists; or
(3) transfer any of its property or assets to Richmont Marketing
Specialists.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) any agreement in effect or entered into on December 19, 1997;
(2) any agreement governing Indebtedness of a Restricted Subsidiary in
effect on the date on which that Restricted Subsidiary was acquired by
Richmont Marketing Specialists, except to the extent such Indebtedness was
incurred in connection with or in contemplation of that acquisition;
(3) Refinancing Indebtedness, provided that the encumbrances and
restrictions contained in any refinancing agreement or amendment, taken as
a whole, are no less favorable to the noteholders than the encumbrances and
restrictions contained in the original agreements;
(4) customary non-assignment provisions in any lease, license or
similar contract;
(5) any agreement to transfer, option or other right with respect to,
or any Lien on, any property or assets of Richmont Marketing Specialists or
any Restricted Subsidiary, to the extent such agreement or Lien is
permitted by the Indenture;
(6) any security agreement or mortgage securing Indebtedness of a
Restricted Subsidiary to the extent the encumbrance or restriction
restricts the transfer of the property subject to the security agreement or
mortgage; and
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(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition.
Merger and Consolidation
Richmont Marketing Specialists may not consolidate or merge with or into
another Person, or convey, transfer or lease all or substantially all its assets
to any Person, unless:
(1) either (a) Richmont Marketing Specialists is the surviving
corporation or (b) the Person formed by or surviving the consolidation or
merger, or the Person to which the conveyance or transfer of assets has
been made, is a corporation, limited liability company, limited partnership
or business trust organized and existing under the laws of the United
States of America, any state thereof or the District of Columbia;
(2) the Person formed by or surviving the consolidation or merger or
the Person to which the conveyance, transfer of assets has been made
expressly assumes all of Richmont Marketing Specialists' obligations under
the notes and the indenture under agreements reasonably satisfactory to the
trustee;
(3) immediately after giving effect to such transaction, no Default
has occurred and is continuing;
(4) the Person formed by or surviving the consolidation or merger, if
other than Richmont Marketing Specialists:
(a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than Richmont Marketing Specialists'
Consolidated Net Worth immediately prior to the transaction; and
(b) will, on the date of the transaction and after giving effect to
the transaction and any related financing transactions, be permitted to
incur an additional $1.00 of Indebtedness under the Consolidated
Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption "-- Limitations on Indebtedness"; and
(5) Richmont Marketing Specialists has delivered to the trustee an
officers' certificate and an opinion of its counsel, each stating that the
consolidation, merger or transfer and the documents delivered under item
(2) above comply with the terms of the indenture.
This "Merger and Consolidation" covenant does not apply to (a) any
consolidation, merger, conveyance, transfer or lease between or among Richmont
Marketing Specialists and its Restricted Subsidiaries and (b) any merger of
Richmont Marketing Specialists with an Affiliate incorporated solely for the
purpose of reincorporating Richmont Marketing Specialists in another
jurisdiction to realize tax or other benefits.
Transactions with Affiliates
Richmont Marketing Specialists will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into or conduct any
transaction with any Affiliate (an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable
to Richmont Marketing Specialists or the relevant Restricted Subsidiary
than those that could be obtained in a comparable transaction by Richmont
Marketing Specialists or the Restricted Subsidiary with an unrelated party;
(2) Richmont Marketing Specialists delivers to the trustee:
(a) with respect to any Affiliate Transaction involving
consideration in excess of $1 million, a resolution of its board of
directors set forth in an officer's certificate certifying that the
Affiliate
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Transaction complies with this covenant and that the Affiliate
Transaction has been approved by a majority of the disinterested members
of the board of directors; and
(b) with respect to any Affiliate Transaction involving
consideration in excess of $5 million, an opinion as to the fairness or
reasonableness of the Affiliate Transaction from a financial point of
view issued by a nationally recognized accounting, appraisal or
investment banking firm.
The following items shall not be deemed to be Affiliate Transactions and
are therefore not subject to the provisions of the preceding paragraph:
(1) Restricted Payments permitted by the covenant described under the
heading "-- Restricted Payments" above;
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by Richmont
Marketing Specialists' board of directors or the board of directors of the
relevant Restricted Subsidiary;
(3) loans or advances to employees made in the ordinary course of
business in accordance with the past practices up to $500,000 in the
aggregate outstanding at any one time;
(4) the payment of reasonable directors fees to persons who are not
otherwise Affiliates of Richmont Marketing Specialists or its Restricted
Subsidiaries;
(5) transactions between or among Richmont Marketing Specialists
and/or its Wholly Owned Subsidiaries;
(6) indemnification or insurance provided to officers or directors of
Richmont Marketing Specialists and its Restricted Subsidiaries approved in
good faith by the relevant board of directors;
(7) payments under, or amendments or extensions of, the lease
agreement between Marketing Specialists Sales Company, a subsidiary of
Richmont Marketing Specialists, and ABP Partners Ltd. relating to the
Irving, Texas facility, provided that any amendments or extensions are on
commercially reasonable terms as certified by a recognized commercial real
estate firm that is not an Affiliate of Richmont Marketing Specialists;
(8) leases of real property from any Permitted Holder, provided that
the leases are on commercially reasonable terms as certified by a
recognized commercial real estate firm that is not an Affiliate of Richmont
Marketing Specialists;
(9) fees paid to Permitted Holders other than any Management
Stockholder for management services in an aggregate amount not to exceed
$500,000 per year, plus related out-of-pocket expenses; and
(10) sales of Richmont Marketing Specialists' capital stock to
Affiliates.
Limitation on Sales and Issuances of Capital Stock of Restricted Subsidiaries
Richmont Marketing Specialists will not sell any shares of capital stock of
a Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its capital stock or the capital
stock of another Restricted Subsidiary, unless:
(1) the issuance or sale is to Richmont Marketing Specialists or a
Wholly Owned Subsidiary;
(2) immediately after giving effect to the issuance or sale, the
Restricted Subsidiary whose stock is sold or issued is no longer a
Restricted Subsidiary; and
(3) the shares of capital stock issued or sold are directors'
qualifying shares.
The proceeds of any sale of capital stock permitted by this section will be
treated as Net Available Cash from an Asset Disposition and must be applied in
accordance with the terms of the covenant
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described under the subheading "Repurchase at the Option of Holders -- Asset
Sales and Sales of Subsidiary Stock."
Reports
Whether or not required by the Securities and Exchange Commission, so long
as any of these notes are outstanding, Richmont Marketing Specialists will
furnish to the holders of the notes, within the time periods specified in the
Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if Richmont Marketing Specialists were required to file such reports,
including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information
only, a report on the annual financial statements by Richmont Marketing
Specialists' certified independent accountants;
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Richmont Marketing Specialists were required to
file such reports; and
(3) after any initial public offering of capital stock of Richmont
Marketing Specialists, a copy of the annual report that is furnished to
shareholders.
Richmont Marketing Specialists will also comply with the other provisions
of Section 314(a) of the Trust Indenture Act.
Additional Guarantor Subsidiaries
Any Restricted Subsidiary which incurs Indebtedness must become a guarantor
subsidiary and execute and deliver to the trustee a supplemental indenture under
which it guarantees payment of the notes, unless that Restricted Subsidiary is
already a party to the indenture.
Each additional subsidiary guarantee will also be limited in amount so as
not to constitute a fraudulent conveyance or fraudulent transfer under
applicable law. See "Risk Factors -- Fraudulent Transfer Considerations" for
further information.
Designation of Restricted and Unrestricted Subsidiaries
The board of directors may designate any of Richmont Marketing Specialists'
subsidiaries to be an Unrestricted Subsidiary unless that subsidiary, or any of
its subsidiaries, owns any capital stock or Indebtedness of, or owns or holds
any Lien on any property of, Richmont Marketing Specialists or any other
Restricted Subsidiary of Richmont Marketing Specialists; provided, however, that
either:
(1) the subsidiary to be designated as an Unrestricted Subsidiary has
total Consolidated assets of $1,000 or less; or
(2) if the subsidiary to be designated as an Unrestricted Subsidiary
has total Consolidated assets greater than $1,000, the designation would be
permitted under the covenant described under the subheading "-- Restricted
Payments."
The board of directors may also designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation:
(1) Richmont Marketing Specialists could incur $1.00 of additional
Indebtedness under the Consolidated Coverage Ratio test described under
"-- Covenants -- Limitations on Indebtedness"; and
(2) no Default shall have occurred and be continuing.
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Business Activities
Richmont Marketing Specialists will not, and will not permit any Restricted
Subsidiary to, engage in any business other than businesses related, ancillary
or complementary to the businesses conducted on December 19, 1997.
Sale and Leaseback Transactions
Richmont Marketing Specialists will not, and will not permit any Restricted
Subsidiary to, enter into any sale and leaseback transaction relating to any
property unless:
(1) Richmont Marketing Specialists or that Restricted Subsidiary
could:
(a) incur Indebtedness in an amount equal to the Attributable Debt
relating to that sale and leaseback transaction under the Consolidated
Coverage Ratio test set forth in the first paragraph of the covenant
described above under the subheading "-- Limitations on Indebtedness";
and
(b) create a Lien on the property securing the Attributable Debt
without equally and ratably securing the notes under the covenant
described above under the subheading "-- Limitations on Indebtedness";
(2) the net cash proceeds received by Richmont Marketing Specialists
or the Restricted Subsidiary in connection with the sale and leaseback
transaction is at least equal to the fair value, as determined in good
faith by the board of directors, of the property that is the subject of the
sale and leaseback transaction; and
(3) the transfer of the property that is the subject of the sale and
leaseback transaction is permitted by, and Richmont Marketing Specialists
applies the proceeds of the sale and leaseback transaction in compliance
with, the covenant described above under the heading "Repurchase at the
Option of Holders -- Asset Sales and Sales of Subsidiary Stock."
EVENTS OF DEFAULT
Each of the following is an Event of Default:
(1) a default for 30 days in the payment when due of interest on the
notes, whether or not prohibited by the subordination provisions in the
indenture;
(2) a default in payment when due of the principal of or premium, if
any, on the notes, whether or not prohibited by the subordination
provisions in the indenture;
(3) the failure by Richmont Marketing Specialists to comply with its
obligations under the covenant described under the caption
"Covenants -- Merger and Consolidation" above;
(4) the failure by Richmont Marketing Specialists for 30 days after
notice to comply with its obligations described under the captions
"Repurchase at the Option of Holders -- Change of Control" or "Covenants"
above, other that failures to pay on the Notes;
(5) the failure by Richmont Marketing Specialists for 60 days after
notice to comply with any of the other agreements contained in the notes or
the indenture;
(6) a default under any agreement governing Indebtedness of Richmont
Marketing Specialists or any of its Restricted Subsidiaries, if that
default:
(a) is caused by a failure to pay principal or interest on the
Indebtedness prior to the expiration of the applicable grace period
provided in such Indebtedness on the date of such default; or
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(b) results in the acceleration of the Indebtedness prior to its
express maturity;
and, in each case, the total amount of the Indebtedness unpaid or
accelerated exceeds $5 million;
(7) certain events of bankruptcy, insolvency or reorganization with
respect to Richmont Marketing Specialists or a Significant Subsidiary;
(8) failure by Richmont Marketing Specialists or any Restricted
Subsidiary to pay final judgments or decrees in excess of $5 million, which
judgments are not paid, discharged or stayed for a period of 60 days; and
(9) any subsidiary guarantee ceases to be in full force and effect,
except as contemplated by its terms, or any guarantor subsidiary denies or
disaffirm its obligations under the indenture or its subsidiary guarantee,
and this Default continues for 10 days.
In the case of an Event of Default arising from certain events of
bankruptcy, insolvency or reorganization with respect to Richmont Marketing
Specialists or any Significant Subsidiary, the principal and interest on the
notes will become immediately due and payable without further action or notice.
If any other Event of Default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the outstanding notes may declare
the principal and interest on the notes to be immediately due and payable.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a majority
in principal amount of the outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default, other than Defaults
or Events of Default relating to the payment of principal or interest, if the
trustee determines that withholding notice is in the interest of those holders.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an Event of Default occurs and is continuing, the trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the holders unless such holders
have offered to the trustee reasonable indemnity or security against any loss,
liability or expense.
Richmont Marketing Specialists is required to deliver to the trustee
annually a statement regarding compliance with the indenture. Within 30 days of
becoming aware of any Default or Event of Default, Richmont Marketing
Specialists is also required to deliver to the trustee a statement describing
the Default and explaining the action Richmont Marketing Specialists is taking
with respect to the Default.
AMENDMENTS AND WAIVERS
Without the consent of each holder of an outstanding note affected, an
amendment or waiver may not
(1) reduce the principal amount of notes whose holders must consent to
an amendment or waiver;
(2) reduce the rate of or extend the time for payment of interest on
any note;
(3) reduce the principal of or change the fixed maturity of any note;
(4) reduce the premium payable upon the redemption of any note or
change the time at which any note may be redeemed as described under the
caption "Optional Redemption" above;
(5) make any note payable in money other than as stated on the notes;
(6) make any change to the subordination provisions of the indenture
that adversely affects the rights of any holder;
(7) impair the right of any holder to (a) receive payments of
principal and interest on the notes or (b) institute a suit for the
enforcement of any payment on the notes;
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(8) modify the subsidiary guarantees in any manner adverse to the
holders; or
(9) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes,
Richmont Marketing Specialists and the trustee may amend or supplement the
indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for the assumption of Richmont Marketing Specialists'
obligations by a successor corporation;
(3) to provide for uncertificated notes in addition to or in place of
certificated notes;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely affect the
legal rights under the indenture of any the holders; or
(5) to comply with requirements of the Securities and Exchange
Commission in order to effect or maintain the qualification of the
indenture under the Trust Indenture Act.
However, no amendment may be made to the subordination provisions of the
indenture if the amendment adversely affects the rights of any holder of
outstanding Senior Indebtedness unless the holders of the affected Senior
Indebtedness consent to such change.
The consent of the noteholders is not necessary under the indenture to
approve the particular form of any proposed amendment. It is sufficient if the
consent approves the substance of the proposed amendment.
DEFEASANCE
Richmont Marketing Specialists may, at its option and at any time, elect to
have all of its obligations discharged with respect to the outstanding notes and
all of the obligations of the guarantor subsidiaries discharged with respect to
their subsidiary guarantees ("legal defeasance"), except for:
(1) obligations relating to the issuance of temporary notes and the
replacement of lost, stolen, destroyed or mutilated notes;
(2) obligations to maintain a registrar and paying agent for the
notes;
(3) obligations related to the rights, powers, trusts, duties and
immunities of the trustee; and
(4) obligations relating to the defeasance provisions described in
this section.
In addition, Richmont Marketing Specialists may, at its option and at any
time, elect to have its obligations and the obligations of the guarantor
subsidiaries released with respect to certain covenants described in the
indenture ("covenant defeasance"). In the event covenant defeasance occurs,
failure to comply with those covenants will not constitute an Event of Default
with respect to the notes. In addition, if covenant defeasance occurs, certain
events described under the heading "Events of Default", not including payment
defaults or defaults resulting from bankruptcy proceedings, will no longer
constitute Events of Default with respect to the notes.
In order to exercise either the legal defeasance option or the covenant
defeasance option:
(1) Richmont Marketing Specialists must irrevocably deposit with the
trustee, in trust, for the benefit of the holders of the notes, money or
U.S. Government Obligations in an amount that will be sufficient, in the
opinion of a nationally-recognized firm of independent accountants, for the
payment of principal, premium, if any, and interest on the notes to
redemption or maturity, as the case may be;
(2) no Default or Event of Default from bankruptcy or insolvency
events shall have occurred and be continuing at any time in the period
ending on the 123rd day after the date of deposit;
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(3) the defeasance will not result in a breach or violation of, or
constitute a default under, any other agreement or instrument to which
Richmont Marketing Specialists is a party or is bound;
(4) Richmont Marketing Specialists must deliver to the trustee an
opinion of counsel to the effect that the defeasance trust created does not
qualify as an "investment company" under the Investment Company Act of
1940;
(5) in the case of legal defeasance, Richmont Marketing Specialists
must deliver to the trustee an opinion of counsel reasonably acceptable to
the trustee confirming that (a) Richmont Marketing Specialists has received
from, or there has been published by, the Internal Revenue Service a
ruling, or (b) since the date of the indenture, there has been a change in
the applicable federal income tax law, in either case to the effect that,
the holders of the outstanding notes will not recognize income, gain or
loss for federal income tax purposes as a result of the legal defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at me same times as would have been the case if the legal
defeasance had not occurred;
(6) in the case of covenant defeasance, Richmont Marketing Specialists
must deliver to the trustee an opinion of counsel reasonably acceptable to
the trustee confirming that the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a result
of the covenant defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred; and
(7) Richmont Marketing Specialists must deliver to the trustee an
officer's certificate and an opinion of counsel, each stating that all
conditions precedent relating to the defeasance have been complied with by
Richmont Marketing Specialists.
CONCERNING THE TRUSTEE
Chase Bank of Texas, National Association, formerly known as Texas Commerce
Bank National Association, is trustee under the Indenture and has been appointed
by Richmont Marketing Specialists as registrar and paying agent for the notes.
The holders of a majority in principal amount of the outstanding notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the trustee. The indenture provides,
however, that in case an Event of Default, the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to this standard, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any holder of notes, unless such holder shall have offered to the
trustee security and indemnity satisfactory to it against any loss, liability or
expense.
GOVERNING LAW
The indenture provides that it and the notes will be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required.
DEFINITIONS
Set forth below are some of the defined terms used in the indenture. You
should read these definitions in order to understand the terms used in this
"Description of Notes" section and to more fully understand the terms of the
indenture governing the notes. The defined terms used in the indenture and set
forth below may not necessarily correspond to common meanings for the same or
similar terms, and may differ from terms used in similar agreements. We urge you
to read the indenture for full disclosure of all these terms.
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"Affiliate" of any specified Person means any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "Repurchase at the Option of
Holders -- Asset Sales and Sales of Subsidiary Stock" and
"Covenants -- Affiliate Transactions" only, "Affiliate" shall also mean any
beneficial owner of shares representing 5% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of Richmont Marketing Specialists or
of rights or warrants to purchase such Voting Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence of this definition.
"Asset Disposition" means any sale, lease, transfer or other disposition by
Richmont Marketing Specialists or any of its Restricted Subsidiaries of shares
of capital stock of a Restricted Subsidiary, other than directors' qualifying
shares, or of property or other assets (each referred to as a "disposition" for
purposes of this definition).
Notwithstanding the preceding paragraph, the following are not Asset
Dispositions:
(1) any disposition between or among Richmont Marketing Specialists
and its Restricted Subsidiaries, or by a Restricted Subsidiary to a Wholly
Owned Subsidiary;
(2) any disposition of inventory in the ordinary course of business
consistent with past practices of Richmont Marketing Specialists and its
subsidiaries;
(3) for purposes of the provisions described under "Repurchase at the
Option of Holders -- Asset Sales and Sales of Subsidiary Stock" only, a
disposition subject to or permitted by the covenant described under
"Covenants -- Restricted Payments";
(4) any settlement, surrender, waiver or release of contract rights or
contract, tort or other claims;
(5) any grant of licenses of intellectual property including patent,
trademark and know-how;
(6) a sale of obsolete or outdated equipment no longer used or useful
in the business of Richmont Marketing Specialists or its Restricted
Subsidiaries in an aggregate amount not to exceed $1 million in any fiscal
year;
(7) leases and subleases (and licenses and sublicenses) of assets that
are not treated as capitalized leases on the books and records of Richmont
Marketing Specialists or its Restricted Subsidiaries; and
(8) any foreclosure upon a Lien that was not prohibited by the
indenture and that secures any obligation of Richmont Marketing Specialists
or its subsidiaries.
"Attributable Debt" in respect of a sale and leaseback transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
the sale and leaseback transaction, including payments made or to be made in any
period for which such lease has been extended.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (1) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (2) the sum of all such payments.
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"Bank Indebtedness" means the principal and premium, if any, payable under
or in respect of the senior credit facility and the other documents and security
agreements related thereto, and any Refinancing Indebtedness with respect
thereto, as amended from time to time.
"Borrowing Base" means, as of the date of determination, an amount equal to
the sum, without duplication, of (1) 80% of the net book value of Richmont
Marketing Specialists' accounts receivable at the date of determination and (2)
50% of the net book value of Richmont Marketing Specialists' inventories at the
date of determination. Net book value shall be determined in accordance with
GAAP and shall be that reflected on the most recent available balance sheet, it
being understood that the accounts receivable and inventories of an acquired
business may be included if the acquisition has been completed on or prior to
the date of determination.
"Capitalized Lease Obligation" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP. The amount of Indebtedness represented by a
Capitalized Lease Obligation shall be the capitalized amount of the obligation
determined in accordance with GAAP, and the Stated Maturity of any Indebtedness
represented by a Capitalized Lease Obligation shall be the date of the last
payment of rent or any other amount due under such lease.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (a) the aggregate amount of EBITDA for the period of the most recent 4
consecutive fiscal quarters ending prior to the date of determination for which
financial statements are available to (b) Consolidated Interest Expense for the
same 4 fiscal quarters; provided, however, that:
(1) if Richmont Marketing Specialists or any Restricted Subsidiary has
incurred any Indebtedness since the beginning of such period that remains
outstanding on the date of determination, or if the transaction giving rise
to the need to calculate the Consolidated Coverage Ratio is an incurrence
of Indebtedness, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if (a) the Indebtedness had been incurred on the first day
of such period and (b) the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness had occurred on the first day of such period;
(2) if since the beginning of such period Richmont Marketing
Specialists or any Restricted Subsidiary shall have made any Asset
Disposition, the EBITDA for such period shall be reduced by an amount equal
to the EBITDA (if positive) directly attributable to the assets which are
the subject of such Asset Disposition for such period or increased by an
amount equal to the EBITDA (if negative) directly attributable thereto for
such period, and Consolidated Interest Expense for such period shall be
reduced by an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness of Richmont Marketing Specialists or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged
with respect to Richmont Marketing Specialists and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period, or, if the capital stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent Richmont Marketing
Specialists and its continuing Restricted Subsidiaries are no longer liable
for such Indebtedness after such sale;
(3) if since the beginning of such period Richmont Marketing
Specialists or any Restricted Subsidiary, by merger or otherwise, shall
have made an Investment in any Restricted Subsidiary, or any Person which
becomes a Restricted Subsidiary, or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially
all an operating unit of a business, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto (as described below), including the Incurrence of any Indebtedness
in connection therewith as if such Investment or acquisition occurred on
the first day of such period; and
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(4) if since the beginning of such period any Person that subsequently
became a Restricted Subsidiary or was merged with or into Richmont
Marketing Specialists or any Restricted Subsidiary since the beginning of
such period shall have made any Asset Disposition, Investment or
acquisition of assets that would have required an adjustment pursuant to
clause (2) or (3) above if made by Richmont Marketing Specialists or a
Restricted Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto, as if such Asset Disposition, Investment or acquisition of assets
occurred on the first day of such period.
For purposes of this definition of "Consolidated Coverage Ratio", whenever
pro forma effect is to be given to an acquisition of assets, the amount of
income or earnings relating such acquisition and the amount of Consolidated
Interest Expense associated with any Indebtedness incurred in connection with
such acquisition, the pro forma calculations shall be determined in good faith
by a responsible financial or accounting officer of Richmont Marketing
Specialists. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest expense on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period, taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term as at the date of determination in excess of 12 months.
"Consolidated Interest Expense" means, for any period, the total
consolidated interest expense of Richmont Marketing Specialists and its
Restricted Subsidiaries for such period, plus the following, to the extent
incurred by Richmont Marketing Specialists and its Restricted Subsidiaries in
such period but not included in the calculation of interest expense:
(1) interest expense attributable to Capitalized Lease Obligations and
Attributable Debt;
(2) amortization of debt discount and debt issuance cost;
(3) capitalized interest;
(4) noncash interest expense;
(5) commissions, discounts and other fees and charges with respect to
letters of credit and bankers' acceptance financing;
(6) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is guaranteed by Richmont Marketing Specialists or
any Restricted Subsidiary, provided that payments of such amounts by
Richmont Marketing Specialists or any Restricted Subsidiary is being made
to, or is sought by, the holders of such Indebtedness pursuant to such
guarantee;
(7) net costs associated with Hedging Obligations, including
amortization of fees;
(8) interest paid or accrued in respect of any agreement classified as
a long-term obligation on the consolidated balance sheet of Richmont
Marketing Specialists;
(9) Preferred Stock dividends in respect of all Preferred Stock of
subsidiaries of Richmont Marketing Specialists and Disqualified Stock of
Richmont Marketing Specialists held by Persons other than Richmont
Marketing Specialists or a Wholly Owned Subsidiary; and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than Richmont Marketing
Specialists) in connection with Indebtedness incurred by such plan or
trust.
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"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of Richmont Marketing Specialists and its subsidiaries for such
period; provided, however, that the following shall not be included in such
Consolidated Net Income:
(1) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that:
(a) subject to the limitations contained in clause (4) below,
Richmont Marketing Specialists' equity in the net income of any such
Person for such period shall be included in such Consolidated Net Income
up to the aggregate amount of cash actually distributed by such Person
during such period to Richmont Marketing Specialists or a Restricted
Subsidiary as a dividend or other distribution subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (3) below; and
(b) Richmont Marketing Specialists' equity in a net loss of any
such Person other than an Unrestricted Subsidiary for such period, but
only to the extent of the aggregate Investment of Richmont Marketing
Specialists and any Restricted Subsidiary in such Person, shall be
included in determining such Consolidated Net Income;
(2) any net income (loss) of any person acquired by Richmont Marketing
Specialists or a subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition;
(3) any net income (loss) of any Restricted Subsidiary if such
subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to Richmont Marketing Specialists,
except that:
(a) subject to the limitations contained in (4) below, Richmont
Marketing Specialists' equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been
distributed by such Restricted Subsidiary during such period to Richmont
Marketing Specialists or another Restricted Subsidiary as a dividend
subject, in the case of a dividend that could have been made to another
Restricted Subsidiary, to the limitation contained in this clause; and
(b) Richmont Marketing Specialists' equity in a net loss of any
such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income;
(4) any gain or loss realized upon the sale or other disposition of
any asset of Richmont Marketing Specialists or its consolidated
subsidiaries (including pursuant to any Sale/Leaseback Transaction) which
is not sold or otherwise disposed of in the ordinary course of business and
any gain or loss realized upon the sale or other disposition of any capital
stock of any Person;
(5) any extraordinary gain or loss; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purpose of the covenant described under
"-- Covenants -- Restricted Payments" only, there shall be excluded from
Consolidated Net Income any dividends, repayments of loans or advances or other
transfers of assets from Unrestricted Subsidiaries to Richmont Marketing
Specialists or a Restricted Subsidiary to the extent such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under item
(3)(d) of the second paragraph of such covenant.
"Consolidated Net Worth" means, with respect to Richmont Marketing
Specialists and its Restricted Subsidiaries as of the end of Richmont Marketing
Specialists' most recent fiscal quarter ending at least 45 days prior to the
taking of any action for the purpose of which the determination is being made,
the
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sum of the following amounts shown on the balance sheet of Richmont Marketing
Specialists and the Restricted Subsidiaries, determined on a consolidated basis:
(1) the par or stated value of all outstanding capital stock of
Richmont Marketing Specialists other than Disqualified Stock; plus
(2) paid-in capital or capital surplus relating to such capital stock;
plus
(3) any retained earnings or earned surplus less any accumulated
deficit.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of Richmont Marketing Specialists in
accordance with GAAP consistently applied; provided, however, that
"Consolidation" will not include consolidation of the accounts of any
Unrestricted Subsidiary, but the interest of Richmont Marketing Specialists or
any Restricted Subsidiary in an Unrestricted Subsidiary will be accounted for as
an investment. The term "Consolidated" has a correlative meaning.
"Currency Agreement" means, with respect to any Person, any foreign
exchange contract, currency swap agreement or other similar agreement or
arrangement as to which such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Deferred Obligations" means any Indebtedness issued to the employees of,
stockholders of, or the holders of an equivalent equity interest in, any entity
acquired by Richmont Marketing Specialists or any Restricted Subsidiary in
connection with such acquisition.
"Designated Senior Indebtedness" means (1) the Bank Indebtedness and (2)
any other Senior Indebtedness that, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof, are committed to lend up to, at least $10
million and is specifically designated by Richmont Marketing Specialists in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the indenture. "Designated Senior
Indebtedness" of a guarantor subsidiary shall have a correlative meaning.
"Disqualified Stock" means, with respect to any Person, any capital stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable for Indebtedness or Disqualified
Stock; or
(3) is redeemable at the option of the holder thereof, in whole or in
part;
in each case, on or prior to the first anniversary of the Stated Maturity of the
notes.
"EBITDA" for any period means the Consolidated Net Income for such period
(adjusted to exclude any noncash items attributable to purchase accounting for
any acquisition transactions consummated subsequent to December 19, 1997), plus
the following for such period to the extent deducted in calculating such
Consolidated Net Income:
(1) income tax expense;
(2) Consolidated Interest Expense;
(3) depreciation expense;
(4) amortization expense; and
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(5) all other non-cash charges, excluding all such charges, for
purposes of this clause (5), to the extent they represent future cash
disbursements reasonably expected to materialize prior to the Stated
Maturity of the notes.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization of, a subsidiary of Richmont
Marketing Specialists shall be added to Consolidated Net Income to compute
EBITDA only to the extent, and in the same proportion, that the net income
(loss) of such subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to Richmont Marketing Specialists by such
subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, in statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in the indenture shall be
computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person,
directly or indirectly, guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person:
(1) to purchase or pay, or advance or supply funds for the purchase or
payment of, such Indebtedness or other obligation of such other Person,
whether arising by virtue of partnership arrangements, or 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
(2) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness or other obligation of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in
part);
provided, however, 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.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Indebtedness" means, with respect to any Person on any date of
determination, without duplication:
(1) the principal of and premium, if any, in respect of indebtedness
of such Person for borrowed money;
(2) the principal of and premium, if any, in respect of obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments;
(3) all obligations of such Person in respect of letters of credit or
other similar instruments, including reimbursement obligations with respect
thereto;
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property, including stock or the assets of an ongoing
business, or services, other than trade payables, which purchase price is
due more than 6 months after the date of placing such property in service
or taking delivery and title thereto or the completion of such services, to
the extent not included in clause (10) below;
(5) all Capitalized Lease Obligations and all Attributable Debt of
such Person;
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(6) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any subsidiary of Richmont Marketing Specialists, any
Preferred Stock, but excluding, in each case, any accrued dividends;
(7) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be
the lesser of:
(a) the fair market value of such asset at such date of
determination; and
(b) the amount of such Indebtedness of such other Persons;
(8) all Indebtedness of other Persons to the extent Guaranteed by such
Person;
(9) to the extent not otherwise included in this definition, Hedging
Obligations of such Person; and
(10) with respect to Richmont Marketing Specialists and its Restricted
Subsidiaries, covenants not to compete, deferred payment agreements and
deferred compensation liabilities, in each case to the extent reflected on
the consolidated balance sheet of Richmont Marketing Specialists as
long-term obligations.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date, except with respect to
the items set forth in clauses (4) and (10) of this definition, in which case
the amount of such Indebtedness at any date shall be the amount recorded in
accordance with GAAP on such Person's balance sheet for the most recent fiscal
period for which financial statements are available.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance or loan,
other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person, or other
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of capital stock, Indebtedness or other
similar instruments issued by such Person.
For purposes of the definition of "Unrestricted Subsidiary" and the
covenant described under "Covenants -- Restricted Payments":
(1) "Investment" shall include the portion (proportionate to Richmont
Marketing Specialists' equity interest in such subsidiary) of the fair
market value of the net assets of any subsidiary of Richmont Marketing
Specialists at the time that such subsidiary is designated an Unrestricted
Subsidiary; provided, however, that upon a redesignation of such subsidiary
as a Restricted Subsidiary, Richmont Marketing Specialists shall be deemed
to continue to have a permanent "Investment" in an Unrestricted Subsidiary
in an amount, if positive, equal to:
(x) Richmont Marketing Specialists' "Investment" in such subsidiary
at the time of such redesignation less
(y) the portion (proportionate to Richmont Marketing Specialists'
equity interest in such subsidiary) of the fair market value of the net
assets of such subsidiary at the time of such redesignation; and
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(2) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the board of directors.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including any conditional sale or other title retention
agreement or lease in the nature thereof.
"Management Stockholders" means Ronald D. Pederson, Gary R. Guffey and
Bruce A. Butler.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other non-cash form) therefrom, in each case net of:
(1) all legal, title and recording expenses, commissions and other
fees and expenses incurred, and all federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of
any Lien upon such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition or by applicable law,
be repaid out of the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to
minority interest holders in subsidiaries or joint ventures as a result of
such Asset Disposition; and
(4) appropriate amounts to be provided by the party or parties making
such Asset Disposition as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset
Disposition and retained by Richmont Marketing Specialists or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds" with respect to any issuance or sale of capital stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Permitted Holders" means:
(1) Richmont Marketing Specialists Enterprises LLC, a Delaware limited
liability company controlled by certain Affiliates of Richmont Marketing
Specialists;
(2) JR Investment Corp., a Delaware corporation, including John P.
Rochon and the other current stockholders of JR Investment Corp.;
(3) MS Acquisition Limited, a Texas limited partnership;
(4) the Management Stockholders; and
(5) any Affiliates of the Person listed in items (1) through (4),
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 Richmont Marketing
Specialists' capital stock.
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"Permitted Investment" means an Investment by Richmont Marketing
Specialists or any Restricted Subsidiary in:
(1) a Restricted Subsidiary or a Person which will, upon the making of
such Investment, become a Restricted Subsidiary; provided, however, that
the primary business of such Restricted Subsidiary is a Related Business;
(2) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Richmont Marketing Specialists or a
Restricted Subsidiary; provided, however, that such Person's primary
business is a Related Business;
(3) Temporary Cash Investments;
(4) receivables owing to Richmont Marketing Specialists or any
Restricted Subsidiary, if created or acquired in the ordinary course of
business consistent with past practices of Richmont Marketing Specialists
or such Restricted Subsidiary and payable or dischargeable in accordance
with customary trade terms; provided, however, that such trade terms may
include such concessionary trade terms as Richmont Marketing Specialists or
any such Restricted Subsidiary deems reasonable under the circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6) loans or advances to employees made in the ordinary course of
business consistent with past practices of Richmont Marketing Specialists
or such Restricted Subsidiary and not exceeding $500,000 in the aggregate
outstanding at any one time;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to Richmont Marketing
Specialists or any Restricted Subsidiary or in satisfaction of judgments;
(8) a Person engaged in a Related Business; provided, however, that no
Permitted Investments may be made pursuant to this clause (8) to the extent
the amount thereof would, when taken together with all other Permitted
Investments made pursuant to this clause (8), exceed $5 million in the
aggregate outstanding at any time, other than Permitted Investments in
Persons which become Restricted Subsidiaries;
(9) any Person to the extent of such Investment represents the
non-cash portion of the consideration received for an Asset Disposition
permitted pursuant to the covenant described under "Repurchase at the
Option of Holders -- Asset Sales and Sales of Subsidiary Stock"; and
(10) notes repurchased pursuant to an offer described under
"Repurchase at the Option of Holders -- Change of Control" or "Repurchase
at the Option of Holders -- Asset Sales and Sales of Subsidiary Stock" or
otherwise purchased by Richmont Marketing Specialists.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"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.
"Public Equity Offering" means an underwritten public offering of common
stock of Richmont Marketing Specialists pursuant to an effective registration
statement under the Securities Act.
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"Purchase Money Indebtedness" means Indebtedness:
(1) consisting of the deferred purchase price of tangible property,
conditional sale obligations, obligation under any title retention
agreement and other purchase money obligations, in each case where the
maturity of such Indebtedness does not exceed the anticipated useful life
of the asset being financed; and
(2) incurred to finance the acquisition by Richmont Marketing
Specialists of such asset, including additions and improvements; provided,
however, that any Lien arising in connection with any such Indebtedness
shall be limited to the specified asset being financed or, in the case of
real property or fixtures, including additions and improvements, the real
property on which such asset is attached; and provided further, that such
Indebtedness is incurred within 180 days after such acquisition by Richmont
Marketing Specialists of such asset.
"Refinancing Indebtedness" means Indebtedness that is incurred to refund,
refinance, replace, renew, repay or extend, including pursuant to any defeasance
or discharge mechanism, any Indebtedness existing on December 19, 1997 or
incurred in compliance with the indenture, including Indebtedness of Richmont
Marketing Specialists that refinances Indebtedness of any Restricted Subsidiary
(to the extent permitted in the indenture) and Indebtedness of any Restricted
Subsidiary that refinances Indebtedness of another Restricted Subsidiary, and
including Indebtedness that refinances Refinancing Indebtedness; provided,
however, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being refinanced;
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced;
(3) the Refinancing Indebtedness is incurred in an aggregate principal
amount (or, if issued with original issue discount, an aggregate issue
price) that is equal to or less than the aggregate principal amount (or, if
issued with original issue discount, the aggregate accreted value) then
outstanding of the Indebtedness being refinanced; and
(4) if the Indebtedness being refinanced is subordinated in right of
payment to the notes, such Refinancing Indebtedness is subordinated in
right of payment to the notes to the extent of the Indebtedness being
refinanced;
and provided further, however, that Refinancing Indebtedness shall not include:
(1) Indebtedness of a Restricted Subsidiary that refinances
Indebtedness of Richmont Marketing Specialists; or
(2) Indebtedness of Richmont Marketing Specialists or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary.
"Restricted Subsidiary" means any subsidiary of Richmont Marketing
Specialists other than an Unrestricted Subsidiary.
"Secured Indebtedness" means any Indebtedness of Richmont Marketing
Specialists secured by a Lien. "Secured Indebtedness" of any guarantor
subsidiary has a correlative meaning.
"Senior Indebtedness" of Richmont Marketing Specialists means the principal
of, premium (if any) and interest, including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization of Richmont Marketing
Specialists, regardless of whether or not a claim for post filing interest is
allowed in such proceedings, on, and fees and other amounts owing in respect of,
Bank Indebtedness of Richmont Marketing Specialists and all other Indebtedness
of Richmont Marketing Specialists, whether outstanding on December 19, 1997 or
thereafter incurred, unless in the instrument
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creating or evidencing the same or pursuant to which the same is outstanding it
is provided that such obligations are not superior in right of payment to the
notes; provided, however, that Senior Indebtedness does not include:
(1) any obligation of Richmont Marketing Specialists to any
subsidiary;
(2) any liability for federal, state, local or other taxes owed or
owing by Richmont Marketing Specialists;
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business, including Guarantees thereof or
instruments evidencing such liabilities;
(4) any Indebtedness or obligation of Richmont Marketing Specialists
that by its terms is subordinate or junior in any respect to any other
Indebtedness, Guarantee or obligation of Richmont Marketing Specialists,
including any Senior Subordinated Indebtedness and any Subordinated
Obligations;
(5) any obligations with respect to any capital stock;
(6) any Indebtedness incurred in violation of the indenture;
(7) any Indebtedness issued to the shareholders of Atlas in connection
with the Atlas acquisition; or
(8) any Deferred Obligation of Richmont Marketing Specialists.
If any Senior Indebtedness is disallowed, avoided or subordinated pursuant to
the provisions of Section 548 of Title 11 of the United States Code or any
applicable state fraudulent conveyance law, such Senior Indebtedness
nevertheless will constitute Senior Indebtedness. "Senior Indebtedness" of any
guarantor subsidiary has a correlative meaning.
"Senior Subordinated Indebtedness" means the notes and any other
Indebtedness of Richmont Marketing Specialists that specifically provides that
such Indebtedness is to rank equal in right of payment with the notes and is not
subordinated by its terms to any Indebtedness or other obligation of Richmont
Marketing Specialists which is not Senior Indebtedness. "Senior Subordinated
Indebtedness" of a guarantor subsidiary has a correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of Richmont Marketing Specialists within the meaning of
Rule 1-02 under Regulation S-X promulgated by the Securities and Exchange
Commission.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision, but excluding any provision providing for the purchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred.
"Subordinated Obligation" means any Indebtedness of Richmont Marketing
Specialists, whether outstanding on December 19, 1997 or thereafter incurred,
which is subordinate or junior in right of payment to the notes pursuant to a
written agreement. "Subordinated Obligation" of any guarantor subsidiary shall
have a correlative meaning.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of
America or any agency thereof or obligations Guaranteed by the United
States of America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
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recognized by the United States of America having capital, surplus and
undivided profits aggregating in excess of $250 million (or the foreign
currency equivalent thereof) and whose long-term debt is rated "A" (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act);
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation, other than an
Affiliate of Richmont Marketing Specialists, 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 or "A-1" or higher according to Standard & Poors; and
(5) investments in 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 & Poors or "A" by Moody's.
"Unrestricted Subsidiary" means:
(1) any subsidiary of Richmont Marketing Specialists that at the time
of determination shall be designated an Unrestricted Subsidiary by the
board of directors in the manner provided below; and
(2) any subsidiary of an Unrestricted Subsidiary.
The board of directors may designate any subsidiary of Richmont Marketing
Specialists (including any newly acquired or newly formed subsidiary of Richmont
Marketing Specialists) to be an Unrestricted Subsidiary unless such subsidiary
or any of its subsidiaries owns any capital stock or Indebtedness of, or owns or
holds any Lien on any property of, Richmont Marketing Specialists or any other
Restricted Subsidiary of Richmont Marketing Specialists that is not a subsidiary
of the subsidiary to be so designated; provided, however, that either:
(1) the subsidiary to be so designated has total Consolidated assets
of $1,000 or less; or
(2) if such subsidiary has Consolidated assets greater than $1,000,
then such designation would be permitted under the covenant described under
the heading "Covenants -- Restricted Payments."
The board of directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation:
(1) Richmont Marketing Specialists could incur $1.00 of additional
Indebtedness under the Consolidated Coverage Ratio test described under
"Covenants -- Limitations on Indebtedness" and
(2) no Default shall have occurred and be continuing. Any such
designation by the board of directors shall be evidenced to the trustee by
promptly filing with the trustee a copy of the resolution of the board of
directors giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
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"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.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of Richmont
Marketing Specialists all the capital stock of which (other than directors'
qualifying shares) is owned by Richmont Marketing Specialists or another Wholly
Owned Subsidiary.
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DESCRIPTION OF OTHER DEBT
SENIOR CREDIT FACILITY
Richmont Marketing Specialists has available to it a revolving credit
facility which provides for borrowings in an amount not to exceed the lesser of
$25,000,000 and a borrowing base comprised of certain percentages of eligible
accounts receivable. The senior credit facility has been established under an
Amended and Restated Credit Agreement, dated as of December 18, 1997, among
Richmont Marketing Specialists, the lenders party thereto and The Chase
Manhattan Bank, as agent. As of December 31, 1998, Richmont Marketing
Specialists' borrowing base under the senior credit facility would have been
approximately $12.1 million, net of an outstanding letter of credit in the
amount of approximately $1.4 million. Richmont Marketing Specialists had no
outstanding borrowings under the senior credit facility as of December 31, 1998.
The senior credit facility will terminate on October 14, 2002. Borrowings under
the senior credit facility are used to provide working capital for Richmont
Marketing Specialists and its subsidiaries, to finance certain permitted
acquisitions and for other general corporate purposes.
Interest on indebtedness outstanding under the senior credit facility will
be payable at a rate per annum, selected at the option of Richmont Marketing
Specialists, equal to the Base Rate (as defined below) plus a margin of between
0.00% and 0.75%, or the adjusted LIBOR Rate (as defined below) plus a margin of
between 1.00% and 2.50%, which margins, in each case, will be determined by
reference to an Interest Coverage Ratio defined in the credit agreement. The
senior credit facility also provides that a commitment fee of between 0.25% and
0.5625% per annum, depending on the Interest Coverage Ratio, will be payable on
the undrawn amount available for borrowing under the facility.
"Base Rate" means the higher of:
(a) the rate which Chase announces from time to time as its prime
lending rate;
(b) 0.50% in excess of the Federal Funds Rate; and
(c) 1.00% in excess of the secondary market rate for 3 month
certificates of deposit, as adjusted for assessments and statutory
reserves.
"Adjusted LIBOR Rate" means the London Interbank Offered Rate, adjusted for
statutory reserves at all times.
Interest based on the Base Rate and the Adjusted LIBOR Rate shall be
determined based on the number of days elapsed over a 360 day year. Interest
based on the Base Rate is payable monthly, and interest based on the Adjusted
LIBOR Rate is payable at the end of each month as well as at the end of the
applicable interest period.
The obligations under the senior credit facility are unconditionally
guaranteed by each of the existing subsidiaries of Richmont Marketing
Specialists and are to be guaranteed by each newly acquired or organized
subsidiary of Richmont Marketing Specialists.
The obligations of Richmont Marketing Specialists under the senior credit
facility and the obligations of the guarantors under their guarantees will be
secured by a security interest in substantially all of their respective assets
and by a pledge of all the capital stock of each subsidiary of Richmont
Marketing Specialists.
The senior credit facility may be prepaid at any time, in whole or in part,
at the option of Richmont Marketing Specialists. Voluntary permanent reductions
of the unutilized portion of the senior credit facility will be permitted at any
time.
The credit agreement governing the senior credit facility contains
representations and warranties, negative, affirmative and financial covenants,
and conditions and events of default, all of which are customarily required for
similar financings, in addition to other representations, warranties, covenants,
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conditions and events of default appropriate for the specific transactions
contemplated by Richmont Marketing Specialists.
The covenants contained in the credit agreement include restrictions and
limitations on the following, subject in each case to specified exceptions:
<TABLE>
<S> <C>
- - dividends - capital expenditures
- - redemptions and repurchases of capital - the issuance of stock
stock - transactions with affiliates
- - the incurrence of debt - the making of loans
- - liens - investments and certain payments
- - leases - mergers and asset sales
- - sale-leaseback transactions
</TABLE>
In addition, Richmont Marketing Specialists is required to maintain
compliance with financial covenants, such as minimum levels of operating cash
flow to fixed charges and operating cash flow to cash interest.
The credit agreement also permits Richmont Marketing Specialists to make
additional acquisitions if:
(1) the purchase price for any individual acquisition does not exceed
$40 million;
(2) the aggregate purchase of all permitted acquisitions does not
exceed $65 million;
(3) Richmont Marketing Specialists would be in pro forma compliance
with the Debt Service Coverage Ratio set forth in the credit agreement
after giving effect to such acquisition;
(4) the purchase price for any acquisition does not exceed 5.5x the
Adjusted EBITDA, as defined in the credit agreement, of the company to be
acquired; and
(5) the company to be acquired is in the same line of business as
Richmont Marketing Specialists.
Events of default under the credit agreement include the following, subject
in some cases to agreed-upon grace periods:
(1) the failure to pay principal, interest, fees or other amounts when
due;
(2) violation of covenants;
(3) the failure of any representation or warranty made by Richmont
Marketing Specialists to be true in all material aspects;
(4) cross-default and cross-acceleration with other indebtedness;
(5) change of control;
(6) specified events of bankruptcy;
(7) material judgments being entered against Richmont Marketing
Specialists;
(8) specified ERISA events;
(9) the invalidity of the guarantees of the indebtedness under the
credit agreement or of the security interests granted to the lenders; and
(10) material adverse change in the business or financial condition of
Richmont Marketing Specialists and its subsidiaries, taken as a whole.
OTHER INDEBTEDNESS
In conjunction with the acquisition of other food brokerage companies,
Richmont Marketing Specialists has incurred deferred payment obligations to
certain of the former owners and key employees of
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the acquired companies as consideration for future consulting services and
covenants not to compete. The obligations are evidenced by promissory notes or
contracts. As of December 31, 1998, Richmont Marketing Specialists has $18.2
million in debt relating to deferred payment and compensation plans, $26.9
million relating to covenants not to compete and $24.1 million in promissory
notes payable. Under these various debt instruments, Richmont Marketing
Specialists' subsidiaries have agreed to pay to these individuals specified
amounts upon the termination of their employment with Richmont Marketing
Specialists (including retirement) or, in the event of their death, to their
designated beneficiary. Although the terms vary, most payments are monthly and
continue for a period of up to 10 years. The amounts to be paid under most of
these agreements are not based upon length of service, but are fixed amounts,
although some may be adjusted based on the performance of Richmont Marketing
Specialists.
In addition, Richmont Marketing Specialists' subsidiaries have entered into
split commission agreements with the owners of some acquired businesses. Under
these contracts, Richmont Marketing Specialists is to pay a percentage of
commissions on the revenues of certain principal lines for a period of up to 10
years. For the year ended December 31, 1998, Richmont Marketing Specialists made
payments of approximately $1.5 million in connection with these split commission
agreements.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives notes for its own account in the exchange
offer must acknowledge that it will deliver a prospectus in connection with any
resale of those notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
notes received in the exchange offer where the outstanding notes were acquired
as a result of market-making activities or other trading activities. We have
agreed that, for a period of 180 days after the consummation of the exchange
offer, we will make this prospectus, as amended and supplemented, available to
any broker-dealer for use in connection with any such resale. In addition, until
, 1999, all dealers effecting transactions in the notes issued in
the exchange offer may be required to deliver a prospectus.
Neither Richmont Marketing Specialists nor any of the guarantor
subsidiaries will receive any proceeds from any sale of notes by broker-dealers.
Notes received by broker-dealers for their own account in the exchange offer may
be sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
though brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
such notes. Any broker-dealer that resells notes that were received by it for
its own account in the exchange offer and any broker or dealer that participates
in a distribution of such notes may be deemed to be an "underwriter" within the
meaning of the Securities Act, and profit on any such resale of notes issued in
the exchange and any commission or concessions received by any such persons
maybe deemed to be underwriting compensation under the Securities Act. The
letter of transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the consummation of the exchange offer,
Richmont Marketing Specialists will promptly send additional copies of this
prospectus and any amendment or supplement to this prospectus to any
broker-dealer that requests such documents in the letter of transmittal.
Richmont Marketing Specialists has agreed to pay all expenses incident to the
exchange offer, including the expenses of one counsel for the holders of the
notes, other than the commissions or concessions of any broker-dealers and will
indemnify the holders of the notes, including any broker-dealers, against
certain liabilities, including liabilities under the Securities Act. We note,
however, that, in the opinion of the Securities and Exchange Commission,
indemnification against liabilities arising under federal securities laws is
against public policy and may be unenforceable.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material United States federal income
tax consequences associated with the exchange of outstanding notes for the notes
to be issued in the exchange offer and the ownership and disposition of those
new notes to holders who acquired the outstanding notes at the initial offering
from the initial purchaser of the outstanding notes for the original offering
price and who acquire new notes in the exchange offer. The summary is based upon
current laws, regulations, rulings and judicial decisions all of which are
subject to change possibly with retroactive effect. The discussion below does
not address all aspects of United States federal income taxation that may be
relevant to holders in light of their particular circumstances, or to holders
subject to special treatment under United States federal income tax law,
including, without limitation, certain financial institutions, insurance
companies, tax-exempt entities, dealers in securities, persons who hold
outstanding notes or notes issued in the exchange offer as part of a straddle,
hedge, conversion transaction or other integrated investment or persons whose
functional currency is not the United States dollar. In addition, the discussion
does not address any aspect of state, local or foreign taxation.
YOU ARE ADVISED TO CONSULT WITH YOUR OWN TAX ADVISOR REGARDING THE
PARTICULAR TAX CONSEQUENCES TO YOU OF THE ACQUISITION, OWNERSHIP, SALE OR OTHER
DISPOSITION OF NOTES IN LIGHT OF YOUR PARTICULAR TAX AND INVESTMENT SITUATION
AND THE PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS APPLICABLE TO YOU.
THE EXCHANGE OFFER
The exchange of outstanding notes for the notes issued in the exchange
offer will not be treated as an "exchange" for United States federal income tax
purposes because the notes issued in the exchange offer will not differ
materially in kind or extent from the outstanding notes. Rather, the notes
received by a holder in the exchange offer will be treated as a continuation of
the outstanding notes in the hands of the exchanging holder. As a result, there
will be no federal income tax consequences to holders exchanging their
outstanding notes for notes issued in the exchange offer. In addition, any
exchanging holder of outstanding notes will have the same adjusted tax basis and
holding period in the notes issued in the exchange offer as such holder had in
the outstanding notes immediately prior to the exchange.
U.S. HOLDERS
For purposes of this discussion, a "U.S. Holder" means a holder of notes
issued in the exchange offer that is:
(1) a citizen or resident of the United States for United States
federal income tax purposes;
(2) a corporation or partnership created or organized in the United
States or under the laws of the United States or any state thereof, or the
District of Columbia;
(3) an estate the income of which is subject to United States federal
income taxation regardless of its source; or
(4) a trust if a court within the United States is able to exercise
primary supervision over the administration of such trust and 1 or more
United States persons have the authority to control all substantial
decisions of such trust.
A "non-U.S. Holder" is any holder that is not a U.S. Holder.
TAX TREATMENT OF THE NEW NOTES
U.S. Holders
Stated interest payable on the notes issued in the exchange offer generally
will be includable in the gross income of a U.S. Holder as ordinary interest
income at the time accrued or received, in accordance with the holder's regular
method of tax accounting for United States federal income tax purposes. If a
note issued in the exchange offer is redeemed, sold, or otherwise disposed of
(collectively, a "disposition"),
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a U.S. Holder generally will recognize capital gain or loss equal to the
difference between the amount realized on the disposition of the note to the
extent such amount does not represent accrued but unpaid interest and the
holder's adjusted tax basis in the note. A U.S. Holder's adjusted tax basis in a
note issued in the exchange offer generally will equal the U.S. Holder's
purchase price for the outstanding note, net of accrued interest, less any
principal payments received by the U.S. Holder. The capital gain or loss will be
long-term capital gain or loss, provided that the holder has held the note for
more than 1 year at the time of the disposition. The deduction of capital losses
may be subject to certain limitations.
Non-U.S. Holders
An investment in the notes issued in the exchange offer by a non-U.S.
Holder generally will not give rise to any United States federal income tax
consequences, if the interest received or any gain recognized on the disposition
of the notes by such holder is not effectively connected with the conduct of a
trade or business in the United States, provided that
(1) in the case of payments of interest:
(a) the non-U.S. Holder satisfies and complies with certain
certification and reporting requirements;
(b) the non-U.S. Holder does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of
Richmont Marketing Specialists entitled to vote; and
(c) the non-U.S. Holder is not a controlled foreign corporation
that is related to Richmont Marketing Specialists actually or
constructively through stock ownership; or
(2) in the case of gain, the non-U.S. Holder holds the notes issued in
the exchange offer as a capital asset, and the non-U.S. Holder is not
present in the United States for 183 days or more in the taxable year of
the disposition and certain other conditions are satisfied.
A non-U.S. Holder that does not qualify for an exemption from withholding
under the preceding paragraph generally will be subject to withholding of United
States federal income tax at the rate of 30%, or a lower rate if a treaty
applies, on payments of interest on the notes issued in the exchange offer.
If a non-U.S. Holder is engaged in a trade or business in the United States
and interest or other payments with respect to the notes issued in the exchange
offer are effectively connected with the conduct of such trade or business, the
non-U.S. Holder will generally be subject to United States federal income tax on
such amounts on a net income basis in the same manner as if the non-U.S. Holder
were a U.S. Holder. In addition, if such holder is a foreign corporation, it may
be subject to a branch profits tax at a 30% rate or, if applicable, a lower rate
specified by a treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Non-corporate U.S. Holders may be subject to backup withholding at a rate
of 31% on payments of principal and interest on, and the proceeds from the
disposition of, the notes issued in the exchange offer. In general, backup
withholding will be imposed only if a U.S. Holder:
(1) fails to furnish a correct taxpayer identification number ("TIN"),
which, for an individual, would be his or her social security number;
(2) furnishes an incorrect TIN;
(3) is notified by the IRS that it has failed to report interest or
dividend income; or
(4) fails to certify that such holder has provided a correct TIN and
that the U.S. Holder is not subject to backup withholding.
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<PAGE> 93
In addition, payments of principal and interest to U.S. Holders generally
will be subject to information reporting. Non-U.S. Holders may be required to
comply with applicable certification procedures to establish that they are not
U.S. Holders in order to avoid backup withholding. In addition, each non-U.S.
Holder will be required to provide an IRS Form W-8 to certify its status as a
non-U.S. person.
Backup withholding generally will not apply to payments made to a non-U.S.
Holder that provides the certification described above or otherwise establishes
an exemption from backup withholding. Payments by a United States office of a
broker of the proceeds from a disposition of the notes generally will be subject
to backup withholding at a rate of 31% unless the non-U.S. Holder certifies it
is a non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption.
Any amount withheld from a payment to a holder under the backup withholding
rules is allowable as a credit against such holder's United States federal
income tax liability, or if withholding results in an overpayment of taxes, a
refund may be obtained, provided that the required information is furnished to
the IRS. Certain holders, including, among others, corporations and foreign
individuals who comply with certain certification requirements, are not subject
to backup withholding. U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO
THEIR QUALIFICATION FOR EXEMPTION FROM BACKUP WITHHOLDING AND THE PROCEDURE FOR
OBTAINING SUCH AN EXEMPTION.
The United States Treasury Department issued final Treasury regulations
governing information reporting and the certification procedures regarding
withholding and backup withholding on certain amounts paid to non-U.S. Holders
after December 31, 1999. The Treasury regulations generally would not alter the
treatment of non-U.S. Holders described above. The Treasury regulations would,
however, alter the procedures for claiming the benefits of an income tax treaty
and may change the certification procedures relating to the receipt by
intermediaries of payments on behalf of a beneficial owner of a note issued in
the exchange offer. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS
CONCERNING THE EFFECT, IF ANY, OF SUCH TREASURY REGULATIONS ON AN INVESTMENT IN
THE NOTES OFFERED IN THE EXCHANGE OFFER.
BOOK ENTRY
Except as set forth below, the notes issued in the exchange offer will
initially be issued in the form of one or more registered notes in global form
without coupons (each a "Global Note"). Each Global Note will be deposited with,
or on behalf of, the Depository Trust Company ("DTC") and registered in the name
of Cede & Co., as nominee of DTC, or will remain in the custody of the Trustee
pursuant to the FAST Balance Certificate Agreement between DTC and the Trustee.
DTC has advised us that it is (1) a limited purpose trust company organized
under the laws of the State of New York, (2) a member of the Federal Reserve
System, (3) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (4) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participating organizations (collectively, the "Participants") and facilitates
the clearance and settlement of securities transactions between Participants
through electronic book-entry changes to the accounts of its Participants,
thereby eliminating the need for physical transfer and delivery of certificates.
DTC's Participants include securities brokers and dealers, including the initial
purchaser of the outstanding notes, banks and trust companies, clearing
corporations, and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Holders who are not Participants may beneficially own securities held by or on
behalf of DTC only through Participants or Indirect Participants.
We expect, pursuant to procedures established by DTC, that (1) upon deposit
of the Global Notes, DTC will credit the accounts of Participants designated by
the Initial Purchasers with an interest in the Global Note and (2) ownership of
the Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the interest
of Participants), the
91
<PAGE> 94
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that security interest in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer notes or to pledge the notes as collateral
will be limited to such extent.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the notes represented by the Global Note for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated notes (the "Certificated Notes"), and will not be
considered the owners or holders thereof under the indenture for any purpose,
including with respect to giving of any directions, instruction or approval to
the trustee thereunder. As a result, the ability of a person having a beneficial
interest in notes represented by a Global Note to pledge or transfer such
interest to persons or entities that do not participate in DTC's system or to
otherwise take action with respect to such interest, may be affected the lack of
a physical certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of notes under the
indenture or such Global Note. We understand that under existing industry
practice, in the event we request any action of holders of notes or a holder
that is an owner of a beneficial interest in a Global Note desires to take any
action that DTC, as the holder of such Global Note, is entitled to take, DTC
would authorize the Participants to take such action and the Participant would
authorize holders owning through such Participants to take such action or would
otherwise act upon the instruction of such holders. Neither Richmont Marketing
Specialists nor the trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to such
notes.
Payments with respect to the principal of, premium, if any, and interest on
any notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the Global Note representing such notes under the indenture. Under the terms of
the indenture, Richmont Marketing Specialists and the trustee may treat the
persons in whose names the notes, including the Global Notes, are registered as
the owners thereof for the purpose of receiving such payment and for any and all
other purposes whatsoever. Consequently, neither Richmont Marketing Specialists
nor the trustee has or will have any responsibility or liability for the payment
of such amounts to beneficial owners of interest in the Global Note, including
principal, premium, if any, and interest. Payments by the Participants and the
Indirect Participants to the beneficial owners of interests in the Global Note
will be governed by standing instructions and customary practice and will be the
responsibility of the Participants or the Indirect Participants and DTC.
CERTIFICATED NOTES
If:
(1) Richmont Marketing Specialists notifies the trustee in writing
that DTC is no longer willing or able to act as a depositary, or DTC ceases
to be registered as a clearing agency under the Exchange Act and a
successor depositary is not appointed within 90 days of this notice or
cessation;
(2) Richmont Marketing Specialists, at its option, notifies the
trustee in writing that it elects to cause the issuance of notes in
definitive form under the indenture; or
(3) upon the occurrence of other events described in the indenture,
then, upon surrender by DTC of the Global Notes, certificated notes will be
issued to each person that DTC identifies as the beneficial owner of the notes
represented by the Global Notes. Upon any issuance of
92
<PAGE> 95
certificated notes, the trustee will be required to register the certificated
notes in the name of the beneficial owner indicated by the DTC, or the nominee
of such person, and cause the certificates to be delivered to that person.
Neither Richmont Marketing Specialists nor the trustee will be liable for
any delay by DTC or any Participant or Indirect Participant in identifying the
beneficial owners of the related notes. Each of Richmont Marketing Specialists
and the trustee may conclusively rely on, and will be protected in relying on,
instructions from DTC for all purposes, including with respect to the
registration and delivery, and the respective principal amounts, of the notes to
be issued.
LEGAL MATTERS
The validity of the notes offered by this prospectus will be passed upon by
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, special counsel
for Richmont Marketing Specialists. Skadden, Arps, Slate, Meagher & Flom LLP has
also represented Chase Securities Inc., the initial purchaser of the outstanding
notes, and may represent current holders of the outstanding notes, each in
connection with certain legal matters unrelated to the offering of the
outstanding notes or this exchange offer.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and 1997, and for each of the 3 years
in the period ended December 31, 1998, as set forth in their report. We have
included our financial statements in this prospectus in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Atlas for each of the 2 years in the period ended December 31,
1997, as set forth in their report. We have included these financial statements
in this prospectus in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Bromar for the 10 month period ended October 31, 1996, as set
forth in their report. We have included these financial statements in this
prospectus in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
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<PAGE> 96
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<S> <C>
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF RICHMONT
MARKETING SPECIALISTS INC.
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets at December 31, 1998 and 1997... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the Years Ended December 31, 1998, 1997 and 1996...... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-6
Notes to the Consolidated Financial Statements.............. F-7
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF ATLAS
MARKETING COMPANY, INC. AND SUBSIDIARIES
Report of Independent Auditors.............................. F-21
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996................................ F-22
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996................................ F-23
Notes to the Consolidated Financial Statements.............. F-24
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF BROMAR, INC.
AND SUBSIDIARIES
Report of Independent Auditors.............................. F-29
Consolidated Statement of Income for the Ten Months Ended
October 31, 1996.......................................... F-30
Consolidated Statement of Cash Flows for the Ten Months
Ended October 31, 1996.................................... F-31
Notes to the Consolidated Financial Statements.............. F-32
</TABLE>
F-1
<PAGE> 97
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Richmont Marketing Specialists Inc.
We have audited the accompanying consolidated balance sheets of Richmont
Marketing Specialists Inc. (the "Company") as of December 31, 1998 and 1997, and
the related consolidated statements of operations, shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Richmont
Marketing Specialists Inc. at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
February 26, 1999
F-2
<PAGE> 98
RICHMONT MARKETING SPECIALISTS INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 26,633,832 $ 41,394,614
Accounts receivable, net of allowance for doubtful
accounts of $4,325,079 and $3,161,148 as of December
31, 1998 and 1997, respectively........................ 28,295,152 26,193,450
Current portion of notes receivable....................... 110,438 119,689
Deferred taxes............................................ 1,932,286... 1,702,362
Prepaid expenses and other current assets................. 967,164 949,200
------------ ------------
Total current assets.............................. 57,938,872 70,358,315
Other assets................................................ 7,047,070 8,964,954
Property and equipment, net................................. 23,019,089 22,168,367
Intangible assets........................................... 86,756,991 110,037,865
------------ ------------
Total assets...................................... $174,762,022 $211,529,501
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 5,085,651 $ 4,377,949
Accrued expenses.......................................... 8,980,959 7,309,829
Income taxes payable...................................... -- 750,629
Promotional advances...................................... 1,566,308 1,695,319
Current portion of long-term obligations.................. 9,434,064 10,736,870
------------ ------------
Total current liabilities......................... 25,066,982 24,870,596
Deferred taxes.............................................. 10,025,601 10,170,702
Long-term obligations less current portion:
Notes payable............................................. 119,500,145 124,042,842
Covenants not to compete.................................. 24,362,129 22,369,855
Deferred compensation liabilities and payment
agreements............................................. 16,512,319 18,756,664
Capital lease obligations................................. 1,421,609 2,010,013
------------ ------------
Total long-term obligations....................... 161,796,202 167,179,374
Other liabilities........................................... 901,075 --
Commitments and contingencies (Note 7)
Shareholders' equity (deficit):
Common stock, $.01 stated value:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 197,474 as of December
31, 1998 and 1997...................................... 1,975 1,975
Additional paid-in capital................................ 31,305,469 31,305,469
Retained deficit.......................................... (52,829,915) (20,493,248)
Treasury stock at cost -- 59,839 shares as of December 31,
1998 and 1997.......................................... (1,505,367) (1,505,367)
------------ ------------
Total shareholders' equity (deficit).............. (23,027,838) 9,308,829
------------ ------------
Total liabilities and shareholders' equity........ $174,762,022 $211,529,501
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 99
RICHMONT MARKETING SPECIALISTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Revenue............................................. $218,294,383 $155,932,228 $73,447,480
Expenses:
Salaries.......................................... 117,358,921 90,075,054 42,305,511
Fringe benefits................................... 18,575,818 7,960,622 4,180,124
Automobiles and related expenses.................. 18,989,156 14,476,865 6,944,402
Sales and marketing............................... 13,866,026 11,122,139 5,181,416
Lease termination charge.......................... 1,700,000 -- --
General and administrative........................ 31,827,238 22,005,526 10,804,094
Depreciation and amortization..................... 32,734,666 14,355,384 5,553,999
------------ ------------ -----------
Total expenses............................ 235,051,825 159,995,590 74,969,546
------------ ------------ -----------
Operating loss...................................... (16,757,442) (4,063,362) (1,522,066)
Other income (expense):
Interest expense.................................. (17,488,710) (5,408,717) (2,670,656)
Other income...................................... 1,835,829 876,201 508,518
------------ ------------ -----------
Loss before income taxes............................ (32,410,323) (8,595,878) (3,684,204)
Income tax benefit.................................. (73,656) (1,168,861) (551,638)
------------ ------------ -----------
Net loss............................................ $(32,336,667) $ (7,427,017) $(3,132,566)
============ ============ ===========
Net loss per share.................................. $ (234.95) $ (53.96) $ (34.80)
============ ============ ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 100
RICHMONT MARKETING SPECIALISTS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
------- ------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995....... 141,645 $1,416 $ 599,636 $ (7,933,719) $(1,505,367) $ (8,838,034)
Proceeds from sale of shares..... 61,311 613 25,705,833 -- -- 25,706,446
Shares repurchased and
canceled...................... (5,482) (54) -- (1,999,946) -- (2,000,000)
Net loss......................... -- -- -- (3,132,566) -- (3,132,566)
------- ------ ----------- ------------ ----------- ------------
Balance at December 31, 1996....... 197,474 1,975 26,305,469 (13,066,231) (1,505,367) 11,735,846
Contribution to capital.......... -- -- 5,000,000 -- -- 5,000,000
Net loss......................... -- -- -- (7,427,017) -- (7,427,017)
------- ------ ----------- ------------ ----------- ------------
Balance at December 31, 1997....... 197,474 1,975 31,305,469 (20,493,248) (1,505,367) 9,308,829
Net loss......................... -- -- -- (32,336,667) (32,336,667)
------- ------ ----------- ------------ ----------- ------------
Balance at December 31, 1998....... 197,474 $1,975 $31,305,469 $(52,829,915) $(1,505,367) $(23,027,838)
======= ====== =========== ============ =========== ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 101
RICHMONT MARKETING SPECIALISTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(32,336,667) $ (7,427,017) $ (3,132,566)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Provision for losses on accounts receivable............... 11,404,800 6,271,190 2,569,294
Compensation expense for stock appreciation rights........ 223,614 -- --
Compensation expense related to deferred compensation
plans................................................... 270,768 117,722 117,722
Restructure expense related to lease obligations.......... 1,700,000 -- --
Amortization of intangible assets......................... 27,349,844 10,483,724 3,163,227
Depreciation.............................................. 5,384,822 3,871,660 2,390,772
Imputed interest expense on deferred compensation and
deferred payment agreements and covenants not to
compete................................................. 1,949,205 2,086,578 1,327,639
Amortization of debt issue costs.......................... 531,271 -- --
(Gain) loss on disposal of property and equipment......... 112,907 (216,980) 105,816
Deferred income taxes..................................... (171,394) (1,389,252) (827,249)
Changes in operating assets and liabilities:
Accounts and notes receivable........................... (13,079,969) (9,320,470) (1,327,134)
Prepaid expenses and other current assets............... (36,219) 420,861 (429,510)
Other assets............................................ (79,451) (712,627) (921,735)
Accounts payable and accrued expenses................... (570,798) (3,533,561) 1,884,878
Income taxes payable.................................... (871,508) (354,855) (158,288)
Promotional advances.................................... (129,011) (78,037) (99,843)
------------ ------------ ------------
Net cash provided by operating activities.......... 1,652,214 218,936 4,663,023
INVESTING ACTIVITIES
Purchases of property and equipment....................... (6,843,238) (2,784,156) (1,489,485)
Proceeds from sale of equipment........................... 2,265,006 840,976 --
Cash paid in purchases of businesses, net of cash
acquired................................................ -- (33,919,031) (26,059,659)
------------ ------------ ------------
Net cash used in investing activities.............. (4,578,232) (35,862,211) (27,549,144)
FINANCING ACTIVITIES
Net change in line of credit.............................. -- (5,195,894) 280,000
Proceeds from debt issuance to stockholders............... -- -- 1,050,000
Principal payments on debt and capital lease
obligations............................................. (5,631,368) (8,997,574) (2,265,882)
Proceeds from debt offering, net of underwriting
commission.............................................. -- 97,000,000 --
Payments on covenants not to compete, and deferred payment
agreements.............................................. (5,891,829) (6,131,030) (1,906,938)
Payment of professional fees related to issuance of senior
subordinated notes...................................... (310,567) (2,038,613) --
Issuance of common stock.................................. -- -- 25,706,446
Cash contribution to capital.............................. -- 2,400,000 --
------------ ------------ ------------
Net cash provided by (used in) financing
activities....................................... (11,833,764) 77,036,889 22,863,626
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents........ (14,759,782) 41,393,614 (22,495)
Cash and cash equivalents at beginning of period............ 41,393,614 -- 22,495
------------ ------------ ------------
Cash and cash equivalents at end of period.................. $ 26,633,832 $ 41,393,614 $ --
============ ============ ============
Supplemental Disclosures of Non-Cash Activities
Conversion of notes payable to shareholders to equity..... -- 2,600,000 --
Capital leases entered into during the period............. -- -- 375,583
Issuance of notes payable for repurchase of common
stock................................................... -- -- 2,000,000
</TABLE>
See accompanying notes.
F-6
<PAGE> 102
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
In October 1997, the shareholders of Marketing Specialists Sales Company
(MSSC) exchanged all of their common stock for an equal number of shares of
common stock of Richmont Marketing Specialists Inc. (Richmont Marketing
Specialists). Accordingly, Richmont Marketing Specialists became the holding
company of MSSC. References in these Notes to Consolidated Financial Statements
to the "Company" refer to Richmont Marketing Specialists and, for any period
before October 1997, to MSSC.
The Company is one of the largest food brokers in the United States, with
extensive operations covering the west, southwest, and southeast regions of the
country and expanding operations in the midwest. The Company provides a
comprehensive array of sales, marketing, merchandising, and order management
services to over 1700 manufacturers, known as principals, of consumer-packaged
goods and markets the products of these principals to leading retailers and
wholesalers, known as customers, operating in a variety of trade channels,
including grocery stores, mass merchandisers, membership warehouses, drug
stores, and convenience stores.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Revenue Recognition
Revenue is earned from commissions on sales of food products on behalf of
manufacturers and producers (principals). Commission revenue is recorded as
income when product shipment has occurred and notification of such shipment is
received from the principals.
Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts receivable, trade
payables and short-term debt approximate carrying value at December 31, 1998 due
to the short period of time to maturity. Management estimates the fair value of
long-term debt to approximate the carrying value at December 31, 1998 based upon
current market interest rates in relation to the imputed interest rate of each
instrument and the relative liquidity of each instrument.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Net Loss Per Share
The net loss per share is computed based upon the weighted average number
of shares outstanding of 137,635, 137,635 and 90,006 for the years ended
December 31, 1998, 1997 and 1996, respectively. The weighted average number of
shares outstanding for the year ended December 31, 1996 includes the effect of
the 61,311 shares issued November 7, 1996.
F-7
<PAGE> 103
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement of Cash Flows
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of accounts and notes
receivable. As of December 31, 1998 and 1997, no individual principal represents
a significant concentration of accounts receivable. The Company generally does
not require collateral on accounts and notes receivable as the Company's
customers are generally large, well-established companies. The Company
periodically performs credit evaluations of its principals and maintains
reserves for potential losses. The established reserves and the credit losses
have historically been within Company estimates. The Company wrote off accounts
receivable of approximately $10,698,000, $6,632,000, and $1,072,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using accelerated methods over the estimated useful lives.
Intangible Assets
Intangible assets include goodwill, covenants not to compete, principal
relationships, and trained workforce. Goodwill represents the excess of the
purchase price over the fair value of net assets of various businesses acquired.
Effective January 1, 1998, the Company revised the estimated useful life of its
goodwill related to prior acquisitions from ten to five years. Acquisitions
prior to January 1, 1993 with unamortized goodwill at January 1, 1998 were
written off in the first quarter. The net loss for the year of 1998 would have
decreased by $9.4 million without this change. In addition, the net loss per
share for the year ended December 31, 1998 would have decreased $68.30 without
this change.
Covenants not to compete are recorded at fair value based on independent
appraisal and are being amortized over the term of the related agreement,
generally three to ten years. principal relationships and trained workforce are
recorded at fair value based on independent appraisals and are amortized over
periods ranging from one to seven years.
Periodically, the carrying value of intangible assets is reviewed if the
facts and circumstances suggest that they may be impaired. If the review
indicates that the intangible assets will not be recoverable, as determined by
the undiscounted cash flow method, the asset will be reduced to its estimated
recoverable value. At December 31, 1998, the Company does not believe that an
impairment of assets has occurred.
Promotional Advances
Promotional advances represent amounts received from principals for the
future promotion of their products. Such amounts are recorded as liabilities
until they are spent on behalf of and under the direction of the principals.
Prior Year Reclassification
Certain prior year balances have been reclassified to conform to current
year presentation.
F-8
<PAGE> 104
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- USEFUL LIVES
1998 1997 (YEARS)
------------ ------------ ------------
<S> <C> <C> <C>
Land........................................ $ 4,152,316 $ 3,789,058 --
Buildings and leasehold improvements........ 9,495,972 8,427,954 40
Furniture, fixtures and equipment........... 16,515,027 15,713,850 5-7
Purchased software.......................... 2,904,115 -- 3
Assets under capital leases................. 5,481,986 5,481,986 Lease term
------------ ------------
38,549,416 33,412,848
------------ ------------
Less accumulated depreciation and
amortization.............................. (15,530,327) (11,244,481)
------------ ------------
$ 23,019,089 $ 22,168,367
============ ============
</TABLE>
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Goodwill................................................. $ 66,003,306 $ 63,016,815
Covenants not to compete................................. 30,881,946 30,216,051
Principal relationships.................................. 29,106,749 29,106,749
Trained workforce........................................ 5,251,000 5,251,000
Other.................................................... 433,679 433,679
------------ ------------
131,676,680 128,024,294
Less accumulated amortization............................ (44,919,689) (17,986,429)
------------ ------------
$ 86,756,991 $110,037,865
============ ============
</TABLE>
Amortization expense related to intangible assets for the years ended
December 31, 1998, 1997 and 1996 was, $27,349,844, $10,483,724 and $3,163,227
respectively.
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Salaries, bonus, taxes and benefits......................... $3,343,593 $4,753,174
Insurance................................................... 1,065,400 969,788
Software maintenance........................................ 1,091,700 --
Tax reserve................................................. 1,000,000 --
Lease restructure, current portion.......................... 723,000 --
Interest.................................................... 505,159 375,314
Other....................................................... 1,252,107 1,211,553
---------- ----------
$8,980,959 $7,309,829
========== ==========
</TABLE>
F-9
<PAGE> 105
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LINES OF CREDIT
On October 14, 1997, the Company entered into a bank credit facility. On
December 18, 1997, this facility was amended and restated and further amended on
August 12, 1998 effective June 30, 1998 and on March 5, 1999 effective October
1, 1998 (collectively, the "Credit Agreement"). The Credit Agreement provides
for borrowings not to exceed the lesser of $25,000,000 or a maximum borrowing
base calculated on certain percentages of eligible accounts receivable. The
available borrowings will be reduced for any outstanding letters of credit.
Borrowings under the facility will be used to provide working capital for the
Company, to finance certain permitted acquisitions, and to facilitate other
general corporate purposes. Borrowings under the Credit Agreement bear interest
at the prime rate plus a margin of between 0.00% and 0.75% or the LIBOR rate
plus a margin of between 1.00% and 2.50%, based upon defined calculations, at
the option of the Company. The Company is required to pay commitment fees under
the facility at a rate range from .25% to .5625%, based upon defined
calculations. The facility will mature on October 14, 2002. The facility also
places restrictions and limitations on dividends, redemptions, and repurchases
of capital stock, additional indebtedness, capital expenditures, mergers and
asset sales of the Company.
The Credit Agreement requires the Company to maintain certain financial
ratios and meet certain indebtedness tests. Amounts outstanding under this
facility are collateralized by substantially all of the Company's assets.
On December 31, 1998, there were no borrowings under the facility; however,
a $1.4 million letter of credit was outstanding. The amount available under the
facility as amended was approximately $12.1 million.
F-10
<PAGE> 106
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM OBLIGATIONS
Debt
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Senior Subordinated Notes, unsecured, bearing interest at
10 1/8% payable semi-annually and principal due
December 15, 2007...................................... $100,000,000 $100,000,000
Unsecured notes payable to other entities, bearing
interest at rates ranging from 5.6% to 12%, principal
and interest payable under various arrangements over
terms ranging from one to fourteen years............... 6,953,790 8,364,915
Unsecured notes payable to related parties, bearing
interest at rates ranging from 7.5% to 8.5%, principal
and interest payable on demand......................... -- 661,310
Unsecured notes payable to former owners of Atlas,
bearing interest at 10%, principal and interest payable
monthly in the amount of $262,500 over terms ranging
from one to five years................................. 11,655,660 12,109,121
Unsecured notes payable to related parties, bearing
interest at rates ranging from 6.5% to 8.5%, principal
and interest payable under various arrangements over
terms ranging from one to ten years.................... 5,514,955 8,312,358
------------ ------------
124,124,405 129,447,704
Less current portion..................................... (4,624,260) (5,404,862)
------------ ------------
$119,500,145 $124,042,842
============ ============
</TABLE>
The combined aggregate maturities of debt at December 31, 1998, are as
follows:
<TABLE>
<S> <C>
1999........................................................ $ 4,624,260
2000........................................................ 4,708,231
2001........................................................ 4,454,929
2002........................................................ 3,994,225
2003........................................................ 1,003,016
Thereafter.................................................. 105,339,744
------------
$124,124,405
============
</TABLE>
On December 19, 1997, the Company issued $100,000,000 of 10 1/8% Senior
Subordinated Notes due 2007 (the Notes). The proceeds, net of a $3,000,000
underwriting commission, were $97,000,000. In connection with the issuance of
the Notes, the Company incurred approximately $5,300,000 in deferred financing
fees, which amount includes the underwriting commission. These fees are
capitalized and are being amortized over the term of the Notes.
Interest on the Notes is payable semiannually on June 15 and December 15 of
each year, commencing June 15, 1998. The principal on the Notes is payable on
December 15, 2007, the maturity date. Except as described below, 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. In addition, at any time and from time
F-11
<PAGE> 107
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to time on or prior to December 15, 2000, the Company may, subject to certain
requirements, redeem up to 35% of the original aggregate principal amount of the
Notes with the net cash proceeds of one or more public equity offerings by the
Company, at redemption price equal to 110.125% of the principal amount of the
Notes to be redeemed, together with accrued and unpaid interest, if any, to the
date of redemption, provided that at least 65% of the original aggregate
principal amount of the Notes remains outstanding immediately after each such
redemption. The Notes are not subject to any sinking fund requirement. Upon a
change of control, each holder of the Notes will have the right to require 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 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 basis by each of
the Company's principal operating subsidiaries, all of which are wholly owned.
Audited financial statements of the guarantor subsidiaries have been omitted
from these financial statements because the indebtedness is guaranteed by all
direct subsidiaries of the parent which has no operations or assets separate
from its investments in its subsidiaries.
Additionally, the terms on the Notes subject the Company to certain
limitations and restrictions primarily related to obtaining additional
indebtedness, payments of dividends, and sales of assets and subsidiary stock.
The Notes are also subject to an Exchange and Registration Rights Agreement
whereby the Company must file a registration statement with the Securities and
Exchange Commission within 16 months of the original date of issuance of the
Notes. The registered notes must be identical in all material respects to the
Notes, except for transfer restrictions relating to the Notes.
Covenants Not to Compete
The Company is obligated to make payments under agreements with former
owners of acquired companies and various other individuals for future consulting
services and covenants not to compete. The costs associated with such agreements
are recognized on a straight-line basis over the period in which the services
are to be rendered, which typically ranges from seven to ten years.
Future payments under these agreements at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 4,581,568
2000........................................................ 4,749,400
2001........................................................ 4,829,411
2002........................................................ 4,425,221
2003........................................................ 4,335,236
Thereafter.................................................. 15,110,642
------------
Total payments.................................... 38,031,478
Amount representing interest................................ (11,112,365)
------------
26,919,113
Less current portion........................................ (2,556,984)
------------
$ 24,362,129
============
</TABLE>
Deferred Payment and Compensation Plans
In conjunction with acquisitions of other brokerage companies, deferred
payment agreements are generally executed or assumed with the former owners and
certain key employees of the acquired
F-12
<PAGE> 108
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
companies. Under these agreements, the Company agrees to pay them certain
amounts upon either termination or retirement of such executive or, in the event
of their death, to their designated beneficiary. Terms vary; however, most
payments are monthly and continue for a period of up to ten years. The amounts
to be paid under most of these agreements are not based upon length of service
but are a fixed amount. The present value of these payments, discounted at rates
varying from 8% to 10%, was capitalized as an intangible asset at the date of
the acquisition as a component of the purchase price.
Beginning in 1991, the Company also initiated deferred compensation
agreements for certain key employees whereby the Company has agreed to pay them
a certain sum monthly for ten years upon the earlier of their retirement,
termination, or death. Compensation and interest expense is accrued ratably over
the employees' expected service period such that the accrual, at the anticipated
vesting date, equals the then present value of the future benefits. These
deferred compensation liabilities have been recorded at their net present value
using inputed interest rates ranging from 8% to 10%. Deferred compensation
expense was $270,768, $117,722 and $117,722 for the years ended December 31,
1998, 1997 and 1996, respectively.
The future aggregate minimum payments for the deferred payment and
compensation agreements at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 3,194,520
2000........................................................ 2,815,298
2001........................................................ 2,776,391
2002........................................................ 2,766,013
2003........................................................ 2,641,218
Thereafter.................................................. 15,880,381
------------
Total payments.................................... 30,073,821
Amount representing interest................................ (11,874,929)
------------
18,198,892
Less current portion........................................ (1,686,573)
------------
$ 16,512,319
============
</TABLE>
Leases
The Company leases its office facilities and certain office equipment under
long-term capital and operating lease agreements, which expire in various years
through 2007. Some of the Company's leases provide for escalating minimum rent.
Rent expense is recognized on a straight-line basis over the life of such
leases. During the second quarter of 1998, 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 Company vacated these
offices prior to June 30, 1998. The lease terminations occurred in Dallas,
Houston and San Antonio, Texas, as well as in Charlotte, North Carolina. The
employees and related assets were consolidated into other offices in the same
geographic area. The Company recorded a charge of $1.7 million for the rental
payments under the respective lease agreements because the abandoned office
space had no substantive future benefit to the Company. At December 31, 1998,
this reserve for future payments totals $1.4 million.
F-13
<PAGE> 109
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The annual future minimum lease payments under all noncancelable capital
leases, including leases for facilities which are no longer in use, at December
31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASES
----------
<S> <C>
1999........................................................ $ 704,208
2000........................................................ 650,878
2001........................................................ 465,497
2002........................................................ 255,995
2003........................................................ 105,396
Thereafter.................................................. 142,169
----------
Total minimum lease payments...................... 2,324,143
Amounts representing interest............................... (336,287)
----------
Present value of minimum lease payments..................... 1,987,856
Less current portion........................................ (566,247)
----------
$1,421,609
==========
</TABLE>
The annual future minimum lease payments under all noncancelable operating
leases, including leases for facilities no longer in use, at December 31, 1998
are as follows:
<TABLE>
<CAPTION>
RELATED
PARTIES OTHERS TOTAL
---------- ----------- -----------
<S> <C> <C> <C>
1999......................................... $1,082,940 $ 5,832,248 $ 6,915,188
2000......................................... 1,082,940 4,431,145 5,514,085
2001......................................... 883,388 3,621,560 4,504,948
2002......................................... 771,054 2,588,457 3,359,511
2003......................................... 269,993 1,587,918 1,857,911
Thereafter................................... 192,000 1,504,996 1,696,996
---------- ----------- -----------
Total.............................. $4,282,315 $19,566,324 $23,848,639
========== =========== ===========
</TABLE>
Included under property and equipment are amounts that have been
capitalized of $5,481,986 with accumulated amortization of $3,918,702 and
$3,316,692 in 1998 and 1997, respectively. Amortization of leased assets is
included in depreciation expense.
Rent expense for the years ended December 31, 1998, 1997 and 1996 was
$8,732,996, $6,223,182 and $2,636,246, respectively, of which $686,284, $763,020
and $743,340, respectively, was paid to related parties. Payments under capital
lease obligations to related parties was $353,400, $346,895 and $346,895 for the
years ended December 31, 1998, 1997 and 1996, respectively.
The Company paid interest of approximately $14,243,142, $1,510,646,
$811,506, in 1998, 1997 and 1996, respectively.
F-14
<PAGE> 110
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The Company utilizes the liability method of accounting for income taxes
whereby deferred taxes are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates.
Significant components of the (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- ----------- ---------
<S> <C> <C> <C>
Current:
Federal........................................ $ -- $ 177,828 $ 372,665
State.......................................... 97,738 42,563 (97,054)
--------- ----------- ---------
97,738 220,391 275,611
Deferred:
Federal........................................ (32,700) (1,170,631) (651,590)
State.......................................... (138,694) (218,621) (175,659)
--------- ----------- ---------
(171,394) (1,389,252) (827,249)
--------- ----------- ---------
Total tax expense (benefit)............ $ (73,656) $(1,168,861) $(551,638)
========= =========== =========
</TABLE>
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>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Benefit at U.S. statutory rates.............. $(11,019,509) $(2,922,599) $(1,252,629)
State income tax, net of federal tax
benefit.................................... (75,213) (116,198) (179,991)
Nondeductible amortization of intangibles.... 2,982,376 777,293 246,111
Nondeductible amortization of expenses....... 451,338 358,873 221,627
Cancellation of indebtedness income.......... -- 680,000 --
Change in valuation allowance on deferred tax
assets..................................... 7,587,352 492,957
Other........................................ -- 53,770 (79,713)
------------ ----------- -----------
Income tax expense (benefit)................. $ (73,656) $(1,168,861) $ (551,638)
============ =========== ===========
</TABLE>
F-15
<PAGE> 111
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
----------------------------------------
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Deferred tax liabilities:
Identified intangibles..................... $8,278,681... $ 9,949,858 $ 6,544,033
Book over tax depreciation................. -- -- 631,100
Revenue and expense recognition............ -- 515,367 --
Other...................................... 1,746,920 1,733,367 --
------------ ----------- -----------
Total deferred tax liabilities..... 10,025,601 12,198,592 7,175,133
Deferred tax assets:
Net operating loss......................... 549,359 -- --
Deferred compensation agreements........... 1,714,657 2,148,016 1,047,049
Allowance for doubtful accounts............ 2,619,927 788,269 756,516
Book over tax depreciation................. 411,956 290,227 --
Intangible assets.......................... 6,346,473 2,779,991 2,790,184
Self insurance reserve..................... 1,319,189 392,672 191,101
Deferred state taxes....................... -- 114,461 84,981
Other...................................... 100,259 758,798 222,878
------------ ----------- -----------
13,061,820 7,272,434 5,092,709
Valuation allowance for deferred tax
assets..................................... (11,129,534) (3,542,182) (3,542,182)
------------ ----------- -----------
Total deferred tax assets, net of
valuation allowance.............. 1,932,286 3,730,252 1,550,527
------------ ----------- -----------
Net deferred tax (liability)................. $ (8,093,315) $(8,468,340) $(5,624,606)
============ =========== ===========
</TABLE>
The valuation allowance for deferred tax assets was not changed during 1997
and was increased by $7,587,352, and $492,957 during 1998 and 1996,
respectively. The Company paid income taxes of $752,286, $586,782 and $658,668
during 1998, 1997 and 1996, respectively.
At December 31, 1998, the Company had $1,615,761 of net operating loss
carryforwards available to offset future taxable income for years 1999 through
2018.
8. COMMITMENTS AND CONTINGENCIES
The Internal Revenue Service ("IRS") has asserted deficiencies in federal
corporate income taxes for Atlas for tax years 1993 through 1995. The proposed
adjustments relate to the deductibility of certain compensation and benefit
expenses, and may result in additional federal and state tax liabilities as of
December 31, 1998. Under the purchase agreement with Atlas, the Company's
exposure for contingent obligations, including the matter discussed herein, is
limited to $1,000,000. As a result, as of December 31, 1998, the Company has
recorded a reserve of $1,000,000 to cover potential IRS claims associated with
this matter with a corresponding increase to goodwill related to the Atlas
acquisition.
The Company has guaranteed approximately $1,000,000 of long-term
obligations related to a building it currently occupies that is leased from a
previous owner of an acquired company.
F-16
<PAGE> 112
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is subject to certain claims arising in the normal course of
business. In management's opinion, any such contingencies would not materially
affect the Company's consolidated financial position or consolidated operating
results.
9. BENEFIT PLANS
401(k) Savings Plan
The Company sponsors a 401(k) savings plan for all employees who have been
employed by the Company at least one year. The Company matches employee
contributions up to 3% of the employee's salary. The Company made contributions
totaling $2,015,903, $1,248,398 and $571,265 in 1998, 1997 and 1996,
respectively.
Incentive Plan
In 1998, the Company adopted an incentive plan ("Incentive Plan"), which
allows the granting of senior management appreciation rights ("SMARTs") to
employees of the Company. Total SMARTs authorized for awards are 20,566 and
9,520 were granted and outstanding as of December 31, 1998.
The SMARTs are exercisable in 20% annual increments for five consecutive
years commencing on the fifth anniversary of the Grant Date, as defined under
the Incentive Plan. If the recipient's employment with the Company terminates
for any reason prior to 100% vesting, all potential value of the SMARTs are
forfeited. Any SMARTs that remain unexercised in the fifth year following full
vesting will be paid to the holder in five equal annual installments. The
Company has the right to defer the exercisability of the SMARTs if payment on
exercised amounts would cause a conflict with or a violation of any agreement or
instrument to which the Company is a party. The value of each SMARTs unit will
fluctuate in accordance with the value of the Company's equity, which will be
determined annually. Future increases and decreases in the appraised value of
the Company will result in recognition of an increase or decrease in
compensation expense.
Upon termination of employment of any holder of SMARTs, the SMARTs that
have been vested will be exchanged for the right to receive deferred
compensation pursuant to a SMART Deferred Compensation Agreement. The amount of
deferred compensation payable pursuant to such agreements will depend on the
date of such termination, the reasons therefore, as well as the Company's
financial performance.
The SMARTs and Deferred Compensation Agreements represent unfunded and
unsecured obligations of the Company. Outstanding amounts under the SMARTs and
Deferred Compensation Agreements are due in full upon certain provisions of the
respective agreements, including a change in control.
Non-cash compensation expense of $223,614 was recognized by the Company for
the year ended December 31, 1998 relating to the granting of SMARTs and is
included in long term obligations.
10. ACQUISITIONS
On October 31, 1996, the Company purchased all of the issued and
outstanding stock of Bromar, Inc., a California based food broker corporation,
in exchange for $26,005,000 cash paid at closing. The Company received the
following assets and liabilities from Bromar, Inc in the acquisition: $9.5
million of accounts receivable, $6.2 million of intangible assets, $11.6 million
of fixed assets, $2.9 million of other assets, $4.1 million of accounts payable,
and $16.5 million of assumed debt. The purchase price was allocated based on
estimated fair values at the date of acquisition.
F-17
<PAGE> 113
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 1, 1997, the Company acquired substantially all of the assets
and liabilities of Westexico Sales Co., Inc., a Texas-based food broker
corporation, in exchange for a 6.31% note payable totaling $2,000,000 with a
present value of $1,606,198.
On March 1, 1997, the Company purchased all of the issued and outstanding
stock of Gene Sanford & Associates, Inc., an Arizona-based food broker
corporation, in exchange for $80,000 cash, two 6.2% notes payable totaling
$143,987, and covenants not to compete with certain key employees totaling
$2,604,000.
On May 31, 1997, the Company purchased all of the issued and outstanding
stock of Tower Marketing, Inc., a Texas-based food broker corporation, in
exchange for 9.5% notes payable to Tower shareholders with a present value of
$3,258,285 and covenants not to compete with certain key employees with a
present value of approximately $11,110,000. In addition, liabilities of
$10,605,000 were assumed in the acquisition. Of the total purchase price, for
financial reporting purposes, approximately $8,170,000 has been allocated to
principal relationships, $4,880,000 to covenants not to compete, $1,020,000 to
trained workforce, $5,093,000 to assets, $3,615,000 to current liabilities, and
$6,990,000 to long-term obligations, with the remaining amount allocated to
goodwill. The purchase price was allocated based on estimated fair values at the
date of acquisition. Obligations related to the covenants not to compete were
initially recorded based on preliminary estimates of amounts due to key
employees and officers. During the first quarter of 1998, the estimated
liabilities were increased by approximately $2.0 million to reflect the final
estimate of the liabilities associated with the covenants not to compete based
on more complete information.
On July 1, 1997, the Company acquired substantially all of the principal
contracts, agreements, and commitments of Pioneer Food Sales, Inc., a
Washington-based food broker corporation, in exchange for a note payable
totaling $340,000 with a present value of $250,749 (9.5% interest rate imputed)
and covenants not to compete with certain key employees with a present value of
$376,123.
On July 1, 1997, the Company acquired substantially all of the assets and
liabilities of L'Amoreaux & Associates, a California-based food broker
corporation, in exchange for various notes payable totaling $1,865,000 with a
present value of $1,250,494 (9.5% interest rate imputed) and covenants not to
compete with certain key employees with a present value of $402,304.
On December 31, 1997, the Company purchased all of the issued and
outstanding stock of Atlas, a North Carolina-based food broker corporation, for
total consideration of approximately $45,700,000, which includes approximately
$19,800,000 in cash, $12,100,000 in promissory notes to be issued to certain
Atlas stockholders, and $13,800,000 to repay substantially all of the
indebtedness of Atlas. In addition, liabilities of $6,373,000 were assumed in
the acquisition. Of the total purchase price, for financial reporting purposes,
approximately $10,750,000 has been allocated to principal relationships,
$6,490,000 to covenants not to compete, $2,460,000 to trained workforce,
$19,899,000 to assets, $6,228,000 to current liabilities, and $1,700,000 to
long-term obligations, with the remaining amount allocated to goodwill. The
purchase price was allocated based on estimated fair values.
All of the acquisitions were accounted for under the purchase method. The
operating results of the acquired companies have been included in the
consolidated results of operations since the date of acquisition.
F-18
<PAGE> 114
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following represents the unaudited pro forma results of operations of
the Company as if the acquisitions of Bromar, Tower and Atlas had occurred on
January 1, 1996 after giving effect to certain adjustments, including interest
expense directly associated with the acquisitions and the proceeds of the Senior
Subordinated Notes and amortization of intangibles:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C>
Revenue..................................................... $216,068 $211,022
Net loss.................................................... $(27,878) $(26,463)
Loss per share.............................................. $(202.55) $(294.01)
</TABLE>
The above pro forma information assumes goodwill would be amortized over 10
years. As discussed previously in Note 1, effective January 1, 1998, the Company
revised the estimated useful life of its goodwill from 10 to 5 years. The net
loss for 1997 and 1996 would be $(30,781,000) and $(31,067,000), respectively if
goodwill was amortized over 5 years or a loss per share of $(223.64) and
$(345.17), respectively.
Pro forma results presented are not necessarily indicative of what actually
would have occurred if the acquisitions had been consummated on January 1, 1996.
11. SHAREHOLDERS' EQUITY
During 1996, a series of transactions occurred through which an investor
acquired 82,581 shares of the Company's common stock (21,270 shares from
existing shareholders (Minority Shareholders) in April and 61,311 newly issued
shares in November) and the Company became a majority-owned subsidiary of this
privately held company. Net proceeds to the Company were $25,706,446. In
connection with the November transaction, the Minority Shareholders sold back to
the Company 5,482 shares of its common stock for $2,000,000 in notes payable.
These shares were then canceled by the Company. As a result of these
transactions, the new investor has 60% ownership and the Minority Shareholders
have 40% ownership of the Company.
On October 7, 1997, the majority shareholder, the Minority Shareholders and
the Company entered into an agreement (Shareholders Agreement) which provides
for the buyback of the Minority Shareholders' shares under various
circumstances. If, prior to the termination of the Shareholders Agreement, any
Minority Shareholder desires to sell any of his shares to an independent third
party, such selling Minority Shareholder must offer those shares on the same
terms and conditions: first, to the majority shareholder; second, to the
Company; and finally, to the other Minority Shareholders before completing the
sale to the third party.
During the first 15 days of each fiscal quarter of the Company occurring
after December 31, 2000, but prior to December 31, 2003, each of the Minority
Shareholders who is not an employee at such time shall have the option to sell
to the Company, and the Company shall have the obligation to purchase, his
shares for cash, promissory notes, or a combination of both, at a per share
price based on a negotiated multiple (reflecting prevailing market and industry
conditions) of earnings before interest, taxes, depreciation, amortization and
extraordinary, non-recurring and discretionary expenses (EBITDA), less funded
debt. Based on the Company's interpretation of the Shareholder's Agreement, the
amount of this obligation, if any, is not significant. As of December 31, 1998,
Minority Shareholders owning an aggregate of 16.7% of the Company's common stock
were no longer employed by the Company.
Further, in the event of death or disability of a Minority Shareholder, a
representative of the deceased or disabled Minority Shareholder can, at any time
during the first 15 days of the second full fiscal quarter occurring after the
death or disability, require the Company to purchase the shares at the formula
price described in the preceding paragraph.
F-19
<PAGE> 115
RICHMONT MARKETING SPECIALISTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company shall have the option to repurchase the shares of
a Minority Shareholder in the event of the termination for cause, divorce,
bankruptcy, disability or death of such Minority Shareholder, at a 5.25 multiple
of EBITDA less funded debt. In the event any Minority Shareholder voluntarily
ceases employment with the Company, the Minority Shareholder shall retain
certain rights as set forth in the Shareholders Agreement, including the right
to sell his shares under the terms of the Shareholders Agreement.
Notwithstanding the provisions described above, the Shareholders Agreement
will automatically terminate on the earliest to occur of: (1) the effective date
of an initial public offering of the Company's capital stock, (2) a merger or
consolidation in which a change of control occurs, (3) a sale of substantially
all of the Company's assets or capital stock, (4) the mutual consent of the
parties or (5) April 2, 2021.
F-20
<PAGE> 116
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Atlas Marketing Company, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of operations and
cash flows of Atlas Marketing Company, Inc. and Subsidiaries for the years ended
December 31, 1997 and 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Atlas Marketing Company, Inc. and Subsidiaries for the years ended December
31, 1997 and 1996 in conformity with generally accepted accounting principles.
ERNST
& YOUNG LLP
Charlotte, North Carolina
March 25, 1998
F-21
<PAGE> 117
ATLAS MARKETING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenue..................................................... $46,971,606 $49,647,608
Expenses:
Salaries.................................................. 31,746,998 28,964,531
Fringe benefits........................................... 1,095,806 1,091,517
Automobile and related expenses........................... 2,517,489 1,618,823
Sales and marketing....................................... 3,159,831 2,506,793
General and administrative................................ 6,453,640 5,451,216
Depreciation.............................................. 1,760,625 2,227,335
Amortization.............................................. 999,450 1,108,171
Bonus compensation........................................ 1,568,308 4,372,714
----------- -----------
Total expenses.................................... 49,302,147 47,341,100
----------- -----------
Operating income (loss)..................................... (2,330,541) 2,306,508
Other income (expense):
Interest expense.......................................... (1,008,364) (1,122,325)
Other income.............................................. (465,572) 157,228
----------- -----------
Income (loss) before taxes.................................. (3,804,477) 1,341,411
Income tax expense (benefit)................................ (1,005,000) 1,460,100
----------- -----------
Net (loss).................................................. $(2,799,477) $ (118,689)
=========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE> 118
ATLAS MARKETING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ (2,799,477) $ (118,689)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Equity in income of affiliate.......................... (3,947) (16,075)
Depreciation........................................... 1,760,625 2,227,335
Amortization........................................... 999,450 1,108,171
Deferred taxes......................................... (1,116,000) (98,800)
Stock bonuses.......................................... 378,125 1,191,663
Allowance for doubtful accounts........................ 600,000 --
Gain on sale of property and equipment................. (89,478) (106,542)
Changes in assets and liabilities:
Accounts receivable.................................. 300,410 (293,872)
Other current assets................................. 371,291 (19,734)
Due to employees..................................... 267,223 --
Accounts payable..................................... 463,497 258,920
Accrued expenses..................................... 363,572 1,268,520
Income taxes payable................................. (733,310) 526,459
Market development funds payable..................... 41,704 11,958
------------ -----------
Cash provided by operating activities....................... 803,685 5,939,314
INVESTING ACTIVITIES
Proceeds from sale of property and equipment.............. 616,495 462,658
Purchase of property and equipment........................ (620,830) (2,117,630)
Cash paid in business acquisitions........................ -- (31,027)
Cash paid for non-compete agreement....................... (20,000) --
Cash paid for investment in affiliate..................... (375,000) (90,000)
------------ -----------
Cash used by investing activities........................... (399,335) (1,775,999)
FINANCING ACTIVITIES
Payments on notes payable................................. (618,022) (760,853)
principal payments on long-term borrowings................ (14,832,228) (3,123,737)
Proceeds from borrowings from MSSC........................ 16,043,658 --
Purchase and retirement of common stock................... -- (271,684)
------------ -----------
Cash provided by (used in) financing activities............. 593,408 (4,156,274)
------------ -----------
Net increase (decrease) in cash............................. 997,758 7,041
Cash at beginning of period................................. 53,333 46,292
------------ -----------
Cash at end of period....................................... $ 1,051,091 $ 53,333
============ ===========
</TABLE>
See accompanying notes.
F-23
<PAGE> 119
ATLAS MARKETING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
MERGER AGREEMENT
The Company was acquired by Marketing Specialists Sales Company ("MSSC") on
December 19, 1997 for approximately $45.7 million. The accompanying consolidated
financial statements reflect operations through December 31, 1997 and do not
reflect the effects of purchase accounting pursuant to Accounting Principles
Board Opinion No. 16, "Accounting for Business Combinations" ("APB16") as a
result of the acquisition by MSSC.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Business
Atlas Marketing Company, Inc. (the "Company") provides food brokerage
services to various principals in the food supply industry through its operating
offices in North Carolina, South Carolina, Georgia, Virginia and West Virginia,
with representatives in North Carolina, South Carolina, Virginia, West Virginia,
Maryland, Delaware, Tennessee, Florida, Louisiana, Alabama, Texas, Oklahoma,
Kentucky, Ohio and Pennsylvania.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
The Company had a 50% ownership investment in Meatmaster Brokerage, Inc.,
which was accounted for under the equity method up through December 19, 1997 at
which point the Company acquired the remaining interest.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is earned from commissions or sales of products on behalf of
manufactures and producers (principals). Commission revenue is recognized as
income when product shipment has occurred and/or notification of such shipment
is received from the principal.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of accounts and notes
receivable. As of December 31, 1997 and 1996 and no individual principal
represents a significant concentration of accounts receivable. The Company
generally does not require collateral on accounts and notes receivable as the
Company's customers are generally large, well established companies within the
food supply industry. The Company periodically performs credit evaluations of
its principals and maintains reserves for potential losses.
F-24
<PAGE> 120
ATLAS MARKETING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Depreciation on property and equipment is provided using accelerated
methods over the following estimated useful lives:
<TABLE>
<S> <C>
Building.................................................... 19 years
Leasehold improvements...................................... 5 years
Equipment................................................... 5 - 7 years
Data processing equipment................................... 5 years
Furniture and fixtures...................................... 5 - 7 years
Vehicles.................................................... 5 years
</TABLE>
Intangible Assets
Intangible assets include goodwill, principal lists and covenants not to
compete. Goodwill and principal lists represent the excess of the purchase price
over the value of net tangible assets of various businesses acquired. These
amounts are being amortized over a period of ten years based on the straight-
line method. Covenants not to compete are recorded at the net present value of
the payments to be made under the agreements and are being amortized over the
term of the related agreement, generally three to five years. The carrying
values of intangibles are reviewed if the facts and circumstances indicate
impairment of their carrying value. Any impairment in the carrying value of such
intangibles is recorded when identified.
Marketing Development Funds Payable
Marketing development funds payable represent amounts received from
principals for the future promotion/marketing of their products. Such amounts
are recorded as liabilities until they are spent on behalf and/or under the
direction of the principals.
Income Taxes
The Company utilizes the liability method of accounting for income taxes
whereby deferred taxes are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates.
Stock Based Compensation
The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under APB 25, no compensation expense is recognized for stock or
stock options issued at fair value. For stock options granted at exercise prices
below the estimated fair value, the Company records compensation expense over
the vesting period for the difference between the exercise price of the share
and the estimated fair value. Compensation expense is recognized upon grant if
the options vest immediately.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS 123). SFAS 123 provides for a fair value based method of
accounting for employee stock options and similar equity instruments. However,
for companies that elect to continue to account for stock based compensation
arrangements under APB 25, SFAS 123 requires disclosure of the pro forma effect
on net income as if the fair value based method proscribed by SFAS 123 had been
applied. The Company continued to account for stock based compensation
arrangements under APB No. 25. The SFAS 123 pro forma net income would not be
materially different from the reported net loss.
F-25
<PAGE> 121
ATLAS MARKETING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The options outstanding at December 31, 1997 were issued in July 1993.
Therefore the disclosure requirements of SFAS 123 are not applicable.
2. INTANGIBLE ASSETS
Amortization expense charged against income was $999,450 and $1,108,171 for
1997 and 1996, respectively.
3. EMPLOYEE STOCK OWNERSHIP PLAN
The Company maintains the Atlas Marketing Company, Inc. Employee Stock
Ownership Plan covering all full-time employees with one year of service.
Contributions are determined at the discretion of the Board of Directors. No
contributions were made or accrued for in 1996 or 1997. The plan was terminated
effective January 1, 1998 in connection with the purchase of the Company by
MSSC.
4. EMPLOYEE BENEFIT PLANS
During 1995, the Company established the Atlas Marketing Company, Inc.
Employees 401(k) Plan and Trust covering all full-time employees with one year
of service. Employer matching contributions are determined annually, in advance,
at the discretion of the Board of Directors. For 1997 and 1996, the Board of
Directors determined that employee contributions would be matched on a dollar
for dollar basis up to a maximum of 6% of eligible compensation. The Company
recorded $1,088,566 and $1,066,484 of benefit plan expense in 1997 and 1996,
respectively.
The Company also maintains the Atlas Marketing Company, Inc. Employee
Benefit Plan and Trust, a self-insured medical benefits plan covering all
full-time employees, with optional coverages available for part-time personnel.
The Company contributes an amount necessary to meet plan expenses, net of
employee contributions for optional benefits. The Company medical benefit plan
contributions, included in general and administrative expenses, was $2,323,647
and $1,848,216 for 1997 and 1996, respectively.
5. INCOME TAXES
Significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
----------- ----------
<S> <C> <C>
Current:
Federal..................................................... $ 96,000 $1,274,700
State....................................................... 15,000 284,200
----------- ----------
111,000 1,558,900
Deferred:
Federal..................................................... (973,000) (86,100)
State....................................................... (143,000) (12,700)
----------- ----------
(1,116,000) (98,800)
----------- ----------
Total tax expense (benefit)....................... $(1,005,000) $1,460,100
=========== ==========
</TABLE>
F-26
<PAGE> 122
ATLAS MARKETING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Federal and state income tax expense as a percentage of income before
income taxes was different than the statutory income tax rates for both years.
The reasons for the differences between the actual tax expense and the
"expected" tax expense for those years (computed by applying the federal
corporate rate of 34%) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996
----------- ----------
<S> <C> <C>
Computed "expected" tax expense............................ $(1,293,500) $ 456,100
State income taxes, net of federal benefit................. (133,000) 175,700
Amortization of intangibles................................ 229,500 223,200
Non-deductible expenses.................................... 192,000 605,100
----------- ----------
$(1,005,000) $1,460,100
=========== ==========
</TABLE>
The Company has received notices from the Internal Revenue Service (IRS)
asserting deficiencies in federal corporate income taxes for the Company's
taxable years 1993 through 1995. The proposed adjustments, relating to the
deductibility of certain compensation and benefit expenses, may result in
additional federal and state tax liabilities as of December 31, 1997 of
approximately $5.8 million plus interest. The Company has analyzed these matters
with tax counsel and believes that it has meritorious defenses and has filed a
response protesting the proposed adjustments. No amount has been recorded in the
financial statements relating to adjustments proposed by the IRS.
6. RELATED-PARTY TRANSACTIONS
In 1996, the Company issued 240,740 shares to officers and directors for
payment of compensation which had a value of $2.5 million. The Company
repurchased and retired 18,106 shares from officers and directors in 1996 at a
cost of $187,000.
Following is a summary of related-party balances at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Receivables from officers and directors..................... $ 1,792 $ 5,739
=========== ==========
Due to MSSC................................................. $16,330,583 --
Accrued compensation payable to officers.................... -- 1,784,070
Notes due to officers....................................... -- 400,000
----------- ----------
$16,330,583 $2,184,070
=========== ==========
</TABLE>
Additionally, the Company has entered into several lease agreements for
office facilities in which individuals who were officers and directors in 1997
and 1996 (prior to the purchase of the Company by MSSC) have an ownership
interest. Lease payments made to these individuals in 1997 and 1996 totaled
$123,812 and $158,027, respectively.
F-27
<PAGE> 123
ATLAS MARKETING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASES
The Company has entered into various operating lease agreements primarily
for the lease of vehicles, office and warehouse space. Annual future minimum
lease payments required by noncancelable lease agreements at December 31, 1997
are as follows:
<TABLE>
<CAPTION>
RELATED
PARTIES OTHERS TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
1998............................................. $ 367,648 $ 828,455 $1,196,103
1999............................................. 431,004 395,679 826,683
2000............................................. 431,004 95,946 526,950
2001............................................. 431,004 -- 431,004
2002............................................. 365,754 -- 365,754
Thereafter....................................... 114,668 -- 114,668
---------- ---------- ----------
$2,141,082 $1,320,080 $3,461,162
========== ========== ==========
</TABLE>
Rent expense under noncancellable lease agreements was $680,728 and
$586,624 for 1997 and 1996, respectively.
The Company has subleased certain office and warehouse facilities. The
total minimum rentals to be received under the sublease is $29,360 in 1998.
8. CONTINGENCIES
The Company is subject to legal actions from time to time which have arisen
in the ordinary course of business. The Company intends to vigorously contest
all such claims and, in the opinion of management, the resolution of such claims
will not materially affect the financial position of the Company.
9. SUPPLEMENTAL CASH FLOW DISCLOSURES
Supplemental disclosures of cash flow information is provided below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash paid during the year for:
Interest................................................ $1,118,328 $1,115,281
Income taxes............................................ 838,356 1,065,299
Noncash investing and financing activities:
Business acquisition through issuance of notes
payable.............................................. -- 503,951
Purchase of stock through issuance of notes payable..... 881,358 239,147
Business acquisition through increase in due to MSSC.... 286,925 --
Issuance of stock through receipt of notes.............. 325,000 --
Covenant not to compete through issuance of note
payable.............................................. 188,940 --
</TABLE>
F-28
<PAGE> 124
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Bromar, Inc. and Subsidiaries
We have audited the accompanying consolidated statement of income and cash
flows of Bromar Inc. and Subsidiaries for the ten months ended October 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Bromar Inc. and Subsidiaries for the ten months ended October 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Irvine, California
March 7, 1997
F-29
<PAGE> 125
BROMAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER 31, 1996
----------------
<S> <C>
Total revenue............................................... $56,048,862
Expenses:
Operating expenses:
Salaries.................................................. 30,364,770
Fringe benefits........................................... 5,138,957
Automobiles and related expenses.......................... 4,846,270
General and administrative................................ 6,163,433
Occupancy and related expenses............................ 3,002,364
Sales and marketing....................................... 2,481,575
Depreciation and amortization............................. 2,371,262
Interest expense.......................................... 700,030
Bonus to employees........................................ 346,000
-----------
Total operating expenses.......................... 55,414,661
-----------
Income before income taxes................................ 634,201
Income taxes.............................................. 407,000
-----------
Net income................................................ $ 227,201
===========
</TABLE>
See accompanying notes.
F-30
<PAGE> 126
BROMAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER 31, 1996
----------------
<S> <C>
OPERATING ACTIVITIES
Net income................................................ $ 227,201
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 2,371,262
Gain on disposal of property and equipment............. (431,107)
Provision for doubtful accounts........................ 40,000
Deferred income taxes.................................. (90,438)
Changes in operating assets and liabilities:
Accounts and notes receivable.......................... (141,497)
Prepaid expenses and other current assets.............. (312,093)
Accounts payable and accrued liabilities............... (652,725)
Other assets........................................... 92,525
-----------
Net cash provided by operating activities................... 1,103,128
INVESTING ACTIVITIES
Purchases of property and equipment....................... (1,174,436)
Proceeds from sale of equipment........................... 1,019,844
Payments on purchase agreements........................... (1,265,657)
-----------
Net cash used in investing activities....................... (1,420,249)
FINANCING ACTIVITIES
Net change in line of credit.............................. 1,762,410
Proceeds from long-term debt.............................. 422,243
principal payments on long-term debt and capital lease
obligations............................................ (1,312,045)
principal payments on retirement agreements............... (55,028)
Repurchase of common stock................................ (630,001)
Repayments on notes for common stock...................... 132,754
-----------
Net cash provided by financing activities................... 320,333
-----------
Increase in cash and cash equivalents....................... 3,212
Cash and cash equivalents at beginning of period............ 26,480
-----------
Cash and cash equivalents at end of period.................. $ 29,692
===========
</TABLE>
See accompanying notes.
F-31
<PAGE> 127
BROMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
MERGER AGREEMENT
Shareholders of record at October 15, 1996 of the Company entered into a
merger agreement effective October 31, 1996 with MSSC California, Inc. (MSSC), a
wholly owned subsidiary of Marketing Specialists Sales Company. Upon
consummation of the respective parties' obligations in accordance with terms of
the agreement, 529,879 shares of common stock outstanding at October 31, 1996
will be converted into the right to receive an aggregate amount of $26,005,000
in cash whereupon the Company will become a wholly owned subsidiary of Marketing
Specialists. As a result of this merger, Bromar's operations will be
consolidated with those of Marketing Specialists in future periods.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description
Bromar Inc. (the "Company") is a broker and wholesaler of food and related
products to grocery retailers and food service outlets primarily in the western
United States. The Company's wholly owned subsidiaries include Brokerage
Services, Inc., a food brokerage, and Service Assets Corporation, which leases
vehicles to the Company.
Basis of Presentation
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.
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
revenues and expenses. Actual results could differ from those estimates.
Revenue Recognition
Substantially all of the Company's revenue is in the form of commissions
earned from the food manufacturers and processors that it represents.
Commissions are recognized as revenue when an order is placed with the
manufacturers and processors as the earning process is substantially complete
and the order is filled shortly thereafter by the manufacturer with no
additional effort required on the part of the Company.
Property and Equipment
Depreciation and amortization are computed using the straight-line method
over the assets' useful lives, which range from three to forty years, or over
the term of the lease, whichever is shorter.
Goodwill
Goodwill represents the excess of the purchase price over the value of net
tangible assets of various businesses acquired. Goodwill is amortized on the
straight-line method over a period of five to ten years. Amortization expense
for goodwill was approximately $176,000 for the ten months ended October 31,
1996.
F-32
<PAGE> 128
BROMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statements of Cash Flows
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
During the ten months ended October 31, 1996 the Company purchased four
brokerage companies for an aggregate purchase price of $2,722,500. These
purchases were financed by the Company and, accordingly, represent noncash
transactions.
2. PROPERTY AND EQUIPMENT
Depreciation and amortization expense related to property and equipment was
$1,128,672 for the ten months ended October 31, 1996. Amortization of assets
purchased under capitalized lease agreements was included in depreciation and
amortization expense.
3. FINANCING ARRANGEMENTS
Long-Term Debt
The Company paid interest of approximately $700,000 for the ten months
ended October 31, 1996.
4. INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred taxes are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates.
Significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
TEN MONTHS ENDED
OCTOBER 31, 1996
----------------
<S> <C>
Current:
Federal.................................................. $411,000
State.................................................... 87,000
--------
498,000
Deferred:
Federal.................................................. (86,000)
State.................................................... (5,000)
--------
(91,000)
--------
$407,000
========
</TABLE>
The Company's income tax provision varies from the statutory rate primarily
because of the nondeductibility of certain portions of meal and entertainment
expenses and state income taxes imposed by the various states on the Company's
operations.
The Company paid income taxes of $802,000 for the ten months ended October
31, 1996.
The Company is currently under examination by the Internal Revenue Service
for the 1993 tax year.
5. DEFERRED COMPENSATION AND RETIREMENT PLANS
Profit Sharing and Stock Plans
The Company has a profit sharing plan and a stock plan covering
substantially all employees with one year or more of service. Total annual
contributions to these plans is at management's discretion subject to
F-33
<PAGE> 129
BROMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
certain limitations. No contributions were made to either the profit sharing
plan or the stock plan for the ten months ended October 31, 1996.
Retirement Agreements
The Company is committed, through unfunded retirement agreements with three
former officers of the Company, to provide retirement benefits in an amount
equal to five times the average annual salary of the ten years preceding the
retirement of each officer. Payments under such agreements are to be made in 240
equal semimonthly installments and are to begin the month following retirement.
In the event of their death, any unpaid benefits are paid to the officer's
beneficiary.
Under the agreement, payments are allocated between retirement benefits and
consulting services. Charges to expense under the retirement portion of the
agreements were recorded during the period of active employment and were
calculated to result in an accrued amount at the officers' retirement date equal
to the then present value of one-half of the estimated payments. Future
obligations under the retirement portion of the agreement are as follows at
October 31, 1996:
<TABLE>
<S> <C>
1997........................................................ $ 66,492
1998........................................................ 79,096
1999........................................................ 69,198
2000........................................................ 75,272
2001........................................................ 81,880
Thereafter.................................................. 164,132
--------
$536,070
========
</TABLE>
Under the agreements, the officers and their surviving spouses are
obligated to render consulting and other services at the Company's request and,
therefore, the remaining one-half of the payments are considered to be
applicable to such services to be performed by the officer and his surviving
spouse after retirement and will be charged to expense in the year of payment.
If an officer and his surviving spouse die before all payments are received by
them, the Company will accrue the amount equal to the then present value of the
remaining payments to be made to such officer's designated beneficiary or
estate. Compensation expense incurred relating to the consulting portion of the
agreement was approximately $175,000 for the ten months ended October 31, 1996.
6. EMPLOYEE STOCK PLANS
The Company has adopted a stock option plan under which certain key
employees may be offered the opportunity to purchase varying amounts of the
Company's capital stock. There were 150,000 shares reserved for grant under this
plan. All options granted under this plan have been granted at the fair market
value of the Company's common stock at the date of grant. The Company had no
shares of common stock available for future grant under the stock option plan
during the ten month period ended October 31, 1996.
F-34
<PAGE> 130
BROMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
Leases
The Company occupies certain buildings and uses certain office equipment
under long-term operating lease agreements, which expire in various years
through 2001. The annual future minimum lease payments for such leases (with
initial or remaining terms in excess of one year) are as follows:
<TABLE>
<S> <C>
1997........................................................ $3,130,939
1998........................................................ 1,689,546
1999........................................................ 1,067,830
2000........................................................ 297,308
----------
$6,185,623
==========
</TABLE>
Rent expense was $2,475,019 for the ten months ended October 31, 1996.
Covenants Not to Compete
The Company is contingently obligated to make payments under agreements
with various individuals for future consulting services when such services are
performed and upon compliance with covenants not to compete. The costs
associated with such agreements are recognized on the straight-line basis over
the period in which the services are to be rendered, which typically ranges from
seven to ten years. The timing of payments due under these agreements are
specifically defined in each agreement and as such, the payment stream does not
necessarily correspond with the amortization period. Estimated future payments
under these agreements and the estimated related cost to be charged to
operations are as follows at October 31, 1996, actual payments and costs may
differ based on future events:
<TABLE>
<CAPTION>
PAYMENTS DUE
ON AGREEMENTS
-------------
<S> <C>
1997........................................................ $1,017,933
1998........................................................ 819,386
1999........................................................ 801,948
2000........................................................ 771,689
2001........................................................ 628,698
Thereafter.................................................. 2,243,181
----------
$6,282,835
==========
</TABLE>
Contingencies
The Company is subject to certain claims arising in the normal course of
business. In management's opinion, any such contingencies would not materially
affect the Company's consolidated financial position, consolidated operating
results or cash flows.
F-35
<PAGE> 131
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY RICHMONT MARKETING SPECIALISTS,
INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF RICHMONT MARKETING SPECIALISTS, INC. SINCE THE
DATE HEREOF OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
UNTIL , ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$100,000,000
RICHMONT MARKETING
SPECIALISTS, INC.
10 1/8% SERIES B SENIOR
SUBORDINATED NOTES
DUE 2007
-----------------
PROSPECTUS
-----------------
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 132
PART II
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
As authorized by Section 145 of the General Corporation Law of the State of
Delaware, each director and officer of the registrant may be indemnified by the
registrant against expenses (including attorney's fees, judgments, fines and
amounts paid in settlement) actually and reasonably incurred in connection with
the defense or settlement of any threatened, pending or completed legal
proceedings in which he is involved by reason of the fact that he is or was a
director or officer of the registrant if he acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
registrant and, with respect to any criminal action or proceeding, if he had no
reasonable cause to believe that his conduct was unlawful. If the legal
proceeding, however, is by or in the right of the registrant, the director or
officer may not be indemnified in respect of any claim, issue or matter as to
which he shall have been adjudged to be liable for negligence or misconduct in
the performance of his duty to the registrant unless a court determines
otherwise. The registrant's certificate of incorporation, which is filed as an
exhibit to this registration statement, contains provisions authorizing such
indemnity.
Article VII of the registrant's by-laws, which are filed as an exhibit to
this registration statement, authorize the registrant to indemnify its present
and former directors and to pay or reimburse these individuals for fees and
expenses in advance of a final disposition of a proceeding upon receipt of an
undertaking by or on behalf of such individuals to repay such amounts if so
required.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
- -------
<S> <C>
1.1 Purchase Agreement, dated as of December 16, 1997, among
Richmont Marketing Specialists Inc. and Chase Securities
Inc.
2.1 Stock Purchase Agreement, dated as of November 6, 1997, by
and among Atlas Marketing Company, Inc., Quincy Cummings and
Gynn Eller and MSSC Carolina, Inc. and Richmont Marketing
Specialists Inc.
2.2 Stock Purchase Agreement, dated as of November 6, 1997, by
and among Richmont Marketing Specialists Inc., MSSC
Carolina, Inc., Atlas Marketing Company, Inc. Employee Stock
Ownership Plan and Clark Brinkley, Barney Deal, Doug Heyel,
Joel Lineberger, Fred Manning, Donald Olin and Gary Propst
2.3 Agreement and Plan of Merger, dated as of April 21, 1997, by
and among Tower Marketing, Inc., MSSC Texas, Inc. and
Marketing Specialists Sales Company
2.4 Agreement and Plan of Merger, dated as of October 18, 1996,
by and among Bromar, Inc., MSSC California, Inc. and
Marketing Specialists Sales Company
3.1 Certificate of Incorporation of Richmont Marketing
Specialists Inc.
3.2 By-laws of Richmont Marketing Specialists Inc.
4.1 Indenture, dated as of December 19, 1997, among Richmont
Marketing Specialists Inc. and Texas Commerce Bank National
Association, as Trustee
4.2 Form of certificate of 10 1/8% Senior Subordinated Note
(included as Exhibit B to Exhibit 4.1)
4.3 Exchange and Registration Rights Agreement, dated as of
December 19, 1997, by and among Richmont Marketing
Specialists Inc. and Chase Securities Inc.
5.1 Form of opinion and consent of Skadden, Arps, Slate, Meagher
& Flom LLP as to the legality of the notes to be issued by
Richmont Marketing Specialists Inc. in the Exchange Offer.*
10.1 Amended and Restated Credit Agreement, dated as of December
19, 1997, by and among Richmont Marketing Specialists Inc.,
the lenders named therein and The Chase Manhattan Bank, as
Agent.
10.2 First Amendment to the Amended and Restated Credit
Agreement, dated as of June 30, 1998.
</TABLE>
II-1
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT
- -------
<S> <C>
10.3 Second Amendment to the Amended and Restated Credit
Agreement, dated as of February 26, 1999.
10.4 Equity Contribution Agreement, dated as of October 7, 1997,
among MS Acquisition Limited, certain Stockholders named
therein, Marketing Specialists Sales Company and Richmont
Marketing Specialists Inc.
10.5 Company and Stockholders Agreement, dated as of October 7,
1997, by and among MS Acquisition Limited, Richmont
Marketing Specialists Inc., Ronald D. Pedersen, Jeffrey A.
Watt, Bruce A. Butler and Gary R. Guffey
10.6 Registration Rights Agreement, dated as of October 7, 1997,
by and among Richmont Marketing Specialists Inc. and MS
Acquisition Limited.
10.7 Amended and Restated Warrant Agreement, dated as of October
7, 1997, by and between Ronald D. Pedersen, Jeffrey A. Watt,
Bruce A. Butler and Gary R. Guffey and William B. Robinson
10.8 Employment Agreement, dated April 2, 1996, between Marketing
Specialists Sales Company and Ronald D. Pedersen
10.9 Employment Agreement, dated April 2, 1996, between Marketing
Specialists Sales Company and Bruce A. Butler*
10.10 Employment Agreement, April 1, 1999, between Marketing
Specialists Sales Company and Jeffrey B. Hill*
10.11 Office Lease between BSDAL I Limited Partnership and
Marketing Specialists Sales Company, dated April 27, 1998
10.12 Amendment No. 1 to Office Lease, dated June 26, 1998
10.13 Amendment No. 2 to Office Lease, dated July 24, 1998
10.14 Richmont Marketing Specialists Inc. Incentive Plan, dated as
of January 1, 1998
12.1 Statement re: Computation of Ratio of Earnings to Fixed
Charges
21.1 Subsidiaries of Richmont Marketing Specialists Inc.
23.1 Consent of Ernst & Young LLP*
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)*
25.1 Form T-1 Statement of Eligibility of Chase Bank of Texas,
National Association to act as Trustee under the Indenture
27.1 Financial Data Schedule (for SEC use only)
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Letter to Brokers
99.4 Letter to Clients
</TABLE>
- ---------------
* Filed with this amendment
ITEM 22. UNDERTAKINGS
The Undersigned registrants hereby undertake:
(1) To file during any period in which offers to sale are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
II-2
<PAGE> 134
dollar value of securities would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) to include any material information with respect to the plan of
distribution previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liabilities under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from the registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of the receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Dallas, State of Texas,
on the twentieth day of April, 1999.
RICHMONT MARKETING
SPECIALISTS INC.
By: /s/ RONALD D. PEDERSEN
------------------------------------
Name: Ronald D. Pedersen
Title: President, Chief Executive
Officer & Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
By: /s/ RONALD L. SMITH
------------------------------------
Name: Ronald L. Smith
Title: Executive Vice President &
Chief Financial Officer
By: /s/ BRIAN BARNES
------------------------------------
Name: Brian Barnes
Title: Controller
By: /s/ NICK G. BOURAS
------------------------------------
Name: Nick G. Bouras
Title: Director
By: /s/ TIMOTHY M. BYRD
------------------------------------
Name: Timothy M. Byrd
Title: Director
By: /s/ BRUCE A. BUTLER
------------------------------------
Name: Bruce A. Butler
Title: Director
By: /s/ THOMAS J. REYNOLDS
------------------------------------
Name: Thomas J. Reynolds
Title: Director
II-4
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Dallas, State of Texas,
on the twentieth day of April, 1999.
MARKETING SPECIALISTS SALES COMPANY
By: /s/ RONALD D. PEDERSEN
------------------------------------
Name: Ronald D. Pedersen
Title: President, Chief Executive
Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities on the twentieth day of April, 1999.
By: /s/ RONALD L. SMITH
------------------------------------
Name: Ronald L. Smith
Title: Chief Financial Officer
By: /s/ BRIAN BARNES
------------------------------------
Name: Brian Barnes
Title: Controller
By: /s/ NICK G. BOURAS
------------------------------------
Name: Nick G. Bouras
Title: Director
By: /s/ TIMOTHY M. BYRD
------------------------------------
Name: Timothy M. Byrd
Title: Director
By: /s/ THOMAS J. REYNOLDS
------------------------------------
Name: Thomas J. Reynolds
Title: Director
II-5
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Dallas, State of Texas,
on the twentieth day of April, 1999.
BROMAR, INC.
By: /s/ BRUCE A. BUTLER
------------------------------------
Name: Bruce A. Butler
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities on the twentieth day of April, 1999.
By: /s/ RONALD L. SMITH
------------------------------------
Name: Ronald L. Smith
Title: Treasurer
By: /s/ BRIAN BARNES
------------------------------------
Name: Brian Barnes
Title: Controller
By: /s/ NICK G. BOURAS
------------------------------------
Name: Nick G. Bouras
Title: Director
By: /s/ TIMOTHY M. BYRD
------------------------------------
Name: Timothy M. Byrd
Title: Director
By: /s/ RONALD D. PEDERSEN
------------------------------------
Name: Ronald D. Pedersen
Title: Director
II-6
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Dallas, State of Texas,
on the twentieth day of April, 1999.
BROKERAGE SERVICES, INC.
By: /s/ BRUCE A. BUTLER
------------------------------------
Name: Bruce A. Butler
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities on the twentieth day of April, 1999.
By: /s/ RONALD L. SMITH
------------------------------------
Name: Ronald L. Smith
Title: Treasurer
By: /s/ BRIAN BARNES
------------------------------------
Name: Brian Barnes
Title: Controller
By: /s/ NICK G. BOURAS
------------------------------------
Name: Nick G. Bouras
Title: Director
By: /s/ TIMOTHY M. BYRD
------------------------------------
Name: Timothy M. Byrd
Title: Director
By: /s/ RONALD D. PEDERSEN
------------------------------------
Name: Ronald D. Pedersen
Title: Director
II-7
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Dallas, State of Texas,
on the twentieth day of April, 1999.
ATLAS MARKETING COMPANY, INC.
By: /s/ BRUCE A. BUTLER
------------------------------------
Name: Bruce a. Butler
Title: President and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities on the twentieth day of April, 1999.
By: /s/ RONALD L. SMITH
------------------------------------
Name: Ronald L. Smith
Title: Treasurer
By: /s/ BRIAN BARNES
------------------------------------
Name: Brian Barnes
Title: Controller
By: /s/ NICK G. BOURAS
------------------------------------
Name: Nick G. Bouras
Title: Director
By: /s/ TIMOTHY M. BYRD
------------------------------------
Name: Timothy M. Byrd
Title: Director
By: /s/ THOMAS J. REYNOLDS
------------------------------------
Name: Thomas J. Reynolds
Title: Director
II-8
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Dallas, State of Texas,
on the twentieth day of April, 1999.
CENTURY FOOD BROKERS OF HICKORY, INC.
By: /s/ RONALD D. PEDERSEN
------------------------------------
Name: Ronald D. Pedersen
Title: Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities on the twentieth day of April, 1999.
By: /s/ TIMOTHY M. BYRD
------------------------------------
Name: Timothy M. Byrd
Title: Chief Financial Officer
and Director
By: /s/ BRIAN BARNES
------------------------------------
Name: Brian Barnes
Title: Controller
By: /s/ NICK G. BOURAS
------------------------------------
Name: Nick G. Bouras
Title: Director
II-9
<PAGE> 141
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Dallas, State of Texas,
on the twentieth day of April, 1999.
EAST COAST FOOD BROKERAGE, INC.
By: /s/ RONALD D. PEDERSEN
------------------------------------
Name: Ronald D. Pedersen
Title: Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities on the twentieth day of April, 1999.
By: /s/ TIMOTHY M. BYRD
------------------------------------
Name: Timothy M. Byrd
Title: Chief Financial Officer and
Director
By: /s/ BRIAN BARNES
------------------------------------
Name: Brian Barnes
Title: Controller
By: /s/ NICK G. BOURAS
------------------------------------
Name: Nick G. Bouras
Title: Director
II-10
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Dallas, State of Texas,
on the twentieth day of April, 1999.
ULTIMATE FOOD SALES, INC.
By: /s/ RONALD D. PEDERSEN
------------------------------------
Name: Ronald D. Pedersen
Title: Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities on the twentieth day of April, 1999.
By: /s/ TIMOTHY M. BYRD
------------------------------------
Name: Timothy M. Byrd
Title: Chief Financial Officer and
Director
By: /s/ BRIAN BARNES
------------------------------------
Name: Brian Barnes
Title: Controller
By: /s/ NICK G. BOURAS
------------------------------------
Name: Nick G. Bouras
Title: Director
II-11
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Dallas, State of Texas,
on the twentieth day of April, 1999.
CUMBERLAND FOOD BROKERS, INC.
By: /s/ RONALD D. PEDERSEN
------------------------------------
Name: Ronald D. Pedersen
Title: Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities on the twentieth day of April, 1999.
By: /s/ TIMOTHY M. BYRD
------------------------------------
Name: Timothy M. Byrd
Title: Chief Financial Officer and
Director
By: /s/ BRIAN BARNES
------------------------------------
Name: Brian Barnes
Title: Controller
By: /s/ NICK G. BOURAS
------------------------------------
Name: Nick G. Bouras
Title: Director
II-12
<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Dallas, State of Texas,
on the twentieth day of April, 1999.
MEATMASTER BROKERAGE, INC.
By: /s/ RONALD D. PEDERSEN
------------------------------------
Name: Ronald D. Pedersen
Title: Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities on the twentieth day of April, 1999.
By: /s/ TIMOTHY M. BYRD
------------------------------------
Name: Timothy M. Byrd
Title: Chief Financial Officer and
Director
By: /s/ BRIAN BARNES
------------------------------------
Name: Brian Barnes
Title: Controller
By: /s/ NICK G. BOURAS
------------------------------------
Name: Nick G. Bouras
Title: Director
II-13
<PAGE> 145
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
1.1 Purchase Agreement, dated as of December 16, 1997, among
Richmont Marketing Specialists Inc. and Chase Securities
Inc.
2.1 Stock Purchase Agreement, dated as of November 6, 1997, by
and among Atlas Marketing Company, Inc., Quincy Cummings and
Gynn Eller and MSSC Carolina, Inc. and Richmont Marketing
Specialists Inc.
2.2 Stock Purchase Agreement, dated as of November 6, 1997, by
and among Richmont Marketing Specialists Inc., MSSC
Carolina, Inc., Atlas Marketing Company, Inc. Employee Stock
Ownership Plan and Clark Brinkley, Barney Deal, Doug Heyel,
Joel Lineberger, Fred Manning, Donald Olin and Gary Propst
2.3 Agreement and Plan of Merger, dated as of April 21, 1997, by
and among Tower Marketing, Inc., MSSC Texas, Inc. and
Marketing Specialists Sales Company
2.4 Agreement and Plan of Merger, dated as of October 18, 1996,
by and among Bromar, Inc., MSSC California, Inc. and
Marketing Specialists Sales Company
3.1 Certificate of Incorporation of Richmont Marketing
Specialists Inc.
3.2 By-laws of Richmont Marketing Specialists Inc.
4.1 Indenture, dated as of December 19, 1997, among Richmont
Marketing Specialists Inc. and Texas Commerce Bank National
Association, as Trustee
4.2 Form of certificate of 10 1/8% Senior Subordinated Note
(included as Exhibit B to Exhibit 4.1)
4.3 Exchange and Registration Rights Agreement, dated as of
December 19, 1997, by and among Richmont Marketing
Specialists Inc. and Chase Securities Inc.
5.1 Form of opinion and consent of Skadden, Arps, Slate, Meagher
& Flom LLP as to the legality of the notes to be issued by
Richmont Marketing Specialists Inc. in the Exchange Offer.*
10.1 Amended and Restated Credit Agreement, dated as of December
19, 1997, by and among Richmont Marketing Specialists Inc.,
the lenders named therein and The Chase Manhattan Bank, as
Agent.
10.2 First Amendment to the Amended and Restated Credit
Agreement, dated as of June 30, 1998.
10.3 Second Amendment to the Amended and Restated Credit
Agreement, dated as of February 26, 1999.
10.4 Equity Contribution Agreement, dated as of October 7, 1997,
among MS Acquisition Limited, certain Stockholders named
therein, Marketing Specialists Sales Company and Richmont
Marketing Specialists Inc.
10.5 Company and Stockholders Agreement, dated as of October 7,
1997, by and among MS Acquisition Limited, Richmont
Marketing Specialists Inc., Ronald D. Pedersen, Jeffrey A.
Watt, Bruce A. Butler and Gary R. Guffey
10.6 Registration Rights Agreement, dated as of October 7, 1997,
by and among Richmont Marketing Specialists Inc. and MS
Acquisition Limited.
10.7 Amended and Restated Warrant Agreement, dated as of October
7, 1997, by and between Ronald D. Pedersen, Jeffrey A. Watt,
Bruce A. Butler and Gary R. Guffey and William B. Robinson
10.8 Employment Agreement, dated April 2, 1996, between Marketing
Specialists Sales Company and Ronald D. Pedersen
10.9 Employment Agreement, dated April 2, 1996, between Marketing
Specialists Sales Company and Bruce A. Butler*
10.10 Employment Agreement, dated April 1, 1999, between Marketing
Specialists Sales Company and Jeffrey B. Hill*
10.11 Office Lease between BSDAL I Limited Partnership and
Marketing Specialists Sales Company, dated April 27, 1998
10.12 Amendment No. 1 to Office Lease, dated June 26, 1998
</TABLE>
<PAGE> 146
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.13 Amendment No. 2 to Office Lease, dated July 24, 1998
10.14 Richmont Marketing Specialists Inc. Incentive Plan, dated as
of January 1, 1998
12.1 Statement re: Computation of Ratio of Earnings to Fixed
Charges
21.1 Subsidiaries of Richmont Marketing Specialists Inc.
23.1 Consent of Ernst & Young LLP*
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)*
25.1 Form T-1 Statement of Eligibility of Chase Bank of Texas,
National Association to act as Trustee under the Indenture
27.1 Financial Data Schedule (for SEC use only)
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Letter to Brokers
99.4 Letter to Clients
</TABLE>
- ---------------
* Filed with this amendment
<PAGE> 1
EXHIBIT 5.1
[Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP]
, 1999
Richmont Marketing Specialists Inc.
17855 North Dallas Parkway
Suite 200
Dallas, Texas 75287
Re: Exchange Offer Offering
$100,000,000 Principal Amount of
10 1/8% Senior Notes due 2007
Richmont Marketing Specialists Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as special counsel to Richmont Marketing
Specialists Inc., a Delaware corporation (the "Company"), in connection with the
public offering of $100,000,000 aggregate principal amount of the Company's 10
1/8% Series B Senior Subordinated Notes Due 2007 (the "Exchange Notes"). The
Exchange Notes are to be issued pursuant to an exchange offer (the "Exchange
Offer") in exchange for a like principal amount of the issued and outstanding 10
1/8% Series A Senior Subordinated Notes Due 2007 of the Company (the "Original
Notes"), and are to be governed by an Indenture dated as of December 19, 1997
(the "Indenture"), by and between the Company, certain wholly-owned subsidiaries
of the Company as guarantors and Chase Bank of Texas, National Association
(formerly known as Texas Commerce Bank National Association), as Trustee (the
"Trustee").
This opinion is being furnished in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of
1933, as amended (the "Act").
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement on
<PAGE> 2
Richmont Marketing Specialists Inc.
, 1999
Page 2
Form S-4 (File No. 333-74261) relating to the Exchange Offer as filed with the
Securi ties and Exchange Commission (the "Commission") on March 11, 1999 under
the Act, Amendment No. 1 thereto, filed with the Commission on the date hereof,
(such Regis tration Statement, as so amended, being hereinafter referred to as
the "Registration State ment"); (ii) an executed copy of the Exchange and
Registration Rights Agreement dated December 19, 1997 (the "Registration Rights
Agreement"), by and among the Company, certain subsidiaries of the Company as
guarantors and Chase Securities Inc.; (iii) an exe cuted copy of the Indenture;
(iv) the Certificate of Incorporation of the Company, as amended to date; (v)
the By-Laws of the Company, as amended to date; (vi) certain resolutions adopted
by the Board of Directors of the Company, dated December 1, 1997, relating to,
among other things, the issuance of the Original Notes and the Exchange Notes,
the Indenture, the Exchange Offer and related matters; (vii) the form T-1 of the
Trustee filed as an exhibit to the Registration Statement; and (viii) the form
of the Exchange Notes included as an exhibit to the Indenture. We have also
examined origi nals or copies, certified or otherwise identified to our
satisfaction, of such records of the Company, and such agreements, certificates
of public officials, certificates of officers or other representatives of the
Company and others, and such other documents, certificates and records as we
have deemed necessary or appropriate as a basis for the opinions set forth
herein.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed, we have assumed that such
parties thereto, other than the Company, had or will have the power, corporate
or other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action, corporate or other, and
execu tion and delivery by such parties of such documents and the validity and
binding effect thereof on such parties. As to any facts material to the opinions
expressed herein which we did not independently establish or verify, we have
relied upon oral or written statements and representations of officers, trustees
and other representatives of the Company and others.
<PAGE> 3
Richmont Marketing Specialists Inc.
, 1999
Page 3
Our opinions set forth herein are limited to Delaware
corporate law and the laws of the State of New York which are normally
applicable to transactions of the type contemplated by the Exchange Offer and to
the extent that judicial or regulatory orders or decrees or consents, approvals,
licenses, authorizations, validations, filings, recordings or registrations with
governmental authorities are relevant, to those required under such laws (all of
the foregoing being referred to as "Opined on Law"). We do not express any
opinion with respect to the law of any jurisdiction other than Opined on Law or
as to the effect of any such non-opined law on the opinions herein stated.
Based upon and subject to the foregoing and limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that when the Exchange Notes (in the form examined by us) have been duly
executed by the Company and authenticated by the Trustee in accordance with the
provisions of the Indenture and have been delivered upon consummation of the
Exchange Offer against receipt of Original Notes surrendered in exchange thereof
in accordance with the terms of the Exchange Offer, the Exchange Notes will be
valid and binding obligations of the Company, entitled to the benefits of the
Indenture and enforceable against the Company in accordance with their terms,
except to the extent that enforcement thereof may be limited by (1) bankruptcy,
insolvency, reorganization, moratorium, fraudulent con veyance or other similar
laws now or hereafter in effect relating to creditors' rights generally and (2)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
In rendering the foregoing, we have assumed that the execution
and delivery by the Company of the Exchange Notes and the Indenture and the
performance by the Company of its obligations thereunder do not and will not
violate, conflict with or constitute a default under (i) any agreement or
instrument to which the Company or any of its properties is subject (except that
we do not make the assumptions set forth in this clause (i) with respect to the
Certificate of Incorporation or By-Laws of the Company), (ii) any law, rule or
regulation to which the Company is subject (except that we do not make the
assumption set forth in this clause (ii) with respect to Delaware corporate law
and those laws, rules and regulations (other than securities and antifraud laws)
of the State of New York that, in our experience, are normally applicable to
<PAGE> 4
Richmont Marketing Specialists Inc.
, 1999
Page 4
transactions of the type provided for by the Indenture and the Exchange Notes
(it being understood that we have made no special investigation with respect to
any other laws, rules or regulations)), (iii) any judicial or regulatory order
or decree of any governmental authority, or (iv) any consent, approval, license,
authorization or validation of, or filing, recording or registration with any
governmental authority.
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. We also consent to the
reference to our firm under the caption "Legal Matters" in the Registration
Statement. In giving this consent, we do not thereby admit that we are included
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Commission.
Very truly yours,
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is made as of April 2,
1996, between Marketing Specialists Sales Company, a Texas corporation (the
"COMPANY"), and Bruce Butler (the "EXECUTIVE").
PRELIMINARY STATEMENTS
On and subject to the terms and conditions herein provided, the Company
desires to retain the services of the Executive in the capacities and with the
responsibilities and the titles set forth herein in order to ensure the
attention and dedication to the Company of the Executive as a member of the
Company's management, all of which the Company's Board of Directors (the
"BOARD") believes will be in the best interests of the Company and its
stockholders. The Executive desires to commit himself to so serve the Company.
In order to effect the foregoing, the Company and the Executive wish to enter
into an employment agreement on the terms and conditions set forth herein.
Accordingly, in consideration of these preliminary statements and the respective
covenants and agreements of the parties herein contained, and for other good,
valid and binding consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
STATEMENT OF AGREEMENT
1. Employment. The Company hereby agrees to employ the Executive, and
the Executive hereby accepts such employment on the terms and conditions set
forth herein.
2. Term. The employment of the Executive by the Company as provided in
Section 1 shall commence on the date hereof and end on the third anniversary
hereof (the "EXPIRATION DATE"); provided, however, that upon the Expiration Date
and upon each subsequent anniversary hereof, the Expiration Date shall be
automatically extended for one (1) year unless and until the Board delivers
notice to the Executive that his employment with the Company shall not be
extended, which notice shall be delivered at least one (1) year plus one hundred
twenty (120) days prior to the then current Expiration Date.
3. Positions and Duties. The Executive shall initially be employed as
President and Chief Operating Officer and shall thereafter be employed in such
executive capacity or capacities as determined by the Board; provided, however,
that during the Executive's employment with the Company during the term of this
Agreement, the Executive's duties shall be commensurate with those performed by
a senior executive of the Company. The Executive shall be stationed in Tampa,
Florida, or such other location that, during the term of this Agreement, may be
designated by the Company and approved by the Executive. The Executive shall
report and be responsible to the Board. The Executive shall devote substantially
all his working time and efforts to the business and affairs of the Company and
shall, subject to the supervision and control of the Board and the provisions of
the Company's charter and bylaws, manage, supervise and control such business,
and shall faithfully perform his duties on behalf of the Company.
<PAGE> 2
4. Compensation and Related Matters.
(a) Salary.
(i) During the term of this Agreement, the Company shall pay
to the Executive an annual base salary (the "BASE SALARY") of two hundred forty
thousand dollars ($240,000), such Base Salary to be paid in accordance with the
Company's normal payroll procedures. The Base Salary shall be reviewed annually
by the Compensation Committee of the Board (which shall consist of John Rochon
and Ronald D. Pedersen) and may, at any time after the first anniversary hereof,
be increased or, subject to the terms of Section 4(a)(ii) below, decreased, by
the Compensation Committee, in its sole and exclusive discretion.
Notwithstanding the immediately preceding sentence, the Base Salary shall be
increased by the Compensation Committee if, and only if, business conditions of
the Company and the industry in which the Company operates warrant such
increase.
(ii) Prior to the commencement of each fiscal year, the Board
shall adopt a budget (the "ANNUAL BUDGET") for the operation of the Company for
such fiscal year, which budget shall, among other things, establish a target
EBITDA (as defined in that, certain Company and Shareholders Agreement (the
"SHAREHOLDERS AGREEMENT") dated as of April 2, 1996, by and among the Company,
the Executive, MS Acquisition Limited and the other parties thereto, but
excluding the effects of any acquisitions, unless provided otherwise by the
Board (the "TARGET EBITDA")). Notwithstanding anything herein to the contrary,
the Base Salary shall not be decreased unless (1) the Company's actual financial
performance during such fiscal year (as such performance is reflected in audited
financial statements prepared by the Company's independent auditor) is less than
the Target EBITDA for such fiscal year, and (2) a majority of the members of the
Board approves such decrease. Any decrease in Base Salary shall remain in effect
until the Compensation Committee, in its sole and exclusive discretion, decides
to increase, or, subject to this Section 4(a)(ii) (including, without
limitation, the terms of the immediately preceding sentence), decrease such Base
Salary. In no event shall any decrease be applied (x) retroactively to any date
prior to the earlier of the date on which the Compensation Committee declares a
decrease in Base Salary or the Board approves such decrease or (y) on a date
earlier than as of the end of such fiscal year in which the Company's actual
financial performance is less than the Target EBITDA.
(b) Bonus. At the discretion of the Compensation Committee, the
Executive shall be eligible to receive a bonus (the "BONUS"). The amount and
timing of any such Bonus shall be determined by the Compensation Committee in
its sole and exclusive discretion. In connection with the Compensation
Committee's determination of the Bonus, if any, to which the Executive shall be
entitled, the Compensation Committee shall review the Executive's Performance
with respect to items (I) through (V) listed on Exhibit A attached hereto and
shall consider such other factors as it, in its sole and exclusive judgment,
shall deem appropriate. The Compensation Committee's determination of the Bonus,
if any, to be paid to the Executive shall be made promptly after completion of
the Company's annual audit, and any Bonus payable pursuant to such determination
shall be paid to the Executive promptly thereafter. The Executive acknowledges
that the determination and payment of any Bonus is a privilege, and not an
absolute right, granted hereunder.
2
<PAGE> 3
(c) Expenses. During the term of the Executive's employment
hereunder, the Company shall pay or reimburse the Executive for all reasonable
expenses incurred by the Executive in performing his obligations under this
Agreement. Payments or reimbursements of all expenses hereunder will be made
promptly following submission of documentation provided in accordance with the
standard policies and procedures established by the Company.
(d) Other Benefits.
(i) Employee Benefit Plans. During the term of the
Executive's employment hereunder, the Company shall maintain in full force and
effect, and the Executive shall be entitled to continue to participate in, all
of the employee benefit plans and arrangements in effect on the date hereof in
which the executive officers of the Company generally are entitled to
participate.
(ii) Automobile. During the term of the Executive's
employment hereunder, the Company shall provide the Executive with an automobile
selected in accordance with guidelines as determined by the Compensation
Committee in its sole and exclusive discretion.
(iii) Lifetime Right to Insurance After Certain Termination
Events. Except in cases where the Executive's employment has been terminated for
Cause or by death, the Executive shall have the right to continue the health
care benefits afforded him hereunder (once his right to have the Company pay for
such benefits terminates hereunder) by paying to the Company the amounts
attributable from time to time for such benefits.
Any payments or benefits payable to the Executive hereunder in respect
of any fiscal year during which the Executive is employed by the Company for
less than the entire such year shall be treated as provided in the documents
governing such plan or arrangement.
5. Termination. The Executive's employment hereunder may be terminated
without any breach of this Agreement under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate
upon his death.
(b) Disability. If, as a result of the Executive's Disability (as
defined below), the Executive shall be unable to perform his obligations under
this Agreement, the Company may terminate the Executive's employment hereunder.
"DISABILITY", with respect to the Executive, shall have been deemed to occur at
such time as the Executive becomes physically or mentally disabled to such an
extent that (i) he has not been able to perform the significant duties of his
employment for at least six (6) months on a continuous basis, (ii) such
disability cannot be reasonably accommodated, and (iii) in the judgement of a
physician retained by the Board, such disability is reasonably expected to
continue for more than six (6) additional months. In the event the Executive
disagrees with the opinion of the physician retained by the Board, the Executive
shall have the right to seek a second opinion from another physician retained by
the Executive. In the event the two physicians so retained disagree, such
physicians shall jointly nominate a third physician for the purpose of rendering
an opinion with respect to
3
<PAGE> 4
whether the Executive is unable to perform his obligations under this Agreement,
which opinion shall be binding upon the parties hereto.
(c) Cause. The Company may terminate the Executive's employment
hereunder for Cause. For purposes of this Agreement, the Company shall have
"CAUSE" to terminate the Executive's employment hereunder upon the determination
by the Board, in its sole and exclusive judgment, that any of the following
shall have occurred: (i) the failure by the Executive to perform his duties
hereunder (other than any such failure resulting from the Executive's
Disability), which failure is determined by the Board to be injurious to a
reasonable degree or reasonably likely to be injurious to a reasonable degree to
the business, operations or interests of the Company, (ii) the gross negligence
or willful misconduct (including, but not limited to, an act of moral turpitude)
by the Executive which is injurious to a reasonable degree to the Company
(including, but not limited to, conduct prohibited by Section 7), or (iii)
conviction of a felony, or conduct which, in the reasonable judgement of the
Board, would constitute a felony under the federal laws of the United States of
America or under the laws of any State thereof.
(d) Termination Without Cause. The Company may at any time during
the term hereof terminate the Executive's employment hereunder without Cause in
which event the Executive shall be entitled to receive the compensation
described in Section 6(d) below.
(e) Notice of Termination. Any termination of the Executive's
employment by the Company (other than termination pursuant to Section 5(a)
hereof) shall be communicated by written Notice of Termination to the Executive.
For purposes of this Agreement, a "NOTICE OF TERMINATION" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall, except in the case of termination pursuant to Section
5(d) hereof, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated.
(f) "DATE OF TERMINATION" shall mean (i) if the Executive's
employment is terminated by his death, the date of his death, (ii) if the
Executive's employment is terminated pursuant to Section 5(b) hereof (relating
to Disability), thirty (30) days after Notice of Termination is delivered
(provided that the Executive shall not have returned to the performance of his
duties on a full-time basis during such thirty (30)-day period), (iii) if the
Executive's employment is terminated pursuant to Section 5(c) hereof (relating
to Cause), the date specified in the Notice of Termination (which specified date
shall under no circumstances be earlier than the date that Notice of Termination
is delivered), or (iv) if the Executive's employment is terminated pursuant to
Section 5(d) hereof (relating to termination without Cause), the date specified
in the Notice of Termination, which shall not be a date earlier than the date
the Notice of Termination is delivered.
6. Compensation Upon Termination or During Disability.
(a) During any period that the Executive fails to perform his
duties hereunder as a result of Disability, the Executive shall continue to
receive his salary at the rate then in effect for a period of 120 days after the
applicable Date of Termination.
4
<PAGE> 5
(b) If the Executive's employment is terminated by his death, the
Executive shall continue to receive his salary at the rate then in effect for a
period of 120 days after the applicable Date of Termination.
(c) If the Executive's employment shall be terminated for Cause,
the Executive shall continue to receive his salary at the rate then in effect
until the Date of Termination.
(d) If the Executive's employment shall be terminated without
Cause, the Executive shall continue to be entitled to receive the compensation
and benefits provided for in Section 4 through the Expiration Date and the
benefits specified in Section 4(d)(iii) above for the period of time set forth
therein. Subject to Section 6(e) below, upon such termination without Cause, the
Executive shall be entitled only to such amounts and shall not be entitled to
any other payments.
(e) The Deferred Compensation Plan, amended as of November 20,
1995 (the "DEFERRED COMPENSATION PLAN") shall remain in full force and effect in
accordance with the terms thereof notwithstanding any termination of Executive's
employment hereunder.
7. Noncompetition; Nondisclosure. (a) (i) Until the Expiration Date
(disregarding any effect thereupon arising out of termination for Cause), and
(ii) during a period of one (1) year following the Expiration Date (disregarding
any effect thereupon arising out of termination for Cause, the "POST EMPLOYMENT
PERIOD"), the Executive agrees that he will not engage in any Competitive
Activity (as defined herein) in the United States of America or its territories
or possessions (the "USA") or outside of the USA reasonably likely to have a
detrimental effect upon the Company's operations; provided, however, that if the
Executive is terminated for Cause, then the Post Employment Period shall
constitute a period of two (2) years following the Expiration Date. For purposes
of this Section 7, "COMPETITIVE ACTIVITY" shall mean any activity, without the
written consent of the Board, consisting of:
(1) the Executive's direct or indirect participation (for his own
account or jointly with others) in the management of, or as an employee of,
representative or other agent of, or advisor or consultant to, any other
business operation if such operation (a "COMPETITIVE OPERATION") is then in any
way competing with a principal business operation of the Company;
(2) the Executive's ownership of more than five percent (5%) of
the capital stock of any business entity which is a Competitive Operation; or
(3) the Executive loaning funds for the purpose of establishing
or operating any Competitive Operation, or otherwise giving advice to any
Competitive Operation, or lending or allowing his name or reputation to be used
by any Competitive Operation or otherwise allowing his skill, knowledge or
experience to be so used.
(b) If any court having jurisdiction over the subject matter
hereof shall hold that the period, scope or geographic area of the restrictions
set forth in Section 7(a) hereof is unreasonable or otherwise unenforceable, the
parties hereto agree that the maximum period, scope or geographic area deemed
reasonable by such court shall be substituted for the period,
5
<PAGE> 6
scope or geographic area described herein. Subject to Section 7(e) hereof, as
consideration for the Executive's satisfaction of the obligations set forth in
Section 7(a) hereof, upon the termination of the Executive's employment with the
Company, the Company shall pay Executive one month's severance pay at the rate
of the Executive's salary then in effect.
(c) The Executive agrees not to use or disclose, either while in
the Company's employ or at any time thereafter, to any person not employed on a
full-time basis by the Company or its affiliates, or not engaged to render
services to the Company or its affiliates, except with the prior written consent
of an officer authorized to act in the matter by the Board, any trade secrets or
other confidential information obtained by him while in the employ of the
Company, provided, however, that this provision shall not preclude the Executive
from the use or disclosure of information known generally to the public or of
information not considered confidential by persons engaged in the business
conducted by the Company or from disclosure required by law or court order. The
agreement made in this Section 7 shall be in addition to, and not in limitation
or derogation of, any obligations otherwise imposed by law or by separate
agreement upon the Executive in respect of confidential information of the
Company.
(d) The parties hereto agree that the precise amount of damages
incurred by the Company in connection with any breach by the Executive of the
obligations set forth in Section 7(a) or Section 7(c) hereof would be difficult,
if not impossible, to calculate with any reasonable certainty. Therefore, the
parties hereto agree to the imposition of liquidated damages for such breach in
accordance with the following formula: for each loss by the Company of an
account between the Company and any of its principals that was in effect
immediately prior to any breach by the Executive of the obligations set forth in
Section 7(a) or Section 7(c) which loss was proximately caused by such breach by
the Executive, the Company shall be entitled to an amount of liquidated damages
equal to the gross brokerage paid to the Company under such lost account for the
twelve (12) month period immediately preceding such breach. The parties hereto
agree that claim for, or an award of, liquidated damages pursuant to the terms
hereof shall in no way prejudice the Company's right to seek, or otherwise
constitute a waiver of, any equitable relief (including but not limited to
injunctive relief) otherwise available to the Company.
(e) In the event the Executive fails to comply with the
obligations set forth in Section 7(a) or Section 7(c) of this Agreement, in
addition to any remedy available to the Company under the terms hereof in
connection with any such breach, the Company shall have the right to terminate
any severance benefits to which the Executive would otherwise have been entitled
to under the terms of this Agreement.
8. Successors; Binding Agreement. The Company agrees to use
commercially reasonable efforts to require any successor to all or substantially
all of the Company's business and/or assets to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
For purposes of this Section 8, "all or substantially all of the Company's
business or assets" shall include, but not be limited to, fifty-one percent
(51%) or more of the capital stock of the Company. This Agreement and all rights
of the Executive hereunder shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors,
6
<PAGE> 7
administrators, successors, heirs, distributees, devisees and legatees. Except
as expressly set forth in this Section 8, this Agreement shall not otherwise be
assignable by either party hereto.
9. Notices. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive: Bruce Butler
3906 South Nine Dr.
Val Rico, Florida 33594
If to the Company: Marketing Specialists Sales Company
2324 Gateway Drive
Irving, Texas 75063
Attn: Ronald D. Pedersen
With copies to each of: Andrews & Kurth L.L.P.
1601 Elm Street
Suite 4400
Dallas, Texas 75201
Attn: J. Gregory Holloway, Esq.
and
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4618
Attn: Gary M. Lawrence, P.C.;
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. Modification and Amendments. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such other officer as may
be specifically designated by the Board.
11. No Waiver. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
12. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas without regard to its conflicts of law principles.
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<PAGE> 8
13. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
14. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement, or otherwise in connection with the Executive's
termination of employment with the Company or its subsidiaries, shall be settled
exclusively by arbitration, conducted before a panel of three arbitrators in
Dallas, Texas (or, if different, the office of the American Arbitration
Association nearest the Executive's principal location), in accordance with the
commercial arbitration rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of Section 7 hereof,
and the Executive hereby consents that such restraining order or injunction may
be granted without the necessity of the Company's posting any bond. The expense
of such arbitration shall be borne equally by the Company and the Executive.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. Entire Agreement. This Agreement, the Deferred Compensation Plan,
and the Shareholders Agreement, set forth the entire agreement of the parties
hereto in respect of any subject matter contained herein and supersedes all
prior severance or other agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled.
17. Scope of Covenant. The Executive recognizes the broad scope of the
covenants and other provisions of Section 7 hereof, but expressly agrees that
such scope is reasonable in light of the nature of the Company's business. If
any court or tribunal of competent jurisdiction shall refuse to enforce any or
all of such covenants because they are more extensive (whether as to time,
geographic area, scope of business or otherwise) than it is deemed reasonable,
it is expressly understood and agreed between the parties hereto that such
covenants shall not be void, but that for the purpose of such proceedings and in
such jurisdictions the restrictions contained herein shall be deemed to be
reduced to the extent necessary to permit enforcement of the covenants.
Signature Page Follows
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
MARKETING SPECIALISTS SALES COMPANY
BY: /s/ RONALD D. PEDERSEN
-------------------------------------
Name: Ronald D. Pedersen
-----------------------------------
Title: Chairman of the Board and
Chief Executive Officer
----------------------------------
EXECUTIVE
/s/ BRUCE A. BUTLER
----------------------------------------
Bruce Butler
Signature Page Butler Employment Agreement
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), dated and effective as of
the 1st day of April, 1999, ("EFFECTIVE DATE") by and between MARKETING
SPECIALISTS SALES COMPANY, a Texas corporation with its principal place of
business at 17855 Dallas Parkway, Dallas, Texas 75287 ("Company"), JEFFREY B.
HILL, an individual residing in Texas ("Employee") and, for certain limited
purposes, BROMAR INC., a California corporation ("Bromar").
PRELIMINARY STATEMENTS
A. Employee and Bromar, a wholly owned subsidiary of the Company, entered into
an Employment Contract which became effective upon the merger of Bromar and any
affiliate of the Company ("BROMAR CONTRACT").
B. As part of its national integration strategy, the Company is restructuring
the management team to improve the Company's performance and insure the
Company's position as a leader in the industry.
C. The Company and Employee desire to terminate the Bromar Contract in order to
facilitate the execution by Company and Employee of a new employment agreement
and to provide for Employee's continued employment relationship with the
Company.
In consideration of the foregoing and the mutual covenants set forth
herein, Company and Employee, each intending to be legally bound, hereby agree
as follows:
STATEMENT OF AGREEMENT
1. Termination of Bromar Contract. Upon execution of this Agreement by all
parties hereto, the Bromar Contract shall automatically terminate and no longer
be valid or binding on any of the parties hereto or thereto without any further
action by any person or entity. This Agreement shall contain the entire
agreement of the parties regarding the matters contained herein and shall
supercede all prior agreements as stated in detail in Section 24 of this
Agreement. For the express limited purpose of evidencing its agreement to
terminate the Bromar Contract upon the execution of this Agreement, Bromar shall
execute this Agreement.
2. Employment Relationship. Company hereby employs Employee, and Employee hereby
accepts such employment, upon the terms and conditions set forth in this
Agreement. Such employment relationship will continue for the stated term of
this Agreement or until the earlier termination of such relationship pursuant to
the termination provisions hereof.
3. Position and Responsibilities of Employee. Employee will initially be
employed by Company as President of Business Development. After Employee has
been employed by Company under the terms of this Agreement for at least six (6)
months, Employee's job title may be changed from time to time, at the discretion
of Company management. Employee will devote all of Employee's business time,
skill, energies, abilities, and attention to the performance of his employment
duties and the furtherance of Company's interests, and agrees to perform his
duties (as they may be assigned or modified by Company from time to time) in
good faith and in a manner designed to maintain and increase the good will and
reputation of Company and its affiliates. Employee acknowledges the fiduciary
duties owed to Company as a result of Employee's employment responsibilities and
the trust and confidence placed in Employee by Company, including the duties of
loyalty, due care, and good faith.
4. Relocation. Employee acknowledges and agrees that as of the Effective Date of
this Agreement his position will be based in Dallas, Texas at the Company's
corporate headquarters. Employee agrees to relocate from California to Dallas,
Texas. Company agrees to pay all of Employee's relocation expenses in accordance
with its relocation policies including, but not limited to, paying Employee an
amount equal to one (1) month's salary to help facilitate Employee's relocation.
5. Compensation. For all services rendered by Employee pursuant to this
Agreement, Company will pay to Employee, and Employee will accept as full
compensation hereunder, the following:
(a) Salary. As of the Effective Date of this Agreement, Employee will
receive a base salary (the "SALARY") of Twenty Seven Thousand Five Hundred
Dollars ($27,500.00) per month. The Salary will be subject to all
applicable federal, state, and local withholding requirements and will be
payable in accordance with the normal payroll practices and procedures of
Company. Employee's Salary shall be reviewed annually by the
JEFF HILL EMPLOYMENT AGREEMENT Page 1 of 9
<PAGE> 2
Board of Directors of the Company ("BOARD") or by a Compensation Committee
duly appointed by the Board ("COMPENSATION COMMITTEE") for such purpose and
may, at any time after the first anniversary hereof, be increased if the
business conditions of the Company and the industry in which the Company
operates warrant such increase. After the first anniversary hereof,
Employee's Salary may be decreased by the Board or Compensation Committee
only if (i) the Company's actual financial performance during such fiscal
year (as such performance is reflected in audited financial statements
prepared by the Company's independent auditor) is less than the budgeted
EBITDA for such fiscal year, and (ii) a majority of the members of the
Board approves such decrease. In no event shall any decrease be applied
retroactively. While bonuses or other perquisites may also be awarded to
Employee from time to time, those amounts are excluded from the term
"Salary" as used in this Agreement.
(b) Discretionary Bonuses. Employee may, at the sole discretion of Company
management, be given one or more bonuses during the term of this Agreement.
No portion of any bonus will be vested in or earned by Employee unless
Employee is employed by, and in good standing with, Company on the date
such bonus is paid.
(c) Benefits and Perquisites.
(i) Employee Benefit Plans. The Company may make employment benefits
and perquisites, such as vacation pay and insurance coverage,
available to Employee to the extent and on the terms that such
benefits and perquisites are made available to other
similarly-situated executives. This provision does not alter Company's
right to modify or eliminate any benefit plan from time to time and
does not guarantee the continuation of any kind or level of benefit or
perquisite.
(ii) Long-Term Incentive Plan. The parent corporation of the Company
has adopted an incentive plan to reward and retain members of senior
management and key employees through the grant of senior management
stock appreciation rights ("SMARTs Plan"). Employee shall be eligible
to participate in the SMARTs Plan and shall receive such rights and
number of shares as determined and awarded by the SMARTs Plan
Committee from time to time in accordance with the terms and
conditions of the SMARTs Plan.
(iii) Automobile Allowance. During the term of this Agreement, Company
shall pay Employee an automobile allowance in accordance with the
guidelines established and approved by the Company, in its sole and
exclusive discretion.
(iv) Country Club Membership. During the term of this Agreement, the
Company shall make available for Employee's use a country club
membership to a Dallas area country club selected by the Company and
to which Employee is admitted. Company shall bear the costs of any
country club initiation fee, monthly dues, and business related
entertainment and meal expenses. Employee shall be financially
responsible for any and all personal expenses incurred by Employee or
Employee's family at the country club including, but not limited to,
meal expenses and facility usage fees.
(v) Reimbursement of Expenses. Company recognizes that Employee will
incur legitimate business expenses in the course of rendering services
to Company hereunder. Accordingly, Company will reimburse Employee for
all business expenses that are deemed by Company to be reasonable,
necessary, and consistent with Company's established policies and
procedures.
6. Term; Automatic Renewal. The stated term of this Agreement and the employment
relationship created hereunder will be and remain in effect for one (1) year,
commencing on the date hereof, unless sooner terminated in accordance with the
termination provisions hereof. Upon its expiration, this Agreement will be
automatically renewed for successive one (1) year terms until it is terminated
in accordance with the termination provisions hereof.
7. Termination. The employment relationship between Employee and Company created
hereunder will terminate before the expiration of the stated term (or any
renewal term) of this Agreement upon the occurrence of any one of the following
events:
JEFF HILL EMPLOYMENT AGREEMENT Page 2 of 9
<PAGE> 3
(a) Death or Permanent Disability. The death or permanent disability of
Employee. For purposes of this Agreement, the "PERMANENT DISABILITY" of
Employee will mean Employee is disabled to the extent that, after making
all reasonable accommodations required by applicable state or federal law,
Employee has been unable to perform the essential functions of his job for
the greater of (1) 120 consecutive days, (2) 150 days out of a continuous
period of 300 days, or (3) any period relating to the determination of
permanent disability that is specified by applicable state or federal law.
The determination of whether Employee is able to perform the essential
functions of his job will be made by a physician who is licensed as an
M.D., skilled in the specialty area applicable to Employee's disability,
and selected by Company.
(b) Termination for Cause. The following events, which for purposes of this
Agreement will constitute "cause" for termination:
(i) Employee's failure to perform his job duties or to comply with
Company's policies and procedures after written notice from the Board
or of any of the following senior officers of the Company: Nick G.
Bouras, Timothy M. Byrd or Ronald D. Pedersen, and a reasonable
opportunity to remedy such failure;
(ii) Employee's refusal to perform his job duties or to comply with
orders or directives communicated to Employee by any senior officer of
Company or the Board;
(iii) Employee's commission of any act or omission that has an adverse
financial impact upon Company, any act of fraud or dishonesty by
Employee that relates to or affects Company's business in any way, or
Employee's conviction of a crime of moral turpitude or of any felony;
(iv) Employee's use of any illegal drug, or the use of any controlled
substance which interferes with Employee's performance of his
employment duties (as determined in the discretion of the Board);
(v) Employee's breach of any provision of this Agreement, breach of
any fiduciary duty owed to Company, or self-dealing to Company's
detriment.
Any notice of discharge for cause will describe, the reason for the termination
of Employee's employment as well as the effective date of termination (which
date may be the date of such notice). If Company terminates Employee's
employment for any of the reasons set forth in this subsection (b), Company will
have no further obligations hereunder from and after the effective date of
termination (other than as specifically set forth in this Agreement and as
otherwise required by applicable law) and will have all other rights and
remedies available under this or any other agreement with Employee and at law or
in equity.
(c) Voluntary Resignation. Employee provides sixty (60) days written notice
to Company of his intention to terminate his employment relationship with
Company. Company retains the right, after notice of Employee's voluntary
termination, to require Employee to cease employment immediately; however,
in that event, Employee is entitled to his Salary and related benefits
during the sixty (60) day notice period.
(d) Other Reasons. Company may terminate Employee's employment at any time,
upon delivery of notice to Employee, in the event of a reduction in force,
restructuring, failure of a Company office or line of business with which
Employee is affiliated to achieve profitability goals established by
Company, relocation of a Company customer or principal in a manner that
limits Employee's ability to profitably serve the business needs of Company
and such customer or principal, or other business conditions or
circumstances warranting termination (as determined by Company, in its sole
discretion). For purposes of this Agreement, the term "principal" refers to
a producer, manufacturer, or vendor of packaged food products or product
lines of the types brokered by Company to its customers. In the event of
termination pursuant to this subsection, Employee will be eligible to
receive the compensation described in the subsection entitled "Termination
For Other Than Cause" provided that Employee executes a written separation
and release agreement provided by Company. Employee acknowledges that his
sole remedy for termination pursuant to this subsection will be the receipt
of the compensation specified in the subsection entitled "Termination For
Other Than Cause."
JEFF HILL EMPLOYMENT AGREEMENT Page 3 of 9
<PAGE> 4
8. Compensation Upon Termination.
(a) In General. Upon the termination of Employee's employment under this
Agreement before the expiration of the stated term (or renewal term) hereof
for any reason, and in addition to any other amounts that may be payable
under this Agreement, Employee is entitled to that portion of the Salary
earned by Employee up until and including the effective date of
termination.
(b) Termination For Other Than Cause. If the employment relationship
hereunder is terminated by Company for any reason other than cause (as
defined herein), then Employee will be entitled to receive, as
consideration for Employee's compliance with the restrictive covenants in
this Agreement dealing with Confidentiality, Unfair Competition, and
Solicitation, and in return for Employee's execution of a written
separation and release agreement provided by Company, (i ) payments in an
amount equal to one (1) year of his Salary, based on Employee's Salary in
effect at the time of termination as severance pay; (ii) payments in an
amount equal to one (1) year of Employee's COBRA premium payments, in the
event Employee elects to continue his medical coverage benefits obtained by
him through the Company and in effect as of the date of his termination,
and (iii) payments in an amount not to exceed $1200.00 per month as a car
allowance in the event Employee is obligated under a car lease or loan at
the time of his termination. All such payments will be subject to
applicable federal, state and local withholding requirements and shall be
paid to Employee in accordance with the Company's regular, bi-weekly
payroll schedule.
(c) Termination Due to Death, Permanent Disability or Voluntary
Resignation. If the employment relationship hereunder terminates due to the
death, permanent disability (as defined herein) or voluntary resignation of
Employee, then Employee, Employee's estate or Employee's guardian, as the
case may be, will be entitled to receive (i) payments in an amount equal to
one (1) year of Employee's Salary, based on Employee's Salary in effect at
the time of his death, permanent disability, or voluntary resignation, (ii)
payments in an amount equal to one (1) year of Employee's COBRA premium
payments in the event Employee or Employee's covered dependents elect to
continue the medical coverage benefits obtained by Employee through the
Company and in effect as of the date of his death or permanent disability
or voluntary resignation, and (iii) payments in an amount not to exceed
$1200.00 per month as a car allowance in the event Employee is obligated
under a car lease or loan at the time of his termination. All such payments
will be subject to applicable federal, state and local withholding
requirements and shall be paid to Employee, Employee's estate or Employee's
guardian, as the case may be, in accordance with the Company's regular,
bi-weekly payroll schedule.
(d) Termination For Cause. If the employment relationship hereunder is
terminated by Company for cause (as defined herein) or voluntarily by
Employee, Employee will not be entitled to any severance payment,
additional compensation or continuation of medical benefits.
(e) Survival. Each and every provision and covenant set forth in this
Agreement dealing with Confidentiality, Unfair Competition, and
Solicitation will survive the termination of Employee's employment and this
Agreement to the extent provided for in such provision or covenant.
9. Corporate Opportunities. All business opportunities offered to Employee
during the term of Employee's employment which relate in any way whatsoever to
the business of Company (or its affiliates) or are reasonably capable of
beneficial use by Company (or its affiliates) will be disclosed to Company by
Employee and will belong to Company. If Company rejects any such opportunity,
determines that the opportunity is not one that is competitive with Company (or
its affiliates), and determines that the opportunity does not interfere with the
performance of Employee's duties under this Agreement, then Company may, at its
discretion, provide Employee with written permission to pursue the opportunity.
This Section also applies to all opportunities offered to Employee during the
one-year period following the termination of Employee's employment, but only to
the extent that such opportunities arose during the term of Employee's
employment, arose in connection with the performance of Employee's duties under
this Agreement, and were related to the business of Company (or its affiliates)
or reasonably capable of beneficial use by Company (or its affiliates).
10. Confidentiality.
(a) Confidential Information. For the purposes of this Agreement, the term
"CONFIDENTIAL INFORMATION" means any information regarding Company's (or
its principals', customers' or affiliates') business that is (1)
JEFF HILL EMPLOYMENT AGREEMENT Page 4 of 9
<PAGE> 5
not generally known to the public and was acquired through the expenditure
of Company time, effort, and/or funds, including (but not limited to)
existing and contemplated business and financial methods, concepts,
practices, and know-how, plans, pricing, marketing and selling techniques
and information, customer, principal, and Employee lists and records,
customer and principal preferences and relationship information, principal
interviewing procedures, sales meeting strategies (i.e., ideas,
presentations, videotapes, printed materials, etc.), customer credit
ratings and credit histories, principals' marketing plans, concepts, and
shelving and product placement strategies, labor relations strategies,
market development information, procedures, and confidential or proprietary
information relating to Company's policies, strategies, administration, or
operation, and (2) acquired by Employee during the term of Employee's
employment with Company (or in connection with such employment), as well as
any additional information that may be classified as proprietary or
constitute a trade secret under applicable state or federal law. Employee
acknowledges and understands that, during the term of his employment with
Company, Employee will be given access to Confidential Information.
Employee further acknowledges and agrees that in the absence of Employee's
agreement to and compliance with each of the restrictive covenants
contained in this Agreement (and any predecessor agreements or
understandings between Company and Employee), Company would not give (or
have given) Employee access to Confidential Information. Employee
acknowledges and understands that Company is relying upon Employee's
promise to comply with each of the restrictive covenants contained in this
Agreement in making the decision to grant Employee access to the
Confidential Information.
(b) Covenant Not to Disclose or Use Confidential Information. Employee will
not, during the term of Employee's employment with Company or any time
thereafter, directly or indirectly, disclose any Confidential Information
to any person or entity that is not an employee, officer, director, agent,
attorney or affiliate of Company unless such disclosure is authorized in
advance and in writing by Company. Employee will not, during the term of
Employee's employment or any time thereafter, directly or indirectly, use
any Confidential Information in any manner that is not directly and
primarily in the best interests of Company unless expressly authorized to
do so by Company.
(c) Confidential Materials. For the purposes of this Agreement, the term
"CONFIDENTIAL MATERIALS" means any and all records, information, papers,
media, recordings, files, or computer files or diskettes (and all copies,
duplicates, or facsimiles of any of the foregoing) of Company or its
affiliates that relate in any way whatsoever to any Confidential
Information or to the general business operations and administration of
Company or its affiliates. When Employee's employment relationship with
Company is terminated, Employee will not take any Confidential Materials;
rather, Employee will leave all such Confidential Materials with Company.
If the Confidential Materials are not on Company's premises at the time of
termination, then Employee will return the materials, in good order, to
Company within twenty-four (24) hours after termination. Employee
acknowledges that all Confidential Materials are and continue to be
Company's property under all circumstances and for all purposes.
(d) Confidentiality of Agreement. Subject to the remaining terms of this
subsection (d), Employee will not disclose any of the terms or conditions
of this Agreement to any other person or entity; provided, however, that
Employee may reveal such terms and conditions to (1) Employee's personal
legal counsel and accountants, (2) any federal or state governmental body
or agency that requests information about this Agreement, (3) any court of
competent jurisdiction, or (4) any arbitrator or arbitral tribunal before
which any dispute or controversy involving this Agreement may be brought.
Notwithstanding the foregoing, if while Employee is employed by Company
(and for a period of two (2) years thereafter, regardless of reason for
termination) Employee negotiates with any entity other than Company that is
engaged in the food brokerage business (or any business that could
reasonably be considered competitive with Company's business) regarding
potential employment or association with such entity (whether as employee,
officer, director, shareholder, partner, member, consultant, or agent),
then Employee will disclose to such entity the existence of this Agreement
and provide such entity with a copy hereof.
11. Unfair Competition.
(a) Employee agrees that (1) while Employee is employed by Company and for
a period of one (1) year after the termination of Employee's employment for
any reason, or (2) during the period when any amount is due or scheduled to
be paid to Employee by Company pursuant to this Agreement (which period
will not be reduced by any election or agreement by Company to pay any such
amounts in advance of their scheduled
JEFF HILL EMPLOYMENT AGREEMENT Page 5 of 9
<PAGE> 6
due date), whichever is longer, Employee will not, directly or indirectly,
in any capacity whatsoever, whether individually or on behalf of any person
or entity other than Company:
(i) represent (or solicit or negotiate for the representation of) any
principal in any particular geographic area or region within the
United States where Company (or any of its affiliates) represents such
principal;
(ii) sell (or solicit or negotiate for the sale of) any product in any
particular geographic area or region within the United States where
Company (or any of its affiliates) represents the manufacturer or
producer of such product;
(iii) attempt to or actually interfere with, hinder, or limit in any
way whatsoever any business relationship between the Company (or any
of its affiliates) and their respective customers, principals,
vendors, Employees, agents, salesmen, distributors, or contractors; or
(iv) accept or continue employment, association, or affiliation,
directly or indirectly, whether as an employee, agent, officer,
director, partner, shareholder, or member, with, for, or of any
person, entity, or other organization engaged in any of the activities
referred to in subsections (i) through (iii).
In order to facilitate Employee's compliance with the covenants set forth in
this Section, Company will, upon any written request made in good faith by
Employee, respond as to (1) whether Company (or any of its affiliates)
represents any particular principal in any particular geographic area or region
and (2) whether Company sells any particular product in any particular
geographic area or region where Company (or any of its affiliates) represents
the manufacturer or producer of such product.
(b) Scope and Duration; Severability. Company and Employee understand and
agree that the scope and duration of the covenants contained in this
Section are reasonable both in time and geographical area and are fair and
necessary to protect Company's good will, legitimate business interests,
trade secrets, and confidential information. Such covenants will survive
the termination of Employee's employment to the extent provided for in
subsection (a). The parties further agree that such covenants will be
regarded as divisible and will be operative as to time and geographical
area to the extent that they may be so operative and, if any part of such
covenants is declared invalid or unenforceable, the validity and
enforceability of the remainder will not be affected. Employee hereby
warrants to Company that Employee's compliance with all of the restrictive
covenants set forth in this Agreement will not, upon the termination of
Employee's employment with the Company for any reason whatsoever, cause
Employee to be unable to earn a living that is suitable and acceptable to
Employee and any persons who may be dependent upon Employee.
(c) Injunctive Relief. Employee understands and agrees that, due to the
highly competitive nature of the food brokerage industry, the breach of any
covenants set out in this Section will cause irreparable injury to Company
for which it will have no adequate remedy at law. Therefore, Company will
be entitled, in addition to such other remedies as it may have hereunder,
to a temporary restraining order and to preliminary and permanent
injunctive relief for any breach or threatened breach of this Section.
Nothing herein, however, will be construed as prohibiting Company from
pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages from Employee.
12. Solicitation. Unless expressly authorized to do so by Company, Employee will
not, during the term of Employee's employment and for a period of two (2) years
thereafter, directly or indirectly, ask, request, solicit, entice, or otherwise
induce any employee, agent, salesman, distributor, or contractor of Company or
any of its affiliates to leave their employment or association with Company or
its affiliates for any reason whatsoever.
13. Need for Covenants Regarding Confidentiality, Unfair Competition, and
Solicitation. Company and its affiliates spend considerable amounts of time,
money, and effort in developing and maintaining a productive relationship and
good will with its principals, customers and employees. Company and its
affiliates generally seek to retain their principals, customers and employees on
a continuing and long-standing basis. A business relationship with a principal
or customer often requires a long period to time, and substantial money and
effort, to develop. Employee agrees that the covenants dealing with
Confidentiality, Unfair Competition, and Solicitation (a) are reasonable and
necessary in all respects to protect the good will, trade secrets, confidential
information, and business interests of Company and its affiliates, (b) are not
oppressive to Employee, and (c) do not impose any
JEFF HILL EMPLOYMENT AGREEMENT Page 6 of 9
<PAGE> 7
greater restraint on Employee than is reasonably necessary to protect the good
will, trade secrets, confidential information, and legitimate business interests
of Company and its affiliates.
14. Post-Termination Consulting. For a period of one (1) year after the
termination of Employee's employment for any reason other than cause, death, or
permanent disability, or during the period when any amount is due or scheduled
to be paid to Employee by Company pursuant to this Agreement (which period will
not be reduced by any election or agreement by Company to pay any such amounts
in advance of their scheduled due date), whichever is longer, Employee will,
from time to time, if requested by Company, provide consultation and advice to
Company regarding Company matters with which Employee was familiar during the
term of Employee's employment. Employee's obligation to provide advice and
consulting will be limited to two (2) hours per month (unless otherwise agreed),
and such advice and consulting will be rendered at times that are mutually
agreeable to Company and Employee.
15. Consideration. Employee acknowledges and agrees that promises made by
Company in this Agreement, such as (a) the establishment of a term of employment
(rather than employment at will), (b) the commitment to provide severance
compensation in the event of the termination of Employee's employment for
reasons other than cause (subject to certain requirements on the part of
Employee), and (c) Company's agreement not to reduce the Salary during the first
year following the effective date of this Agreement, constitute separate forms
of consideration for Employee's agreement to and compliance with the covenants
in this Agreement regarding Confidentiality, Unfair Competition, Solicitation,
and Post-Termination Consulting (the "CONTINUING COVENANTS"). Employee further
acknowledges and agrees that Company's commitment to (1) provide Employee with
access to Confidential Information, Confidential Materials, and trade secrets,
(2) permit Employee to use Company's good will with Company's customers and
principals, and (3) provide Employee with unique skill development and training
are each separate forms of consideration supporting the Continuing Covenants.
16. Assignment. This Agreement is personal to Employee and may not be assigned
by Employee without the prior written consent of Company. Any attempted
assignment by Employee will be void. This Agreement may be assigned by Company
to any parent, subsidiary, successor, or affiliate entity. The rights and
obligations under this Agreement will inure to the benefit of and will be
binding upon the heirs, legatees, administrators, and personal representatives
of Employee and upon the successors and assignees of Company.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Texas, without regard to any conflict
of laws rule or principle which might refer the governance or construction of
this Agreement to the laws of another jurisdiction. Subject to the provisions
set forth in this Agreement for the severability and reformation of any invalid
or unenforceable provisions, this Agreement will at all times and in all events
be construed as a whole, according to its fair meaning, and not strictly for or
against any party.
18. Illegal or Invalid Provisions. The parties intend for all provisions of this
Agreement to be enforced and enforceable to the fullest extent permitted by law.
If any provision of this Agreement is held to be illegal, invalid, or
unenforceable under present or future laws in effect during the term hereof,
however, that provision will be fully severable. This Agreement will be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part hereof, and the remaining provisions will remain in
full force and effect and will not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Agreement. Furthermore, in
lieu of each such illegal, invalid, or unenforceable provision, there will be
added automatically, as a part of this Agreement, a provision as similar in
terms to such illegal, invalid, or unenforceable provision as may be possible
and be legal, valid, and enforceable.
19. Counterparts. This Agreement may be executed in counterparts, with the same
effect as if both parties had signed the same document. All such counterparts
will be deemed an original, will be construed together and will constitute one
and the same instrument.
20. Notice. Any notice to be given by either party to the other must be in
writing and will be deemed to have been given on the date it is delivered
personally or by confirmed facsimile transmission or on the fifth day after it
is sent by registered or certified mail, return receipt requested. Notice to
Employee will be sufficient if made or addressed to Employee's personal
residence address as set forth on the signature page of this Agreement and
updated from time to time in the records of Company, and to Company at the
address set forth in the introductory paragraph of this Agreement and updated
from time to time. Each party may change the address for notice to such party by
giving notice of the change in accordance with the provisions of this paragraph.
JEFF HILL EMPLOYMENT AGREEMENT Page 7 of 9
<PAGE> 8
21. Further Actions. Whether or not specifically required under the terms of
this Agreement, each party will execute and deliver such documents and take such
further actions as may be necessary in order for such party to perform all of
his or its obligations specified herein or reasonably implied from the terms
hereof.
21. Waiver. No waiver by any party, expressed or implied, of a default or breach
of any term, covenant, or condition of this Agreement will be deemed to be a
waiver of any other or a subsequent default or breach. Failure of a party to
declare any default or delay by any party in taking action with respect to a
default will not constitute a waiver of such default.
23. Offset. Subject to any limitations imposed by applicable federal, state, or
local law, whenever a party to this Agreement is to pay any sum to the other
party, any amount owed to the paying party by the receiving party may be offset
against the amount payable to the receiving party.
24. Third Party Beneficiaries. The terms and conditions of this Agreement,
express or implied, exist only for the benefit of the parties to this Agreement,
the heirs, legatees, administrators, and personal representatives of Employee,
and the successors and assignees of Company, and no other person or entity will
be deemed to be a third party beneficiary hereof.
25. Entire Agreement. This Agreement contains the complete and exclusive
agreement of Company and Employee concerning Employee's employment, and all
discussions, agreements, and statements are merged into this Agreement. This
Agreement may not be changed orally, but only by an agreement in writing signed
by the party against whom enforcement of any waiver, change, modification,
extension, or discharge is sought.
26. Remedies. Each party to this Agreement is entitled to enforce its rights
under this Agreement specifically, to recover damages by reason of any breach of
any provision of this Agreement, and to exercise all other rights existing in
its favor. The parties agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
party may, in his or its sole discretion, apply to any court of competent
jurisdiction for injunctive relief in order to enforce or prevent any violation
of the terms of this Agreement.
27. Attorneys' Fees. If either party breaches this Agreement, or if it becomes
necessary for one party to institute legal proceedings against the other party
and the non-breaching party employs an attorney to enforce this Agreement,
obtain injunctive relief, or collect damages against the breaching party, the
breaching party will pay to the non-breaching party all reasonable attorney's
fees, court costs, expert witness fees, and other expenses that the
non-breaching party so incurs.
28. Binding Arbitration. Company and Employee agree that except as prohibited by
applicable law, any dispute or controversy arising between the parties to this
Agreement, or any person or entity in privity therewith, out of the transactions
effected and relationships created pursuant to this Agreement or any other
agreement created in connection herewith, including any dispute or controversy
involving the formation, terms, or construction of this Agreement, regardless of
kind or character, will be resolved through binding arbitration. With respect to
the arbitration of any dispute or controversy, each party understands that:
(a) arbitration is final and binding on the parties;
(b) each party is waiving its right to seek certain remedies in court,
including the right to a jury trial;
(c) discovery in arbitration is different and more limited than discovery
in litigation;
(d) an arbitrator's award need not include factual findings or legal
reasoning, and any party's right to appeal or to seek modification of a
ruling by the arbitrator is strictly limited.
Each party to this Agreement will submit any dispute or controversy to
arbitration before the American Arbitration Association ("AAA") within five (5)
days after receiving a written request to do so from the other party. If any
party fails to submit a dispute or controversy to arbitration as requested, then
the requesting party may commence the arbitration proceeding. The Federal
Arbitration Act will govern the proceeding and all issues raised by this
agreement to arbitrate. Each party to this Agreement will be bound by the
determination of any arbitrator or arbitration panel empaneled by the AAA to
adjudicate the dispute. Judgment on any arbitration award may be entered in any
court of competent jurisdiction.
JEFF HILL EMPLOYMENT AGREEMENT Page 8 of 9
<PAGE> 9
Any party to this Agreement may bring an action, including a summary or
expedited proceeding, to compel arbitration of any such dispute or controversy
in a court of competent jurisdiction and, further, may seek provisional or
ancillary remedies, including temporary or injunctive relief in connection with
such dispute or controversy in a court of competent jurisdiction, provided that
the dispute or controversy is ultimately resolved through binding arbitration
conducted in accordance with the terms and conditions of this Section. If any
party institutes legal proceedings in an effort to resist arbitration and is
unsuccessful in doing so, the prevailing party is entitled to recover, from the
losing party, its legal fees, expert witness costs, and other expenses incurred
in connection with the defense of such proceedings.
29. Venue. This Agreement is performable, in whole or in part, in Dallas County,
Texas. The parties agree that although there may be other venues that are proper
under applicable law, Dallas County, Texas is a proper venue for the resolution
of any dispute relating to or arising out of this Agreement.
30. Mutual Understanding. Each party has read this entire Agreement, fully
understands the contents hereof, has had the opportunity to obtain independent
advice as to its legal effect, and is under no duress or obligation of any kind
to execute it. This Agreement reflects the mutual understanding of the parties
with respect to all subject matter addressed herein and will be construed
accordingly.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Company:
MARKETING SPECIALISTS SALES COMPANY
By: /s/ NICK G. BOURAS
----------------------------------
Name: Nick G. Bouras
--------------------------------
Title: Vice President
-------------------------------
I agree to the terms and conditions set forth in this Agreement, agree to comply
with the restrictive covenants set forth in this Agreement, and verify that each
factual statement made in this Agreement is true and correct.
EMPLOYEE'S ADDRESS: EMPLOYEE:
5809 McCall Drive
- -----------------------------
Plano, TX 75093
- -----------------------------
- ----------------------------- /s/ JEFFREY B. HILL
-----------------------------------
Jeffrey B. Hill
Upon execution of this Agreement,
Bromar agrees that the Bromar
Contract shall automatically
terminate and shall no longer be
valid and binding on Bromar or
Employee.
BROMAR, INC.
By: /s/ NICK G. BOURAS
--------------------------------
Name: Nick G. Bouras
------------------------------
Title: Vice President
-----------------------------
JEFF HILL EMPLOYMENT AGREEMENT Page 9 of 9
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and
to the use of our reports dated February 26, 1999 for Richmont Marketing
Specialists Inc.; March 25, 1998 for Atlas Marketing Company, Inc.; and March 7,
1997 for Bromar Inc. and Subsidiaries, in the Registration Statement (Form S-4
No. 333-74261) and related Prospectus of Richmont Marketing Specialists Inc. for
the registration of $100,000,000 10 1/8% Senior Subordinated Notes Due 2007.
ERNST & YOUNG LLP
Dallas, Texas
April 16, 1999
