FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 2O549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 1999
-------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- -----------------
Commission file number 0-7166
--------------
DOUGHTIE'S FOODS, INC.
(Exact name of Registrant as specified in its charter)
VIRGINIA 54-0903892
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2410 WESLEY STREET, PORTSMOUTH, VIRGINIA 23707 (Address of
principal executive offices)
(757) 393-6007
(Registrant's telephone number, including area code)
------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $1 par value - 1,495,023 shares as of March 27, 1999.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited) <F1>
<CAPTION>
March 27, December 26,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 16,475 $ 16,706
Accounts receivable - trade, net 6,965,997 7,651,940
Inventories 3,736,058 4,625,780
Deferred income taxes 175,179 175,179
Prepaid expenses and other
current assets 302,514 109,042
------------- ------------
Total Current Assets 11,196,223 12,578,647
------------- ------------
PROPERTY, PLANT AND EQUIPMENT -
AT COST:
Land 280,827 280,827
Buildings 3,608,055 3,608,055
Delivery equipment 236,301 251,980
Plant and refrigeration equipment 1,731,462 1,648,195
Office equipment 508,180 505,698
------------- ------------
6,364,825 6,294,755
Less - accumulated depreciation 3,813,980 3,762,874
------------- ------------
2,550,845 2,531,881
------------- ------------
OTHER ASSETS 110,307 112,289
------------- ------------
$ 13,857,375 $ 15,222,817
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 533,333 $ 533,333
Accounts payable 2,308,635 3,375,081
Income taxes payable 471,427 468,061
Accrued salaries, commissions and
bonuses 43,963 259,873
Other accrued liabilities 59,001 49,518
------------- ------------
Total Current Liabilities 3,416,359 4,685,866
LONG-TERM DEBT - less current portion 550,000 683,334
------------- ------------
Total Liabilities 3,966,359 5,369,200
------------- ------------
STOCKHOLDERS' EQUITY:
Common stock - $1 par value;
authorized 4,000,000 shares,
issued and outstanding 1,495,023
shares 1,495,023 1,495,023
Additional paid-in capital 2,807,037 2,807,037
Retained earnings 5,588,956 5,551,557
------------- ------------
Total Stockholders' Equity 9,891,016 9,853,617
------------- ------------
$ 13,857,375 $ 15,222,817
============= ============
<FN>
<F1>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) <F1>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------
March 27, March 28,
1999 1998
------------- -------------
<S> <C> <C>
NET SALES $ 19,062,795 $ 19,308,576
COST OF GOODS SOLD 15,835,651 16,057,978
------------- -------------
GROSS PROFIT 3,227,144 3,250,598
------------- -------------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,032,652 2,914,860
INTEREST EXPENSE 15,059 46,600
------------- -------------
3,047,711 2,961,460
------------- -------------
INCOME BEFORE INCOME TAXES 179,433 289,138
INCOME TAX EXPENSE 97,183 108,427
------------- -------------
NET INCOME $ 82,250 $ 180,711
============= =============
EARNINGS PER SHARE:
BASIC $ .06 $ .12
============= =============
DILUTED $ .05 $ .12
============= =============
CASH DIVIDENDS PER SHARE $ .03 $ .03
============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 1,495,023 1,495,023
DILUTIVE EFFECT OF
STOCK OPTIONS 12,089 30
------------- -------------
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 1,507,112 1,495,053
============= =============
<FN>
<F1>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <F1>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
March 27, March 28,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 82,250 $ 180,711
Adjustments to reconcile net income
to net cash provided by
operations:
Depreciation 66,785 70,662
(Gain) on sale of property, plant
and equipment (500) 0
(Increase) decrease in assets:
Accounts receivable - trade, net 685,943 981,455
Inventories 889,722 390,700
Prepaid expenses and other current
assets (193,472) (121,352)
Other assets 1,982 1,982
Increase (decrease) in liabilities:
Accounts payable (1,066,446) (124,398)
Income taxes payable 3,366 (295,573)
Accrued salaries, commissions and
bonuses (215,910) (146,000)
Other accrued liabilities 9,483 (22,108)
------------ ------------
263,203 916,079
------------ ------------
Cash flows from investing activities:
Additions to property, plant and
equipment (85,749) (165,363)
Proceeds from sale of property,
plant and equipment 500 0
------------ ------------
(85,249) (165,363)
------------ ------------
Cash flows from financing activities:
Changes in long-term debt, including
current portion (133,334) (703,917)
Cash dividends (44,851) (44,850)
------------ ------------
(178,185) (748,767)
------------ ------------
Net increase (decrease) in cash (231) 1,949
Cash at beginning of period 16,706 26,929
------------ ------------
Cash at end of period $ 16,475 $ 28,878
============= =============
<FN>
<F1>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1
- ------
The consolidated financial statements include the accounts of Doughtie's Foods,
Inc. (the "Company") and its wholly owned subsidiary. All material intercompany
accounts and transactions have been eliminated in consolidation.
Although the accompanying financial statements are unaudited, management
believes that they contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position as of March 27,
1999 and the results of operations and cash flows for the three months ended
March 27, 1999 and March 28, 1998. The results of operations for the periods
cited above are not necessarily indicative of the results to be expected for the
full year.
NOTE 2
- ------
Inventories are stated at the lower of last-in, first-out (LIFO) cost or market.
Because inventory valuations under the LIFO method are based on an annual
determination, estimates must be made at interim dates of year-end costs and
levels of inventories. The possibility of variations between estimated year-end
costs and levels of LIFO inventories and the actual year-end amounts may
materially affect the results of operations as finally determined for the full
year.
NOTE 3
- ------
Cash paid for interest totaled $15,000 and $46,600 for the three months ended
March 27, 1999 and March 28, 1998, respectively.
Cash paid for income taxes totaled $100 for the three months ended March 27,
1999 and $404,000 for the three months ended March 28, 1998.
Note 4
- -------
On May 5, 1999, the Company and SYSCO Corporation (SYSCO) signed an Agreement
and Plan of Merger (Merger Agreement) pursuant to a Letter of Intent dated
February 17, 1999, whereby a subsidiary of SYSCO and the Company will merge (the
Merger). Under the Merger Agreement, the stockholders of the Company will
receive $17.00 per share in cash and/or shares of SYSCO common stock subject to
$3.00 per share in cash and/or shares being held back in escrow for
indemnification and other purposes. In addition, all options outstanding will
become fully vested and exercisable and shall be deemed exercised (for the
applicable exercise price) as of the closing of the Merger. Consummation of the
Merger is subject to, among other things, approval by the Company's
stockholders.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
Sales for the quarter ended March 27, 1999 were $19.1 million or 1.3% lower
than sales for the prior year's first quarter of $19.3 million. Reduced sales to
the U. S. Military under the Department of Defense Contract was the cause of the
decrease.
The Company's gross profit margin (gross profit as a percentage of net
sales) increased from 16.83% in the quarter ended March 28, 1998 to 16.93% for
the quarter ended March 27, 1999. This increase was due to the reduced lower
profit margin sales under the Department of Defense contract.
The Company's selling, general and administrative expenses, expressed as a
percentage of net sales, increased from 15.10% in the first quarter of 1998 to
15.91% in 1999. The increase was primarily due to expenses of approximately
$80,000 associated with the proposed merger with SYSCO.
Interest expense for the quarter ended March 27, 1999 decreased to 0.08% of
sales compared to 0.24% of sales for the first quarter of 1998. Decreased
borrowing levels and lower interest rates were the cause of the decreased
expense. As the interest on the Company's debt is both London Interbank Offered
Rates (LIBOR) and prime related, interest expense will increase or decrease in
subsequent periods based on fluctuations in these rates and the borrowing levels
of the Company.
Income tax expense was $97,000 for the quarter ended March 27,1999 compared
to $108,000 for the corresponding period of 1998. The effective tax rate
increased in 1999 due to the nondeductible merger expenses incurred in the first
quarter of 1999.
The Company reported net income of $82,000 or $.06 and $.05 per basic and
diluted share, respectively, for the first quarter of 1999 compared to net
income of $181,000 or $.12 per basic and diluted share in the first quarter of
1998.
Liquidity
- ---------
The Company uses a number of liquidity indicators for internal evaluation
purposes. Certain of these measures as of March 27, 1999 and December 26, 1998
are set forth below:
March 27, December 26,
1999 1998
------------ ------------
Total Debt to Total Debt Plus
Stockholders' Equity .10 .11
Current Assets to Current
Liabilities 3.28 2.68
Inventory Turnover (The
Annualized Cost of Goods
Sold to Ending Inventory) 16.95 15.79
The total debt to total debt plus stockholders' equity ratio remained
substantially unchanged from .11 on December 26, 1998 to .10 on March 27, 1999.
The current assets to current liabilities ratio increased to 3.28 from 2.68
on December 26,1998 due to the decrease in accounts receivable and inventory of
$686,000 and $890,000, respectively, and the decrease in accounts payable of
$1,066,000.
Management has continued to focus on collections of accounts receivable and
improving the inventory turnover rate (15.79 in 1998 to 16.95 in 1999).
Capital Resources
- -----------------
The Company's debt financing at March 27, 1999, consisted of the following:
A $7,500,000 revolving bank note at LIBOR plus 1.50%. The LIBOR rate at
March 27, 1999 was 4.95%. The note is due three years after the annual renewal
date, currently July, 2001, subject to annual renewal. As of March 27, 1999, and
May 10, 1999, respectively, the Company had no borrowing against this credit
line.
A $2,000,000 Industrial Revenue Bond from a bank for the purpose of
expanding the Company's plant and office facilities in Portsmouth, Virginia at
an annual interest rate of 91.50% of prime. The prime rate at March 27, 1999 was
7.75%. As of March 27, 1999, the Company had fully utilized the Industrial
Revenue Bond and the outstanding balance was $433,000.
A $1,750,000 bank term loan at LIBOR plus 1.50%. The loan is to be repaid
in quarterly installments of $100,000. As of March 27, 1999, the outstanding
balance was $650,000. The funds were used to finance the increased inventory and
accounts receivable required to service a one-year contract awarded to the
Company in January 1996 by the United States Department of Defense to furnish
food items to various military installations. The contract contains three yearly
renewal options and was renewed for 1999. The current contract expires in
February 2000. The United States Department of Defense had estimated annual
sales volume to be approximately $19 million. Actual sales volume for fiscal
1998 was $11.5 million.
While the Company does not anticipate a material increase in its capital
requirements in the near future, such an increase, if it occurs, is likely to be
met through additional long-term debt financing.
Year 2000 Compliance
- --------------------
Many computer systems, programs, components, and other hardware with
embedded microcontrollers currently record years in a two-digit format. Such
systems, if not modified, will be unable to recognize properly dates beyond 1999
- - -- the so-called "Year 2000 Problem." The Company relies on its computer
systems, applications and devices in operating and monitoring various aspects of
its business. The Company also relies, directly and indirectly, on systems of
customers, suppliers, and financial institutions. Management has divided this
issue into three sections: its own computer systems, its own embedded systems,
and the computer systems of third party suppliers and customers.
With respect to the Company's computer systems, Management believes all
critical hardware and third party software to be "Year 2000 Compliant." The
Company's custom software has been modified. Testing of the computer system
began in 1998 and was completed in March 1999. Management believes its computer
systems are "Year 2000 Compliant". The Company estimates the total cost of
modifying its computers and software to be about $50,000. About $40,000 has
been expended to date, approximately $10,000 of which was in the first quarter
of 1999. The remaining $10,000 of the Company's estimate is for contingencies.
The Company has funded and expects to continue to fund any additional costs of
Year 2000 compliance through operating cash flows.
The Company uses several time-sensitive non-computer systems. The Company
has completed an inventory of these systems and related components. Based upon
information received from suppliers, Management believes that all significant
non-computer equipment is compliant. The Company is accepting no new equipment
of any type that does not meet standards of compliance for the Year 2000.
The Company relies on the computer systems of third party suppliers and
customers. While the Company queried major suppliers and customers regarding
their readiness for the Year 2000, Management cannot guarantee the accuracy of
the representations. The Company contacted all of its significant suppliers and
customers in March 1999, and will summarize and review the responses and follow
up with suppliers' and customers' assessments. The Company purchases its
inventory from numerous vendors and believes that the failure of a limited
number of suppliers to be Year 2000 Compliant would not materially affect the
Company's operations given the number of alternative suppliers. The Company has
also considered the possibility of one or more major customers being temporarily
unable to meet its financial obligations because of the Year 2000 Problem and
believes that the Company's existing lines of credit are sufficient to
compensate for such potential temporary shortfall in cash flow.
There are numerous uncertainties relating to addressing Year 2000 issues,
including the actual cost and effort of implementing corrective measures, the
degree to which outside parties appropriately address their Year 2000 issues,
and other factors, some of which are beyond the Company's control, and all of
which may cause results to be different from those currently anticipated by the
Company. Doughtie's has developed contingency plans to cover minor failure due
to supplier or customer problems. Management believes that the internal systems
will work properly due to the extensive analysis and testing that was completed
in March 1999.
Recent Developments
- --------------------
In January 1999, the Company announced that in response to certain
recent inquiries by outside third parties, the Board of Directors of the Company
had engaged the investment banking firm of Mann, Armistead & Epperson, Ltd.,
Richmond, Virginia, for the purpose of attempting to maximize shareholder value,
and had directed Mann, Armistead & Epperson, Ltd. to examine the Company's
options, including the possible sale of the Company.
On May 5, 1999, the Company and SYSCO Corporation (SYSCO) signed an
Agreement and Plan of Merger (Merger Agreement) pursuant to a Letter of Intent
dated February 17, 1999, whereby a subsidiary of SYSCO and the Company will
merge (the Merger). Under the Merger Agreement, the stockholders of the Company
will receive $17 per share in cash and/or shares of SYSCO common stock subject
to $3.00 per share in cash and/or shares being held back in escrow for
indemnification and other purposes. In addition, all options outstanding will
become fully vested and exercisable and shall be deemed exercised (for the
applicable exercise price) as of the closing of the Merger. Consummation of the
Merger is subject to, among other things, approval by the Company's
stockholders.
---------------------------
Forward-Looking Information
---------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward- looking statements. This Form 10-Q, the Company's Annual
Report to Shareholders, any Form 10-K or any Form 8-K of the Company or any
other written or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. Forward-looking statements
are inherently subject to the uncertainties of future events, so that actual
results could differ materially from expectations which are stated or implied
in, or could be inferred from such forward-looking statements. Among the kinds
of uncertainties that can affect and should be considered in evaluating the
Company's forward-looking statements are uncertainties related to economic
conditions, government and regulatory policies, customer plans and commitments,
changes in the capital markets affecting the Company's capital structure and
cost of capital, and the Company's competitive environment. Readers are
therefore cautioned not to place undue reliance on any forward-looking
statement, which speaks only as of the date such statement is made.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's bank revolving credit line and Industrial Development
Bonds bear interest at variable rates which expose the Company to risk from
interest rate fluctuations. If interest rates were to increase or decrease by
10%, the effect on net income and cash flows would not be material.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or its
subsidiary is a party or to which any of their property is the subject.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
On May 5, 1999, the Company and SYSCO Corporation (SYSCO) signed an
Agreement and Plan of Merger (Merger Agreement) pursuant to a Letter of Intent
dated February 17, 1999, whereby a subsidiary of SYSCO and the Company will
merge (the Merger). Under the Merger Agreement, the stockholders of the Company
will receive $17 per share in cash and/or shares of SYSCO common stock subject
to $3.00 per share in cash and/or shares being held back in escrow for
indemnification and other purposes. In addition, all options outstanding will
become fully vested and exercisable and shall be deemed exercised (for the
applicable exercise price) as of the closing of the Merger. Consummation of the
Merger is subject to, among other things, approval by the Company's
stockholders.
The Company's Annual Meeting of Stockholders, normally held in May of each
year, will not be held if the Merger is approved by the Company's stockholders
at a special meeting expected to be held in July or August of 1999. If the
Merger is not approved by the Company's stockholders, the Annual Meeting will be
scheduled and held thereafter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(a). Articles of Incorporation of the Company (incorporated by reference to
Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 27, 1998).
3(b). Bylaws of the Company (incorporated by reference to Exhibit 3(b) to
the Company's Annual Report on Form 10-K for the year ended December
30, 1995).
10(g). Agreement and Plan of Merger dated as of May 5, 1999, between the
Company and SYSCO Corporation, whereby a subsidiary of SYSCO and the
Company will merge.
27. Financial Data Schedule.
99. Press Release issued jointly by the Company and SYSCO Corporation
dated May 6, 1999.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended March 27,
1999.
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOUGHTIE'S FOODS, INC.
/s/ Marion S. Whitfield, Jr.
-----------------------------------------
May 11, 1999 By: Marion S. Whitfield, Jr.
(Signature)
Senior Vice President
(Principal Financial and
Accounting Officer)
EXHIBIT (g)
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (as the same may be amended from time to time,
the "Agreement") is made as of May 5, 1999, among SYSCO CORPORATION, a Delaware
corporation ("SYSCO"), SYSCO FOOD SERVICES OF EASTERN VIRGINIA, INC. ("Merger
Sub"), a Delaware corporation and a wholly-owned subsidiary of SYSCO, and
DOUGHTIE'S FOODS, INC., a Virginia corporation ("DFI").
RECITALS
A. The respective Boards of Directors of SYSCO, Merger Sub and DFI have each
approved the merger of DFI with and into Merger Sub (the "Merger"), upon the
terms and subject to the conditions set forth in this Agreement, whereby each
issued and outstanding share of common stock, par value $1.00 per share, of DFI
("DFI Common Stock"), other than any shares owned by SYSCO, will be converted
into the right to receive the Merger Consideration (as defined in Section 1.01).
B. The respective Boards of Directors of SYSCO, Merger Sub and DFI have each
determined that the Merger and the other transactions contemplated hereby are
consistent with, and in furtherance of, their respective business strategies and
goals and are in the best interests of their respective stockholders.
C. For federal income tax purposes, it is intended that the Merger will qualify
as a reorganization under the provisions of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
D. For financial accounting purposes, it is intended that the Merger will be
accounted for under the purchase method of accounting.
E. SYSCO, Merger Sub and DFI desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties, covenants
and agreements contained in this Agreement, the parties agree as follows:
Article I The Merger
Section 1.01 The Merger.
Upon the terms and subject to the conditions set forth in this Agreement, and in
accordance with the Delaware General Corporation Law (the "DGCL") and the
Virginia Stock Corporation Act (the "VSCA"), DFI shall be merged with and into
Merger Sub at the Effective Time (as defined in Section 1.03). Following the
Effective Time, the separate corporate existence of DFI shall cease and Merger
Sub shall be the surviving corporation (the "Surviving Corporation") and shall
succeed to and assume all the rights and obligations of DFI in accordance with
the DGCL and VSCA.
(i) Pursuant to the Merger and the terms of this Agreement:
(A) all holders of DFI Common Stock, in exchange for the surrender and
cancellation of the DFI Common Stock, shall be entitled to receive consideration
in the form of shares of SYSCO Common Stock and/or cash as a result of a Cash
Election (Section 2.01(f)) and any cash in lieu of fractional shares of SYSCO
Common Stock (Section 2.02(e)), and (B) all holders of Options (as hereinafter
defined) shall be entitled to receive cash in accordance with Section 2.01(e).
(ii) The consideration to be delivered to each holder of DFI
Common Stock or Option Shares (as hereinafter defined) pursuant to clause (i)
above is referred to hereinafter as the "Merger Consideration." The total
consideration payable by SYSCO hereunder to all holders of DFI Common Stock and
Option Shares is referred to hereinafter as the "Aggregate Merger
Consideration." The dollar value of the Aggregate Merger Consideration (the
"Merger Price") is equal to (A) the number of issued and outstanding shares of
DFI Common Stock times the Average SYSCO Price (defined below) times the
Exchange Ratio (as defined in Section 2.01(b) plus (B) the Option Share
Consideration (as defined in Section 2.01(e)) times the total number of Option
Shares. "Average SYSCO Price" means the average of the closing prices of the
SYSCO Common Stock as reported on the NYSE Composite Reporting Tape (as reported
in The Wall Street Journal, or, if not reported therein, any other authoritative
source) during the ten (10) trading days ending two (2) trading days prior to
the Closing Date (but in no event greater than $31 per share of SYSCO Common
Stock or less than $21 per share of SYSCO Common Stock).
Section 1.02 Closing.
The closing of the Merger (the "Closing") will take place at 10:00 a.m., New
York City time, on a date to be specified by the parties (the "Closing Date"),
which shall be no later than the second business day after satisfaction or
waiver of the conditions set forth in Article VI, unless another time or date is
agreed to by the parties hereto. The Closing will be held at the offices of
McGuire, Woods, Battle & Boothe, LLP, in Norfolk, Virginia, or such other
location as may be agreed to by the parties hereto.
Section 1.03 Effective Time.
Subject to the provisions of this Agreement, as soon as practicable on the
Closing Date, the parties shall cause the Merger to be consummated by filing a
certificate of merger or other appropriate documents (in any such case, the
"Certificate of Merger") executed in accordance with the relevant provisions of
the DGCL and the VSCA and shall make all other filings or recordings required
under the DGCL and the VSCA. The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Secretary of State of Delaware
and is declared effective by the Virginia State Corporation Commission, or at
such subsequent date or time as SYSCO and DFI shall agree and specify in the
Certificate of Merger (the time the Merger becomes effective being hereinafter
referred to as the "Effective Time").
Section 1.04 Statutory Effects of the Merger.
The Merger shall have the effects set forth in Section 259 of the DGCL and
Section 13.1-721 of the VSCA.
Section 1.05 Certificate of Incorporation and Bylaws.
(i) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended in accordance with applicable law; provided, however, that Article First
of the Certificate of Incorporation of the Surviving Corporation shall be
amended to read as follows:
"The name of the Corporation (which is hereinafter referred to as the
"Corporation") is Doughtie's SYSCO Food Services, Inc."
(ii) At the Effective Time, the bylaws of the Surviving
Corporation shall be amended as set forth in Exhibit A and, as so amended, such
bylaws shall be the bylaws of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law.
Section 1.06 Directors and Officers.
The directors and officers of Merger Sub immediately prior to the Effective Time
shall be the initial directors and officers of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and bylaws of
the Surviving Corporation.
Section 1.07 Reservation of Right to Revise Transaction.
If each of DFI and SYSCO agree, the parties hereto, prior to the receipt of the
DFI Stockholder Approval (as defined herein), may change the method of effecting
the business combination between SYSCO and DFI, and each party shall cooperate
in such efforts, including to provide for a merger of DFI with and into SYSCO
with SYSCO being the surviving corporation, provided, however, that no such
change shall (i) alter or change the amount or kind of the Merger Consideration,
(ii) adversely affect the tax treatment to SYSCO, DFI or their respective
stockholders as a result of receipt of the Merger Consideration, or (iii)
materially delay receipt of any approval referred to in Section 6.01(c) or the
consummation of the transactions contemplated by this Agreement.
Section 1.08 Closing Deliveries.
(a) DFI Deliveries
At Closing, DFI shall deliver to SYSCO and Merger Sub each of the following,
together with any additional items which SYSCO may reasonably request to effect
the transactions contemplated herein:
(i) a certified copy of the corporate resolutions of the Board
of Directors of DFI and of the stockholders of DFI authorizing and approving the
Merger and the execution, delivery and performance of this Agreement, together
with an incumbency certificate with respect to officers of DFI executing
documents or instruments on behalf of DFI;
(ii) a certificate of the President of DFI certifying as to
the matters set forth in Sections 6.01 and 6.02 hereof and as to the
satisfaction of all other conditions set forth in this Agreement;
(iii) the Escrow Agreement duly executed by the Stockholder
Representative on behalf of the DFI Stockholders, the DFI Optionholders and
Escrow Agent;
(iv) the Non-competition Agreements referred to in Section
5.18 hereof duly executed by Steven C. Houfek ("Houfek") and Vernon W. Mules
("Mules");
(v) written consents from all persons, entities and regulatory
bodies whose consent to the Merger is required;
(vi) the corporate minute books, seals and stock transfer
books of DFI and each subsidiary certified by the corporate secretary thereof as
true, correct and complete;
(vii) an opinion of McGuire Woods Battle & Boothe, LLP,
counsel to DFI, substantially in the form of Exhibit B attached hereto;
(viii) the Certificate of Merger executed by DFI;
(ix) Tax Opinion of McGuire Woods Battle & Boothe, LLP,
pursuant to Section 6.01(g); and (x) any other documents or agreements
contemplated hereby and/or necessary or appropriate to consummate the
transactions contemplated hereby.
(b) SYSCO and Merger Sub Deliveries
At Closing, SYSCO and Merger Sub shall deliver to DFI each of the following,
together with any additional items which DFI may reasonably request to effect
the transactions contemplated herein:
(i) written confirmation from SYSCO's transfer agent that
stock certificates evidencing the shares of SYSCO Common Stock to be issued in
the Merger (including the Escrow Shares) have been issued;
(ii) the Escrow Agreement duly executed by SYSCO and Merger
Sub;
(iii) certified copies of the corporate resolutions of the
Board of Directors of SYSCO and of the Board of Directors and sole stockholder
of Merger Sub authorizing and approving the Merger and the execution, delivery
and performance of this Agreement by SYSCO and Merger Sub, together with
incumbency certificates with respect to the respective officers of SYSCO and
Merger Sub executing documents or instruments on behalf of SYSCO and Merger Sub;
(iv) a certificate of an authorized officer of SYSCO and
Merger Sub certifying as to the matters set forth in Sections 6.01 and 6.03
hereof and as to the satisfaction of all other conditions set forth herein;
(v) the Certificate of Merger executed by Merger Sub;
(vi) Opinion of Arnall Golden & Gregory, LLP, counsel to
SYSCO, substantially in the form of Exhibit B-2 attached hereto and the opinion
of Clark & Stant, P.C., special counsel to SYSCO, as provided for in the last
paragraph of Exhibit B-2; ;
(vii) Tax Opinion of Arnall Golden & Gregory, LLP, pursuant to
Section 6.01(g); and (viii) any other documents or agreements contemplated
hereby and/or necessary or appropriate to consummate the transactions
contemplated hereby.
Article II
Effect of the Merger on Capital Stock; Exchange of Certificates and Cash
Section 2.01 Effect on Capital Stock.
As of the Effective Time, by virtue of the Merger and without any action on the
part of Merger Sub, DFI or the holder of any shares of the following securities:
(a) Cancellation of Stock Owned by SYSCO.
Each share of DFI Common Stock that is owned by Merger Sub or SYSCO shall
automatically be cancelled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor. Except for purposes of
using the total number of shares of issued and outstanding DFI Common Stock in
calculations, the term "DFI Common Stock" in this Agreement shall be deemed to
exclude any shares owned by Merger Sub or SYSCO.
(b) Conversion of DFI Common Stock.
Subject to Section 2.01(f) and Section 2.02(e), each issued and outstanding
share of DFI Common Stock shall be converted into the right to receive that
number of validly issued, fully paid and non-assessable shares of common stock,
par value $1.00 per share of SYSCO ("SYSCO Common Stock") equal to the Exchange
Ratio. "Exchange Ratio" means the quotient resulting from dividing (A) $17.00
less the Net Worth Adjustment by (B) the Average SYSCO Price. As of the
Effective Time, the DFI Common Stock shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing any shares of DFI Common Stock (a "DFI
Stockholder") shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration.
(c) Conversion of Merger Sub Common Stock.
Each share of common stock, par value $1.00 per share, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall remain outstanding as
a validly issued, fully paid and non-assessable share of common stock of the
Surviving Corporation.
(d) SYSCO Common Stock.
At and after the Effective Time, each share of SYSCO Common Stock issued and
outstanding immediately prior to the Effective Time shall remain an issued and
outstanding share of common stock of SYSCO and shall not be affected by the
Merger.
(e) DFI Options.
(i) In accordance with action duly taken by the Compensation
Committee of the board of directors of DFI pursuant to Section 13(b) of the
Doughtie's Foods, Inc. 1998 Stock Incentive Plan (the "DFI Option Plan"), all
options granted under the DFI Option Plan and any other DFI Employee Stock
Options, as defined in Section 3.01(c), outstanding as of the Effective Time
(collectively, the "Options") shall, effective upon Closing, become fully vested
and exercisable notwithstanding any other provision of the DFI Option Plan or
any grant agreement to the contrary and shall be deemed exercised in full. Each
share deemed to be issued pursuant to such exercise is referred to herein as an
"Option Share" and is not included for any purposes of this Agreement in
calculating the number of issued and outstanding shares of DFI Common Stock.
(ii) Each Option Share shall, as of the Effective Time, be
converted into the right to receive cash equal to $17.00 less (A) the Net Worth
Adjustment, less (B) the per share exercise price of the underlying Option, less
(C) any amounts required for Tax withholding (the "Option Share Consideration").
Each holder of an Option Share is referred to hereinafter as a "DFI
Optionholder").
(f) Cash Election.
(i) Each DFI Stockholder shall have the right to elect to
receive, in cash, $17.00 less the Net Worth Adjustment per share of DFI Common
Stock designated by such holder to be converted/ to cash (the "Cash Election"),
provided, however, that if DFI Stockholders elect in the aggregate to receive
more than 49% of the Merger Price in cash (counting the aggregate amount of the
Option Share Consideration and cash paid in lieu of fractional shares as
equivalent to Cash Elections for purposes of this calculation), then each DFI
Stockholder shall be deemed to have made a Cash Election for that number of
shares of DFI Common Stock equal to the product of (A) the number of shares of
DFI Common Stock actually designated for the Cash Election by such DFI
Stockholder times (B) a fraction, the numerator of which is 49% of the Merger
Price divided by $17 (less the Net Worth Adjustment) and the denominator of
which is the total number of shares of DFI Common Stock designated for Cash
Election by all of the DFI Stockholders. The percentage of the Merger Price
elected in the aggregate to be received by the DFI Stockholders in cash
including Option Share Consideration and fractional share payments (after
adjustment, if any, as provided herein) shall be referred to hereinafter as the
"Cash Election Percentage."
(ii) DFI Stockholders shall effect their respective Cash
Elections through an election mechanism to be provided in connection with the
solicitation of proxies in respect of the DFI Stockholders Meeting.
(g) Closing Balance Sheet; Net Worth Adjustment.
(i) As of a date not more than 15 days prior to the Closing
Date(the "Pre-Closing Balance Sheet Date"), DFI, in consultation with SYSCO,
shall prepare an unaudited consolidated balance sheet of DFI (the "Pre-Closing
Balance Sheet") prepared from the books and records of DFI in accordance with
GAAP (as defined in Section 3.01(j)) applied on a basis consistent with the
balance sheet for the fiscal year ended December 26, 1998 included in the
Financial Statements (as defined in Section 3.01(j)). The Pre-Closing Balance
Sheet shall be reviewed by PricewaterhouseCoopers in accordance with Statements
on Standards for Accounting and Review Services issued by the AICPA Accounting
and Review Services Committee and, after any necessary adjustments, shall be
delivered to SYSCO. In addition, DFI shall prepare a calculation of Pre-Closing
Adjusted Net Worth. "Pre-Closing Adjusted Net Worth" means Net Worth as of the
Pre-Closing Balance Sheet Date calculated exclusive of (A) the proceeds of any
sale by DFI of the Facility (as defined in Section 5.19), the Annex Property (as
defined in Section 5.21) or the Maryland Property (as defined in Section 6.02(f)
prior to Closing (in each case in excess of the book values thereof) and any
other non-recurring event (in connection with this Agreement or otherwise), (B)
the tax benefit of any deduction in respect of payments to holders of Options
pursuant hereto and (C) a reserve which includes a reasonable estimate of DFI's
maximum transaction costs relating to the Merger not to exceed $750,000.
(ii) During the period between the date when the Pre-Closing
Balance Sheet is delivered to SYSCO and the Closing Date, SYSCO and DFI shall
jointly monitor the business and financial performance of DFI and agree upon
such adjustments to the Pre-Closing Adjusted Net Worth as are appropriate to
determine the projected adjusted Net Worth of DFI as of the Closing Date (the
"Closing Adjusted Net Worth") in accordance with the accounting principles used
to prepare the Pre-Closing Balance Sheet and to calculate the Pre-Closing
Adjusted Net Worth.
(iii) At all times during the period from the preparation of the
Pre-Closing Balance Sheet to the determination of the Closing Adjusted Net
Worth, SYSCO's designated financial officers and representatives shall have the
opportunity to be physically present at DFI's Facility and to review all of
DFI's financial books and records as appropriate for SYSCO's monitoring and
participation in the determination of the Closing Adjusted Net Worth as set
forth herein.
(iv) If the Closing Adjusted Net Worth is equal to or greater than
the Net Worth reflected on the December 26, 1998 balance sheet included in the
Financial Statements (the "1998 Net Worth"), then the Net Worth Adjustment for
all purposes under this Agreement shall be zero.
(v) If the Closing Adjusted Net Worth is less than the 1998 Net
Worth in violation of the representation and warranty in Section 3.01(gg), then
SYSCO shall have, as its sole remedy in connection with such breach, the option
to either (A) terminate this Agreement or (B) proceed to closing of the
transaction with the Merger Price adjusted by the Net Worth Adjustment. "Net
Worth Adjustment" shall mean the amount (rounded to the nearest cent) equal to
(x) the 1998 Net Worth minus the Closing Adjusted Net Worth divided by (y)
1,520,927 (i.e. 1,495,023 (the number of issued and outstanding shares of DFI
Common Stock) plus 25,904 (the total number of Options (42,100) times the
quotient of 17.00 less 6.54 (the weighted average exercise price of the Options)
divided by 17.00)).
For purposes hereof, "Net Worth" shall mean total consolidated
assets of DFI less total consolidated liabilities of DFI determined in
accordance with GAAP, applied as expressly provided for herein.
Section 2.02 Exchange of Certificates.
(a) Exchange Agent.
As of the Effective Time, SYSCO shall enter into an agreement with SYSCO's
transfer agent or such other bank or trust company as may be designated by SYSCO
and reasonably satisfactory to DFI (the "Exchange Agent") which shall provide
that SYSCO shall deposit with the Exchange Agent as of the Effective Time, for
the benefit of the DFI Stockholders, for exchange in accordance with this
Article II through the Exchange Agent, certificates representing the shares of
SYSCO Common Stock to be issued in the Merger, equal to the number of shares of
DFI Common Stock times the Exchange Ratio (such shares of SYSCO Common Stock,
together with any dividends or distributions with respect thereto with a record
date after the Effective Time as well as cash payable in lieu of any fractional
shares of SYSCO Common Stock or payable as a result of any Cash Election,
(collectively, the "Exchange Fund"), less the Escrow Cash and the Escrow Shares
constituting the Escrow Fund (as defined in Section 2.04) which shall be
delivered to the Escrow Agent.
(b) Exchange Procedures.
(i) As soon as reasonably practicable after the Effective
Time, the Exchange Agent shall mail to each DFI Stockholder (A) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the DFI Common Stock shall pass, only upon delivery of the
Certificates representing the shares of DFI Common Stock (the "Certificates") to
the Exchange Agent, and shall be in such form and have such other provisions as
SYSCO and DFI may reasonably specify) and (B) instructions for use in
surrendering the Certificates in exchange for the Merger Consideration.
(ii) Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of SYSCO Common Stock which
such holder has the right to receive pursuant to the provisions of this Article
II, certain dividends or other distributions in accordance with Section 2.02(c),
cash payable as a result of any Cash Election and cash in lieu of any fractional
share of SYSCO Common Stock in accordance with Section 2.02(e), and the
Certificate so surrendered shall forthwith be cancelled.
(iii) If a surrendered Certificate is not registered in the
transfer records of DFI under the name of the person surrendering such
Certificate, Merger Consideration may be delivered to the surrendering person
only if such Certificate has been properly endorsed for transfer and the
surrendering person pays any applicable transfer or other taxes.
(iv) Until surrendered as contemplated by this Section 2.02,
each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger
Consideration. No interest, dividends or distributions shall be paid or will
accrue on any Merger Consideration payable to holders of unsurrendered
Certificates pursuant to the provisions of this Article II.
(c) Distributions with Respect to Unexchanged Shares.
With respect to any unsurrendered Certificate, any interest, dividends or other
distributions otherwise payable to the holder therefor shall be included in the
Exchange Fund, in each case until the surrender of such Certificate in
accordance with this Article II. Subject to the effect of applicable escheat or
similar laws, following surrender of any such Certificate there shall be paid to
the holder of the Certificate: (i) a certificate representing whole shares of
SYSCO Common Stock issued in exchange therefor, (ii) at the time of such
surrender, the amount of dividends or other distributions without interest, with
a record date after the Effective Time theretofore paid with respect to such
whole shares of SYSCO Common Stock, and (iii) the amount of any cash payable as
a result of any Cash Election and cash payable in lieu of a fractional share of
SYSCO Common Stock to which such holder is entitled pursuant to Section 2.02(e).
(d) Further Ownership Rights in DFI Common Stock.
All shares of SYSCO Common Stock issued and cash paid upon the surrender for
exchange of Certificates in accordance with the terms of this Article II shall
be deemed in full satisfaction of all rights pertaining to the shares of DFI
Common Stock theretofore represented by such Certificates, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of any shares of DFI Common Stock. If, after the Effective Time,
Certificates are presented to SYSCO, the Surviving Corporation or the Exchange
Agent for any reason, they shall be cancelled and exchanged as provided in this
Article II, except as otherwise provided by law.
(e) No Fractional Shares.
No certificates or scrip representing fractional shares of SYSCO Common Stock
shall be issued upon the surrender for exchange of Certificates, no dividend or
distribution of SYSCO shall relate to such fractional share interests and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of SYSCO. In lieu of the issuance of such fractional
shares, SYSCO shall deliver to the Exchange Agent, and the Exchange Agent shall
distribute to each former DFI Stockholder, an amount in cash equal to the
product obtained by multiplying (A) the fractional share interest to which such
former holder would otherwise be entitled times (B) the Average SYSCO Price.
(f) Termination of Exchange Fund.
Any portion of the Exchange Fund which remains undistributed to the holders of
the Certificates for six months after the Effective Time shall be delivered to
SYSCO, upon demand, and any holders of the Certificates who have not theretofore
complied with this Article II shall thereafter look only to SYSCO for payment of
their claim for Merger Consideration.
(g) No Liability; Escheat.
None of SYSCO, DFI, the Surviving Corporation or the Exchange Agent shall be
liable to any person in respect of any shares of SYSCO Common Stock, any
dividends or distributions with respect thereto, any cash payable as a result of
any Cash Election, any cash in lieu of fractional shares of SYSCO Common Stock
or any other cash from the Exchange Fund, in each case delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(h) Investment of Exchange Fund.
The Exchange Agent shall invest any cash included in the Exchange Fund, as
directed by SYSCO, on a daily basis. Any interest and other income resulting
from such investments shall be paid to SYSCO.
(i) Lost Certificates.
If any Certificate shall have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by the Surviving Corporation, the posting
by such person of a bond in such reasonable amount as the Surviving Corporation
may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent shall issue and pay to such
person in exchange for such lost, stolen or destroyed Certificate the applicable
Merger Consideration.
Section 2.03 Certain Adjustments.
(a) Pre-Closing Adjustments.
If between the date hereof and the Effective Time, the outstanding shares of DFI
Common Stock or of SYSCO Common Stock shall be changed into a different number
of shares by reason of any reclassification, recapitalization, split-up,
combination or exchange of shares, or any dividend payable in stock or other
securities shall be declared thereon with a record date within such period, the
Exchange Ratio shall be adjusted accordingly to provide to the holders of DFI
Common Stock the same economic effect as contemplated by this Agreement prior to
such reclassification, recapitalization, split-up, combination, exchange or
dividend.
(b) Post-Closing Adjustments.
Following Closing, to the extent provided in Section 2.04, there shall be a
reduction (collectively, the "Post-Closing Adjustments") of the Merger Price in
the amount of:
(i) all claims, liabilities, losses, costs, damages or
expenses (including, without limitation, reasonable attorneys' fees and expenses
incurred in litigation or otherwise, but net of any identifiable tax savings)
arising out of and sustained by SYSCO or the Surviving Corporation due to or
relating to any misrepresentation or breach of any representation, warranty,
covenant or agreement of DFI contained in this Agreement (including without
limitation Section 4.01(a) hereof) or in any document or instrument delivered
pursuant hereto; and
(ii) any adjustment effected pursuant to Sections 5.19 or
5.21.
Section 2.04 Escrow at Closing
(a) Escrow Fund
At Closing, in order to give effect to the Post-Closing Adjustments in Section
2.03(b)(i) in the manner described herein and in the escrow agreement in the
form of Exhibit C attached hereto (the "Escrow Agreement"), a portion of the
Aggregate Merger Consideration consisting of shares of SYSCO Common Stock (the
"Escrow Shares") and cash equal to a value of $3 million ( the "Escrow Fund")
shall be delivered to Crestar Bank (the "Escrow Agent"). The portion of the
Escrow Fund to be in cash (the "Escrow Cash") shall be equal to the product of
$3 million times the Cash Election Percentage. The number of Escrow Shares
constituting the balance of the Escrow Fund shall be equal to the quotient of
(A) $3 million less the Escrow Cash divided by (B) the Average SYSCO Price.
Escrow Shares and the Escrow Cash deposited in the Escrow Fund equal to (i) ten
percent (10%) of the Escrow Shares and Escrow Cash plus (ii) Escrow Shares and
Escrow Cash equal to 110% of the aggregate amount of the outstanding balance of
all of the Closing Accounts Receivable (as hereinafter defined) at the second
anniversary of the Closing Date shall be referred to hereinafter as the "Tax and
Receivables Escrow Fund."
(b) Facility Escrow Fund and Annex Escrow Fund
To the extent, if any, that additional shares of SYSCO Common Stock and cash are
deposited in the Escrow Fund pursuant to the provisions of Section 5.19 and/or
Section 5.21, such shares and cash shall be referred to hereinafter as the
"Facility Escrow Fund" and the "Annex Escrow Fund," respectively. Claims on the
Facility Escrow Fund and the Annex Escrow Fund shall be made only pursuant to
Sections 5.19 and 5.21 of this Agreement, respectively; the Facility Escrow Fund
and the Annex Escrow Fund shall not be subject to claims in connection with
Post-Closing Adjustments under Section 2.03(b)(i).
(c) Interest and Dividends
The Escrow Cash and cash dividends, if any, on the Escrow Shares, shall be
deposited in a federally insured interest-bearing account selected by the Escrow
Agent and approved by the Stockholder Representative and SYSCO. Earnings on the
Escrow Cash and interest accrued thereon is referred to hereinafter as the
"Escrow Cash Interest." The cash dividends on the Escrow Shares and any earnings
thereon are referred to hereinafter as collectively, the "Escrow Shares
Dividends." Any stock dividends or other non-cash earnings or distributions
attributable to the Escrow Shares shall be added to and become part of the
Escrow Shares.
(d) Voting and Other Rights of Beneficial Owners of Escrow Shares
All voting and other rights of the beneficial owners of the Escrow Shares shall
be determined in accordance with the provisions of the Escrow Agreement.
(e) Notice of Claims
If SYSCO or the Surviving Corporation (an "Indemnified Party") believes that it
has suffered or incurred any liabilities under Section 2.03(b)(i) for which it
is entitled to claim against the Escrow Fund, such Indemnified Party shall so
notify the Stockholder Representative with reasonable promptness and reasonable
particularity in light of the circumstances then existing, and with a statement
in reasonable detail of the factual basis of such claim. If any action at law or
suit in equity is instituted by or against a third party with respect to which
any Indemnified Party intends to claim any Post-Closing Adjustments, such
Indemnified Party shall promptly notify the Stockholder Representative of such
action or suit.
(f) Defense of Third Party Claims
(i) With respect to a particular third party claim, including
Tax claims, action or suit, and without limiting any adjustment to the Merger
Consideration pursuant to Section 2.03(b), the Stockholder Representative shall
have the right to defend the Indemnified Party against the third party claim
with counsel of the Stockholder Representative's choice reasonably satisfactory
to the Indemnified Party so long as (A) the Stockholder Representative notifies
the Indemnified Party in writing within 15 days after the Indemnified Party has
given notice of the third party claim that the Stockholder Representative will
indemnify the Indemnified Party from and against any Post-Closing Adjustments
the Indemnified Party may suffer resulting from, arising out of, relating to or
caused by the third party claim, (B) the Escrow Fund is sufficient to defend
against the third party claim and pay any Post-Closing Adjustments hereunder,
(C) the third party claim involves only money damages and does not seek an
injunction or other equitable relief, (D) settlement of, or an adverse judgment
with respect to, the third party claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedent, custom or practice
materially adverse to the continuing business interests of the Indemnified
Party, and (E) the Stockholder Representative conducts the defense of the third
party claim actively and diligently.
(ii) So long as the Stockholder Representative is conducting
the defense of the third party claim in accordance with Section 2.04(f)(i), (A)
the Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the third party claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the third party claim without the prior written
consent of the Stockholder Representative (not to be withheld unreasonably), and
(C) the Stockholder Representative will not consent to the entry of any judgment
or enter into any settlement with respect to the third party claim without the
prior written consent of the Indemnified Party (not to be withheld
unreasonably).
(iii) In the event and during such period that the Stockholder
Representative is defending the Indemnified Party against any third party claim,
SYSCO shall retransfer to the Stockholder Representative all defenses, causes of
action, choses in action, rights of recovery, rights of setoff and rights of
recoupment to the extent necessary solely for the purpose of such defense (and
subject to retransfer to SYSCO in the event the Stockholder Representative does
not defend) and all original books, records and documents relating to such third
party claim to the extent required for evidentiary purposes.
(iv) If any of the conditions in Section 2.04(f)(i) above is
or becomes unsatisfied, or if the Stockholder Representative does not elect to
defend, then the Indemnified Party shall use its reasonable good faith efforts
to minimize any claim against the Escrow Fund, but subject to such duty may
defend against, and consent to the entry of any judgment or enter into any
settlement with respect to, the third party claim in any manner it reasonably
may deem appropriate and the Stockholder Representative shall provide reasonable
cooperation in facilitating the transition of such defense to the Indemnified
Party.
(g) Release From Escrow
Except as provided in Section 5.19 with respect to the Facility Escrow Fund and
Section 5.21 with respect to the Annex Escrow Fund, claims timely made by the
Indemnified Party against the Escrow Fund with reasonable particularity and with
statements in reasonable detail of the factual basis therefor, and which are
undisputed by the Stockholder Representative or resolved as provided in the
Escrow Agreement, shall be paid to the Indemnified Party (and release of funds
to the Stockholder Representative shall be made) in accordance with the
principles and procedures set forth in Section 2.04(h) and as follows:
(i) Prior to the second anniversary of the Closing, the
Indemnified party may make claims for Post-Closing Adjustment pursuant to
Sections 2.03(b)(i) and 2.04(e) (except for claims related to breaches of
Sections 3.01(l) (Taxes) and 3.01(aa) (Accounts Receivable)) from time to time
and may receive a return of Merger Consideration in respect thereof as and to
the extent provided in the Escrow Agreement. Promptly after the second
anniversary of Closing, the Indemnified Party shall be entitled to receive from
the Escrow Fund a return of Merger Consideration equal in value to the sum of
(A) all valid claims for Post-Closing Adjustments pursuant to Section 2.03(b)(i)
to which the Indemnified Party has not previously received a return of Merger
Consideration, (except for claims related to breaches of Sections 3.01(l)
(Taxes) and 3.01(aa) (Accounts Receivable)), less (B) the amount of the General
Basket (hereinafter defined), less (C) the amount of any claims in dispute at
the second anniversary of Closing (to be disbursed upon and in accordance with
the resolution of such disputed claims).
(ii) From and after the second anniversary of the Closing
until the third anniversary of the Closing, the Indemnified Party may make
claims for Post-Closing Adjustment pursuant to Sections 2.03(b)(i) and 2.04(e)
with respect to breaches of Section 3.01(l) from time to time and may receive a
return of Merger Consideration in respect thereof as and to the extent provided
in the Escrow Agreement. Promptly after the third anniversary of Closing, the
Indemnified Party shall be entitled to receive from the Escrow Fund a return of
Merger Consideration equal in value to the sum of (A) all valid claims for
Post-Closing Adjustments pursuant to Section 2.03(b)(i) with respect to breaches
of Sections 3.01(l) as to which the Indemnified Party has not previously
received a return of Merger Consideration and breaches of Section 3.01(aa), less
(B) the excess of the Tax and Receivables Basket over the amount of any DFI Tax
liabilities paid by the Surviving Corporation from Closing through the third
anniversary thereof, less (C) any amount remaining in the General Basket after
performance of the calculation set forth in Section 2.04(g)(i), less (D) the
amount of any claims in dispute at the third anniversary of Closing, with the
remainder of the Escrow Fund to be disbursed following the resolution of such
dispute as provided in the Escrow Agreement. The "Tax and Receivables Basket"
(as defined below) means the sum of the reserves for Taxes and for bad debts
shown on the balance sheet prepared pursuant to Section 2.01(g)(ii) less
$100,000 (which the parties acknowledge equaled $780,000 as of February 22,
1999).
(iii) With respect to any amounts payable to the Indemnified
Party for claims under Section 2.03(b)(i), the Indemnified Party shall also be
entitled to a "Claims Fee" in an amount equal to the sum of (A) the Claims
Percentage times the total funds constituting the Escrow Cash Interest at the
time of payment plus (B) the Claims Percentage times the total funds
constituting the Escrow Shares Dividends. "Claims Percentage" means the
percentage resulting from dividing the total amount of claims payable to the
Indemnified Party under clause (i) or (ii) above, as applicable, by the combined
dollar value of the Escrow Shares and the Escrow Cash in the Escrow Fund at the
time of payment.
(iv) Immediately after the second anniversary payment to the
Indemnified Party as provided in the preceding clauses (i) and (iii), the Escrow
Agent shall release to the Stockholder Representative the balance of the Escrow
Fund except for the Facility Escrow Fund, if any, the Annex Escrow Fund, if any,
the Tax and Receivables Escrow Fund, and Escrow Cash Interest and Escrow Cash
Dividends attributable to the Facility Escrow Fund, the Annex Escrow Fund and
the Tax and Receivables Escrow Fund.
(v) Upon the completion of the third anniversary payment, if
any, from the Escrow Fund to the Indemnified Party pursuant to the preceding
clauses (ii) and (iii), the balance of the Escrow Fund shall be released by the
Escrow Agent to the Stockholder Representative, subject to the provisions of
Section 5.19.
(h) Distribution Principles and Procedures.
Payments and releases from the Escrow Fund shall be made in accordance with the
following principles and procedures:
(i) The amount of the claims payable to the Indemnified Party
from Escrow Cash shall be equal to the product of the claims amount and the Cash
Election Percentage. The balance of the claims amount shall be paid by delivery
to the Indemnified Party of the number of Escrow Shares equal to the amount of
the balance of the claims amount divided by the average of the closing prices of
the SYSCO Common Stock as reported on the NYSE Composite Recording Tape (as
reported in The Wall Street Journal, or, if not reported therein, any other
authoritative source) during the ten (10) trading days ending two (2) trading
days prior to the applicable payment date.
(ii) Escrow Cash (plus Escrow Cash Interest) and Escrow Shares
(plus Escrow Shares Dividends) shall be distributed by the Stockholder
Representative to each former DFI Stockholder in accordance with any Cash
Election made by each such former DFI Stockholder.
(i) Basket.
Notwithstanding any other provision of this Agreement, the Indemnified Party
shall have no right to receive proceeds from the Escrow Fund for Post-Closing
Adjustments under Section 2.03(b)(i) unless the aggregate amount of valid claims
for such Post-Closing Adjustments exceeds $100,000 (the "General Basket"), and
then only to the extent that the aggregate amount of such Post-Closing
Adjustments exceeds $100,000.
Section 2.05 Exclusive Remedy
Except as provided in Section 7.05 for termination expenses, SYSCO's and the
Surviving Corporation's sole and exclusive right to monetary damages with
respect to breaches of this Agreement shall be claims against the Escrow Fund as
set out in this Section 2.04.
Article III
Representations and Warranties
Section 3.01 Representations and Warranties of DFI.
Except as disclosed in the Disclosure Schedule delivered by DFI to SYSCO and
attached hereto prior to the execution of this Agreement as supplemented and
amended (the "DFI Disclosure Schedule"), DFI represents and warrants to SYSCO as
follows:
(a) Organization, Standing and Corporate Power.
(i) Each of DFI and its subsidiaries (as defined in Section
8.03) is a corporation or other legal entity duly organized, validly existing
and (with respect to jurisdictions which recognize such concept) in good
standing under the laws of the jurisdiction in which it is organized, has the
requisite corporate or other power, as the case may be, and authority to carry
on its business as now being conducted and is duly qualified to do business as a
foreign corporation or other legal entity in each jurisdiction in which the
character of its activities or ownership of its assets requires such
qualification, except for those jurisdictions where the failure to be so
organized, existing, in good standing or qualified individually or in the
aggregate would not have a material adverse effect (as defined in Section 8.03)
on DFI.
(ii) DFI has delivered to SYSCO prior to the execution of this
Agreement complete and correct copies of any amendments to its articles of
incorporation (the "DFI Certificate") and bylaws not filed as of the date hereof
with the DFI Filed SEC Documents (as defined in Section 3.01(g)(v)) below.
(b) Subsidiaries.
Exhibit 21 to DFI's Annual Report on Form 10-K for the fiscal year ended
December 26, 1998 includes all the subsidiaries of DFI which as of the date of
this Agreement are Significant Subsidiaries (as defined in Rule 1-02 of
Regulation S-X of the SEC). Section 3.01(b) of the DFI Disclosure Schedule lists
all subsidiaries of DFI not listed on said Exhibit 21. All the outstanding
shares of capital stock of, or other equity interests in, each such Significant
Subsidiary have been validly issued and are fully paid and non-assessable and
are owned directly or indirectly by DFI, free and clear of all pledges, claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens") and free of any other restriction (including
any restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests), other than Liens and restrictions imposed
by DFI's debt agreements included as exhibits to the DFI Filed SEC Documents.
(c) Capital Structure.
(i) The authorized capital stock of DFI consists of 4,000,000
shares of DFI Common Stock, (A) 1,495,023 shares of which are issued and
outstanding; and (B) 112,500 shares of which are reserved for issuance pursuant
to all stock option, restricted stock or other stock-based compensation,
benefits or savings plans, agreements or arrangements in which current or former
employees or directors of DFI or its subsidiaries participate as of the date
hereof (including, without limitation, the DFI Option Plan) (collectively, the
"DFI Stock Plans"). Section 3.01(c) of the DFI Disclosure Schedule lists all DFI
Stock Plans, if any, other than the DFI Option Plan. Section 3.01(c) of the DFI
Disclosure Schedule sets forth a complete and correct list of the number of
shares of DFI Common Stock subject to employee stock options or other rights to
purchase or receive DFI Common Stock granted under the DFI Stock Plans
(collectively, "DFI Employee Stock Options"), the dates of grant and exercise
prices thereof.
(ii) All outstanding shares of capital stock of DFI are, and
all shares which may be issued will be, when issued, duly authorized, validly
issued, fully paid and non-assessable and not subject to preemptive rights.
Except as set forth in this Section 3.01(c), (x) there are not issued, reserved
for issuance or outstanding (A) any shares of capital stock or other voting
securities of DFI, (B) any securities of DFI or any DFI subsidiary convertible
into or exchangeable or exercisable for shares of capital stock or voting
securities of DFI, (C) any warrants, calls, options or other rights to acquire
from DFI or any DFI subsidiary, and any obligation of DFI or any DFI subsidiary
to issue, any capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting securities of DFI, and
(y) there are no outstanding obligations of DFI or any DFI subsidiary to
repurchase, redeem or otherwise acquire any such securities or to issue, deliver
or sell, or cause to be issued, delivered or sold, any such securities. There
are no outstanding (A) securities of DFI or any DFI subsidiary convertible into
or exchangeable or exercisable for shares of capital stock or other voting
securities or ownership interests in any DFI subsidiary, (B) warrants, calls,
options or other rights to acquire from DFI or any DFI subsidiary, and any
obligation of DFI or any DFI subsidiary to issue, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable or exercisable for any capital stock, voting securities or
ownership interests in, any DFI subsidiary or (C) obligations of DFI or any DFI
subsidiary to repurchase, redeem or otherwise acquire any such outstanding
securities of DFI subsidiaries or to issue, deliver or sell, or cause to be
issued, delivered or sold, any such securities.
(iii) Except as described in Section 3.01(b) of the DFI
Disclosure Schedule, neither DFI nor any DFI subsidiary is a party to any
agreement restricting the purchase or transfer of, relating to the voting of,
requiring registration of, or granting any preemptive or, except as provided by
the terms of the DFI Employee Stock Options, anti-dilutive rights with respect
to, any securities of the type referred to in the two preceding sentences. Other
than the DFI subsidiaries, DFI does not directly or indirectly beneficially own
any securities or other beneficial ownership interests in any other entity.
(d) Authority; Non-contravention.
(i) DFI has all requisite corporate power and authority to
enter into this Agreement and, subject to the DFI Stockholder Approval (as
defined in Section 3.01(m)), to consummate the transactions contemplated hereby.
(ii) The execution and delivery of this Agreement and the
consummation by DFI of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of DFI, subject to the
DFI Stockholder Approval. This Agreement has been duly executed and delivered by
DFI and, assuming the due authorization, execution and delivery thereof by
SYSCO, constitutes (or will constitute, as the case may be) the legal, valid and
binding obligation of DFI, enforceable against DFI in accordance with its terms.
(iii) The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby and compliance with
the provisions of this Agreement will not, give rise to any termination or other
right under, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, (A) the DFI Certificate or the
bylaws of DFI or the comparable organizational documents of any of its
subsidiaries,(B) any loan or credit agreement, note, bond, mortgage, indenture,
trust document, lease or other contract, agreement, instrument, permit,
concession, franchise, license or similar authorization applicable to DFI or any
of its subsidiaries or their respective properties or assets or (C) subject to
the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to DFI or any of its subsidiaries or their respective
properties or assets.
(iv) No consent, approval, order or authorization of, action
by or in respect of, or registration, declaration or filing with, any federal,
state, local or foreign government, any court, administrative, regulatory or
other governmental agency, commission or authority or any non-governmental
self-regulatory agency, commission or authority (a "Governmental Entity") is
required by or with respect to DFI or any of its subsidiaries in connection with
the execution and delivery of this Agreement by DFI or the consummation by DFI
of the transactions contemplated hereby, except for:
1) the filing of a pre-merger notification and report
form by DFI under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act");
2) the filing with the SEC of (A) a proxy statement
relating to the DFI Stockholders Meeting (as defined in Section
5.01(b)) (such proxy statement, as amended or supplemented from time to
time, the "Proxy Statement"), and (B) such reports under Section 13(a),
13(d), 15(d) or16(a) of the Exchange Act, as may be required in
connection with this Agreement and the transactions contemplated
hereby;
3) the filing of the Certificate of Merger with the
Secretary of State of Delaware and the Virginia State Corporation
Commission, and appropriate documents with the relevant authorities of
other states in which DFI is qualified to do business and such filings
with Governmental Entities to satisfy the applicable requirements of
state securities or "blue sky" laws; and
4) such consents, approvals, orders or authorizations the
failure of which to be made or obtained individually or in the
aggregate would not (x) have a material adverse effect on DFI or (y)
reasonably be expected to impair the ability of DFI to perform its
obligations under this Agreement.
(e) SEC Documents; Undisclosed Liabilities.
DFI has filed all DFI SEC Documents (as defined in Section 8.03) with the SEC
since December 31, 1996. As of their respective dates, the DFI SEC Documents
complied in all material respects with the requirements of the Securities Act,
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such DFI SEC Documents, and none of the
DFI SEC Documents when filed contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of DFI included
in the DFI SEC Documents comply as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of DFI and
its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments). DFI
has not treated as restructuring charges any significant expenses that DFI would
otherwise have expensed against operating income in the ordinary course of
business. Except (i) as reflected in such financial statements or in the notes
thereto or (ii) for liabilities incurred in connection with this Agreement or
the transactions expressly contemplated hereby, neither DFI nor any of its
subsidiaries has any liabilities or obligations which, individually or in the
aggregate, would have a material adverse effect on DFI.
(f) Information Supplied.
None of the information supplied or to be supplied by DFI specifically for
inclusion or incorporation by reference in (i) the registration statement on
Form S-4 (as defined in Section 8.03) will, at the time the Form S-4 becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) the Proxy
Statement will, at the date it is first mailed to DFI's stockholders or at the
time of the DFI Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Proxy Statement will comply as to
form in all material respects with the requirements of the Exchange Act and the
rules and regulations thereunder, except that no representation or warranty is
made by DFI with respect to statements made or incorporated by reference therein
based on information supplied by SYSCO, if any, specifically for inclusion or
incorporation by reference in the Proxy Statement.
(g) Absence of Certain Changes or Events.
Except for liabilities incurred in connection with this Agreement or the
transactions expressly contemplated hereby, and except as permitted by Section
4.01(a), since December 26, 1998, DFI and its subsidiaries have conducted their
business only in the ordinary course consistent with past practice or as
disclosed in any DFI SEC Document filed since such date and prior to the date
hereof, and there has not been
(i) any material adverse change (as defined in Section 8.03)
in DFI,
(ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to any of DFI's capital stock,
(iii) any split, combination or reclassification of any of
DFI's capital stock or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of
DFI's capital stock, except for issuances of DFI Common Stock upon exercise or
conversion of DFI Employee Stock Options, in each case awarded prior to the date
hereof in accordance with their present terms,
(iv) (A) any granting by DFI or any of its subsidiaries to any
current or former director, executive officer or other key employee of DFI or
its subsidiaries of any increase in compensation, bonus or other benefits,
except for normal increases as a result of promotions, normal increases of base
pay in the ordinary course of business or as was required under any employment
agreements in effect as of December 26, 1998 or disclosed in Section 3.01(i) of
the DFI Disclosure Schedule, (B) any granting by DFI or any of its subsidiaries
to any such current or former director, executive officer or key employee of any
increase in severance or termination pay, or (C) any entry by DFI or any of its
subsidiaries into, or any amendment of, any employment, deferred compensation,
consulting, severance, termination or indemnification agreement with any such
current or former director, executive officer or key employee,
(v) any change in accounting methods, principles or practices
by DFI materially affecting its assets, liabilities or business except insofar
as may have been disclosed in DFI SEC Documents filed and publicly available
prior to the date of this Agreement or required by a change in GAAP,
(vi) any tax election that individually or in the aggregate
would have a material adverse effect on DFI or any of its tax attributes or any
settlement or compromise of any material income tax liability except insofar as
may have been disclosed in the DFI SEC Documents, or
(vii) any action taken by DFI or any of the DFI subsidiaries
during the period from December 26, 1998 through the date of this Agreement
that, if taken during the period from the date of this Agreement through the
Effective Time, would constitute a breach of Section 4.01(a).
(h) Compliance with Applicable Laws; Litigation.
(i) DFI, its subsidiaries and employees hold all permits,
licenses, variances, exemptions, orders, registrations and approvals of all
Governmental Entities which are required for the operation of the businesses of
DFI and its subsidiaries (the "DFI Permits"), except where the failure to have
any such DFI Permits individually or in the aggregate would not have a material
adverse effect on DFI. Section 3.01(h) of the DFI Disclosure Schedule lists all
of the Permits. DFI and its subsidiaries are in compliance with the terms of the
DFI Permits and all applicable statutes, laws, ordinances, rules and
regulations, except where the failure so to comply individually or in the
aggregate would not have a material adverse effect on DFI. As of the date of
this Agreement, except as disclosed in the DFI SEC Documents, no action, demand,
requirement or investigation by any Governmental Entity and no suit, action or
proceeding by any person, in each case with respect to DFI or any of its
subsidiaries or any of their respective properties, is pending or, to the
knowledge (as defined in Section 8.03) of DFI, threatened, other than, in each
case, those the outcome of which individually or in the aggregate would not (A)
have a material adverse effect on DFI or (B) reasonably be expected to impair
the ability of DFI to perform its obligations under this Agreement or prevent or
materially delay the consummation of any of the transactions contemplated
hereby.
(ii) Neither DFI nor any DFI subsidiary is subject to any
outstanding order, injunction or decree which has had or, insofar as can be
reasonably foreseen, individually or in the aggregate will have, a material
adverse effect on DFI.
(i) Absence of Changes in Benefit Plans.
(i) DFI has delivered to SYSCO true and complete copies of (A)
all severance and employment agreements of DFI with directors, executive
officers or key employees, (B) all severance programs and policies of each of
DFI and each DFI subsidiary, and (C) all plans or arrangements of DFI and each
DFI subsidiary relating to its employees which contain change in control
provisions, in each case which has not been filed as an exhibit to a DFI SEC
Document. DFI has also delivered (in each case which has not been filed as an
exhibit to DFI SEC Document) to SYSCO true and complete copies of (x) any
"employee benefit plan (as defined by Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and (y) any other material
bonus, pension, profit sharing, deferred compensation, commission, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, retention, vacation, fringe benefit, severance, disability, death
benefit, hospitalization, sick leave, medical or other plan, trust fund,
arrangement or understanding providing benefits to any current or former
employee, officer or director of DFI or any of its wholly owned subsidiaries or
any beneficiary thereof (each such plan, agreement, policy, trust fund or
arrangement, together with the agreements and policies described in clauses (A),
(B) and (C) of the preceding sentence, are referred to herein as a "DFI Benefit
Plan", and collectively, the "DFI Benefit Plans").
(ii) Since December 26, 1998, there has not been any adoption
or amendment in any material respect by DFI or any of its subsidiaries of any
collective bargaining agreement, employment agreement, consulting agreement,
severance agreement, or DFI Benefit Plan, or any material change in any
actuarial or other assumption used to calculate funding obligations with respect
to any DFI Benefit Plan which is an `employee pension benefit plan' (as defined
by Section 3(2) of ERISA) (a "DFI Pension Plan"), or any material change in the
manner in which contributions to any DFI Pension Plans are made or the basis on
which such contributions are determined. Since December 26, 1998, neither DFI
nor any DFI subsidiary has amended any DFI Employee Stock Options or any DFI
Stock Plans to accelerate the vesting of, or release restrictions on, awards
thereunder, or to provide for such acceleration in the event of a change in
control.
(j) Financial Statements.
The financial statements included in DFI's Annual Report on Form 10-K for the
fiscal year ended December 26, 1998 and such other periodic reports filed with
the SEC under the Exchange Act since such date (collectively, together with
DFI's Annual Report on Form 10-K for the fiscal year ended December 26, 1998,
the "Financial Statements") have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved ("GAAP") (except, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC and except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of DFI and its subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to year-end audit adjustments).
(k) ERISA Compliance.
(i) DFI has delivered to SYSCO, with respect to each DFI
Benefit Plan, true and complete copies of (A) the documents embodying and
relating to the plan, including, without limitation, the current plan documents
and documents creating any trust maintained pursuant thereto, all amendments,
investment management agreements, administrative service contracts, group
annuity contracts, insurance contracts, collective bargaining agreements, the
most recent summary plan description with each summary of material modification,
if any, and employee handbooks, (B) annual reports including but not limited to
Forms 5500, 990 and 1041 for the last three (3) years for the plan and any
related trust, (C) actuarial valuation reports and financial statements for the
last three (3) years, and (D) each communication involving the plan or any
related trust received since December 31, 1995 to or from the Internal Revenue
Service ("IRS"), Department of Labor ("DOL"), Pension Benefit Guaranty
Corporation ("PBGC") or any other governmental authority including, without
limitation, the most recent determination letter received from the IRS
pertaining to any DFI Benefit Plan intended to qualify under Sections 401(a) or
501(c)(9) of the Code.
(ii) DFI has no obligation to contribute to or provide
benefits pursuant to, and has no other liability of any kind with respect to,
(A) a "multiple employer welfare arrangement" (within the meaning of Section
3(40) of ERISA), or (B) a "plan maintained by more than one employer" (within
the meaning of Section 413(c) of the Code).
(iii) Each DFI Benefit Plan has been administered in
accordance with its terms, except for any failures so to administer any DFI
Benefit Plan that individually or in the aggregate would not have a material
adverse effect on DFI. DFI, its subsidiaries, any ERISA Affiliate (hereby
defined to include any trade or business, whether or not incorporated, other
than DFI, which has employees who are or have been at any date of determination
occurring within the preceding six (6) years, treated pursuant to Section
4001(a)(14) of ERISA and/or Section 414 of the Code as employees of a single
employer which includes DFI) and all the DFI Benefit Plans have been operated,
and are in compliance with the applicable provisions of ERISA, the Code and all
other applicable laws and the terms of all applicable collective bargaining
agreements, except for any failures to be in such compliance that individually
or in the aggregate would not have a material adverse effect on DFI. No fact or
event has occurred since the date of any determination letter from the IRS that
is reasonably likely to affect adversely the qualified status of any such DFI
Benefit Plan or the exempt status of any such trust, except for the enactment of
legislation that requires changes in any DFI Benefit Plan the date for adoption
of which has not yet passed.
(iv) No DFI Benefit Plan has incurred an "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the
Code) whether or not waived. There are not any facts or circumstances that would
materially adversely change the funded status of any DFI Benefit Plan that is a
"defined benefit" plan (as defined in Section 3(35) of ERISA) since the date of
the most recent actuarial report for such plan.
(v) With respect to any DFI Benefit Plan that is a
"multiemployer plan" (as defined in Section 3(37) of ERISA), (A) neither DFI nor
any of its subsidiaries has any contingent liability under Section 4204 of
ERISA, and no circumstances exist that present a material risk that any such
plan will go into reorganization, and (B) the aggregate withdrawal liability of
DFI and its subsidiaries, computed as if a complete withdrawal by DFI and any of
its subsidiaries had occurred under each such DFI Benefit Plan on the date
hereof, would not be material.
(vi) No employee of DFI will be entitled to any material
payment, additional benefits or any acceleration of the time of payment or
vesting of any benefits under any DFI Benefit Plan as a result of the
transactions contemplated by this Agreement (either alone or in conjunction with
any other event such as a termination of employment), except that substantially
all DFI Employee Stock Options will vest as of the date on which DFI Stockholder
Approval is obtained.
(vii) All payments required by any DFI Benefit Plan, any
collective bargaining agreement or by law (including all contributions,
insurance premiums, premiums due the PBGC or intercompany charges) with respect
to all periods through the date hereof have been made.
(viii) Other than ordinary claims for benefits, no claim,
lawsuit, arbitration or other action has been asserted or instituted or
threatened in writing against any DFI Benefit Plan, any trustee or fiduciaries
thereof, DFI or any ERISA Affiliate, any director, officer or employee thereof,
or any of the assets of a DFI Benefit Plan or any related trust.
(ix) No DFI Benefit Plan is under audit or investigation by
the IRS or the DOL or any other governmental authority and no such completed
audit, if any, has resulted in the imposition of any tax, interest or penalty.
(x) If a DFI Benefit Plan purports to be a voluntary employees
beneficiary association ("VEBA"), a request for a determination letter for the
VEBA has been submitted to and approved by the IRS that the VEBA is exempt from
federal income tax under Section 501(c)(9) of the Code, and nothing has occurred
or is expected to occur that caused or could cause the loss of such
qualification or exemption or the imposition of any tax, interest or penalty
with respect thereto.
(xi) No DFI Benefit Plan has been terminated under
circumstances which would result in liability to the PBGC.
(xii) In the case of a DFI Benefit Plan that is subject to
Title IV of ERISA, no proceeding has been or is expected to be initiated to
terminate the plan.
(xiii) DFI is not subject to any liens, and excise or other
taxes under ERISA, the Code or other applicable law relating to any DFI Benefit
Plan; has not ceased operations at a facility so as to become subject to the
provisions of Section 4062(e) of ERISA; has not withdrawn as a substantial
employer so as to become subject to the provisions of Section 4063 of ERISA; and
has not ceased making contributions to any DFI Benefit Plan subject to 4064(a)
of ERISA to which DFI or any ERISA Affiliate made contributions at any time
during the six (6) years prior to the date hereof.
(xiv) No amounts payable under any DFI Benefit Plan or any
agreements with DFI employees will fail to be deductible for federal income tax
purposes by virtue of Section 280G of the Code;
(xv) No DFI Benefit Plan in any way provides for any benefits
of any kind whatsoever (other than under COBRA, the Federal Social Security Act
or any DFI Benefit Plan qualified under Section 401(a) of the Code) to any DFI
Employee who, at the time the benefit is to be provided, is a former director or
employee of, or other provider of services to, DFI or an ERISA Affiliate (or a
beneficiary of any such person), nor have any representations, agreements,
covenants or commitments been made to provide such benefits. Neither SYSCO nor
the Surviving Corporation will have any liability with respect to such benefits
or as a result of any representations, agreements, covenants or commitments to
provide such benefits offered or made by or on behalf of DFI.
(xvi) Any contribution, insurance premium, excise tax,
interest charge or other liability or charge imposed or required with respect to
any DFI Benefit Plan which is attributable to any period or any portion of any
period prior to the Closing shall be reflected as a liability on the Closing
Balance Sheet, including, without limitation (A) any portion of the matching
contribution required with respect to the Doughtie's Foods, Inc. Retirement
Savings and 401(k) Plan for the plan year ending after the Closing which is
attributable to elective contributions made by participants in such plan prior
to the Closing and assuming that all participants are employed by DFI as of the
end of such plan year, and (B) an amount equal to a pro rata portion of the
quarterly contribution requirement with respect to any DFI pension plan for the
quarter beginning immediately prior to the Closing, based on the number of days
that will have elapsed from such date through the Closing.
(l) Taxes.
For purposes of this Agreement, "Income Tax" shall mean any federal, state,
local, or foreign income tax, including any interest, penalty, or addition
thereto, whether disputed or not; "Income Tax Return" shall mean any return,
declaration, report, claim for refund, or information return or statement
relating to Income Taxes, including any schedule or attachment thereto, and
including any amendment thereof. "Tax" shall mean all Income Taxes and any other
franchise, capital stock, property, personal property, tangible, intangible,
withholding, FICA, unemployment compensation, disability, transfer, sales, use,
excise, registration, license, occupation, environmental, alternative or add-on
minimum, estimated and all other Taxes (including interest, penalties or
additions associated therewith), for which DFI or any of its subsidiaries may
have any liability imposed by the United States or any State, county, city, or
municipality or other governmental subdivision thereof, whether disputed or not.
Except as disclosed in Section 3.01(1) of the DFI Disclosure Schedule:
(i) all Income Tax Returns, including estimated returns and
reports of every material kind which are due to have been filed by DFI or any of
its subsidiaries in accordance with applicable law, have been duly filed and are
true, correct and complete in all respects;
(ii) all Taxes paid on or before the date hereof, together
with any amounts accrued as liabilities for Taxes (whether accrued as currently
payable or deferred) on the books of DFI or its subsidiaries and reflected in
the Closing Balance Sheet will be adequate to satisfy all liabilities for Taxes
of DFI or any of its subsidiaries in any jurisdiction for all periods ending on
or before the Closing Date (excluding, however, any liability for Taxes
attributable to the transactions contemplated by this Agreement);
(iii) no Income Tax claims have been asserted, or to DFI's
knowledge proposed or threatened against DFI or any of its subsidiaries, and
(other than the pending audit identified in Section 3.01(1) of the DFI
Disclosure Schedule) no audit or investigation of any return or report of Taxes
is currently underway, pending or, to DFI's knowledge, threatened;
(iv) there are no outstanding waivers or agreements by DFI or
any of its subsidiaries for an extension of time for the assessment of any
Income Taxes or deficiencies thereof, nor are there any requests for Income Tax
rulings, outstanding subpoenas, requests for information, or any other matter
pending between DFI or any of its subsidiaries and any Income Tax authority;
(v) neither DFI nor any of its subsidiaries is a party to any
Income Tax allocation or sharing agreement, except for agreements which relate
exclusively to DFI and its subsidiaries;
(vi) neither DFI nor any of its subsidiaries has any liability
for the Income Taxes of any Person (other than DFI or any of its subsidiaries)
under Treasury Regulation ss.1.1502-6 (or any similar provision of State, local
or foreign law);
(m) Voting Requirements.
The affirmative vote at the DFI Stockholders Meeting of the holders of a
two-thirds majority of all outstanding shares of DFI Common Stock to adopt this
Agreement (the "DFI Stockholder Approval") is the only vote of the holders of
any class or series of DFI's capital stock necessary to approve and adopt this
Agreement and the transactions contemplated hereby, including the Merger.
(n) State Takeover Statutes; Certain Provisions of DFI Certificate.
The Board of Directors of DFI has adopted a resolution or resolutions approving
this Agreement and the transactions contemplated hereby and, assuming the
accuracy of SYSCO's representation and warranty contained in Section 3.02(g),
such approval constitutes approval of the Merger and the other transactions
contemplated hereby by the DFI Board of Directors under the provisions of
Article 14, to the extent applicable, of the VSCA such that Article 14 of the
VSCA does not apply to this Agreement and the transactions contemplated hereby.
To the knowledge of DFI, except for Article 14 of the VSCA (which has been
rendered inapplicable), no state takeover statute is applicable to the Merger or
the other transactions contemplated hereby.
(o) Brokers.
No broker, investment banker, financial advisor or other person other than Mann,
Armistead & Epperson, Ltd., the fees and expenses of which will be paid by DFI,
is entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of DFI. DFI has furnished to SYSCO
true and complete copies of all agreements under which any such fees or expenses
are payable and all indemnification and other agreements related to the
engagement of the persons to whom such fees are payable.
(p) Opinion of Financial Advisors.
DFI has received the opinion of Mann, Armistead & Epperson, Ltd., dated the date
of this Agreement, to the effect that, as of such date, the Exchange Ratio for
the conversion of DFI Common Stock into SYSCO Common Stock is fair from a
financial point of view to holders of shares of DFI Common Stock (other than
SYSCO and its affiliates), signed copies of which opinion have been delivered to
SYSCO on or before the date of this Agreement, it being understood and agreed by
SYSCO that such opinion is for the benefit of the Board of Directors of DFI and
may not be relied upon by SYSCO or its affiliates.
(q) Intellectual Property.
DFI and its subsidiaries own or have a valid license to use, and Section 3.01(q)
of the DFI Disclosure Schedule lists, all trademarks, service marks, trade
names, patents and copyrights (including any registrations or applications for
registration of any of the foregoing) (collectively, the "DFI Intellectual
Property") necessary to carry on its business substantially as currently
conducted except for such DFI Intellectual Property the failure of which to own
or validly license individually or in the aggregate would not have a material
adverse effect on DFI. Neither DFI nor any such subsidiary has received any
notice of infringement of or conflict with, and, to DFI's knowledge, there are
no infringements of or conflicts (i) with the rights of others with respect to
the use of, or (ii) by others with respect to, any DFI Intellectual Property
that individually or in the aggregate, in either such case, would have a
material adverse effect on DFI.
(r) Certain Contracts.
(i) Except as set forth in Section 3.01(r) of the DFI
Disclosure Schedule, neither DFI nor any of its subsidiaries is a party to or
bound by (A) any "material contract" (as such term is defined in Item 601(b)(10)
of Regulation S-K of the SEC), (B) any non-competition agreement or any other
agreement or obligation which purports to limit in any material respect the
manner in which, or the localities in which, all or any material portion of the
business of DFI and its subsidiaries, taken as a whole, is or would be
conducted, (C) any exclusive supply or purchase contracts or any exclusive
requirements contracts or (D) any contract or other agreement which would
prohibit or materially delay the consummation of the Merger or any of the
transactions contemplated by this Agreement (all contracts of the type described
in clauses (A) through (D) being referred to herein as "DFI Material
Contracts").
(ii) Section 3.01(r) of the DFI Disclosure Schedule sets forth
a list of the contracts dealing with current or future rights or obligations of
DFI and meeting any of the criteria set forth in clauses 1)
through 13) below and denotes which of those are DFI Material Contracts.
1) Any single contract or purchase order (other than
purchase orders for inventory in the ordinary course of business)
providing for an expenditure by DFI in excess of $5,000.
2) Any contract providing for an expenditure by DFI for
the purchase of real property.
3) any contract with respect to any DFI Intellectual
Property (other than licenses for widely available, off-the-shelf
software).
4) Any contract pursuant to which DFI is the lessee or
sublessee of any real or personal property (other than leases of
personal property leased in the ordinary course of business with annual
lease payments no greater than $5,000).
5) Any contract pursuant to which DFI is the lessor or
sublessor of any real or personal property.
6) Any loan agreement, indenture, promissory note,
conditional sales agreement, security agreement, letter of credit
arrangement, guarantee, indemnity, surety, foreign exchange contract,
accommodation or other similar type of agreement.
7) Any written sales agency, sales representation,
distributorship or franchise agreement.
8) Any contract providing for the payment of any cash or
other benefits upon the sale or change of control of DFI or a
substantial portion of its assets.
9) Any joint venture, partnership and other contract
(however named) involving a sharing of profits, losses, costs or
liabilities by any of DFI or its subsidiaries with any other person or
entity.
10) Any contract containing covenants that restrict the
business activity of any of DFI or its subsidiaries or limit the
freedom of any of DFI or its subsidiaries to engage in any line of
business.
11) Any power of attorney that is currently effective and
outstanding.
12) Any contract with any director, officer, shareholder,
employee, or affiliates of any of the foregoing entered into by any of
DFI or its subsidiaries.
13) any other written or unwritten agreement that is
Material to the business of any of DFI or its subsidiaries.
(iii) DFI has delivered to SYSCO, prior to the execution of
this Agreement, complete and correct copies of all DFI Material Contracts not
filed as exhibits to the DFI Filed SEC Documents. Each DFI Material Contract is
valid and binding on DFI (or, to the extent a DFI subsidiary is a party, such
subsidiary) and is in full force and effect, and DFI and each DFI subsidiary
have in all material respects performed all obligations required to be performed
by them to date under each DFI Material Contract, except where such
noncompliance, individually or in the aggregate, would not have a material
adverse effect on DFI. Neither DFI nor any DFI subsidiary knows of, or has
received notice of, any violation or default under (nor, to the knowledge of
DFI, does there exist any condition which with the passage of time or the giving
of notice or both would result in such a violation or default under) any DFI
Material Contract.
(s) Environmental Liability.
(i) To DFI's knowledge after due investigation:
1) All of the real property currently or
formerly owned or leased by DFI or its subsidiaries along with
any other property at which DFI or its subsidiaries have
operated (the "Property") is (or, as to Property formerly
owned or leased, was during the period of such ownership or
lease, and currently is) free of Hazardous Substances (as
defined below) or underground storage tanks.
2) The Property is not and never has been
subject to a release, emission, spill, dislocation or
discharge of any Hazardous Substances.
3) Section 3.01(s) of the DFI Disclosure
Schedule lists any environmental site assessments or similar
reports pertaining to the Property commissioned or controlled
by DFI or in its possession, and copies of same have been
provided to SYSCO.
4) DFI has not caused or permitted, nor is
it aware that any predecessor in interest has caused or
permitted the generation, treatment, handling, production,
storage, disposal, release, refinement, dumping or burying of
any Hazardous Substances, disposal in, on, or under the
Property, nor has DFI caused any of such materials to be
delivered to any other property for dumping, burying or any
other purpose which was not in accordance with the
Environmental Laws (as defined below) in such a manner or to
such a location that has or will cause DFI, SYSCO or the
Surviving Corporation to incur any liability under the
Environmental Laws, including with regard to the handling of
Hazardous Substances, and is not a "notifier" under CERCLA or
"generator" under RCRA.
5) Except as set forth in Section 3.01(s) of
the DFI Disclosure Schedule, any underground storage tank on
the Property currently or formerly used in the operations of
DFI complies with all Environmental Laws.
6) The information which DFI has provided
SYSCO pertaining to the environmental history of the Property
for the period during which the Property has been owned or
used by DFI is true, correct and complete in all material
respects.
(ii) There are no agreements between DFI and any
governmental agency or any private party concerning the Environmental Laws or
relating to Hazardous Substances.
(iii) There are no Environmental Laws applicable to DFI
or the Property that would require DFI to obtain the approval of or provide
notice to any governmental authority which has not been obtained or provided as
a condition to the consummation of the transactions contemplated by this
Agreement.
(iv) DFI has not given, nor, to DFI's knowledge after due
investigation, is it required to give, notice of the presence or detection of
Hazardous Substances pursuant to any of the Environmental Laws, except as
required generally by such laws, nor has DFI received notice that any property
currently or formerly owned or operated by DFI is on any state or federal list
of "Superfund" sites, or any list of inactive hazardous substance sites.
(v) There is no pending or, to DFI's knowledge after due
investigation, threatened claim, litigation or proceeding before any court or
any governmental or administrative body in which any person or entity alleges
the presence, disposal, transportation, arranging for disposal, discharge,
spill, release, or threat of release of any Hazardous Substances at or from the
Property which, if determined adversely, could create liability on the part of
DFI, SYSCO or the Surviving Corporation, nor is DFI aware of any facts or
circumstances that would reasonably lead it to believe that any person or
governmental authority may allege any of the foregoing. To DFI's knowledge after
due investigation, the Property and the business of DFI and its subsidiaries are
and have been in material compliance with all Environmental Laws, and neither
DFI, its subsidiaries nor the Property has incurred any liability thereunder.
(vi) For the purposes of this Agreement, "Hazardous
Substances" shall mean petroleum products, flammable explosives, radioactive
materials, asbestos or any material containing polychlorinated biphenyls and/or
any hazardous, toxic or dangerous waste, substance or any similar item so
defined by and as regulated under Environmental Laws. Excepted from such
definition are those building materials within, or on or a part of structures on
the Property in compliance with the Environmental Laws and Hazardous Substances
typically used in a business such as DFI's, but only to the extent that of such
quantities normally used in such a business, and only to the extent that such
Hazardous Substances have been used, stored and disposed of in accordance with
all Environmental Laws.
(vii) For the purposes of this Agreement, "Environmental
Laws" shall mean all applicable federal, state and local rules, laws, statutes,
ordinances and regulations that govern health, safety and the environment,
including without limitation, the Resource Conservation and Recovery Act of
1976, as amended (42 U.S.C.A. ss.ss. 6901 et seq.) ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act, as amended (42 U.S.C.A.
ss.ss. 9601 et seq.)("CERCLA"), the Emergency Planning and Community
Right-to-Know Act of 1986 (42 U.S.C.A. ss.ss. 11001 et seq.), the Clean Air Act,
as amended (42 U.S.C.A. ss.ss. 7401), the Federal Water Pollution Control Act,
as amended (33 U.S.C.A. ss.ss. 1251 et seq.), the Toxic Substances Control Act
and the Occupational Health & Safety Act of 1970, as amended (29 U.S.C.A. ss.ss.
651 et seq.).
(viii) For the purposes of this Section 3.01(s), "to
DFI's knowledge after due investigation" means that officers of DFI have
reviewed or caused the review of internal files regarding the environmental
condition and compliance with Environmental Laws of the Property or DFI and have
interviewed employees of DFI who are known to such officers to have knowledge
regarding the environmental condition and compliance with Environmental Laws of
the Property or DFI.
(t) Inventory.
The inventory of DFI and its subsidiaries, net of reasonable (in accordance with
past practices of DFI and industry standards) reserves, consists of Salable
inventory of a quality and quantity generally maintained and sold in the
ordinary course of business. For purposes hereof, inventory is "Salable" only if
it (including its packaging) is in the physical condition to be sold to
customers in the ordinary course of business and in accordance with industry
standards and applicable government regulations; provided, however, that
"Salable" inventory does not include
(i) any item whose supplier notifies either SYSCO, Merger Sub
or DFI prior to the Closing that such item may not be distributed by SYSCO or
the Surviving Corporation following Closing,
(ii) any items which are private label products for customers
who immediately prior to the Closing are no longer customers of DFI,
(iii) items which are, pursuant to industry or government
standards, including, without limitations, U.S.D.A. standards, out-of-date (or
perishable product in excess, in days supply, of the normal shelf life of such
product) or
(iv) items of obsolete inventory.
(u) Collective Bargaining Agreements.
Section 3.01(u) of the DFI Disclosure Schedule sets forth a true and complete
list of all labor union contracts covering any current employees of DFI or its
subsidiaries.
(v) Title to and Condition of Assets.
(i) DFI and its subsidiaries have good and marketable title to
all assets used or held for use in its respective business (and a valid and
enforceable leasehold interest in all assets subject to leases, if any) free and
clear of all encumbrances, claims, security interests, liens, charges, or
restrictions of any kind (including those, if any, arising in respect of the
Perishable Agricultural Commodities Act).
(ii) All items of tangible personal property of DFI and its
subsidiaries, including each item of equipment, used in the day-to-day business
of DFI and its subsidiaries are in good working condition, ordinary wear and
tear excepted.
(iii) Section 3.01(v) of the DFI Disclosure Schedule contains
a true and correct listing of all items of machinery, trucks, tractors, trailers
and other vehicles, personal and laptop computers, refrigeration units and other
warehouse and materials handling equipment owned or leased (as denoted thereon)
by DFI or its subsidiaries.
(w) Internet Presence.
Section 3.01(w) of the DFI Disclosure Schedule describes DFI's public, private
or reserved presence on the world wide web, multi-party extranet, virtual
private network, or similar internet based, linked system, if any, ("Internet
Presence"). DFI's domain name(s), if any, are currently registered with the
currently authorized Internet Domain Name Registrar and are in good standing.
DFI warrants that its Internet Presence, if any, is wholly passive and
informational in nature and involves no interactivity between third parties and
DFI including purchases, sales, leases or other commercial transactions
conducted in any degree by or through the Internet Presence.
(x) Year 2000 Compliance.
For the purposes of this Section 3.01(x), "Computer Systems" means all computer
software, hardware, related systems and equipment, and all other devices
containing or utilizing embedded computer chips, which are owned, leased, or
used by DFI or its subsidiaries and which are reasonably necessary for the
performance of the business obligations and operations of DFI and its
subsidiaries. Section 3.01(x) of the DFI Disclosure Schedule summarizes the
actions taken and to be taken by DFI (collectively, the "Y2K Actions") to ensure
that the Computer Systems will function normally before, during, and after the
change from the year 1999 to the year 2000. Subject to the uncertainties set
forth in Section 3.01(x) of the Disclosure Schedule, upon completion of the Y2K
Actions, the Computer Systems will, to DFI's knowledge, process data which
includes date values from, into and between the twentieth (20th) and the
twenty-first (21st) centuries and all uses in any manner of such date values
("Calendar Related Data") with such accuracy so as not to have a material
adverse effect on the day to day operation of DFI's business taken as a whole or
the servicing of its customers in the ordinary course of its business.
(y) Immigration Matters.
(i) With respect to all employees (as defined in Section
274a.1(g) of Title 8, Code of Federal Regulations) of DFI and its subsidiaries,
DFI and its subsidiaries have complied with the Immigration Reform and Control
Act of 1986, as amended, and all regulations promulgated thereunder ("IRCA")
with respect to the completion, maintenance and other documentary requirements
of Forms I-9 (Employment Eligibility Verification Forms) for all current and
former employees and the reverification of the employment status of any and all
employees whose employment authorization documents indicated a limited period of
employment authorization.
(ii) Section 3.01(y) of the DFI Disclosure Schedule contains a
true and complete list of all employees of DFI who are not citizens of the
United States of America and who are not permanent residents of the United
States of America, together with a true and complete list of the visa status and
visa expiration dates of such employee.
(iii) DFI has employed only individuals authorized to work in
the United States, DFI has not received any written notice of any inspection or
investigation relating to its alleged noncompliance with or violation of IRCA,
nor has it been warned, fined, or otherwise penalized by reason of any failure
to comply with IRCA.
(iv) The consummation of the transactions contemplated by this
Agreement will not, (i) give rise to any liability for the failure to properly
complete and update Forms I-9, (ii) give rise to any liability for the
employment of individuals not authorized to work in the United States and (iii)
or cause any current employee to become unauthorized to work in the United
States.
(z) Books and Records; Copies of Documents.
(i) DFI has provided SYSCO with reasonable access to its books
and records. DFI has maintained all books and records in the ordinary course of
its business and has not disposed of or destroyed any books and records other
than in the ordinary course of its business.
(ii) DFI has delivered or made available to SYSCO true and
correct copies of each agreement or other document listed or referred to herein
or in the DFI Disclosure Schedule not previously filed as an exhibit to the DFI
Filed SEC Documents.
(aa) Accounts Receivable.
(i) All of DFI's accounts receivable outstanding at the
date hereof and those arising from and after the date hereof prior to the
Effective Time (collectively, the "Closing Accounts Receivable") are and will be
bona fide, and arose or will arise in the ordinary course of business. No person
has any liens on such Closing Accounts Receivable, or any part thereof, and no
agreement for deduction or discount has been made with respect to any such
accounts receivable which is not reflected in the outstanding balance thereof.
Section 3.01(aa) of the DFI Disclosure Schedule sets forth all receivables of
DFI as of March 31, 1999 and at Closing will set forth all Closing Accounts
Receivable, showing the face amount of each and denoting which such accounts
are, by their terms, past due (the "Past Due Accounts"). All Closing Accounts
Receivable are fully collectible within three years from the Closing Date.
(ii) For purposes of measuring DFI's compliance with the
representation and warranty set forth in clause (i): (A) the measure of DFI's
non-compliance with clause (i) above shall equal the excess of the face amount
of the Closing Accounts Receivable as of the Closing Date over the collections
received by the Surviving Corporation on the Closing Accounts Receivable from
the Closing Date through the third anniversary thereof and applied as provided
in clause (B) immediately following; (B) all collections received by the
Surviving Corporation on Past Due Accounts shall be applied to the latest
invoice of the respective payor account debtor except to the extent otherwise
expressly directed in writing by such account debtor and all collections
received by the Surviving Corporation on the Closing Accounts Receivable which
are not Past Due Accounts shall be applied in accordance with the past practices
of DFI; and (C) SYSCO and the Surviving Corporation shall use their customary
accounts receivable collection practices in respect of the Closing Accounts
Receivable and shall be entitled to make all decisions as to credit-worthiness
of Closing Accounts Receivable account debtors in their sole discretion.
(iii) Following Closing, SYSCO shall control collections of the
Closing Accounts Receivable until the first anniversary of the Closing Date,
from and after which time SYSCO shall, upon request of the Stockholder
Representative, transfer responsibility for such collections to Stockholder
Representative provided that Stockholder Representative agrees at the time of
such request to continue any legal proceedings that may have been initiated
prior thereto in connection with such collections. At any time from and after
the first anniversary of the Closing Date, the Stockholder Representative shall
have the right to buy from SYSCO or the Surviving Corporation any one or more of
the Closing Accounts Receivable for the face amount of its outstanding balance
at the time of such purchase and a Claims Fee as provided in an undisputed or
resolved claim to SYSCO or the Surviving Corporation. Funds for any such
purchase before the second anniversary of the Closing shall be provided from the
Representative's Fund or such other funding arrangements as may be arranged by
and at the discretion of the Stockholder Representative; funds for any such
purchase after the second anniversary of the Closing Date shall be provided from
the Tax and Receivables Escrow Fund.
(iv) SYSCO and the Stockholder Representative shall provide each
other with periodic (no less often than quarterly) reports of the status and
results of the collection activities of each of them with respect to the Closing
Accounts Receivable under their respective control as well as the then-current
outstanding balance of each of such accounts.
(bb) Insurance.
Section 3.01(bb) of the DFI Disclosure Schedule contains a list of all
current policies of insurance, including without limitation, workers
compensation, vehicular, general liability, casualty, medical, dental and
disability, maintained by DFI or any of its subsidiaries. None of such policies
provides for a retroactive adjustment based on DFI's claims experience. True and
complete copies of all such policies have been delivered to SYSCO. Section
3.01(bb) of the DFI Disclosure Schedule includes a list of the policies, the
name of the insurer, the nature of the insurance coverage, the policy limits and
the deductible, all of which policies are in full force and effect and there is
no delinquency in the payment of all applicable premiums thereon.
(cc) Liabilities as Guarantor.
Neither DFI nor any subsidiary is directly or indirectly (i) liable by guaranty,
indemnity, surety or similar obligation upon or with respect to, (ii) obligated
in any way to make investments in or loans to, or (iii) obligated to guarantee
or assume any debt, liability or other obligation of, any person, corporation,
association, partnership or other entity.
(dd) Bank Accounts; Powers of Attorney.
Section 3.01 (dd) of the DFI Disclosure Schedule sets forth a complete and
accurate list of: (i) the name of each financial institution in which DFI has
any account or safe deposit box; (ii) the names in which the accounts or boxes
are held; (iii) the type of account; (iv) the name of each person authorized to
draw thereon or having access thereto; and (v) the name of each person,
corporation, firm or other entity holding a general or special power of attorney
from DFI and a description of the terms of such power.
(ee) Unlawful Payments
Neither DFI nor to the knowledge of DFI any director, officer, agent, employee,
or other person associated with or acting on behalf of DFI has, directly or
indirectly
(i) used any corporate funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political activity;
(ii) made any unlawful payment to domestic or foreign
government officials or employees, or to domestic or foreign political parties
or campaigns, from corporate funds;
(iii) violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended; (iv) established or maintained any unlawful or
unrecorded fund of corporate monies or other assets;
(v) made any false or fictitious entry on the books or records
of DFI;
(vi) made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment;
(vii) given any favor or gift which is not deductible for
federal income tax purposes; or
(viii) made any bribe, kickback or other payment of a similar
or comparable nature, whether lawful or not, to any person or entity, private or
public, regardless of form, whether in money, property, or services, to obtain
favorable treatment in securing business or to obtain special concessions, or to
pay for favorable treatment for business secured or for special concessions
already obtained.
(ff) Labor and Employment Matters
(i) DFI has been and is in compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including without limitation any such laws
respecting employment discrimination, workers' compensation, family and medical
leave, the non-compliance with which would have a material adverse effect and
occupational safety and health requirements, and has not and is not engaged in
any unfair labor practice that would have a material adverse effect;
(ii) there is not now, nor within the past three years has
there been, any unfair labor practice complaint against DFI pending, or to DFI's
knowledge threatened, before the National Labor Relations Board or any other
comparable authority;
(iii) there is not now, nor within the past three (3) years
has there been, any labor strike, slowdown or stoppage actually pending, or to
DFI's knowledge threatened, against or directly affecting DFI;
(iv) to DFI's knowledge, no labor representation organization
effort exists nor has there been any such activity within the past three years;
and
(v) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and, to DFI's knowledge, no
claims therefor exist or have been threatened.
(gg) Closing Adjusted Net Worth.
The Closing Adjusted Net Worth of DFI, determined as provided in
Section 2.01(g)(ii), will equal or exceed the Net Worth of DFI as reflected on
the audited consolidated balance sheet of DFI as of December 26, 1998, contained
in the Financial Statements.
(hh) No Dissenters' Rights.
Neither the execution and delivery hereof by the parties hereto nor the
consummation of the transactions contemplated hereby will give rise to any
dissenters' rights under the VSCA.
Section 3.02 Representations and Warranties of SYSCO and Merger Sub.
SYSCO and Merger Sub jointly and severally represent and warrant to DFI as
follows:
(a) Organization, Standing and Corporate Power.
(i) Each of SYSCO and its subsidiaries is a corporation or
other legal entity duly organized, validly existing and (with respect to
jurisdictions which recognize such concept) in good standing under the laws of
the jurisdiction in which it is organized and has the requisite corporate or
other power, as the case maybe, and authority to carry on its business as now
being conducted, except, as to subsidiaries, for those jurisdictions where the
failure to be so organized, existing or in good standing individually or in the
aggregate would not have a material adverse effect on SYSCO.
(ii) SYSCO has delivered to DFI prior to the execution of this
Agreement complete and correct copies of any amendments to its certificate of
incorporation (the "SYSCO Certificate") and bylaws not filed as of the date
hereof with the SYSCO SEC Documents.
(b) Capital Structure.
The authorized capital stock of SYSCO consists of 500,000,000 shares of SYSCO
Common Stock and 1,500,000 shares of preferred stock, par value $1.00 per share
("SYSCO Preferred Stock"), and shares of SYSCO Common Stock issued and
outstanding (including shares of restricted SYSCO Common Stock) and held by
SYSCO in its treasury are as disclosed in the appropriate SYSCO SEC Documents;
no shares of SYSCO Preferred Stock are issued and outstanding. Other than the
SYSCO subsidiaries, SYSCO does not directly or indirectly beneficially own any
securities or other beneficial ownership interests in any other entity except
for non-controlling investments made in the ordinary course of business in
entities which are not individually or in the aggregate material to SYSCO and
its subsidiaries as a whole.
(c) Authority; Non-contravention
Each of SYSCO and Merger Sub has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by each of SYSCO and Merger
Sub and the consummation by SYSCO and Merger Sub of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of SYSCO and Merger Sub. This Agreement has been duly executed and
delivered by SYSCO and Merger Sub and, assuming the due authorization, execution
and delivery thereof by DFI, constitute (or will constitute, as the case may be)
the legal, valid and binding obligation of SYSCO and Merger Sub enforceable
against SYSCO and Merger Sub in accordance with its terms. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby and compliance with the provisions of this Agreement will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, (i) the SYSCO Certificate or the bylaws
of SYSCO or the comparable organizational documents of any of its subsidiaries,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, trust
document, lease or other agreement, instrument, permit, concession, franchise,
license or similar authorization applicable to SYSCO or any of its subsidiaries
or their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to SYSCO
or any of its subsidiaries or their respective properties or assets. No consent,
approval, order or authorization of, action by, or in respect of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to SYSCO or any of its subsidiaries in connection with the
execution and delivery of this Agreement by SYSCO and Merger Sub or the
consummation by SYSCO or Merger Sub of the transactions contemplated hereby,
except for (1) the filing of a pre-merger notification and report form by SYSCO
under the HSR Act; (2) the filing with the SEC of (A) the Form S-4 and (B) such
reports under Section13(a), 13(d), 15(d) or 16(a) of the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated
hereby; (3) the filing of the Certificate of Merger with the Secretary of State
of Delaware and the Virginia State Corporation Commission and appropriate
documents with the relevant authorities of other states in which SYSCO is
qualified to do business and such filings with Governmental Entities to satisfy
the applicable requirements of state securities or "blue sky" laws; (4) such
filings with and approvals of the NYSE to permit the shares of SYSCO Common
Stock that are to be issued in the Merger to be listed on the NYSE; and (5) such
consents, approvals, orders or authorizations the failure of which to be made or
obtained individually or in the aggregate would not (x) have a material adverse
effect on SYSCO or (y) reasonably be expected to impair the ability of SYSCO or
Merger Sub to perform its obligations under this Agreement.
(d) SEC Documents; Undisclosed Liabilities.
SYSCO has filed all registration statements, prospectuses, reports, schedules,
forms, statements and other documents (including exhibits and all other
information incorporated therein) required to be filed with the SEC since
December 31, 1996 (the "SYSCO SEC Documents"). As of their respective dates, the
SYSCO SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SYSCO SEC
Documents, and none of the SYSCO SEC Documents when filed contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(e) Information Supplied.
None of the information supplied or to be supplied by SYSCO specifically for
inclusion or incorporation by reference in (i) the Form S-4 will, at the time
the Form S-4 becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) the Proxy Statement will, at the date it is first mailed to DFI's
stockholders or at the time of the DFI Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Form S-4 will
comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations thereunder, except that no
representation or warranty is made by SYSCO with respect to statements made or
incorporated by reference therein based on information supplied by DFI
specifically for inclusion or incorporation by reference in the Form S-4.
(f) Brokers.
No broker, investment banker, financial advisor or other person, the fees and
expenses of which will be paid by SYSCO, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of SYSCO.
(g) Continuity of Business.
SYSCO will continue at least one significant historic business line of DFI, will
use at least a significant portion of DFI's historic business assets in a
business, and will otherwise satisfy the continuity of business enterprise
requirement set forth within Treasury Regulations ss.1.368-1(d).
Article IV Covenants Relating to Conduct of Business
Section 4.01 Conduct of Business.
(a) Conduct of Business by DFI.
(i) Except (A) as otherwise expressly contemplated by
this Agreement or the transactions contemplated hereby, or (B) as expressly
consented to by SYSCO in writing, such consent not to be unreasonably withheld
or delayed, during the period from the date of this Agreement to the Effective
Time,
1) DFI shall, and shall cause its subsidiaries to, carry
on their respective businesses in the ordinary course consistent with
past practice and in compliance in all material respects with all
applicable laws and regulations, and, to the extent consistent
therewith, use good faith reasonable efforts to preserve intact their
current business organizations,
2) except as may be required by law or any plan, program,
contract or arrangement in effect on the date of this Agreement, during
the period from the date of this Agreement to the Effective Time, DFI
shall not, and shall not permit any of its subsidiaries to, (A) grant
to any current or former director, officer, any regional vice president
or president of any division of DFI or its subsidiaries any increase in
compensation, bonus or other benefits, except as required by employment
agreements in effect as of the date hereof; (B) grant to any such
current or former director, officer, any regional vice president or
president of any division any increase in severance or termination pay;
or (C) enter into, or amend, any employment, deferred compensation,
consulting, severance, termination or indemnification agreement with
any such current or former director, officer, regional vice president
or president of any division, or
3) except as may be required by law or any plan, program,
contract or arrangement in effect on the date of this Agreement, during
the period from the date hereof through the Effective Time, DFI shall
not, and shall not permit any of its subsidiaries to adopt or amend
(and to DFI's knowledge since December 26, 1998, DFI has not and has
not permitted any of its subsidiaries to, adopt or amend) any
collective bargaining agreement (other than renegotiations required by
any such collective bargaining agreement), or other DFI Benefit Plans,
in any manner. Anything in this Section 4.01(a) to the contrary
notwithstanding, DFI and any DFI subsidiary shall not be deemed in
violation of this Section 4.01(a) if such violation is cured to the
satisfaction of SYSCO prior to the Effective Time.
(ii) Without limiting the generality of the foregoing
(but subject to the above exceptions), during the period from the date of this
Agreement to the Effective Time, DFI shall not, and shall not permit any of its
subsidiaries to:
1) other than dividends and distributions declared by a
direct or indirect wholly owned subsidiary of DFI to its parent, or
declared by a subsidiary that is partially owned by DFI or any of its
subsidiaries, provided that DFI or any such subsidiary receives or is
to receive its proportionate share thereof, or regular quarterly
dividends not to exceed $.03 per share, (x) declare, set aside or pay
any dividends on, make any other distributions in respect of, or enter
into any agreement with respect to the voting of, any of its capital
stock, (y) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, except
for issuances of DFI Common Stock upon the exercise of DFI Employee
Stock Options, outstanding as of the date hereof in accordance with
their present terms (including cashless exercise) or (z) purchase,
redeem or otherwise acquire any shares of capital stock of DFI or any
of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities
(except, in the case of clause (z), for the deemed acceptance of shares
upon cashless exercise of DFI Employee Stock Options outstanding on the
date hereof, or in connection with withholding obligations relating
thereto);
2) issue, deliver, sell, pledge or otherwise encumber or
subject to any Lien any shares of its capital stock, any other voting
securities or any securities convertible into, or any rights, warrants
or options to acquire, any such shares, voting securities or
convertible securities.
3) amend its articles of incorporation, by-laws or other
comparable organizational documents;
4) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any person, or,
except for transactions in the ordinary course of business consistent
with past practice pursuant to contracts or agreements in force at the
date of this Agreement or pursuant to DFI's current capital and
operating budgets (in each case, as previously provided to SYSCO), make
any investment either by purchase of stock or securities, contributions
to capital, property transfers, or purchase of any property or assets
of any other individual, corporation or other entity other than a
subsidiary of DFI;
5) sell, lease, license, mortgage or otherwise encumber
or subject to any Lien or otherwise dispose of any of its properties or
assets (including securitizations), other than in the ordinary course
of business consistent with past practice;
6) make any tax election that individually or in the
aggregate would have a material adverse effect on DFI or any of its tax
attributes or settle or compromise any income tax liability;
7) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for the obligations of any person for
borrowed money, other than pursuant to a revolving credit facility or
receivables facility in effect as of the date hereof, in the ordinary
course of business consistent with past practice;
8) settle any claim, action or proceeding involving money
damages in excess of $10,000, except with the prior written consent of
SYSCO, which shall not be unreasonably withheld;
9) enter into or terminate any material contract or
agreement, or make any change in any of its material leases or
contracts, other than amendments or renewals of contracts and leases
without material adverse changes of terms; or
10) authorize, or commit or agree to take, any of the
foregoing actions;
11) provided that the limitations set forth in this
Section 4.01(a)(ii) (other than clause 3)) shall not apply to any
transaction between DFI and any wholly owned subsidiary or between any
wholly owned subsidiaries of DFI.
(b) Other Actions.
Except as required by law, DFI and SYSCO shall not, and shall not permit any of
their respective subsidiaries to, voluntarily take any action that would, or
that could reasonably be expected to, result in(i) any of the representations
and warranties of such party set forth in this Agreement that are qualified as
to materiality becoming untrue at the Effective Time, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect at the Effective Time, or (iii) any of the conditions to the
Merger set forth in Article VI not being satisfied.
(c) Advice of Changes .
DFI and SYSCO shall promptly advise the other party orally and in writing to the
extent it has knowledge of (i) any representation or warranty made by it
contained in this Agreement that is qualified as to materiality becoming untrue
or inaccurate in any respect or any such representation or warranty that is not
so qualified becoming untrue or inaccurate in any material respect, (ii) the
failure by it to comply in any material respect with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement and (iii) any change or event having, or which, insofar
as can reasonably be foreseen, could reasonably be expected to have a material
adverse effect on such party or on the truth of such party's representations and
warranties or the ability of the conditions set forth in Article VI to be
satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties (or remedies
with respect thereto) or the conditions to the obligations of the parties under
this Agreement.
Section 4.02 No Solicitation or Negotiations.
DFI shall not, directly or indirectly, solicit or encourage (including by way of
furnishing information), or authorize any individual, corporation or other
entity to solicit or encourage (including by way of furnishing information),
from any third party any inquiries or proposals relating to, or conduct
negotiations or discussions with any third party with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes, or that may reasonably be expected to lead to, any proposal or
offer relating to the disposition of its business or assets, or the acquisition
of its voting securities, or the merger or consolidation of it or any of its
subsidiaries with or into any corporation or other entity other than as provided
in this Agreement (and DFI shall promptly notify SYSCO of all of the relevant
details relating to all inquiries and proposals which it may receive relating to
any such matters). Nothing contained in this Section 4.02 or Section 5.01 shall
prohibit DFI from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act.
Article V
Additional Agreements
Section 5.01 S-4 and Proxy Statement
As soon as practicable following the date of this Agreement, DFI shall prepare
and file with the SEC the Proxy Statement, and SYSCO shall prepare and file with
the SEC the Form S-4, in which the Proxy Statement will be included as a
prospectus. Each of DFI and SYSCO shall use reasonable good faith efforts to
have the Form S-4 declared effective under the Securities Act as promptly as
practicable after such filing. DFI will use best efforts to cause the Proxy
Statement to be mailed to DFI's stockholders as promptly as practicable after
the Form S-4 is declared effective under the Securities Act. SYSCO shall also
take any action (other than qualifying to do business in any jurisdiction in
which it is not now so qualified or to file a general consent to service of
process) required to be taken under any applicable state securities laws in
connection with the issuance of SYSCO Common Stock in the Merger and DFI shall
furnish all information concerning DFI and the holders of DFI Common Stock as
may be reasonably requested in connection with any such action. No filing of, or
amendment or supplement to, the Form S-4 will be made by SYSCO without DFI's
prior consent (which shall not be unreasonably withheld or delayed) and without
providing DFI the opportunity to review and comment thereon. SYSCO will advise
DFI, promptly after it receives notice thereof, of the time when the Form S-4
has become effective or any supplement or amendment has been filed, the issuance
of any stop order, the suspension of the qualification of the SYSCO Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or any request by the SEC for amendment of the Form S-4 or comments thereon and
responses thereto or requests by the SEC for additional information. If at any
time prior to the Effective Time any information relating to DFI or SYSCO, or
any of their respective affiliates, officers or directors, should be discovered
by DFI or SYSCO which should be set forth in an amendment or supplement to
either the Form S-4 or the Proxy Statement, so that either of such documents
would not include any misstatement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other parties hereto and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of DFI.
Section 5.02 DFI Stockholders Meeting.
DFI shall, as promptly as practicable after the Form S-4 is declared effective
under the Securities Act, duly call, give notice of, convene and hold a meeting
of its stockholders (the "DFI Stockholders Meeting") in accordance with the VSCA
for the purpose of obtaining the DFI Stockholder Approval and shall, through its
Board of Directors, recommend to its stockholders the approval and adoption of
this Agreement, the Merger and the other transactions contemplated hereby. DFI
will use reasonable good faith efforts to hold the DFI Stockholders Meeting as
soon as reasonably practicable after the date hereof.
Section 5.03 Letters of DFI's Accountants.
DFI shall use reasonable good faith efforts to cause to be delivered to SYSCO
two letters from DFI's independent accountants, one dated a date within two
business days before the date on which the Form S-4 shall become effective and
one dated a date within two business days before the Closing Date, each
addressed to SYSCO, in form and substance reasonably satisfactory to SYSCO and
customary in scope and substance for comfort letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.
Section 5.04 Letters of SYSCO's Accountants.
SYSCO shall use best efforts to cause to be delivered to DFI two letters from
SYSCO's independent accountants, one dated a date within two business days
before the date on which the Form S-4 shall become effective and one dated a
date within two business days before the Closing Date, each addressed to DFI, in
form and substance reasonably satisfactory to DFI and customary in scope and
substance for comfort letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
Section 5.05 Access to Information; Confidentiality.
From and after the date hereof through the earlier of the Effective Time or the
date of termination hereof, SYSCO and its officers, employees, accountants,
counsel and other representatives may perform a continuing due diligence review
of DFI and its subsidiaries, which review may include full Phase I and Phase II
environmental investigations by an independent environmental engineering and
consulting firm. Subject to the Confidentiality Agreement dated November 17,
1998 between SYSCO and DFI (the "Confidentiality Agreement"), and subject to
applicable law, DFI shall, and shall cause each of its subsidiaries to, afford
to SYSCO and to the officers, employees, accountants, counsel, financial
advisors and other representatives of SYSCO, reasonable access during normal
business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records
(provided that such access shall not interfere with the business or operations
of such party) and, during such period, DFI shall, and shall cause each of its
subsidiaries to, furnish promptly to SYSCO (a) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (b) all
other information concerning its business, properties and personnel as such
other party may reasonably request. No review pursuant to this Section 5.05
shall affect any representation or warranty given by DFI. SYSCO will hold, and
will cause its officers, employees, accountants, counsel, financial advisors and
other representatives and affiliates to hold, any nonpublic information in
accordance with the terms of the Confidentiality Agreement.
Section 5.06 Reasonable Good Faith Efforts
(i) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use reasonable good faith efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including (A) the obtaining of all necessary actions or non-actions,
waivers, consents and approvals from Governmental Entities and the making of all
necessary registrations and filings and the taking of all steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (B) the obtaining of all necessary
consents, approvals or waivers, and any necessary or appropriate financing
arrangements, from third parties, (C) the defending of any lawsuits or other
legal proceedings, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated by this
Agreement, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed, and (D)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by, and to fully carry out the purposes of, this
Agreement.
(ii) In connection with and without limiting the foregoing,
DFI and SYSCO shall (A) take all action necessary to ensure that no state
takeover statute or similar statute or regulation is or becomes applicable to
this Agreement or any of the transactions contemplated hereby and (B) if any
state takeover statute or similar statute or regulation becomes applicable to
such agreements or transactions, take all action necessary to ensure that such
transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
statute or regulation on the Merger and the other transactions contemplated by
this Agreement.
Section 5.07 Employment Arrangements and Benefits.
For the purpose of any DFI Benefit Plan or other agreement that contains a
provision relating to a change in control of DFI and that is disclosed as such
on Section 5.07 of the DFI Disclosure Schedule, SYSCO acknowledges that the
consummation of the Merger constitutes such a change in control. DFI and SYSCO
will cooperate on and after the date of this Agreement to develop appropriate
employee benefit arrangements, including, but not limited to, executive and
incentive compensation, stock option and supplemental executive retirement
plans, for employees and directors of the Surviving Corporation and its
subsidiaries from and after the Effective Time. Nothing in this Section 5.07
shall be interpreted as preventing the Surviving Corporation from amending,
modifying or terminating any DFI Benefit Plans, or other contracts,
arrangements, commitments or understandings, in accordance with their terms and
applicable law, or be deemed to constitute an employment contract between SYSCO
or the Surviving Corporation and any individual, or a waiver of SYSCO's or the
Surviving Corporation's right to discharge any employee at any time, with or
without cause. Any employees of DFI as of Closing shall be given credit, under
and in accordance with applicable employee benefit plans of SYSCO, toward
eligibility and vesting but not benefit accrual for the period of time prior to
Closing during which such persons were employees of DFI if such period of time
would otherwise qualify for eligibility and vesting under SYSCO's plans. SYSCO
will not waive pre-existing conditions limitations in any of its applicable
employee welfare benefit plans for employees of DFI as of Closing but will
recognize service with DFI in meeting the pre-existing conditions limitations of
SYSCO's employee welfare benefit plans.
Section 5.08 Director and Officer Indemnification, Exculpation, and
Insurance.
(i) SYSCO agrees to maintain in effect in accordance with
their terms all rights to indemnification and exculpation from liabilities for
acts or omissions occurring at or prior to the Effective Time existing as of the
date of this Agreement in favor of the current or former directors or officers
of DFI and its subsidiaries. The certificate of incorporation and bylaws of the
Surviving Corporation shall contain the provisions (and the Surviving
Corporation's Certification of Incorporation and bylaws may be amended to
incorporate such provisions) with respect to indemnification that are set forth
in the articles of incorporation and bylaws of DFI (in each case in effect as of
the Effective Time and as provided to SYSCO prior to such date), which
provisions shall not be amended, repealed or otherwise modified, except as
required by law, for a period of six years from the Effective Time in any manner
that would affect adversely the rights thereunder of individuals who at (or at
any time prior to) the Effective Time were directors or officers of DFI or its
subsidiaries (or any of its predecessors). In addition, from and after the
Effective Time, directors and officers of DFI, if any, who become directors or
officers of SYSCO will be entitled to the same indemnity rights and protections,
and directors' and officers' liability insurance, as are afforded from time to
time to other directors and officers of SYSCO.
(ii) In the event that SYSCO, the Surviving Corporation or
any of their respective successors or assigns (A) consolidates with or merges
into any other person and is not the continuing or surviving corporation or
entity of such consolidation or merger or (B) transfers or conveys all or
substantially all of its properties and assets to any person, then, and in each
such case, proper provision will be made so that the successors and assigns of
SYSCO or the Surviving Corporation (as the case may be) assume the obligations
set forth in this Section 5.08.
(iii) SYSCO shall use its reasonable good faith efforts to
provide to DFI's current directors and officers, for six years after the
Effective Time, liability insurance covering acts or omissions occurring prior
to the Effective Time with respect to those persons who are currently covered by
DFI's directors' and officers' liability insurance policy on terms with respect
to such coverage and amount no less favorable than those of such policy in
effect on the date hereof, provided that in no event shall SYSCO be required to
expend more than 200% of the current amount expended by DFI to maintain such
coverage.
(iv) The provisions of this Section 5.08 are intended to be
for the benefit of, and will be enforceable by, each indemnified party, his or
her heirs and his or her representatives and are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
(v) Without limiting the generality of the foregoing, the
provisions of this Section 5.08 shall apply to any litigation, action, suit,
claim, investigation or proceeding described in the DFI Disclosure Schedule.
Section 5.09 Fees and Expenses.
All fees and expenses incurred in connection with the Merger, this Agreement,
and the transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated,
except (x) to the extent set forth in Section 7.05 hereof and (y) that each of
SYSCO and DFI shall bear and pay one- half of the costs and expenses incurred in
connection with (1) the filing, printing and mailing of the Form S-4 and the
Proxy Statement (including SEC filing fees) and (2) the filings of the
pre-merger notification and report forms under the HSR Act (including filing
fees).
Section 5.10 Public Announcements.
SYSCO and DFI will consult with each other before issuing, and provide each
other the opportunity to review, comment upon and concur with, and use
reasonable efforts to agree on, any press release or other public statements
with respect to the transactions contemplated by this Agreement, including the
Merger, and shall not issue any such press release or make any such public
statement prior to such consultation, except as either party may determine is
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange or stock market. The
parties agree that the initial press release issued with respect to the
transactions contemplated by this Agreement was in the form heretofore agreed to
by the parties.
Section 5.11 Affiliates.
As soon as practicable after the date hereof, DFI shall deliver to SYSCO a
letter identifying all persons who may be deemed to be, at the time this
Agreement is submitted for adoption by the stockholders of DFI, "affiliates" of
DFI for purposes of Rule 145 under the Securities Act, and such list shall be
updated as necessary to reflect changes from the date hereof. DFI shall use
reasonable good faith efforts to cause each person identified on such list to
deliver to SYSCO not less than 30 days prior to the Effective Time, a written
agreement substantially in the form attached as Exhibit D hereto.
Section 5.12 NYSE Listing.
SYSCO shall use best efforts to cause the SYSCO Common Stock issuable under
Article II to be approved for listing on the NYSE, subject to official notice of
issuance, as promptly as practicable after the date hereof, and in any event
prior to the Closing Date.
Section 5.13 Tax Treatment.
Each of SYSCO and DFI shall use reasonable good faith efforts to cause the
Merger to qualify as a reorganization under the provisions of Section 368 of the
Code and to obtain the opinions of counsel referred to in Section 6.01(g). The
parties will characterize the Merger as such a reorganization for purposes of
all tax returns and other filings.
Section 5.14 Standstill Agreements; Confidentiality Agreements.
During the period from the date of this Agreement through the Effective Time,
except as SYSCO and DFI otherwise mutually agree pursuant to a written
instrument, DFI shall not terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its subsidiaries
is a party. Except as SYSCO and DFI otherwise mutually agree pursuant to a
written instrument, during such period, DFI shall enforce, to the fullest extent
permitted under applicable law, the provisions of any such agreement, including
by obtaining injunctions to prevent any breaches of such agreements and to
enforce specifically the terms and provisions thereof in any court of the United
States of America or of any state having jurisdiction.
Section 5.15 Conveyance Taxes.
SYSCO and DFI shall cooperate in the preparation, execution and filing of all
returns, questionnaires, applications or other documents regarding any real
property transfer or gains, sales, use, transfer, value added, stock transfer
and stamp taxes, any transfer, recording, registration and other fees or any
similar taxes which become payable in connection with the transactions
contemplated by this Agreement that are required or permitted to be filed on or
before the Effective Time.
Section 5.16 Certain Tax Matters.
(a) Tax Returns.
SYSCO will cause to be prepared and filed all Tax returns for DFI and its
subsidiaries (the "DFI Group"). The Tax returns shall be prepared in a manner
consistent with the Tax returns previously filed by the DFI Group and shall be
filed by the due date of such returns (taking into account any extensions). All
Taxes due and payable by the DFI Group shall be paid by the Surviving
Corporation, and SYSCO shall allow the Stockholder Representative or his
designee a reasonable period of time to review and comment on each such Tax
return prior to filing. SYSCO shall make such revisions to such Tax returns as
are reasonably requested by the Stockholder Representative or its designee that
are consistent with DFI's past practice and that in the reasonable judgment of
counsel to SYSCO will not result in the imposition of any penalty as a result of
taking such position. If the amount of Taxes paid by the Surviving Corporation
exceeds the amounts specifically accrued as such on the Closing Balance Sheet,
the amount of such excess shall be released from the Escrow Fund and paid to
SYSCO as provided in the Escrow Agreement, subject, however, to the limitations
provided in Section 2.04 of this Agreement.
(b) Tax Audits.
Tax audits for any period ending on or prior to the Closing Date shall be
treated as third party claims pursuant to Section 2.04(f) provided that with
respect to any audits of DFI for income Taxes, including the federal income Tax
audit currently pending, the Stockholder Representative will keep SYSCO informed
on a current basis of all communications from the Internal Revenue Service and
of any meetings and communications with the Internal Revenue Service so that
SYSCO will have a full opportunity to participate in the process through its
counsel as provided in Section 2.04(f)(ii).
Section 5.17 Stockholder Representative.
(a) Appointment; Authority
If the Merger is approved by the DFI Stockholders, the DFI Stockholders and the
DFI Optionholders shall, without any further action on the part of any DFI
Stockholders, be deemed to have consented to the appointment of Vernon W. Mules
(or at his election, a limited liability company formed and which shall be
wholly-owned by him during the term of the Escrow Agreement) as their
representative (the "Stockholders' Representative"), as the attorney-in-fact for
and on behalf of each DFI Stockholder, and the Stockholders' Representative
shall be authorized thereby to take any and all actions and make any decisions
required or permitted to be taken by him under this Agreement or the Escrow
Agreement in connection with the consummation of the transactions contemplated
herein and therein, including, without limitation, the exercise of the power to
(i) execute the Escrow Agreement, (ii) receive or give any notice on behalf of
DFI Stockholders pursuant to this Agreement or the Escrow Agreement, (iii)
authorize delivery to SYSCO or the Surviving Corporation of the Escrow Fund, or
any portion thereof, in satisfaction of claims as provided in Section 2.04 and
Section 5.19 of this Agreement and the Escrow Agreement, (iv) agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
claims, (v) to vote the Escrow Shares as provided in the Escrow Agreement, (vi)
resolve any claims and (vii) take all actions necessary in the judgment of the
Stockholders' Representative for the accomplishment of the foregoing and all of
the other terms, conditions and limitations of this Agreement and the Escrow
Agreement. Each of the DFI Stockholders and the DFI Optionholders will be bound
by all actions taken by the Stockholders' Representative in connection with this
Agreement and the Escrow Agreement; SYSCO, the Surviving Corporation and the
Escrow Agent shall be entitled to rely on any action or decision of the
Stockholders' Representative evidenced by a written document executed by the
Stockholders' Representative as the action or decision of each of the DFI
Stockholders and the DFI Optionholders and SYSCO and the Surviving Corporation
shall be held harmless from and indemnified out of the Escrow Fund against any
claim of any DFI Stockholder in respect of this Section 5.17.
(b) No Liability; Indemnification
(i) The Stockholders' Representative (in his capacity as
Stockholders' Representative and not as DFI Stockholder) shall not be liable
with respect to any action taken or suffered by him in reliance upon any notice,
direction, instruction, consent, statement or other document believed by him to
be genuine and to have been signed by the proper person (and shall have no
responsibility to determine the authenticity thereof), nor for any other action
or inaction, except his own willful misconduct or gross negligence. In all
questions arising under this Agreement or the Escrow Agreement, the
Stockholders' Representative may rely on the advice of counsel, and for anything
done, omitted or suffered in good faith by the Stockholders' Representative
based on such advice, the Stockholders' Representative shall not be liable to
anyone.
(ii) By approval of the Merger, the DFI Stockholders and
DFI Optionholders shall be deemed to have agreed, jointly and severally, to
indemnify the Stockholders' Representative (but only to the extent funds are
available in the Escrow Fund after satisfaction of all claims made by SYSCO or
the Surviving Corporation) from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Stockholders' Representative by SYSCO
or the Surviving Corporation, DFI, other DFI Stockholders, DFI Optionholders or
any other person in connection with this Agreement or the Escrow Agreement.
(c) Appointment of Successors.
The Stockholders' Representative may be changed by the DFI Stockholders from
time to time upon not less than 30 days' prior written notice to SYSCO or the
Surviving Corporation and the Escrow Agent, if the holders of at least a
majority in interest of the Escrow Fund agree to such removal and to the
identity of the substituted agent. In the event that the Stockholders'
Representative dies, becomes unable to perform his or her responsibilities
hereunder or resigns from such position, the DFI Stockholders holding, prior to
Closing, a majority in interest of the Escrow Fund shall select another
representative to fill such vacancy and such substituted representative shall be
deemed to be the Stockholders' Representative for all purposes of this Agreement
and the documents delivered pursuant hereto. No provision of this Agreement
shall restrict in any way the ability or right of the Stockholders'
Representative to voluntarily resign from such position at any time, and any
such resignation shall be done without any liability on the part of the
Stockholders' Representative.
(d) Representative's Fund.
Approval of the Merger by the DFI Stockholders shall also be deemed to be
approval of the establishment of a fund (the "Representative's Fund") to
compensate the Stockholders' Representative for his services hereunder and to
pay all expenses and fees incurred by or on behalf of the Stockholders'
Representative in connection with the performance of his duties hereunder,
including without limitation, the cost of suitable insurance coverage for the
Stockholders' Representative and the fees and costs of attorneys, financial
consultants, and other experts consulted by the Stockholders' Representative
pursuant to his duties hereunder. The Representative's Fund shall be funded from
the Merger Consideration by reducing the Merger Consideration otherwise payable
to each DFI Stockholder and DFI Optionholder by twenty cents ($ .20) per share
of DFI Common Stock exchanged pursuant to the Merger and transfer at Closing of
the Representative's Fund to, or as directed in writing by, the Stockholder
Representative. Upon the completion of the duties of the Stockholders'
Representative hereunder and satisfaction or final resolution of all claims
against the Escrow Fund and satisfaction of all compensation, fees, expenses,
and other obligations to be paid out of the Representative's Fund, any funds
remaining in the Representative's Fund shall be distributed to the DFI
Stockholders and the DFI Optionholders in the same proportion as initially
withheld.
(e) Compensation; Fees and Expenses.
(i) No fidelity bond shall be required of the Stockholders'
Representative, and the Stockholders' Representative shall receive compensation
for his or her services in the amount of $50,000 per annum, payable monthly.
(ii) All fees and expenses incurred by the Stockholders'
Representative in carrying out his functions under this Agreement shall be paid
(A) from the Representative's Fund, and if the Representative's Fund becomes
exhausted, (B) from amounts, remaining in the Escrow Fund after satisfaction of
all claims of SYSCO or the Surviving Corporation against the Escrow Fund. Upon
application by the Stockholders' Representative to the Escrow Agent and SYSCO
prior to the satisfaction of all claims of SYSCO or the Surviving Corporation
against the Escrow Fund, SYSCO may in its sole and absolute discretion authorize
the Escrow Agent to release a portion of the Escrow Fund to the Stockholders'
Representative in reimbursement of fees and expenses incurred prior to such
time. It is the intent of the parties hereto that such funds be released only
if, and only to the extent that, at the time of the application by the
Stockholders' Representative, SYSCO determines in its sole and absolute
discretion that the Escrow Fund is more than adequate to provide such funds to
the Stockholder Representative after full payment of all claims then made,
pending, or threatened against the Escrow Fund.
(iii) If the Representative's Fund has been exhausted and
immediate funds are not available from the Escrow Fund, the Stockholder's
Representative shall not be required to take any further action hereunder but
shall be permitted, in his discretion, to borrow from any person or commercial
lender of his choice, and on terms as negotiated by and at the discretion of the
Stockholder Representative, funds in an amount sufficient to cover the
anticipated expenses associated with any necessary or appropriate act hereunder.
The repayment of any such loans from the Escrow Fund shall be at the discretion
of SYSCO until the final disbursement of the Escrow Fund has occurred as
provided in the Escrow Agreement, shall be subordinate to claims of SYSCO and
the Surviving Corporation against the Escrow Fund and shall have priority over
any distributions to the DFI Stockholders and the DFI Optionholders under
Section 2.04.
(f) Reports; Audits
(i) The Stockholders' Representative shall issue periodic
reports to the DFI Stockholders no less than once every twelve months beginning
fourteen months after the Closing Date, in which the Stockholders'
Representative shall summarize the status of the Escrow Fund, any claims filed
against the Escrow Fund, disbursements from the Representative's Fund, and any
other matters deemed by the Stockholders' Representative to be material to the
DFI Stockholders in connection with the Escrow Fund.
(ii) Upon the written request of holders of more than ten
percent (10%) in interest of the former DFI Stockholders, the accounts and
records of the Stockholders' Representative with respect to his duties and
performance hereunder shall be audited at the expense of the DFI Stockholders by
PricewaterhouseCoopers for an evaluation of compliance with the terms of this
Agreement and the Escrow Agreement.
(g) Acceptance
The Stockholder Representative has executed this Agreement as acknowledgment and
acceptance of the provisions of this Section 5.17.
Section 5.18 Non-Competition Agreements.
DFI shall use its reasonable good faith efforts to cause Mules to execute and
deliver at Closing a three (3) year (from the Effective Time) covenant not to
compete substantially in the form of Exhibit E attached hereto and to cause
Houfek to execute and deliver at Closing a two (2) year (from the Effective
Time) covenant not to compete substantially in the form of Exhibit E-2 attached
hereto (which Exhibit E-2 provides that the restrictions contained therein shall
lapse in the event that during such two-year period Houfek's employment with the
Surviving Corporation is terminated by the Surviving Corporation other than for
cause as provided therein)
Section 5.19 Sale/Leaseback.
(i) DFI shall use its reasonable good faith efforts prior
to Closing, and the Stockholder Representative shall use his reasonable good
faith efforts following Closing (with the reasonable cooperation of SYSCO) to
bring about a sale of the warehouse and associated realty (other than the Annex
Property (as hereinafter defined)) currently owned by DFI located in Portsmouth,
Virginia (the "Facility"), and the lease of the Facility back to the Surviving
Corporation substantially in accordance with the terms contained in the
sale/leaseback agreement attached hereto as Exhibit F as modified by such other
terms (including completion of the blanks in such agreement) as may be
commercially reasonable in the area of Portsmouth, Virginia (the "Sale/Leaseback
Agreement") which provides for a purchase price of not less than $2.91 million.
(ii) In the event that (a) a contract for such sale and
leaseback substantially in accordance with the Sale/Leaseback Agreement has not
been fully executed at or prior to the Closing or (b) as of Closing such
contract has been executed but (A) the purchaser named therein has the right to
terminate the contract without forfeiture of any monetary deposit or (B) SYSCO
does not have the right to specifically enforce such contract, an additional
number of shares of SYSCO Common Stock (and cash payable in lieu thereof in the
same proportion as the Cash Election Percentage) otherwise constituting Merger
Consideration equal in value to $1.13 million (the "Facility Escrow Fund") will
be placed in the Escrow Fund at Closing for a period of up to three (3) years as
provided in Section 2.04.
(iii) If the transactions contemplated by the Sale/Leaseback
Agreement are consummated on or before the end of such period, the Facility
Escrow Fund and interest thereon will be released from escrow to the Stockholder
Representative for distribution to the former DFI stockholders.
(iv) If such transaction is not consummated (through no fault
of SYSCO or failure by SYSCO to reasonably cooperate with the Stockholder
Representative) on or before the end of such period (or is so effected but on
terms (other than purchase price) which are not substantially in accordance with
those contained in the Sale/Leaseback Agreement) the Facility Escrow Fund and
interest thereon shall be forfeited and returned to SYSCO.
(v) If such transaction is timely consummated at a price lower
than that specified in the Sale/Leaseback Agreement but otherwise substantially
in accordance with the terms and provisions of the Sale/Leaseback Agreement, a
portion of the Facility Escrow Fund equal to the amount of such deficiency and
interest thereon will be forfeited and returned to SYSCO, and the balance of the
Facility Escrow Fund and interest thereon will be released to the Stockholder
Representative for distribution to the former DFI Stockholders.
(vi) All payments and distributions made pursuant to this
Section 5.19 shall be in accordance with the principles and procedures set forth
in Section 2.04(h).
(vii) Notwithstanding the foregoing, the Stockholder
Representative shall be entitled, with the cooperation of SYSCO, to bring about
the sale of the Facility on such terms and conditions as it shall deem
appropriate (generally in accordance with the Sale/Leaseback Agreement) if the
terms of such sale are such that SYSCO may occupy the Facility until at least
ninety (90) days after the second anniversary of the Closing Date.
Section 5.20 Underground Storage Tank or Portsmouth Facility
Prior to Closing DFI shall cause the underground storage tank located at the
Facility to be removed in compliance with applicable law and (i) SYSCO and DFI
shall share equally the cost of such tank removal and (ii) DFI shall be solely
responsible for all costs of remediation arising in connection with said tank
and/or such removal.
Section 5.21 Sale of Annex Property
(i) DFI shall use its reasonable good faith efforts prior to
Closing, and the Stockholder Representative shall use his reasonable good faith
efforts following Closing (with the reasonable cooperation of SYSCO) to bring
about a sale of the annex property and improvements currently owned by DFI and
commonly identified as 2413 and 2415 Wesley Street, Portsmouth, Virginia (the
"Annex Property"), substantially in accordance with the terms contained in the
sale agreement attached hereto as Exhibit G (the "Sale Agreement") which
provides for a purchase price of not less than $190,000.00.
(ii) In the event that (a) a contract for such sale
substantially in accordance with the Sale Agreement has not been fully executed
at or prior to the Closing or (b) as of Closing such contract has been executed
but (A) the purchaser named therein has the right to terminate the contract
without forfeiture of any monetary deposit or (B) SYSCO does not have the right
to specifically enforce such contract, an additional number of shares of SYSCO
Common Stock (and cash payable in lieu thereof in the same proportion as the
Cash Election Percentage) otherwise constituting Merger Consideration equal in
value to $70,000 (the "Annex Escrow Fund") will be placed in the Escrow Fund at
Closing for a period of up to three (3) years as provided in Section 2.04.
(iii) If the transactions contemplated by the Sale Agreement
are consummated on or before the end of such period, the Annex Escrow Fund and
interest thereon will be released from escrow to the Stockholder Representative
for distribution to the former DFI stockholders.
(iv) If such transaction is not consummated (through no fault
of SYSCO or failure by SYSCO to reasonably cooperate with the Stockholder
Representative) on or before the end of such period (or is so effected but on
terms (other than purchase price) which are not substantially in accordance with
those contained in the Sale Agreement) the Annex Escrow Fund and interest
thereon shall be forfeited and returned to SYSCO.
(v) If such transaction is timely consummated at a price lower
than that specified in the Sale Agreement but otherwise substantially in
accordance with the terms and provisions of the Sale Agreement, a portion of the
Annex Escrow Fund equal to such deficiency and interest thereon will be released
to the Stockholder Representative for distribution to the former DFI
Stockholders.
(vi) All payments and distributions made pursuant to this
Section 5.22 shall be in accordance with the principles and procedures set forth
in Section 2.04(h).
Article VI
Conditions Precedent
Section 6.01 Conditions to All Parties' Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval.
The DFI Stockholder Approval shall have been obtained.
(b) HSR Act.
The waiting period (and any extension thereof) applicable to the Merger under
the HSR Act shall have been terminated or shall have expired.
(c) Governmental and Regulatory Approvals.
Other than the filing provided for under Section 1.03 and filings pursuant to
the HSR Act (which are addressed in Section 6.01(b)), all consents, approvals
and actions of, filings with and notices to any Governmental Entity required of
DFI, SYSCO or any of their subsidiaries to consummate the Merger and the other
transactions contemplated hereby (together with the matters contemplated by
Section 6.01(b), the "Requisite Regulatory Approvals") shall have been obtained.
(d) No Injunctions or Restraints.
No judgment, order, decree, statute, law, ordinance, rule or regulation,
entered, enacted, promulgated, enforced or issued by any court or other
Governmental Entity of competent jurisdiction or other legal restraint or
prohibition (collectively, "Restraints") shall be in effect preventing the
consummation of the Merger; provided, however, that each of the parties hereto
shall have used its reasonable good faith efforts to prevent the entry of any
such Restraints and to appeal as promptly as possible any such Restraints that
may be entered.
(e) Form S-4.
The Form S-4 shall have become effective under the Securities Act prior to the
mailing of the Proxy Statement by DFI to its stockholders and no stop order or
proceedings seeking a stop order shall be threatened by the SEC or shall have
been initiated by the SEC.
(f) NYSE Listing.
The shares of SYSCO Common Stock issuable to DFI's stockholders as contemplated
by Article II shall have been approved for listing on the NYSE subject to
official notice of issuance.
(g) Tax Opinions.
SYSCO shall have received from Arnall Golden & Gregory, LLP, counsel to SYSCO,
and DFI shall have received from McGuire, Woods, Battle & Boothe LLP, counsel to
DFI, an opinion, dated the Closing Date, substantially to the effect that: (i)
the Merger will constitute a "reorganization" within the meaning of Section
368(a) of the Code, and SYSCO and DFI will each be a party to such
reorganization within the meaning of Section 368(b)of the Code; (ii) no gain or
loss will be recognized by SYSCO or DFI as a result of the Merger; (iii) no gain
or loss will be recognized by the stockholders of DFI upon the exchange of their
shares of DFI Common Stock for shares of SYSCO Common Stock pursuant to the
Merger, except with respect to any cash, if any, received in the Merger; (iv)
the aggregate tax basis of the shares of SYSCO Common Stock received solely in
exchange for shares of DFI Common Stock pursuant to the Merger (including
fractional shares of SYSCO Common Stock for which cash is received) will be the
same as the aggregate tax basis of the shares of DFI Common Stock exchanged
therefor increased by any gain recognized and decreased by any cash received;
and (v) the holding period for shares of SYSCO Common Stock received in exchange
for shares of DFI Common Stock pursuant to the Merger will include the holding
period of the shares of DFI Common Stock exchanged therefor, provided such
shares of DFI Common Stock were held as capital assets by the stockholder at the
Effective Time. In rendering such opinions, each of counsel for SYSCO and DFI
shall be entitled to receive and rely upon representations of fact contained in
certificates of officers of SYSCO, DFI and stockholders of DFI, which
representations shall be in form and substance satisfactory to such counsel.
Section 6.02 Conditions to Obligations of SYSCO and Merger Sub.
The obligation of SYSCO and Merger Sub to effect the Merger is further subject
to satisfaction or waiver of the following conditions:
(a) Representations and Warranties.
The representations and warranties of DFI set forth herein shall be true and
correct both when made, and at and as of the Closing Date, as if made at and as
of such time (except to the extent expressly made as of an earlier date, in
which case such representations and warranties shall be true and correct as of
such date, except where the failure of such representations and warranties to be
so true and correct (without giving effect to any limitation to "materiality" or
"material adverse effect" set forth therein) does not have, and is not likely to
have, individually or in the aggregate, a material adverse effect on DFI.
(b) Performance of Obligations of DFI.
DFI shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(c) Consents.
DFI shall have obtained and delivered to SYSCO and Merger Sub all consents and
approvals set forth in Section 3.01(d) of the DFI Disclosure Schedule (other
than Requisite Regulatory Approvals), each of which consent and approvals shall
be in full force and effect at and as of the Closing.
(d) Closing Deliveries.
All Closing deliveries required by Section 1.08(a) to be effected by DFI shall
have been effected.
(e) No Material Adverse Event.
There shall not have occurred a material adverse change or an event having a
material adverse effect (as such terms are defined in Section 8.03).
(f) SYSCO shall be satisfied in its sole discretion with the results
of the environmental due diligence investigation, and the financial, regulatory
and contractual resolution of any issues which arise therefrom, in respect to
(i) any release from the Annex Property relating to the property's use as a
petroleum storage facility and any matter, whether or not related thereto,
discovered after the date hereof and prior to Closing as a result of the
investigation of such presence or use, and (ii) any underground storage tank or
other source of the releases discovered prior to the date hereof at the property
owned by DFI located at 3051 Monroe Street, Manchester, Maryland consisting of
approximately 48 acres (the "Maryland Property") and any matters discovered
after the date hereof and prior to Closing as a result of the investigation of
such tank or other source, whether or not related thereto.
Section 6.03 Conditions to Obligations of DFI.
The obligation of DFI to effect the Merger is further subject to satisfaction or
waiver of the following conditions:
(a) Representations and Warranties.
The representations and warranties of SYSCO set forth herein shall be true and
correct both when made, and at and as of the Closing Date, as if made at and as
of such time (except to the extent expressly made as of an earlier date, in
which case such representations and warranties shall be true and correct as of
such date, except where the failure of such representations and warranties to be
so true and correct (without giving effect to any limitation to "materiality" or
"material adverse effect" set forth therein) does not have, and is not likely to
have, individually or in the aggregate, a material adverse effect on SYSCO.
(b) Performance of Obligations of SYSCO and Merger Sub.
Each of SYSCO and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date.
(c) Closing Deliveries.
All Closing deliveries required by Section 1.08(b) to be effected by SYSCO and
Merger Sub shall have been effected.
Article VII
Termination, Amendment and Waiver
Section 7.01 Termination.
This Agreement may be terminated at any time prior to the Effective Time, and
(except in the case of 7.01(b)(ii) or 7.01(c)(ii)) whether before or after the
DFI Stockholder Approval:
(a) By SYSCO and DFI Jointly
By mutual written consent of SYSCO and DFI, if the Board of Directors of each so
determines by a vote of a majority of its entire Board;
(b) By SYSCO or DFI
By either the Board of Directors of SYSCO or the Board of Directors of DFI:
(i) if the Merger shall not have been consummated by September
30, 1999; provided, however, that the right to terminate this Agreement pursuant
to this Section 7.01(b)(i) shall not be available to any party whose failure to
perform any of its obligations under this Agreement results in the failure of
the Merger to be consummated by such time;
(ii) if the DFI Stockholder Approval shall not have been
obtained at a DFI Stockholders Meeting duly convened therefor or at any
adjournment or postponement thereof;
(iii) if any Restraint having any of the effects set forth in
Section 6.01(d) shall be in effect and shall have become final and
nonappealable, or if any Governmental Entity that must grant a Requisite
Regulatory Approval has denied approval of the Merger and such denial has become
final and nonappealable; provided, that the party seeking to terminate this
Agreement pursuant to this Section 7.01(b)(iii) shall have used reasonable good
faith efforts to prevent the entry of and to remove such Restraint or to obtain
such Requisite Regulatory Approval, as the case may be;
(c) By SYSCO By the Board of Directors of SYSCO:
(i) (provided that SYSCO is not then in material breach of
any representation, warranty, covenant or other agreement contained herein), if
DFI shall have breached or failed to perform in any material respect any of its
representations, warranties, covenants or other agreements contained in this
Agreement, or if DFI shall have breached or failed to perform in any respect its
covenants and agreements set forth in Section 4.01(a)(ii), which breach or
failure to perform (A) would give rise to the failure of a condition set forth
in Section 6.02(a) or (b), and (B) is incapable of being cured by DFI or is not
cured within 45 days of written notice thereof;
(ii) at any time prior to the DFI Stockholders Meeting, if
the DFI Board of Directors shall have (A) failed to make, no later than the date
of the first mailing of the Proxy Statement to the DFI Stockholders, its
recommendation referred to in Section 5.01(b), (B) withdrawn such recommendation
or (C) modified or changed such recommendation in a manner adverse to the
interests of SYSCO; and
(iii) in the event that the Closing Net Worth as shown on
the Closing Balance Sheet is less than the 1998 Net Worth in breach of Section
3.01(gg).
(d) By DFI
By the Board of Directors of DFI (provided that DFI is not then in material
breach of any representation, warranty, covenant or other agreement contained
herein), if SYSCO shall have breached or failed to perform in any material
respect any of its representations, warranties, covenants or other agreements
contained in this Agreement.
Section 7.02 Effect of Termination.
In the event of termination of this Agreement by either DFI or SYSCO as provided
in Section 7.01, this Agreement shall forthwith become void and have no effect,
without any liability or obligation on the part of SYSCO or DFI, other than the
provisions of the last sentence of Section 5.05, Section 5.09, this Section
7.02, Section 7.05 and Article VIII, which provisions shall survive such
termination, and except that, notwithstanding anything to the contrary contained
in this Agreement, neither SYSCO nor DFI shall be relieved or released from any
liabilities or damages arising out of its willful breach of any provision of
this Agreement.
Section 7.03 Amendment.
Subject to compliance with applicable law, this Agreement may be amended by the
parties at any time before or after the DFI Stockholder Approval; provided,
however, that after such approval, there may not be, without further approval of
such by the stockholders of DFI, any amendment of this Agreement that changes
the amount or the form of the consideration to be delivered to the holders of
DFI Common Stock hereunder, or which by law otherwise requires the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto and duly
approved by the parties' respective Boards of Directors or a duly designated
committee thereof.
Section 7.04 Extension; Waiver.
At any time prior to the Effective Time, a party may, subject to the proviso of
Section 7.03, (a) extend the time for the performance of any of the obligations
or other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) waive compliance
by the other party with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. Any extension or waiver given in compliance with this Section 7.04
or failure to insist on strict compliance with an obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
Section 7.05 Termination Expenses.
(i) In the event of a termination of this Agreement and the
abandonment of the Merger at any time (A) by SYSCO pursuant to Section 7.01(c)
or (B) by SYSCO or DFI pursuant to Section 7.01(b)(ii), and in order to
compensate SYSCO for the expenses associated with the negotiation of this
Agreement and the other matters contemplated hereby, DFI shall, within one
business day following such termination, pay SYSCO a fee equal to the actual
cost of such reasonable and customary expenses, in immediately available funds.
(ii) In the event of a termination of this Agreement and
the abandonment of the Merger at any time (i) by DFI pursuant to Section 7.01(d)
and in order to compensate DFI for the expenses associated with the negotiation
of this Agreement and the other matters contemplated hereby, SYSCO shall, within
one business day following such termination, pay DFI a fee equal to the actual
cost of such reasonable and customary expenses, in immediately available funds.
(iii) A party's right to receive the fee contemplated by this
Section 7.05, and its ability to enforce the provisions this Section 7.05, shall
not be subject to approval by the stockholders of DFI.
Article VIII
General Provisions
Section 8.01 Survival of Agreements.
DFI's representations, warranties, covenants, other agreements and all other
obligations in this Agreement or in any document, disclosure schedule or
instrument attached to or delivered pursuant to this Agreement shall survive the
Effective Time until the second (2nd) anniversary of the Closing, except for
representation, warranties, covenants and obligations with respect to tax
matters, accounts receivable, and the provisions of Section 5.19 and Section
5.21, which shall survive until the third (3rd) anniversary of the Closing, in
each case, at which time they shall expire and be of no further force or effect,
with the sole exception of claims theretofore made against the Escrow Fund with
particularity and with a statement in reasonable detail of the factual basis for
such claim. (See Section 2.04). This Section 8.01 shall not limit any covenant
or agreement of the parties which contemplates performance after the Effective
Time.
Section 8.02 Notices.
All notices, requests, claims, demands and other communications under this
Agreement shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed in writing) or sent by overnight courier
(providing proof of delivery) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
if to SYSCO, to: SYSCO Corporation
1390 Enclave Parkway
Houston, Texas 77077-2099
Attn: General Counsel
Facsimile: (281) 584-2510
with a copy to: Robert P. Finch, Esq.
Arnall Golden & Gregory, LLP
1201 West Peachtree Street
Atlanta, Georgia 30309-3450
Facsimile: (404) 873-8617
if to DFI, to: Doughtie's Foods, Inc.
2410 Wesley Street
Portsmouth, Virginia 23707
Attn: Steven C. Houfek
Facsimile: (757) 399-3558
with a copy to: William R. Waddell, Esq.
McGuire, Woods, Battle & Boothe, LLP
World Trade Center, Suite 9000
101 West Main Street
Norfolk, VA 23510-1655
Facsimile: (757) 640-3972
Section 8.03 Definitions.
For purposes of this Agreement:
(i) except for purposes of Section 5.11, an "affiliate" of any
person means another person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
such first person, where "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management policies of a
person, whether through the ownership of voting securities, by contract, as
trustee or executor, or otherwise;
(ii) "material adverse change" or "material adverse effect"
means any change, effect, event, occurrence or state of facts that is or could
reasonably be expected to be materially adverse to the business, financial
condition or results of operations of such party and its subsidiaries taken as a
whole; provided, however, that it shall not be a "material adverse change" or
"material adverse effect" with respect to DFI in connection with any change,
effect, event, occurrence or state of facts relating to, or arising or resulting
from (A) any actions taken or omitted to be taken by DFI with the prior written
approval of SYSCO in anticipation or reliance upon the consummation of the
Merger or the transactions contemplated thereby, or (B) the loss, despite the
reasonable good faith efforts of DFI, of the services of up to twenty percent
(20%) of the sales employees employed by DFI, of the Chief Executive Officer,
Senior Vice President and Chief Financial Officer of DFI or of up to 20% of the
other officers of DFI as of the date of this Agreement;
(iii) "person" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity;
(iv) a "subsidiary" of any person means another person, an
amount of the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or indirectly by
such first person;
(v) "knowledge" of any person means the actual knowledge of
such person after reasonable inquiry;
(vi) "Securities Act" means the Securities Act of 1933, as
amended;
(vii) "DFI SEC Documents" means all required reports,
schedules, forms, statements and other documents (including exhibits and all
other information incorporated therein) filed with the SEC by DFI since December
31, 1996, and the Form S-4 as filed prior to the date of this Agreement;
(viii) "SYSCO SEC Documents" means all required reports,
schedules, forms, statements and other documents (including exhibits and all
other information incorporated therein) filed with the SEC by SYSCO since
December 31, 1996, and the Form S-4 as filed prior to the date of this
Agreement;
(ix) "To DFI's knowledge" means the knowledge of Mules,
Houfek, and Michael S. LaRock;
(x) "To SYSCO's knowledge" means the knowledge of John K.
Stubblefield and Robert G. Culak;
(xi) "Form S-4" means the registration statement on Form S-4
to be filed with the SEC by SYSCO in connection with the issuance of SYSCO
Common Stock in the Merger; and
(xii) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
Section 8.04 Interpretation.
When a reference is made in this Agreement to an Article, Section or Exhibit,
such reference shall be to an Article or Section of, or an Exhibit to, this
Agreement unless otherwise indicated. Whenever the words "include", "includes"
or "including" are used in this Agreement, they shall be deemed to be followed
by the words "without limitation". The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. All
terms defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such term. Any agreement,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented, including (in
the case of agreements or instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and references to all
attachments thereto and instruments incorporated therein. References to a person
are also to its permitted successors and assigns.
Section 8.05 Counterparts.
This Agreement may be executed in one or more counterparts, all of which shall
be considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
Section 8.06 Entire Agreement; No Third-Party Beneficiaries.
This Agreement (including the documents and instruments referred to herein), the
Escrow Agreement and the Confidentiality Agreement (a) constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter of this
Agreement and (b) except for the provisions of Section 5.07, are not intended to
confer upon any person other than the parties any rights or remedies.
Section 8.07 Governing Law.
This Agreement shall be governed by, and construed in accordance with, the laws
of the Commonwealth of Virginia, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws thereof.
Section 8.08 Assignment.
Neither this Agreement nor any of the rights, interests or obligations under
this Agreement shall be assigned, in whole or in part, by operation of law or
otherwise by either of the parties hereto without the prior written consent of
the other party; provided, however, that without the consent of DFI, Merger Sub
may assign all of its respective rights, interests and obligations hereunder to
any other wholly owned subsidiary of SYSCO. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
Section 8.09 Consent to Jurisdiction.
Each of the parties hereto (a) consents to submit itself to the personal
jurisdiction of any federal court located in the Commonwealth of Virginia or any
Virginia state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement, (b) agrees that it will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a federal court sitting in the
Commonwealth of Virginia or a Virginia state court.
Section 8.10 Headings.
The headings and table of contents contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 8.11 Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect, insofar as the foregoing can be accomplished without
materially affecting the economic benefits anticipated by the parties to this
Agreement. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible to the fullest extent permitted by applicable law
in an acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
Section 8.12 Dispute Resolution
Notwithstanding any provision of this Agreement to the contrary, all disputes,
controversies or claims arising out of or relating to this Agreement and the
transactions contemplated hereby shall be resolved by agreement among the
parties, or, if not so resolved within forty-five (45) days following written
notice of dispute given by either party hereto to the other, and if written
notice of desire to arbitrate is given by either of the parties as provided
below and the matter is not then otherwise resolved by the parties hereto, by
resort to arbitration in accordance with Title 9 of the United States Code (the
United States Arbitration Act), the Commercial Arbitration Rules, and the
Optional Rules for Emergency Measures of Protection, all as amended from time to
time (the "Rules") of the American Arbitration Association and the following
provisions; provided, however, that the provisions of this Section shall prevail
in the event of any conflict with such Rules. The parties agree that they shall
use their best efforts to cause the matter to be presented to a panel of three
arbitrators (at least one of whom shall have at least ten years of industry
experience relating to the subject matter of the dispute) within thirty (30)
days after the establishment of such panel. Such selection of arbitrators shall
be made in accordance with the Rules. There shall be no discovery. Pending the
arbitration hearing, any provisional remedy that would be available to a party
from a court of law shall be available from the arbitration panel. The decision
of a majority of the arbitration panel with respect to the matters referred to
them pursuant hereto shall be final and binding upon the parties to the dispute,
and confirmation and enforcement thereof may be rendered thereon by any court
having jurisdiction upon application of any person who is a party to the
arbitration proceeding. The costs and expenses incurred in the course of such
arbitration shall be borne by the party or parties against whose favor the
decisions and conclusions of the arbitration panel are rendered; provided,
however, that if the arbitration panel determines that its decisions are not
rendered wholly against the favor of one party or parties or the other, the
arbitration panel shall be authorized to apportion such costs and expenses in
the manner that it deems fair and just in light of the merits of the dispute and
its resolution. The arbitration panel shall have no power or authority under
this Agreement or otherwise to award or provide for the award of punitive or
consequential damages against any party.
(Signatures on following page)
<PAGE>
IN WITNESS WHEREOF, SYSCO, Merger Sub and DFI have caused this Agreement to be
signed by their respective duly authorized officers as of the date first written
above.
SYSCO:
SYSCO CORPORATION:
By: /s/ Kent R. Berke
------------------------
Assistant Vice President
MERGER SUB:
SYSCO FOOD SERVICES OF EASTERN VIRGINIA, INC.
By: /s/ Kent R. Berke
------------------------
Vice President
DFI:
DOUGHTIE'S FOODS, INC.:
By: /s/ Steven C. Houfek
----------------------
President and CEO
Exhibits
- ---------
Exhibit A Amended Bylaws of Surviving Corporation
Exhibit B-1 Form of Opinion of Counsel to DFI
Exhibit B-2 Form of Opinion of Counsel to SYSCO
Exhibit C Form of Escrow Agreement
Exhibit D Form of Affiliates Agreement
Exhibit E Form of Non-Competition Agreement
Exhibit F Form of Sale/Leaseback Agreement
Exhibit G Form of Sale Agreement (Annex)
[Merger Agreement Exhibits and DFI Disclosure Schedule Intentionally Omitted]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) OF DOUGHTIE'S FOODS, INC. FOR THE
THREE MONTHS ENDED MARCH 27, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-27-1998
<PERIOD-END> MAR-27-1999
<CASH> 16
<SECURITIES> 0
<RECEIVABLES> 7,377
<ALLOWANCES> 411
<INVENTORY> 3,736
<CURRENT-ASSETS> 11,196
<PP&E> 6,364
<DEPRECIATION> 3,814
<TOTAL-ASSETS> 13,857
<CURRENT-LIABILITIES> 3,416
<BONDS> 550
<COMMON> 1,495
0
0
<OTHER-SE> 8,396
<TOTAL-LIABILITY-AND-EQUITY> 13,857
<SALES> 19,063
<TOTAL-REVENUES> 19,063
<CGS> 15,836
<TOTAL-COSTS> 18,869
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 179
<INCOME-TAX> 97
<INCOME-CONTINUING> 82
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
NEWS RELEASE
FOR MORE INFORMATION
CONTACT:
Doughtie's Foods, Inc.: SYSCO:
Marion S. Whitfield, Jr. Toni R. Spigelmyer
Senior Vice President Assistant Vice President
757/399-2451 Investor and Media Relations
281/584-1458
SYSCO AND DOUGHTIE'S FOODS, INC. ANNOUNCE
DEFINITIVE MERGER AGREEMENT
HOUSTON, May, 6, 1999 -- SYSCO Corporation (NYSE: SYY), the leading
foodservice marketing and distribution organization in North America, and
Doughtie's Foods, Inc. (NASDAQ: DOBQ) announced today that they have signed an
Agreement and Plan of Merger with respect to the acquisition of Doughtie's by
SYSCO, pursuant to a letter of intent which was signed and announced on February
17, 1999. In exchange for each share of Doughtie's common stock, Doughtie's
shareholders will receive $17.00 per share in cash and/or stock. Approximately
$14.00 per share will be paid at closing, with $3.00 held back for
indemnification and other purposes, including expense reimbursement, for up to
three years after closing.
The purchase is subject to approval by regulatory authorities and
Doughtie's stockholders. Closing is expected to be in July or August.
Doughtie's Foods, Inc., founded in 1952, generates over $87 million in
annual revenues and distributes a full line of institutional food products to
more than 1,800 customers in Virginia, Maryland, North Carolina and Delaware.
In a separate release, Doughtie's today announced sales and earnings
for the quarter ended March 27, 1999.
SYSCO, listed on the New York Stock Exchange, is the largest
foodservice marketing and distribution organization in North America. Generating
annualized sales in excess of $16 billion, SYSCO provides its products and
services to about 300,000 customers. The SYSCO distribution network currently
extends throughout the entire contiguous United States as well as portions of
Alaska and Canada.
- more -
Safe Harbor statement under the Private Securities Litigation Reform
Act of 1995:
The statements which are not historical facts contained in this press release
are intended to be "forward-looking statements" within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934, each as amended.
Such statements reflect the current views of SYSCO and Doughtie's, but involve
certain risks and uncertainties including but not limited to the possibility
that delay in obtaining required government and other approvals or other
unforeseen occurrences could postpone the closing of the merger, or result in
the termination of the merger agreement, the possibility that the net worth of
Doughtie's at closing could result in a reduction in per share amount to be paid
to Doughtie's shareholders at closing, the possibility that environmental and
other contingencies contained in the merger agreement will not be resolved
satisfactorily and will result in the termination of the merger agreement, risks
associated with the uncertainty of future financial results, government approval
processes, the effect of economic conditions and other uncertainties regarding
Doughtie's and SYSCO's business, the price of SYSCO's common stock in the
trading markets, the price of Doughtie's final definitive agreement and other
matters, including uncertainties detailed in Doughtie's and SYSCO's filings with
the Securities & Exchange Commission. The companies undertake no obligation to
publicly update or revise any forward-looking statement whether as a result of
new information, future events or otherwise.
# # #
