<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Rykoff-Sexton, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
RYKOFF-SEXTON, INC.
1050 WARRENVILLE ROAD
LISLE, ILLINOIS 60532-5201
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 5, 1996
---------------------
TO THE STOCKHOLDERS OF RYKOFF-SEXTON, INC.:
The Annual Meeting of Stockholders of Rykoff-Sexton, Inc. (the "Company")
will be held at the Ritz-Carlton Hotel, 160 East Pearson Street, Chicago,
Illinois, on Thursday, September 5, 1996 at 10:00 A.M., or at any adjournment
thereof, for the following purposes:
1. To elect four persons to the Board of Directors for terms ending in
1999;
2. To consider and vote upon the Rykoff-Sexton, Inc. Convertible Award Plan
(Director Edition);
3. To approve an amendment to the Rykoff-Sexton, Inc. 1988 Stock Option and
Compensation Plan to increase the number of shares of Common Stock
reserved for issuance thereunder by 1,500,000 shares;
4. To ratify the appointment of Arthur Andersen LLP as independent public
accountants for the Company for fiscal 1997; and
5. To transact any other business that may properly come before the meeting
or any adjournment thereof.
Pursuant to due action of the Board of Directors, stockholders of record as
of the close of business on July 26, 1996 will be entitled to vote at the
meeting or any adjournments thereof.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE AS PROMPTLY AS
POSSIBLE. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW THE PROXY AND VOTE IN
PERSON.
By Order of the Board of Directors
Robert J. Harter, Jr.
SECRETARY
July 27, 1996
<PAGE>
PROXY STATEMENT
OF
RYKOFF-SEXTON, INC.
1050 WARRENVILLE ROAD
LISLE, ILLINOIS 60532-5201
------------------------
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
SEPTEMBER 5, 1996
---------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Rykoff-Sexton, Inc. (the "Company") for use
at the Annual Meeting of Stockholders (the "Annual Meeting") of the Company to
be held on September 5, 1996 and any adjournment thereof. The approximate date
of mailing of this Proxy Statement and the accompanying proxy to stockholders is
July 27, 1996.
The number of outstanding voting securities of the Company at the close of
business on the record date, July 26, 1996, was 27,706,091 shares of common
stock, $.10 par value per share (the "Common Stock"). Each share of Common Stock
is entitled to one vote. Only stockholders of record at the close of business on
July 26, 1996 will be entitled to vote at the meeting or any adjournments
thereof.
The holders of a majority of the shares issued and outstanding and entitled
to vote at the Annual Meeting, present in person or by proxy, shall constitute a
quorum at the Annual Meeting. Directors are elected by plurality vote.
Ratification of the appointment of the independent public accountants and
approval of all other matters to be acted upon at the Annual Meeting requires
the affirmative vote of the holders of a majority of the shares having voting
power and present in person or by proxy.
Votes cast in person or by proxy at the Annual Meeting will be tabulated by
the inspectors of election appointed for the meeting who will determine whether
or not a quorum is present. With respect to the election of directors, votes may
be cast in favor or withheld. Abstentions may be specified on all proposals
(other than the election of directors), will be counted for purposes of
determining the total votes cast on the matter for which such abstention is
noted and will have the effect of a negative vote on such matter. Broker
non-votes on a particular matter are not deemed to be shares present and
entitled to vote on such matter.
Each stockholder who signs and returns a proxy in the form enclosed with
this Proxy Statement may revoke the same at any time prior to its use by giving
notice of such revocation to the Company in writing or in open meeting. Unless
so revoked, the shares represented by each such proxy will be voted at the
meeting and any adjournment thereof. Presence at the meeting of a stockholder
who has signed a proxy does not alone revoke that proxy.
The Company will bear the cost of soliciting proxies for the meeting. The
Company will also reimburse brokerage houses and other custodians, nominees and
fiduciaries for their reasonable expenses in forwarding the soliciting material
to beneficial owners of stock. Proxies are being solicited primarily by mail,
but officers and regular employees of the Company may also solicit proxies
personally, by telephone or by special letter.
ELECTION OF DIRECTORS
NOMINATION AND CLASSIFICATION
The Restated Certificate of Incorporation of the Company provides that the
Company's Board of Directors shall be divided into three classes and requires
that at each Annual Meeting, successors to
1
<PAGE>
directors whose terms expire at that Annual Meeting shall be elected for
three-year terms. The terms of the directors in Class A expire with this Annual
Meeting. On May 17, 1996, the Board of Directors unanimously approved an
increase in the size of the Board from seven to twelve members. To equalize the
relative size between the classes, the Board determined to place two of the
newly created board seats in Class A, one in Class B and two in Class C. The
terms of the directors in Class A expire at this Annual Meeting and the terms of
the directors in Class C and B expire in 1997 and 1998, respectively.
The Board of Directors has nominated Messrs. Frank H. Bevevino, Matthias B.
Bowman, James I. Maslon and Neil I. Sell for election as directors in Class A at
this meeting to serve for three-year terms expiring at the 1999 Annual Meeting
of Stockholders, or until their respective successors are elected and qualified.
Mr. Bowman has been designated to serve as a director in Class A by the ML
Entities (as described below). See "Election of Directors -- Standstill
Agreement." Each nominee has consented to serve for their term if elected.
All proxies will be voted in favor of the four nominees listed below unless
a contrary choice is specified. If, prior to the Annual Meeting, the Board of
Directors learns that a nominee will be unable to serve by reason of death,
incapacity or other unexpected occurrence, the proxies will be voted for the
election of such substitute nominee as may be selected by the Board of
Directors, subject, in the case of a nominee designated by the ML Entities, to
the right of the ML Entities to designate such substitute nominee pursuant to
the provisions of the Standstill Agreement described on pages 4 - 6 hereof.
Biographical information for each person nominated and for each person whose
term of office as a director will continue after the Annual Meeting is set forth
below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION,
BUSINESS EXPERIENCE DIRECTOR
NAME AND AGE PAST FIVE YEARS AND DIRECTORSHIPS SINCE
- ------------------------------------ ----------------------------------------------------------------- -----------
<S> <C> <C>
NOMINEES
CLASS A (TERMS EXPIRING IN 1999)
Frank H. Bevevino (55) President of the Company and Chief Executive Officer of the 1996
Company's U.S. Foodservice Inc. subsidiary since May 1996. Prior
thereto, Mr. Bevevino was Chairman of the Board, President and
Chief Executive Officer of US Foodservice Inc. and its
predecessor from August 1988 to May 1996. From April 1977 to
August 1988, Mr. Bevevino was the President of F.H. Bevevino &
Co., Inc., which he founded in 1977.
Matthias B. Bowman (47) Vice Chairman of Investment Banking at Merrill Lynch & Co., Inc. 1996
since 1993 and Chief Executive Officer of Merrill Lynch Capital
Partners since 1994. Mr. Bowman has been employed by Merrill
Lynch & Co., Inc. in various capacities since 1978. Mr. Bowman
also serves as a director of Borg-Warner Automotive, Inc.
James I. Maslon (69) Retired since 1992. Mr. Maslon was previously Vice President -- 1962
Manufacturing of the Company's S.E. Rykoff & Co. division.
Neil I. Sell (55) Mr. Sell is a partner in the law firm of Maslon Edelman Borman & 1982
Brand, a Professional Limited Liability Partnership, a position
that he has held since 1973. He is a director of Grand Casinos,
Inc. and Stratosphere Corporation.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION,
BUSINESS EXPERIENCE DIRECTOR
NAME AND AGE PAST FIVE YEARS AND DIRECTORSHIPS SINCE
- ------------------------------------ ----------------------------------------------------------------- -----------
<S> <C> <C>
CLASS B (TERM EXPIRING IN 1998)
Albert J. Fitzgibbons, III (50) Partner and a director of Stonington Partners, Inc., a private 1996
investment firm, a position that he has held since 1993. Mr.
Fitzgibbons has also been a director of ML Capital Partners, a
private investment firm associated with Merrill Lynch & Co.,
Inc. since 1988. Mr. Fitzgibbons was a partner of ML Capital
Partners, Inc. from 1993 to 1994 and Executive Vice President of
ML Capital Partners, Inc. from 1988 to 1993. Mr. Fitzgibbons is
also a director of Borg-Warner Automotive, Inc., Borg-Warner
Security Corporation, Dictaphone Corporation, Eckerd Corporation
and United Artists Theatre Circuit, Inc.
James P. Miscoll (61) Retired since 1992. Mr. Miscoll was previously Vice Chairman of 1992
BankAmerica Corporation. He is a director of American
International Group, Inc., Coast Federal Financial, Inc., MK
Gold Company, MK Rail Corporation, Northern Technology, Inc.,
Montgomery-Watson, Inc., Winkler McManus and CHELA (California
Higher Education Loan Authority).
Bernard Sweet (72) Retired since 1985. Mr. Sweet was previously President and Chief 1978
Executive Officer of Republic Airlines, Inc. He is a director of
G&K Services, Inc.
Mark Van Stekelenburg (45) Chairman of the Board of Directors since December 1995, and Chief 1992
Executive Officer of the Company since December 1992. Mr. Van
Stekelenburg joined the Company in 1991, and was Executive Vice
President until December 1992, at which time he was elected
President of the Company, a position he held until May 1996. He
was previously President and Chief Executive Officer of
Grootverbruik Ahold, the foodservice division of Royal Ahold,
N.V., The Netherlands.
CLASS C (TERM EXPIRING IN 1997)
R. Burt Gookin (82) Retired since 1979. Mr. Gookin was previously Vice Chairman of 1985
the Board and Chief Executive Officer of H. J. Heinz Company.
Jan W. Jeurgens (75) Retired since 1983. From 1968-1983, Mr. Jeurgens served as Chief 1995
Executive Officer of Netherlands-based Makro International, a
world-wide wholesaler of food and non-food products. Mr.
Jeurgens continues an active involvement in the international
distribution industry.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION,
BUSINESS EXPERIENCE DIRECTOR
NAME AND AGE PAST FIVE YEARS AND DIRECTORSHIPS SINCE
- ------------------------------------ ----------------------------------------------------------------- -----------
<S> <C> <C>
Sunil C. Khanna (39) Mr. Khanna is a principal of Stonington Partners, Inc., a private 1996
investment firm, a position that he has held since 1993. From
1993 to July 1994, Mr. Khanna was a principal of ML Capital
Partners, Inc., a private investment firm affiliated with
Merrill Lynch & Co., Inc. Mr. Khanna was a vice president of ML
Capital Partners, Inc. from 1989 to 1993 and an assistant vice
president from 1987 to 1989. Mr. Khanna is a director of Ithaca
Holdings, Inc., Pathmark Stores, Inc., Supermarkets General
Holdings Corporation and WSR Corporation.
Robert W. Williamson (53) Mr. Williamson is Senior Vice President and Chief Credit Officer 1996
of Merrill Lynch & Co., Inc. He also serves as chairman of its
Lease and Investment Committee and is a director of Merrill
Lynch Capital Partners, Inc. Mr. Williamson has been employed by
Merrill Lynch & Co., Inc. or its affiliates in various
capacities since 1977.
</TABLE>
STANDSTILL AGREEMENT
Merrill Lynch Capital Partners, Inc., a Delaware corporation ("MLCP") and an
affiliate of Merrill Lynch & Co., Inc. ("ML & Co."), initiates and structures
transactions commonly referred to as leveraged or management buyouts involving
publicly-owned companies, privately-owned companies and subsidiaries and
divisions of both publicly- and privately-owned companies, and manages a fund of
equity capital committed by institutional investors for investment in the equity
portion of leveraged buyout transactions.
MLCP or one of its affiliates is the direct or indirect managing partner of
Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P., ML Offshore
LBO Partnership No. B-XVIII, ML IBK Positions, Inc., MLCP Associates L.P. No.
II, MLCP Associates L.P. No. IV, Merrill Lynch KECALP L.P. 1994, Merrill Lynch
KECALP L.P. 1991, Merrill Lynch Capital Appreciation Partnership No. XIII, L.P.,
ML Offshore LBO Partnership No. XIII, L.P., ML IBK Positions, Inc., ML Employees
LBO Partnership No. I, L.P., Merrill Lynch KECALP L.P. 1987 and Merchant Banking
L.P. No. II. (each an "ML Entity" and collectively, the "ML Entities"). Each of
the ML Entities is a stockholder of the Company.
On May 17, 1996, in connection with the consummation of the merger of US
Foodservice Inc. ("USF") with and into a wholly owned subsidiary of the Company
(the "Merger"), pursuant to that certain Agreement and Plan of Merger, dated
February 2, 1996, by and among the Company, USF and USF Acquisition Corporation,
a Delaware corporation and a wholly owned subsidiary of the Company (the "Merger
Agreement"), the Company entered into a Standstill Agreement (the "Standstill
Agreement") with the ML Entities. The Standstill Agreement provides, among other
things, (1) for the designation by the ML Entities of four nominees to the
Company's Board of Directors, with such number of nominees and the total number
of directors decreasing if the percentage of outstanding shares of Common Stock
held by the ML Entities falls below certain percentage levels, (2) that, for a
period of ten years, the ML Entities will not acquire beneficial ownership of
additional voting securities of the Company representing voting power in excess
of 36.4% of the outstanding voting securities of the Company and will not take
certain other actions relating to the control of the Company, (3) that, subject
to certain conditions, the ML Entities will vote in favor of the Company's
nominees for the
4
<PAGE>
Board of Directors, (4) for certain restrictions on transfer of Company voting
securities held by the ML Entities and (5) for a right of first refusal, under
specified circumstances, for the Company in respect of certain transfers by the
ML Entities of the Common Stock.
Pursuant to the Standstill Agreement, the Company increased the size of its
Board of Directors to 12 persons and filled four of the vacancies thereby
created with directors designated by a representative of the ML Entities (each
an "ML Director"). Of the four initial ML Directors, Mr. Matthias B. Bowman was
appointed to Class A (current term expiring in 1996), Mr. Albert J. Fitzgibbons,
III was appointed to Class B (current term expiring in 1998) and Messrs. Sunil
C. Khanna and Robert W. Williamson were appointed to Class C (current terms
expiring in 1997). Until such time as the ML Entities no longer beneficially own
Company voting securities representing at least 10% of the total voting power,
and except as otherwise contemplated by the Standstill Agreement or otherwise
agreed to by a majority of ML Directors, the Company can not take or recommend
to its stockholders any action that would (1) cause the Board of Directors to
consist of any number of directors other than 12 directors divided into three
classes of four directors each or (2) result in any amendment to its by-laws or
the by-laws or regulations of any subsidiary of the Company in effect at the
effective time of the Merger that would impose any qualifications to the
eligibility of directors of the Company or on the Board of Directors (or any
committee thereof) of any subsidiary of the Company, except as may be required
by applicable law.
In addition, the Company must use its best efforts to cause the Nominating
Committee of its Board of Directors (or if the Nominating Committee makes no
such recommendations, the Company's Board of Directors) to recommend for
election in the applicable year in which the respective class term expires, in
each case as designated by the ML Entities, (1) four ML Directors, consisting of
one ML Director in each of Class A and Class B and two ML Directors in Class C,
so long as the ML Entities beneficially own Company voting securities
representing at least 34% of total voting power; (2) three ML Directors,
consisting of one ML Director in each of Class A, Class B and Class C, so long
as the ML Entities beneficially own Company voting securities representing less
than 34%, but at least 27%, of the total voting power; (3) two ML Directors,
consisting of one ML Director in Class A and one ML Director in Class B or Class
C, so long as the ML Entities beneficially own Company voting securities
representing less than 27%, but at least 16%, of the total voting power and (4)
one ML Director in Class A, so long as the ML Entities beneficially own Company
voting securities representing less than 16%, but at least 10%, of the total
voting power.
Until such time as the ML Entities no longer beneficially own Company voting
securities representing at least 16% of the total voting power, to the extent
that, and for so long as, any of the ML Directors is qualified under the
then-current rules of the New York Stock Exchange, the rules and regulations
under the Internal Revenue Code of 1986, as amended (the "Code"), the rules and
regulations under Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the Company's by-laws, the Company will use its
best efforts to cause its Board of Directors to designate one of the ML
Directors to serve on each of the committees of the Board of Directors to the
same extent, and on the same basis, as the other members of the Board of
Directors. In addition, subject to the same director qualification requirements,
in the event that, and for so long as, the ML Entities own Company voting
securities representing less than 16% but at least 10% of the total voting
power, the Company will use its best efforts to cause the Board of Directors to
designate one of the ML Directors to serve on the Nominating Committee and the
Management Development -- Compensation and Stock Option Committee of the Board
of Directors, to the same extent, and on the same basis, as the other members of
the Board of Directors.
The Standstill Agreement also provides that so long as the ML Entities
beneficially own Company voting securities representing at least 10% of the
total voting power, the ML Directors will have representation on the Board of
Directors (and any committees thereof) of any subsidiaries of the Company in a
manner similar to their rights to representation on the Company's Board of
Directors, but only to the extent that any directors of the Company who are not
officers or employees of the Company are members of the board of directors of
any such subsidiary.
5
<PAGE>
The ML Entities also have the right, with cause, to request the removal of
any ML Director from the Company's Board of Directors, subject to the applicable
provisions of the Company's charter and by-laws, as well as applicable statutory
provisions, and the Company will use its best efforts to have such removal
approved by the Company's Board of Directors. The ML Entities will also have the
right to designate nominees for vacancies caused by an ML Director ceasing to
serve as a member of the Board of Directors, subject to certain restrictions,
provided that the filling of the vacancy is to be made by action of the Board of
Directors in accordance with the terms of the Company's charter. In addition, in
the event that the percentage of total voting power represented by the Company's
voting securities beneficially owned in the aggregate by the ML Entities at any
time decreases below any of the minimum percentages specified above entitling
the ML Entities to Board of Director and committee representation, the ML
Entities will cause such number of ML Directors to resign as is necessary to
adjust the number of remaining ML Directors to the number (if any) to which the
ML Entities would have otherwise been entitled under the Standstill Agreement if
the nominations to the Board of Directors (or any committee thereof) of the
Company or any subsidiary of the Company were made at such time. Any subsequent
increase in the percentage of the total voting power represented in the
aggregate by Company voting securities beneficially owned by the ML Entities
above any such minimum percentage will not entitle the ML Entities to have any
additional ML Directors named or elected.
Nothing in the Standstill Agreement requires the ML Entities to designate
any ML Directors or requires an ML Director to serve in office. Until such time
as the ML Entities no longer beneficially own Company voting securities
representing, in the aggregate at least 10%, of the total voting power, in the
event there is a vacancy created on the Board of Directors by the resignation or
removal of an ML Director or the failure of the ML Entities to designate an ML
Director (other than a resignation as a result of a decrease in the percentage
of the aggregate number of votes of all outstanding Company voting securities
represented by Company voting securities owned by the ML Entities below the
minimum percentages specified above for representation on the Board of
Directors) upon the written request of the ML Entities, the Company will reduce
the size of its Board of Directors by the number of such vacancies and
thereafter, the ML Entities will have no right to designate any ML Directors to
the extent of such reduction.
The Standstill Agreement provides that the rights to Board of Director and
committee representation described above will extend only to those ML Entities
that are controlled by ML & Co. and in the event of any transaction resulting in
ML & Co. no longer controlling such ML Entity, such ML Entity will no longer
have any rights to such Board of Director and committee representation, but will
be bound by the other terms of the Standstill Agreement.
The Company's obligations described above regarding Board of Director and
committee representation are subject to compliance with the provisions of the
Company's charter and by-laws and the fiduciary duties of the Company's Board of
Directors and Nominating Committee to the stockholders of the Company. Nothing
set forth in such provisions will require the Company to violate any such
provisions or require any director of the Company to breach any such fiduciary
duty.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors held seventeen meetings during the last fiscal year.
Mr. R. Burt Gookin participated in ten such meetings, representing less than 75%
of all meetings held. The Board of Directors has an Audit Committee, a
Management Development -- Compensation and Stock Option Committee and a
Nominating Committee.
The Company's Audit Committee, which consists of Messrs. Jan W. Jeurgens,
James I. Maslon, James P. Miscoll, Neil I. Sell and Bernard Sweet, held two
meetings during the last fiscal year. The Audit Committee recommends to the full
Board of Directors the engagement of the independent public accountants, reviews
the audit plan and results of the audit engagement, reviews the independence of
the auditors and reviews the adequacy of the Company's system of internal
accounting controls.
6
<PAGE>
The Company's Management Development -- Compensation and Stock Option
Committee, which consists of Messrs. R. Burt Gookin, Jan W. Jeurgens, James P.
Miscoll and Bernard Sweet, held an aggregate of three meetings during the last
fiscal year. The Management Development -- Compensation and Stock Option
Committee reviews the Company's remuneration policies and practices, administers
each of (1) the Rykoff-Sexton, Inc. 1980 Stock Option Plan (the "1980 Plan"),
(2) the Rykoff-Sexton, Inc. 1988 Stock Option and Compensation Plan (the "1988
Plan"), (3) the Rykoff-Sexton, Inc. 1995 Key Employees Stock Option and
Compensation Plan, (4) the Amended and Restated Management Stock Option Plan of
WS Holdings Corporation (the "WS Holdings Option Plan"), (5) the Amended and
Restated US Foodservice Inc. 1992 Stock Option Plan (the "1992 US Foodservice
Option Plan") and (6) the Amended and Restated US Foodservice Inc. 1993 Stock
Option Plan (the "1993 US Foodservice Option Plan") (collectively, the "Option
Plans"), and administers the Company's incentive compensation programs and makes
recommendations to the full Board of Directors in connection with compensation
matters affecting the Company.
The Company's Nominating Committee, which consists of Messrs. R. Burt
Gookin, James I. Maslon, Neil I. Sell, Bernard Sweet and Robert W. Williamson,
held two meetings during the last fiscal year. The Nominating Committee makes
recommendations to the full Board of Directors on the following matters: the
size and constituency of the Board of Directors, the age limit for Board of
Directors membership, the filling of vacancies on the Board of Directors and the
removal of any director for cause. In recommending persons to the Board of
Directors as potential nominees for election as directors, the Nominating
Committee will consider written suggestions regarding the qualifications that
nominees should possess, but it will not entertain stockholder nominations of
specific individuals.
COMPENSATION OF DIRECTORS
During fiscal 1996, directors who were not employees of the Company received
an annual retainer of $15,000. Directors also received a fee of $1,750 for each
meeting of the Board of Directors attended, $875 for each telephonic meeting of
the Board of Directors and $500 for each committee meeting attended. Commencing
in fiscal 1997, directors who are neither ML Directors nor employees of the
Company will receive an annual retainer of $32,000, but will not be separately
compensated for Board of Director or committee meeting participation.
The 1993 Director Stock Option Plan (the "1993 Plan") provides for an annual
grant to non-employee directors of options to purchase 1,000 shares at an option
exercise price equal to the fair market value of such shares on the grant date.
Each such option has a ten year term and generally becomes exercisable on the
first anniversary of the grant date. Messrs. Gookin, Jeurgens, Maslon, Miscoll,
Sell and Sweet each were granted options to purchase 1,000 shares at an exercise
price of $23.125 on September 15, 1995. Except for Mr. Jeurgens, each of these
directors also received a one-time grant of options to purchase 6,250 shares of
Common Stock at an exercise price of $11.20 on June 21, 1993. These options have
ten year terms and became fully exercisable on June 21, 1996. Additionally,
eligible directors also have the opportunity to participate in the
Rykoff-Sexton, Inc. Convertible Award Plan (Director Edition) (the "Director
Plan") which stockholders are being asked to approve and ratify. See "Proposal
to Adopt the Rykoff-Sexton, Inc. Convertible Award Plan (Director Edition)."
7
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth all persons known by the Company to be the
beneficial owners of more than five percent (5%) of the outstanding Common Stock
of the Company as of July 26, 1996:
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) CLASS
- ------------------------------------------------------ ------------- --------
<S> <C> <C>
ML Entities........................................... 10,080,211(2) 36.4%
c/o Merrill Lynch Capital Partners, Inc.
225 Liberty Street
New York, New York 10080
State Farm Mutual Automobile Insurance Company
and related entities.................................. 1,429,985 5.4%
One State Farm Plaza
Bloomington, Illinois 61701
</TABLE>
- ------------------------
(1) Based upon the most recent Schedule 13D or 13G on file with the Securities
and Exchange Commission (the "SEC").
(2) The ML Entities consist of the following entities, each of which
beneficially own the percentage of outstanding Common Stock indicated after
its name: Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P.
(15.74%), ML Offshore LBO Partnership No. B-XVIII (7.92%), ML IBK Positions,
Inc. (5.20%), MLCP Associates L.P. No. II (*), MLCP Associates L.P. No. IV
(*), Merrill Lynch KECALP L.P. 1994 (*), Merrill Lynch KECALP L.P. 1991 (*),
Merrill Lynch Capital Appreciation Partnership No. XIII, L.P. (5.85%), ML
Offshore LBO Partnership No. XIII, L.P. (*), ML Employees LBO Partnership
No. I, L.P. (*), Merrill Lynch KECALP L.P. 1987 (*) and Merchant Banking
L.P. No. II (*). The ML Entities are affiliates of ML & Co. and ML & Co.
disclaims beneficial ownership of all such shares for all purposes. * Less
than 1%.
The following table sets forth beneficial ownership of Common Stock as of a
recent date for each director of the Company, each executive officer named in
the Summary Compensation Table under
8
<PAGE>
"EXECUTIVE COMPENSATION" herein (each, a "Named Executive Officer") and all
directors and executive officers as a group. Unless otherwise stated and subject
to applicable community property laws, each beneficial owner has sole voting and
investment powers with respect to the shares shown.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME OWNED (1) OF CLASS
- ------------------------------------------------------ --------------------- ---------
<S> <C> <C>
Mark Van Stekelenburg................................. 319,985(2) 1.2
Frank H. Bevevino..................................... 467,869(3) 1.7
Matthias B. Bowman.................................... 8,578,803(4) 31.0
Albert J. Fitzgibbons, III............................ 8,221,178(5) 29.6
Harold E. Feather..................................... 128,781(6) *
R. Burt Gookin........................................ 11,780(7) *
Alan V. Giuliani...................................... 70,506(8) *
Robert J. Harter, Jr.................................. 76,598(9) *
Jan W. Jeurgens....................................... 1,000(10) *
Sunil C. Khanna....................................... 0 0
Richard J. Martin..................................... 48,682(11) *
James I. Maslon....................................... 350,022(12) 1.3
James P. Miscoll...................................... 12,250(13) *
Neil I. Sell.......................................... 12,663(14) *
Bernard Sweet......................................... 15,920(15) *
Robert W. Williamson.................................. 0 0
All directors and executive officers as a group
(twenty persons)..................................... 10,395,941(4)(5)(16) 37.5%
</TABLE>
- ------------------------
* Less than 1%.
(1) Except as otherwise noted, all persons have sole voting and investment power
with respect to their shares.
(2) Includes options exercisable within 60 days to purchase 288,594 shares
pursuant to the 1988 Plan. Also includes 62 shares owned by one of his
children.
(3) Includes 135,758 shares held by a limited partnership the partners of which
are trusts of which Mr. Bevevino is trustee and includes options exercisable
within 60 days to purchase 17,019 shares pursuant to the WS Holdings Stock
Option Plan, 45,233 shares pursuant to the 1992 US Foodservice Option Plan
and 2,237 shares pursuant to the 1993 US Foodservice Option Plan.
(4) Mr. Bowman is a director of ML Capital Partners, the ultimate general
partner of certain of the ML Entities, and thus, under the rules and
regulations of the SEC may be deemed to be the beneficial owner of the
shares of Common Stock beneficially owned by such ML Entities. Accordingly,
such shares are included in the table as beneficially owned by Mr. Bowman
and for directors and officers as a group. Except with respect to 50,000
shares which he owns directly, Mr. Bowman disclaims beneficial ownership of
all other shares.
(5) Mr. Fitzgibbons is a limited partner of certain of the ML Entities, and
thus, under the rules and regulations of the SEC may be deemed to be the
beneficial owner of the shares of Common Stock beneficially owned by such ML
Entities. Accordingly, such shares are included in the table as beneficially
owned by Mr. Fitzgibbons and for directors and officers as a group. Except
with respect to 10,000 shares which he owns directly, Mr. Fitzgibbons
disclaims beneficial ownership of all other shares.
(6) Includes options exercisable within 60 days to purchase 23,438 shares
pursuant to the 1980 Plan and 88,906 shares pursuant to the 1988 Plan.
9
<PAGE>
(footnotes continued from preceding page)
(7) Includes options exercisable within 60 days to purchase 9,750 shares
pursuant to the 1993 Plan. Also includes 1,718 shares owned by his spouse.
(8) Includes options exercisable within 60 days to purchase 62,579 shares
pursuant to the 1988 Plan.
(9) Includes options exercisable within 60 days to purchase 45,000 shares
pursuant to the 1988 Plan. Also includes 2,576 shares owned by his spouse.
(10) Includes options exercisable within 60 days to purchase 1,000 shares
pursuant to the 1993 Plan.
(11) Includes options exercisable within 60 days to purchase 47,891 shares
pursuant to the 1988 Plan.
(12) Includes 13,569 shares held of record by Mr. Maslon as trustee for his
children, 203,460 shares held of record by Mr. Maslon as co-trustee for his
mother and 125 shares owned by his spouse. Includes options exercisable
within 60 days to purchase 9,750 shares pursuant to the 1993 Plan.
(13) Includes options exercisable within 60 days to purchase 9,750 shares
pursuant to the 1993 Plan.
(14) Includes options exercisable within 60 days to purchase 9,750 shares
pursuant to the 1993 Plan.
(15) Includes options exercisable within 60 days to purchase 9,750 shares
pursuant to the 1993 Plan.
(16) Includes options exercisable within 60 days to purchase an aggregate of
695,950 shares pursuant to the Company's stock option plans.
The information contained in the foregoing footnotes is for explanatory
purposes only and each of the persons named therein disclaims beneficial
ownership of shares designated as beneficially owned by or held in trust for any
other person, including family members.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, the Management Development -- Compensation and Stock
Option Committee (the "Committee") was comprised of the following individuals:
Jan W. Jeurgens, R. Burt Gookin, James P. Miscoll and Bernard Sweet. There were
no "interlocks" with other companies within the meaning of the SEC proxy rules.
REPORT OF THE MANAGEMENT DEVELOPMENT -
COMPENSATION AND STOCK OPTION COMMITTEE
The following report of the Management Development -- Compensation and Stock
Option Committee (the "Committee"), as well as the Performance Graph set forth
herein, are not soliciting materials, are not deemed filed with the SEC and are
not incorporated by reference in any filing of the Company under the Securities
Act of 1933, as amended (the "Securities Act"), or the Exchange Act, whether
made before or after the date of this Proxy Statement and irrespective of any
general incorporation language in any such filing.
As described on page 7 of this Proxy Statement, the Committee is responsible
for establishing and reviewing the Company's executive compensation policies,
advising the full Board of Directors on compensation matters and administering
the Company's Option Plans (other than the 1993 Plan and the Director Plan,
which are administered by the entire Board of Directors). The Committee is
comprised exclusively of outside directors. All decisions of the Committee
relating to compensation of the Chairman of the Board and Chief Executive
Officer are reviewed and approved by the full Board of Directors. Decisions by
the Committee on grants or awards pursuant to the Company's Option Plans (other
than the 1993 Plan and the Director Plan) are made solely by the Committee.
COMPENSATION POLICY
The Company's executive compensation policies are designed to foster the
Company's business goals of achieving profitable growth and premium returns to
stockholders. The principal objectives of
10
<PAGE>
these policies are as follows: (1) to attract, motivate and retain executives of
outstanding ability and character, (2) to provide rewards that are closely
related to the performance of the Company and the individual executive by
placing a significant portion of compensation at risk and (3) to align the
interests of executives and stockholders through long-term, equity-based
incentives and programs to encourage and reward stock ownership. The Committee
uses the services of independent executive compensation consultants in
developing and evaluating compensation plans in order to achieve the foregoing
objectives.
This report discusses the manner in which base salaries, short-term
incentive compensation and long-term, equity-based incentives for the Company's
Chairman of the Board and Chief Executive Officer and the other Named Executive
Officers were determined for the 1996 fiscal year ended April 27, 1996.
EXECUTIVE COMPENSATION
The key components of executive compensation are base salary, short-term
incentive compensation and long-term, equity-based incentives. Base salary
levels are generally targeted to be competitive with the average salaries paid
at other companies of similar size and complexity both within and outside of the
foodservice distribution and manufacturing industries. The Committee
periodically has commissioned outside independent executive compensation
consultants to analyze competitive compensation levels at comparable companies.
BASE SALARY.
The Committee intends that executive base salaries should be set at
approximately the 50th percentile of comparable companies, and previously
determined to limit base salary increases for those Named Executive Officers
whose base salaries were above the 50th percentile, except where the Committee
deemed merit increases to be warranted on an individual basis or necessary to
retain key executives. Fiscal 1996 base salaries were based on fiscal 1995 base
salaries, with adjustments based primarily on individual performance evaluations
and overall annual salary budget guidelines. Fiscal 1996 base salaries for the
Named Executive Officers were in the middle to the upper end of the range for
comparable companies.
SHORT-TERM INCENTIVE COMPENSATION.
MANAGEMENT INCENTIVE PLAN. The Named Executive Officers and other
executives of the Company and its subsidiaries are eligible for annual cash
bonuses under the Company's Management Incentive Plan. This plan, which is
administered by the Committee, is designed to reward executives for their
contributions to the Company's achievement of specified annual financial
performance goals. The Committee selects participants, determines each
participant's minimum, targeted and maximum bonus opportunities and establishes
the annual financial performance goals for the Company and its operating units.
Performance goals for the Named Executive Officers are based upon the
consolidated results for the Company. Fiscal 1996 performance goals for the
Named Executive Officers were based upon a matrix of the Company's attainment of
operating profit and average return on equity goals. No bonuses are payable to
the Named Executive Officers under the Company's Management Incentive Plan
unless the Company achieves a minimum of 80% of budgeted operating profit. Named
Executive Officers are eligible for targeted bonuses that range from 30% to 60%
of base salary if the performance goals are met, and for maximum bonuses that
range from 60% to 150% of base salary if maximum performance goals are met. In
fiscal 1996, the Company did not achieve more than the 80% minimum of its
budgeted operating profit. Consequently, no Named Executive Officer received a
bonus.
CONVERTIBLE AWARD PLAN. In order to encourage equity ownership in the
Company by its executive officers, including the Named Executive Officers, and
the executive management of its operating companies, the Company implemented a
Convertible Award Plan that provides that participants may elect to receive up
to 50% of their annual incentive bonus under the Management Incentive Plan in
the form of shares of Common Stock, based on a per share price equal to the
closing price on the New York Stock Exchange of the Common Stock on the fourth
day following the announcement of the
11
<PAGE>
Company's annual earnings for the year preceding the year in which the annual
incentive bonus is calculated. If the participant so elects, the participant is
awarded one additional share of Common Stock for each three shares received in
accordance with the foregoing calculation. Although such stock is owned by the
participant and any dividends that the Company may declare will be paid to the
participant, certain restrictions on transferability and forfeiture apply to
these shares during the three years following the original date of issue.
LONG-TERM, EQUITY-BASED INCENTIVE COMPENSATION.
STOCK OPTIONS. The Company also grants stock options and other equity
incentives under the 1988 Plan in order (1) to link compensation to the
Company's long-term growth and performance and (2) to increases in stockholder
value. Under the 1988 Plan, the Committee may grant stock options, stock
appreciation rights, stock awards, restricted stock, performance shares and cash
awards to eligible employees of the Company and its subsidiaries. The Committee
has broad discretion to establish the terms of such grants. It typically grants
awards on an annual basis and may also grant awards to designated employees upon
commencement of employment or following a significant change in any employee's
responsibility or title. Awards are based on guidelines relating to the
employee's position in the Company that are set by the Committee, as well as the
employee's current performance and anticipated future contributions. The
Committee also considers the amount and terms of stock options previously
granted to each of the Named Executive Officers. Each member of the Committee
individually evaluates these factors with respect to each Named Executive
Officer and then the Committee reaches consensus on the appropriate award. All
stock options granted in fiscal 1996 had an exercise price that was equal to the
fair market value of the Common Stock on the date of grant.
PEFORMANCE SHARES. On September 15, 1995, pursuant to the Company's 1988
Plan, each of the Named Executive Officers was granted a number of "performance
shares" which will be converted into an equivalent number of shares of the
Company's Common Stock or, at the election of the Committee, to the cash value
of such shares of Common Stock, following a three-year performance period,
provided that the financial performance of the Company, as measured against the
financial performance of a peer group of companies, meets specified objectives
established by the Committee. Mr. Van Stekelenburg has the opportunity to
receive up to 100,000 shares of Common Stock, and the other Named Executive
Officers each has the opportunity to receive up to 50,000 shares of Common
Stock, if the Company meets the objectives established by the Committee.
ASSUMED OPTIONS. Under the Merger Agreement, the Company assumed USF stock
options to purchase up to approximately 742,721 shares of US Foodservice Class A
Common Stock (the "Assumed Options"), under each of (1) the WS Holdings Option
Plan, (2) the 1992 US Foodservice Option Plan and (3) the 1993 US Foodservice
Option Plan, whether or not such options were vested or exercisable. At the
effective time of the Merger, the Assumed Options constituted options to
acquire, on the same terms and conditions as were applicable to such USF options
(subject to certain adjustments), an aggregate of 1,082,144 shares of Common
Stock. For those Assumed Options that by their terms vest according to
performance criteria ("Performance Options") and that were not vested in
accordance with their terms at the effective time of the Merger, the performance
criteria will be deemed satisfied on the first anniversary of the Merger. The
Committee has determined not to make any additional option grants under the
former USF option plans, but to continue to make grants of stock options, where
appropriate, to individuals under the 1988 Plan.
COMPENSATION OF CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
The base salary of Mr. Van Stekelenburg, the Company's Chairman of the Board
and Chief Executive Officer, is based primarily upon a survey of salaries paid
to chief executive officers of competitor companies. In 1994, the Company
entered into a five-year employment agreement with Mr. Van Stekelenburg which
provided for (1) a minimum annual salary of $450,000 and (2) a minimum target
award of annual incentive bonus under the Management Incentive Plan (or any
similar plan) of 50% of annual base salary if certain performance goals were
met. In connection with the Merger, the
12
<PAGE>
Company entered into an amended and restated employment agreement with Mr. Van
Stekelenburg that became effective on February 2, 1996, the date of signing of
the Merger Agreement. A detailed discussion of Mr. Van Stekelenburg's employment
agreement is set forth under "Employment Agreements and Change-in-Control
Arrangements."
As part of the initial compensation package offered to Mr. Van Stekelenburg
when he joined the Company as an Executive Vice President in fiscal 1991, the
Company made an interest-free, secured demand loan to him in connection with the
purchase of his residence (the "1991 Loan"). Mr. Van Stekelenburg repaid the
1991 Loan in March 1995. The Company subsequently made an interest-free, secured
demand loan to Mr. Van Stekelenburg in connection with the purchase of another
residence following the Company's relocation to Illinois (the "1995 Loan"). The
maximum amount outstanding under this loan in fiscal 1996 was $350,000.The
Committee believes that these loans have enhanced the competitiveness of Mr. Van
Stekelenburg's compensation package and will encourage Mr. Van Stekelenburg to
remain with the Company, in view of the Company's right to demand repayment of
the 1995 Loan in the event Mr. Van Stekelenburg were to leave the Company.
Mr. Van Stekelenburg was not awarded a cash bonus under either the
Management Incentive Plan, nor did he receive any other discretionary bonus for
fiscal 1996. He was, however, granted a nonqualified stock option to acquire
50,000 shares of Common Stock at an exercise price of $17.75, the fair market
value of the Common Stock on June 19, 1995, the grant date.
SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986
In 1993, changes were made to the federal corporate income tax law that
limit the ability of public companies to deduct compensation in excess of $1
million paid annually to the five most highly compensated executive officers.
There are exemptions from this limit, including compensation that is based on
the attainment of performance goals that are established by the Committee and
subsequently approved by the Company's stockholders and forms of current
compensation provided under a binding contract pre-dating the new tax law. It is
the Committee's policy to seek to qualify executive compensation for
deductibility to the extent that such policy is consistent with the Company's
overall objectives in attracting, motivating and retaining its executives. The
Committee has reviewed the Company's executive compensation structure in light
of the new tax law and believes that grants of stock options and stock
appreciation rights under the Option Plans qualify as stockholder-approved
performance-based compensation, and, therefore, will be fully deductible when an
option is exercised. Grants of restricted stock, performance stock and cash
awards made after the new tax law's effective date, under each of (1) the 1988
Plan and (2) the Company's Management Incentive Plan, however, do not qualify as
stockholder-approved performance-based compensation and, therefore, may not be
fully deductible to the extent that such compensation, when added to other
non-exempt compensation for a particular executive, exceeds the limit in any tax
year. The Committee believes that, based upon current compensation levels, no
compensation is at risk of not being fully deductible under these circumstances.
MANAGEMENT DEVELOPMENT-COMPENSATION
AND STOCK OPTION COMMITTEE
R. Burt Gookin
Jan W. Jeurgens
James P. Miscoll
Bernard Sweet
13
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below sets forth annual and long-term compensation for each of the
last three fiscal years awarded to or earned by the Chairman of the Board and
Chief Executive Officer of the Company and the four other Named Executive
Officers of the Company and its subsidiaries who were serving as executive
officers at the end of the last fiscal year.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------------
----------------------------- RESTRICTED SECURITIES
FISCAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL YEAR SALARY BONUS COMPENSATION AWARDS(S) OPTIONS COMPENSATION
POSITION (1) ($)(2) ($)(3) ($) ($)(4) (#)(5) ($)(6)
- -------------------- ------- -------- -------- ------------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mark Van 1996 463,800 0 145,506(7)(8) 0 50,000 2,749
Stekelenburg.......
Chairman of the 1995 453,485 354,855 314,821(7)(8) 75,758 77,500 3,348
Board and
Chief Executive 1994 432,000 67,050 31,483(7) 0 30,625(5) 3,348
Officer
Harold E. Feather... 1996 281,000 0 0 0 15,000 0
Executive Vice 1995 289,839 81,444 0 21,368 37,500 0
President,
Corporate Planning 1994 347,200 44,336 0 0 46,875(5) 0
Alan V. Giuliani.... 1996 244,560 0 0 0 20,000 0
President of the 1995 238,653 71,262 0 29,348 25,000 0
Company's 1994 232,560 25,329 0 0 23,438(5) 0
Rykoff-Sexton
Manufacturing
Division
Robert J. Harter, 1996 224,160 0 40,917(8) 0 15,000 0
Jr.................
Senior Vice 1995 222,083 65,737 84,531(8) 21,735 22,500 0
President --
Administration, 1994 219,960 15,940 0 0 0 0
General
Counsel and
Secretary
Richard J. Martin... 1996 225,000 0 0 0 15,000 0
Senior Vice 1995 221,054 81,597 0 0 21,250 0
President and
Chief Financial 1994 210,000 19,551 0 0 0 0
Officer
</TABLE>
- ------------------------------
(1) Information furnished is for the 52-week fiscal years ended April 27, 1996,
April 29, 1995 and April 30, 1994.
(2) Includes amounts deferred by the Named Executive Officer under the Company's
401(k) Savings Plan. Includes cash automobile allowances.
(3) Does not include the portion of a participant's bonus which the participant
elected to receive in the form of restricted Common Stock of the Company. No
Named Executive Officer received a discretionary bonus in fiscal 1996.
(4) The amount presented is the value of the shares awarded under the Company's
Convertible Award Plan. For fiscal 1996, no Named Executive Officer was
awarded any restricted shares. For fiscal 1995, the number of restricted
shares awarded to the Named Executive Officers, including the one-for-five
matching, were as follows: Mr. Van Stekelenburg 4,331; Mr. Feather 1,223;
Mr. Giuliani 1,679; Mr. Harter 1,242; and Mr. Martin- 0. The number of
shares earned is calculated by dividing the amount of annual incentive bonus
deferred by the Named Executive Officer by the price of the Company's Common
Stock on the New York Stock Exchange ("NYSE") on the fourth day following
the announcement of the Company's annual earnings for the year preceding the
year in which the annual incentive bonus was earned. For fiscal 1995, the
shares under the plan were earned at a price of $15.20 per share, and were
awarded at a price of $17.75 per share, the closing price of the Company's
Common Stock on the NYSE on the fourth day following the announcement of the
Company's annual earnings for fiscal 1995. The shares awarded under the plan
are not transferable by the recipient for three years following receipt
thereof; however, any dividends that the Company may declare, will be paid
to the recipient during the three-year restriction period. The value of the
Named Executive Officers restricted stock holdings as of April 27, 1996,
based on a closing sale price of $15.125 for the Common Stock on that date,
are as follows: Mr. Van Stekelenburg $65,506; Mr. Feather $18,498; Mr.
Giuliani $25,395; Mr. Harter $18,785 and Mr. Martin $0.
(5) Stock option awards for fiscal 1994 have been adjusted to reflect the
Company's 5-for-4 stock dividend on January 24, 1995.
(6) Term life insurance premiums.
(7) Includes $28,945 as the aggregate amount of imputed interest during fiscal
1996 on Mr. Van Stekelenburg's interest-free demand mortgage loans. The
imputed interest for prior years is also shown in this column. The 1991 Loan
had a principal balance of $469,000 from May, 1991 through March, 1995, and
the 1995 Loan had a principal balance of $350,000 at April 27, 1996. The
imputed rate of interest is based on the interest charged by commercial
banks on short-term residential mortgage loans during each of the fiscal
years, and is calculated for informational purposes only. The Company
believes that the mortgage loans to Mr. Van Stekelenburg meet the conditions
set forth in Treasury Regulation 1.7872-5T(c) and, therefore, no interest
need be imputed for income tax purposes.
(8) Includes payments totaling $116,561 and $40,917 in fiscal 1996 and $277,561
and $84,531 in fiscal 1995, to each of Messrs. Van Stekelenburg and Harter,
respectively, relating to their relocation to Chicago, Illinois.
14
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth information on grants of stock options during
fiscal 1996 to the Named Executive Officers under the 1988 Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR GRANT DATE
OPTIONS IN FISCAL BASE EXPIRATION PRESENT
NAME GRANTED (#)(1)(2) YEAR PRICE($/SH) DATE VALUE ($)(3)
- ------------------------- ---------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Mark Van Stekelenburg.... 50,000 36.70 17.75 6/19/05 423,000
Harold E. Feather........ 15,000 11.01 17.75 6/19/05 126,900
Alan V. Giuliani......... 20,000 14.68 17.75 6/19/05 169,200
Robert J. Harter, Jr..... 15,000 11.01 17.75 6/19/95 126,900
Richard J. Martin........ 15,000 11.01 17.75 6/19/95 126,900
</TABLE>
- ------------------------
(1) All of these non-qualified stock options were granted at a price equal to
the fair market value of the Company's Common Stock on the grant date and
will expire ten years from the date of grant.
(2) These options become exercisable in equal quarterly installments commencing
on the first anniversary of the grant date.
(3) The estimated grant date present value reflected in the above table is
determined using a modified Black-Scholes model. The material assumptions
and adjustments incorporated in the Black-Scholes model in estimating the
value of the options reflected in the above table include the following: (i)
a grant price of $17.75 per share; (ii) an exercise price of $17.75; (iii) a
stock volatility factor of 0.225; (iv) a risk-free interest rate of 6.2%;
(v) a dividend yield of .364%; and (vi) an option term of 10 years. The
ultimate values of the options will depend on the future market price of the
Common Stock, which cannot be forecast with reasonable accuracy. The actual
value, if any, an optionee will realize upon exercise of an option will
depend on the excess of the market value of the Common Stock over the
exercise price on the date an option is exercised.
AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information on stock options held by the
Named Executive Officers at the end of fiscal 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL AT FISCAL
SHARES YEAR END (#) YEAR END ($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark Van Stekelenburg.... 0 0 249,063 96,563 165,617 84,148
Harold E. Feather........ 15,626 70,942 64,376 50,938 112,852 98,945
Alan V. Giuliani......... 0 0 42,969 40,469 62,685 51,560
Robert J. Harter, Jr..... 0 0 31,250 33,750 54,341 48,778
Richard J. Martin........ 0 0 31,719 38,594 32,875 27,313
</TABLE>
15
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The table below sets forth information on long-term incentive plan awards
during fiscal 1996 to the Named Executive Officers under the 1988 Plan.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE BASED PLANS
NUMBER OF SHARES PERFORMANCES OR OTHER ---------------------------------
UNITS OR OTHER PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME RIGHTS(#) MATURATION OR PAYOUT (#) (#) (#)
- -------------------------------- ----------------------- --------------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Mark Van Stekelenburg........... 100,000 5/2/98 25,000 50,000 100,000
Harold E. Feather............... 50,000 5/2/98 12,500 25,000 50,000
Alan V. Giuliani................ 50,000 5/2/98 12,500 25,000 50,000
Robert J. Harter, Jr............ 50,000 5/2/98 12,500 25,000 50,000
Richard J. Martin............... 50,000 5/2/98 12,500 25,000 50,000
</TABLE>
On September 15, 1995, the Company granted each Named Executive Officer the
number of "performance shares" indicated above which will be converted into an
equivalent number of shares of the Company's Common Stock or, at the election of
the Committee, to the cash value of such shares of Common Stock, following a
three-year performance period, provided that the financial performance of the
Company, as measured against the financial performance of a peer group of
companies, meets specified objectives established by the Committee.
RETIREMENT BENEFITS
The first Pension Plan Table below is based on both the Company's
tax-qualified noncontributory defined benefit pension plan (the "Pension Plan")
and the Company's non-qualified Supplemental Executive Retirement Plans for
Messrs. Feather, Giuliani, Harter and Martin (the "SERPs"). These SERPs do not
cover the Chairman of the Board and Chief Executive Officer. Mr. Van
Stekelenburg is covered by a separate supplemental pension plan described in the
second table below. The first Pension Plan Table contains the estimated annual
retirement benefits payable on a single life annuity basis to the eligible
executives upon retirement at or after age 62, based on average earnings and
years of service, but have not been reduced by any Social Security benefits (as
required by the SERPs). The current maximum Social Security benefit reduction
would be $14,976 at age 65.
PENSION PLAN TABLE
FOR NAMED EXECUTIVE OFFICERS OTHER THAN THE CHIEF EXECUTIVE OFFICER
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------
REMUNERATION 5 10 15 20
- ------------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
$225,000 $28,125 $56,250 $84,375 $112,500
250,000 31,250 62,500 93,750 125,000
300,000 37,500 75,000 112,500 150,000
350,000 43,750 87,500 131,250 175,000
400,000 50,000 100,000 150,000 200,000
450,000 56,250 112,500 168,750 225,000
500,000 62,500 125,000 187,500 250,000
</TABLE>
The SERPs were adopted by the Company as of October 1, 1995, and amended as
of the date of the Merger Agreement. Full vesting under the SERPS will occur
upon five years of participation after October 1, 1995, and attainment of age
55. Full vesting would also occur earlier upon the executive's death while
married, his disability or upon a change of control of the Company. The
amendment changed the SERPs' definition of "change in control" as described
below. For purposes of computing benefits under the SERPs, the eligible Named
Executives have the following years of service as of April 27, 1996: Mr. Feather
- -- 31, Mr. Giuliani -- 6, Mr. Harter -- 11 and Mr. Martin -- 8. If
16
<PAGE>
Mr. Feather retires before he is vested under his SERP, his annual pension
benefit payable at age 65 is estimated to be $100,752 under the Pension Plan and
another supplemental non-qualified plan sponsored by John Sexton & Co., which
uses a formula provided in the Pension Plan prior to 1989.
The amended SERPs generally provide an executive who retires at or after age
62 and who has at least 15 years of service with an annual lifetime benefit
after retirement of 50% of his final average pay, reduced by any benefits the
executive is entitled to receive under the Pension Plan and certain
retirement-type nonqualified deferred compensation plans sponsored by the
Company, retirement benefits under a prior employer's qualified or nonqualified
plans, and any Social Security retirement benefits received by the executive. If
an executive terminates employment before age 62 or with less than 15 years of
service, the executive's annual SERP benefit is calculated by multiplying his
final average pay by a percentage that equals 2 1/2% times his years of service
(up to 20), subject to the reductions discussed above. Benefits under the SERPs
are also reduced to take into account early retirement (early retirement is
defined as retirement after attainment of age 55 with 10 years of service).
Final average pay under the SERPs means the average of an executive's annual
base salary, plus bonuses, paid during any consecutive three-year period that
contains the highest average within the five-year period ending on the date the
executive terminates employment. The SERP also provides disability benefits,
calculated for an executive with at least one year but less than 10 years of
service as 25% of final average pay, with the same reductions as noted above,
except that no reduction is made for early commencement of benefits. For an
executive with at least 10 years of service, the annual disability benefit is
calculated by multiplying his final average pay by a percentage that equals
2 1/2% times his years of service (up to 20), with the same reductions noted
above except that no reduction is made for early commencement of benefits. After
an executive's death, the SERP also provides a lifetime benefit for his
surviving spouse in an amount equal to 50% of the executive's benefit, reduced
by any survivor benefits paid under the Pension Plan.
The amendments to the SERPs revised the definition of "change in control"
under such SERPs to be identical to such definition contained in the amended and
restated change in control agreements (described below). If a "change in
control" occurs, an executive becomes 100% vested in his benefits under the SERP
and is entitled to receive benefits equal to the retirement benefit payable at
age 62, with a reduction for any early commencement of benefits.
The Company and its subsidiary, John Sexton & Co., maintain the Pension Plan
for their officers and other eligible employees who are not covered by a union
sponsored retirement plan. The Pension Plan covers employees of the Company for
periods after April 29, 1989. Full vesting under the Pension Plan occurs after
five years of service with the Company and its subsidiaries. The Pension Plan
does not cover employees of USF or its subsidiaries, except those Pension Plan
participants who are transferred to USF or one of its subsidiaries from
employment with the Company or John Sexton & Co.
The following Pension Plan Table for the Chairman of the Board and Chief
Executive Officer is based on an individual SERP arrangement between the Company
and Mr. Van Stekelenburg, effective July 20, 1994, which the Company entered
into in connection with Mr. Van Stekelenburg's original employment agreement.
The table shows the estimated annual retirement benefits payable to Mr. Van
Stekelenburg under the Pension Plan and his SERP on a joint and survivor basis,
based on his final average pay and years of service at retirement. His accrued
SERP benefits are fully vested after five years of Company service or upon his
disability. If Mr. Van Stekelenburg retires on or after age 60 with at least
five years of service, his SERP and the Pension plan together provide an annual
lifetime benefit equal to 60% of his final average pay, reduced by 3% for each
year of service less than 20 years. If he retires before age 60 but after age 55
with at least five years of service, his annual benefit is reduced by 0.5% for
each month before age 60. If he terminates employment before age 55 with at
least five years of service, he will receive an annual benefit beginning after
age 55 that is actuarially reduced from the benefit payable at age 60. This SERP
also provides disability benefits, calculated as 30% of final average pay if Mr.
Van Stekelenburg becomes disabled with at least one year but less than 10 years
of service and calculated as his normal retirement benefit at age 60 if he
becomes disabled
17
<PAGE>
with at least 10 years of service. Mr. Van Stekelenburg's annual SERP benefits
are reduced by any Social Security retirement benefits received by him. Final
average pay under the SERP means the average of Mr. Van Stekelenburg's cash
compensation (plus certain deferred amounts) during the last three years of his
employment with the Company and its subsidiaries. After Mr. Van Stekelenburg's
death, his SERP provides a lifetime benefit for his surviving spouse in an
amount generally equal to 60% of Mr. Van Stekelenburg's retirement benefits
under his SERP, reduced by any survivor benefits paid under the Pension Plan.
PENSION PLAN TABLE FOR CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------
REMUNERATION 5 10 15 20
- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$450,000 $ 67,500 $135,000 $202,500 $270,000
500,000 75,000 150,000 225,000 300,000
600,000 90,000 180,000 270,000 360,000
700,000 105,000 210,000 315,000 420,000
800,000 120,000 240,000 360,000 480,000
900,000 135,000 270,000 405,000 540,000
</TABLE>
The amounts in the Pension Plan Table for Chairman of the Board and Chief
Executive Officer include both SERP and Pension Plan benefits, but have not been
reduced by any Social Security benefits (as required by the SERP). The current
maximum Social Security benefit reduction would be $14,976 at age 65.
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
EMPLOYMENT AGREEMENTS. The Company entered into an employment agreement
with Mark Van Stekelenburg effective July 20, 1994. The employment agreement
provided for a five-year term (with automatic one-year renewals thereafter
unless either party gives notice of termination), a minimum annual base salary
of $450,000 and a minimum annual incentive bonus under the Management Incentive
Plan (or any similar plan) of 50% of annual base salary if certain performance
goals were met. In connection with the signing of the Merger Agreement, the
Company entered into an amended and restated employment agreement with Mr. Van
Stekelenburg that became effective on February 2, 1996. The amended and restated
employment agreement generally parallels Mr. Van Stekelenburg's prior employment
agreement. It provides a minimum annual base salary of $450,000 for a five-year
term beginning on the date of signing (with automatic one-year renewals
commencing at the end of the fifth year unless either party gives advance notice
to the contrary), with a guaranteed minimum bonus of 50% of annual base salary
for the Company's 1997 fiscal year and 25% of annual base salary for the
Company's 1998 fiscal year. The agreement provides for term life insurance of
not less than $1,000,000 and a corresponding tax reimbursement. If Mr. Van
Stekelenburg's employment is involuntarily terminated without cause during the
term of the amended and restated agreement, he will receive termination payments
for the greater of two years or the remaining term of the agreement. Termination
benefits include salary and welfare benefit continuation, bonus (equal to the
average amount of his incentive bonus during the three years preceding
termination), immediate exercisability of any outstanding stock options, the
lapse of any restrictions on other equity awards, and if termination occurs
before July 20, 1999, two additional years of service credit added to Mr. Van
Stekelenburg's SERP. Termination payments will be offset by any payments (other
than tax reimbursements) made under his change in control agreement (described
below). In general, "cause" is defined as (1) a willful and continued failure to
perform assigned duties after notice of such failure, willful misconduct that is
materially injurious to the Company or a material breach of any material
provision of the employment agreement (unless cured within a specified time);
(2) notice to Mr. Van Stekelenburg of the Company's intent to terminate the
agreement and his employment; (3) Mr. Van Stekelenburg's disability, failure to
be reappointed Chief Executive Officer and Chairman of the
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<PAGE>
Board, or failure to be reelected to the Board of Directors; (4) failure by a
successor or assign of the Company to assume liability under the employment
agreement or Mr. Van Stekelenburg's SERP; or (5) the Board of Directors' failure
to approve Mr. Van Stekelenburg's strategic plans for the Company as a result of
irreconcilable differences with respect to the future of the Company.
The Company entered into an employment agreement with Harold E. Feather
effective June 20, 1994, which provides that Mr. Feather will be paid a minimum
base salary of $275,000 and an annual car allowance of no less than $7,200
through December 31, 1998. In the event that Mr. Feather is terminated by the
Company for any reason other than Mr. Feather's death, disability, or for cause
(as defined), Mr. Feather will continue to receive his base salary through
December 31, 1998, provided that Mr. Feather does not directly or indirectly
compete with the Company.
CHANGE IN CONTROL AGREEMENTS. As of February 2, 1996, the date of signing
of the Merger Agreement, the Company entered into a second amended and restated
change in control agreement with Mr. Van Stekelenburg and amended and restated
change in control agreements with the other Named Executive Officers, which
superseded their then-existing change in control agreements, providing for the
payment of specified benefits under the circumstances described below after a
"change in control." A "change in control" is deemed to occur under the amended
and restated change in control agreements if (1) any person (other than certain
"excluded persons") becomes the beneficial owner of 25% or more of the Company's
then outstanding voting securities, other than pursuant to certain "excepted
transactions," or (2) within any twelve-month period, a change in the membership
of the Company's Board of Directors occurs with the result that the incumbent
members do not constitute a majority of the Board of Directors.
For purposes of the amended and restated change in control agreements, the
term "excluded persons" means (1) the ML Entities, so long as the Standstill
Agreement continues to be in effect and the ML Entities are in compliance with
the terms of the Standstill Agreement and (2) any person who acquires the
Company's voting securities from the ML Entities if (a) such securities were
acquired by an ML Entity pursuant to the Merger and (b) prior to such
acquisition by such other person, a majority of the Board of Directors, other
than directors nominated by, or affiliated or associated with, the ML Entities,
has determined in good faith that such transaction does not constitute a "change
in control" for purposes of the amended and restated change in control
agreements. An "excluded person" will cease to be such if (1) Mr. Van
Stekelenburg ceases to be the Chief Executive Officer of the Company at any time
during the twelve-month period beginning May 17, 1996 (the date of the
consummation of the Merger) unless he ceases to be the Chief Executive Officer
by reason of death, disability, termination for cause or voluntary termination
by Mr. Van Stekelenburg under circumstances that are not treated as an
involuntary termination under his employment agreement or (2) the members of the
Board of Directors immediately prior to the execution of the USF Letter of
Intent, dated December 5, 1995, together with any successors to such directors
(other than directors nominated by, or affiliated or associated with, the ML
Entities), cease to constitute a majority of the Board of Directors at any time
during the twelve-month period after the consummation of the Merger.
For purposes of the amended and restated change in control agreements, an
"excepted transaction" means any transaction initiated by the Company in which
(1) Mr. Van Stekelenburg continues to be the Chief Executive Officer of the
Company, or the surviving or other controlling corporation or other such entity
(the "Resulting Corporation"), immediately following the consummation of such
transaction and throughout the twelve-month period thereafter, and (2) the
directors of the Company in office immediately prior to such transaction
constitute at least a majority of the Board of Directors of the Company or the
Resulting Corporation immediately after the consummation of such transaction and
throughout the twelve-month period thereafter.
If a change in control occurs, the agreements (other than Mr. Van
Stekelenburg's) will provide an executive with an amount equal to 2.99 times the
sum of his base salary plus the amount that would otherwise be earned under any
executive compensation plan if within two years subsequent to the change in
control, the executive's employment is involuntarily terminated by the Company
other than
19
<PAGE>
for death, disability or "cause" (defined generally as the executive's willful
and continued failure to substantially perform his duties, after specific demand
for substantial performance has been made by the Company, or the executive's
willful engaging in misconduct that is materially injurious to the Company) or
if the executive terminates his employment for "good reason," defined as (1)
certain changes to the executive's duties, titles, offices or positions, (2) a
salary reduction or a failure to increase salary by certain amounts, (3) failure
to maintain, or certain adverse effects on the executive's participation in,
certain benefit, incentive or stock option plans, (4) certain relocations of the
offices of the Company or the executive, (5) a reduction in the executive's
vacation days, (6) a material breach of, or failure by a successor or assign of
the Company to assume, the executive's change in control agreement, or (7) a
purported termination of the executive's employment that is not implemented
pursuant to the terms of the executive's change in control agreement.
Pursuant to his second amended and restated change in control agreement, Mr.
Van Stekelenburg will receive an amount equal to 2.99 times the sum of his base
salary plus the amount that would otherwise be earned under any executive
compensation plan if, within two years subsequent to a change in control, his
employment is terminated by the Company for any or no reason (other than death)
or if Mr. Van Stekelenburg elects to terminate his employment for any or no
reason. Termination benefits for each of the executives also include
outplacement expense reimbursement and welfare benefit continuation for two
years after the executive's termination of employment.
The agreements with Messrs. Van Stekelenburg and Feather also provide for
payment of an amount necessary to restore any benefit diminution if the 20%
excise tax imposed under Section 4999 of the Code is applicable to their
agreements. Prior to a change in control, each of the amended and restated
change in control agreements provides for a base term of three years, with
automatic one-year renewals unless the Company gives advance notice to the
contrary.
SEVERANCE AGREEMENTS. In connection with the negotiation and execution of
the amended and restated change in control agreements, the Company also entered
into individual severance agreements as of February 2, 1996, the date of signing
of the Merger Agreement, with Messrs. Feather, Giuliani, Harter and Martin. The
individual severance agreements provide for termination benefits if an executive
is involuntarily terminated by the Company other than for death, disability or
"cause" or terminates voluntarily after a reduction in pay, other than a general
reduction, or notice of the non-renewal of the agreement, during the severance
agreement's three-year term. These agreements also provide for automatic
one-year renewals unless either party gives advance notice to the contrary.
"Cause" under the severance agreements is defined as a failure by the executive
consistently to meet applicable performance appraisal standards; an intentional
act of fraud, embezzlement or theft; intentional wrongful damage to the
Company's property; intentional misconduct that is materially injurious to the
Company; or a breach of the confidentiality/nonsolicitation provisions of the
severance agreement. Termination benefits include salary and welfare benefit
continuation for two years, bonus (based on actual performance results during
the applicable performance period and calculated as though the executive had
remained employed throughout the period, but prorated to reflect the period of
actual service), full vesting in any stock options and in each individual's SERP
and crediting of benefits under the Company's Deferred Compensation Plan at a
"preferred" rate. Termination payments will be offset by any payments made under
an individual's employment agreement or change in control agreement.
20
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return on the Standard & Poor's 500 Index and the Dow Jones Consumer
Non-Cyclical Index over the same period (assuming the investment of $100 in the
Company's Common Stock and in each index on April 30, 1991 and the reinvestment
of all dividends).
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG RYKOFF-SEXTON, INC., THE S&P 500 INDEX
AND THE DOW JONES CONSUMER NON-CYCLICAL INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOW JONES CONSUMER
RYKOFF-SEXTON, INC. S & P 500 NON-CYCLICAL INDEX
<S> <C> <C> <C>
4/91 100 100 100
4/92 105 114 116
4/93 84 125 106
4/94 110 131 110
4/95 128 154 144
4/96 111 201 193
</TABLE>
21
<PAGE>
CERTAIN TRANSACTIONS
THE MERGER
US FOODSERVICE INC. LOAN FORGIVENESS. Pursuant to the Merger Agreement, the
Company forgave an aggregate of $4.9 million of previously outstanding loans
made by USF to certain key employees, including $650,329, $702,725, and $158,712
owing by Messrs. Frank H. Bevevino, Thomas G. McMullen and David F. McAnally,
respectively, and $912,268 and $841,521 owing by Messrs. John R. and Thomas J.
Bevevino, respectively, sons of Mr. Frank H. Bevevino, to enable them to
purchase shares of USF Common Stock. Such loans were forgiven, subject to each
employee's agreement that the shares of Common Stock issued in connection with
the Merger will not be sold for a period of one year from the effective time of
the Merger or such earlier date on which such individual ceases to be an
employee of the Company and its subsidiaries due to resignation, retirement or
termination. In connection with such loan forgiveness, the Company extended
loans to various USF employees, including the following persons in the amounts
indicated, to cover the federal and state income tax due from such employees as
a result of such loan forgiveness: Frank Bevevino, $216,429.48; Thomas McMullen,
$233,866.84; John Bevevino, $270,710.84; Thomas Bevevino, $282,262.48. Each of
these loans must be repaid within fifteen months of the effective time of the
Merger or within three months of the individuals's resignation, retirement or
termination of employment.
REDEMPTION AND PURCHASE OF PREFERRED STOCK. It was a condition precedent to
the Merger that all shares of USF's previously outstanding $15 Cumulative
Redeemable Exchangeable Preferred Stock (the "Exchangeable Preferred Stock") be
purchased by the Company and that all shares of USF's previously outstanding 10%
Preferred Stock be redeemed by USF from the holders thereof. On March 1, 1996,
USF effected the purchase of the 10% Preferred Stock for a total price of
$21,261,916. The redemption of the Exchangeable Preferred Stock pursuant to the
Merger Agreement was deemed to have occurred immediately prior to the effective
time of the Merger. ML IBK Positions, Inc. and Merchant Banking L.P. No. IV,
each of which is an affiliate of ML & Co., previously held all of the issued and
outstanding shares of Exchangeable Preferred Stock, and in connection therewith,
received a total of approximately $24.4 million (representing approximately
$16.8 million in redemption price plus approximately $7.6 million in accrued but
unpaid dividends) plus accrued interest at the rate of 15% per annum from
October 15, 1995 to the date of redemption. Such interest totaled approximately
$2.2 million as of May 17, 1996, resulting in a total redemption price on such
date of approximately $26.6 million.
SUBORDINATED DEBT HOLDERS. Prior to the Merger, all $70.9 million principal
amount of USF's previously outstanding 14.25% Debentures was held by Equitable
Deal Flow Fund, L.P. (the "Equitable Fund"), the Equitable Life Assurance
Society of the United States ("Equitable Life") and the Chase Manhattan Bank,
N.A., as trustee for E.Q. Asset Trust 1993 (the "Equitable Trust"), all of which
was redeemed or purchased in connection with the Merger. Each of the Equitable
Fund, Equitable Life and the Equitable Trust are affiliates of each other, and
of Equitable Variable Life Insurance Company ("Equitable Variable Life"), which
together with the Equitable Fund and Equitable Life (the "Equitable Entities"),
holds approximately 4.3% of the Company's Common Stock. The Equitable Fund,
Equitable Life and the Equitable Trust received an aggregate of $76.0 million
pursuant to the redemption of the 14.25% Debentures, representing a redemption
price of 107.13% of the principal amount thereof.
REGISTRATION RIGHTS. In connection with the Merger, the Company entered
into a Registration Rights Agreement, which provides for certain rights to the
ML Entities, the Equitable Entities and Frank H. Bevevino (collectively, the
"Holders") with respect to the Common Stock owned by them (the "Registrable
Securities"). Under the Registration Rights Agreement, the ML Entities may make
a written demand of the Company to effect the registration of all or part of the
ML Entities' Registrable Securities. The Company will not be required to take
any action if, among other things, (1) four demand registrations have been
previously effected or (2) the Registrable Securities requested
22
<PAGE>
to be registered have a then current market value of less than $50 million,
unless such demand is for registration of all remaining Registrable Securities
held by the ML Entities. The Company will be required to file the Registration
Statement within 30 business days of exercise of any demand right, but will not
be required to effect a registration during certain "blackout periods" during
which the Company has determined in good faith that such registration (1) could
materially impair or delay a pending transaction (up to 180 days) or (2) would
require disclosure of confidential information (up to 90 days). Additionally, if
the Company seeks to register, in a proposed public offering for its own account
or for the account of any holder of Common Stock (other than pursuant to a
Registration Statement on Form S-4 or Form S-8 or any successor form under the
Securities Act, or filed in connection with an exchange offer or an offering of
securities solely to existing stockholders or employees of the Company ) any
Common Stock while the Registration Rights Agreement is in effect, the Holders
will have the right to request that the Company include any or all of their
Registrable Securities in the proposed offering. Each Holder will pay all
underwriting discounts, commissions, transfer taxes and documentary stamp taxes
related to the Registrable Securities offered for sale by such Holder as well as
the fees and disbursements of its counsel (other than counsel representing the
Holders as a group). All other fees and expenses in connection with the
registration of Registrable Securities, including those of counsel representing
the Holders as a group, will be borne by the Company. The Company has agreed to
indemnify the Holders and the prospective underwriters of registrations of
Registrable Securities for liabilities for material misstatements and omissions,
other than any material misstatements or omissions based on information provided
by the Holders, included in the Registration Statement. Likewise, each Holder
has agreed to indemnify the Company, all other Holders or any underwriter for
liabilities for material misstatements and omissions made in the Registration
Statement in reliance on information provided to the Company by such Holders,
subject to certain limitations. To the extent that indemnification from an
indemnifying party is unavailable, contribution will also be available, with
certain limitations, to any of the above parties in relation to relative fault.
REAL ESTATE MATTERS. On February 28, 1996, USF entered into a twelve-year
lease (commencing on the date the premises are delivered with certain
improvements substantially completed) for approximately 25,000 square feet of
office space located in Plains Township, Pennsylvania. The lease provides for a
base rental rate of $12.50 per square foot, subject to certain increases, plus
payment of the tenant's pro rata share of building expenses, including
utilities, real estate taxes and insurance. The owner and lessor of the office
building is Paul-Francis Realty, L.P., a Pennsylvania limited partnership whose
principals include entities controlled by Paul S. Siegel and Frank H. Bevevino,
the President and a director of the Company.
OTHER
MANAGEMENT INDEBTEDNESS. During fiscal 1996, Mr. Mark Van Stekelenburg,
Chairman of the Board and Chief Executive Officer of the Company, was indebted
to the Company in the amount of $350,000 in connection with the 1995 Loan. The
largest aggregate amount of indebtedness outstanding during fiscal 1996 was
$350,000. The amount of such indebtedness outstanding as of July 26, 1996 was
$350,000. The 1995 Loan is evidenced by a secured, non-interest bearing demand
promissory note.
LEGAL SERVICES. The law firm of Maslon Edelman Borman & Brand, a
Professional Limited Liability Partnership, of which Mr. Neil I. Sell is a
partner, provided legal services to the Company during fiscal 1996.
INVESTMENT BANKING. USF retained Merrill Lynch Pierce Fenner & Smith
("MLPF&S"), an affiliate of ML & Co., to act as USF's exclusive financial
advisor in connection with a proposed business combination involving the
Company, pursuant to a letter agreement dated December 5, 1995 between MLPF&S
and USF (the "ML Engagement Letter"). Pursuant to the ML Engagement Letter,
MLPF&S agreed to assist USF in analyzing, structuring, negotiating and effecting
the proposed business combination with the Company and to issue a fairness
opinion, as necessary or required.
23
<PAGE>
Pursuant to the terms of the ML Engagement Letter, USF paid MLPF&S a fee of
$500,000, upon the execution of the letter of intent with such amount to be
credited against any other fees payable pursuant to the ML Engagement Letter. In
addition, MLPF&S earned a fee of $3,000,000 from USF upon consummation of the
Merger.
Additionally, the Company has periodically retained ML & Co. or certain of
its affiliates, to provide it with investment banking and financial advisory
services. Each of Messrs. Bowman, Fitzgibbons, Khanna and Williamson are
affiliates of the ML Entities and were appointed to the Board of Directors
pursuant to the Standstill Agreement. See "Election Of Directors."
PROPOSAL TO ADOPT THE RYKOFF-SEXTON, INC.
CONVERTIBLE AWARD PLAN (DIRECTOR EDITION)
The Board of Directors has adopted, subject to stockholder approval, the
Director Plan. The Director Plan is effective as of June 19, 1995, and was
amended in January 1996 and April 1996, in each case subject to its approval by
the stockholders of the Company. The April and June amendments were effected to
conform the Director Plan to the Company's new fiscal year and to suspend the
Director Plan during the two month fiscal period ended in June 1996. The
following summary of the principal features of the Director Plan is qualified in
its entirety by the complete text of the Director Plan, which is set forth as
Exhibit A to this Proxy Statement. Capitalized terms used in the following
summary, but not defined therein, shall have the meanings contained in the
Director Plan.
GENERAL. The Director Plan was designed to grant eligible Directors
restricted shares of Common Stock ("Premium Shares") as a bonus to those
Directors who purchase Common Stock from the Company. This purchase may be made
with any part of the annual retainer fee earned by an eligible Director during
the Company's fiscal year (the "Annual Retainer"). Any Director of the Company
who is eligible to receive an Annual Retainer is eligible to participate in the
Director Plan.
PURCHASED SHARES. Any eligible Director may elect to defer payment of any
part of his or her Annual Retainer for a fiscal year until the last quarterly
Board meeting of that fiscal year and to receive that payment in the form of
Common Stock ("Purchased Shares"). The number of Purchased Shares acquired by
that election will be equal to (1) the dollar amount of Annual Retainer being
converted, divided by (2) the Conversion Price for the fiscal year. The
"Conversion Price" for a fiscal year will be the average of the closing prices
of the Common Stock, at the end of each week during the three month period
ending on the last day of the seventh month of the fiscal year. If there is a
stock split or other change in the Common Stock during the six months before
that date, the Conversion Price will be adjusted to reflect that change. If an
eligible participant ceases to be a Director before the last quarterly Board
meeting of a fiscal year, any Annual Retainer fees not earned will not be
converted into Purchased Shares. For purposes of the Director Plan, a Director
is considered to earn 25% of his Annual Retainer on the date of each quarterly
Board meeting. Any Purchased Shares acquired under the Director Plan will vest
and become transferable as soon as they are delivered. Purchased Shares will not
be forfeited for any reason.
PREMIUM SHARES. The Company will also grant one Premium Share for each
three Purchased Shares acquired by a Director. The Company will not issue
fractional Premium Shares or cash in lieu thereof. All Premium Shares will be
non-transferable and subject to possible forfeiture, as explained below, during
the two year period beginning on the date a Director is scheduled to receive
those shares (the "Holding Period"). The Holding Period may be shortened if a
Director's Board membership ends without an event that would cause a forfeiture
of Premium Shares.
Until the end of the Holding Period for Premium Shares, a Director may not
sell or otherwise transfer such shares, except for a transfer resulting from
death. Also, if a Director sells or otherwise voluntarily transfers any
Purchased Shares before the end of the Holding Period for those shares, he will
forfeit all of the Premium Shares he received with such Purchased Shares, unless
the Holding Period has been shortened as described below.
24
<PAGE>
If a Director who bought Purchased Shares ceases to be a member of the Board
of Directors before the end of the Holding Period for any of the related Premium
Shares, the Premium Shares will be forfeited unless the Director has left the
Board for one or more of the following reasons: (1) death or long-term
disability (as determined in the discretion of the majority of the other
Directors); (2) removal from the Board without cause; (3) failure to be
re-nominated or re-elected as a Director; (4) a "change in control" of the
Company, as defined in any existing agreements between the Company and its
senior officers or (5) the Director's voluntary resignation from the Board,
accompanied by the vote of a majority of the Board (excluding such Director)
agreeing to waive the balance of the Holding Period and determining in good
faith that the waiver is in the best interest of the Company.
If an eligible Director's membership on the Board terminates for any of
those five reasons during the Holding Period of any of his or her Purchased
Shares, then the related Holding Period will end, and all related Premium Shares
will be freed from any further risk of forfeiture and will become fully
transferable, subject to applicable securities laws, as of the effective date of
the termination.
FEDERAL INCOME TAX CONSEQUENCES. Any part of an Annual Retainer used to
acquire Purchased Shares will be treated as earned income for income tax
purposes. However, when a Director buys Purchased Shares with any Annual
Retainer amounts he or she has not yet earned, income taxation of those amounts
will be deferred until the Purchased Shares are delivered. The taxable amount
will be the market value of the Purchased Shares on the date they are delivered
to the Director. Nonetheless, a Director may be responsible for self-employment
taxes on the deferred part of his or her Annual Retainer as it is earned,
without any delay until the delivery of Purchased Shares. Under current federal
income tax rules, a Director's Premium Shares will generally be treated as
taxable ordinary income at the end of the Holding Period if they are still held
by the Director. The amount of taxable income will be the fair market value of
the Premium Shares at the end of the Holding Period. The Director's holding
period for capital gains tax treatment will begin when the Premium Shares become
taxable income. However, a Director may start the capital gain holding period
earlier by electing to treat Premium Shares as taxable income on their delivery
date, using their value at that time. If any Premium Shares are forfeited, a
Director must promptly endorse the certificates to the Company and return them
to the Company without receiving anything in exchange. If Premium Shares are
forfeited before they become taxable income to a Director, the forfeiture will
have no tax effect. If a Director has elected to treat them as taxable at their
value on their delivery date, the Director may have a capital loss deduction
equal to that amount but usable only in limited circumstances.
The discussion set forth above does not purport to be a complete analysis of
the potential tax consequences relevant to a participant in the Director Plan or
to describe the tax consequences based on particular circumstances. It is based
on federal income tax law and interpretational authorities as of the date of
this Proxy Statement, both of which are subject to change. Each participant must
consult with his or her own tax advisor to determine the tax consequences of
participation in the Director Plan.
VOTING AND DIVIDEND RIGHTS. During the Holding Period for Purchased Shares
and Premium Shares, a Director will be entitled to vote all of those shares and
will be entitled to receive any dividends paid with respect to those shares.
However, such rights will terminate with respect to Premium Shares if they are
forfeited as described above.
MISCELLANEOUS. A Director may not assign any part of his or her Annual
Retainer deferred by him, nor may a Director assign any right to receive
Purchased Shares or Premium Shares as a result of an election to participate in
the Director Plan. However, such rights may be transferred as a result of his or
her death before receiving the shares. Until a Director receives Purchased
Shares and Premium Shares, the Director's rights to those shares are not secured
by any Company property, and such rights will be the same as the rights of any
other creditor of the Company.
The Plan may be amended at any time by the Board. However, no amendment
shall become effective without stockholder approval, if such stockholder
approval is required by any law, rule or regulation. Also, the Director Plan
shall generally not be amended more than once every six months,
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except to comply with changes in the Code, the Employee Retirement Income
Security Act of 1974 or the rules thereunder. No amendment of the Director Plan
will adversely affect any material right of any participant with respect to any
shares previously granted, unless such participant gives his or her written
consent.
The adoption of the Director Plan requires the approval of the affirmative
vote of a majority of the votes cast, provided that the total votes cast
represent over fifty percent (50%) in interest of all shares entitled to vote on
this matter. Accordingly, the Board of Directors recommends a vote FOR approval
and adoption of the Director Plan. Unless instructed to the contrary, all
proxies will be voted for the approval and adoption of the Director Plan.
PROPOSAL TO INCREASE THE NUMBER OF SHARES
OF COMMON STOCK RESERVED FOR ISSUANCE
UNDER THE COMPANY'S 1988 STOCK OPTION AND COMPENSATION PLAN
On June 20, 1988, the Board of Directors unanimously approved the 1988 Plan
covering an aggregate of 781,250 shares of Common Stock. The stockholders
approved the 1988 Plan on September 9, 1988. On September 13, 1991, the
stockholders of the Company approved an amendment to the 1988 Plan to increase
the number of shares of Common Stock reserved for issuance thereunder by 625,000
shares. Subject to the approval of the stockholders, on June 24, 1996, the Board
of Directors further amended the 1988 Plan to increase the number of shares of
Common Stock reserved for issuance thereunder by 1,500,000 shares. No change to
the 1988 Plan is proposed other than an increase in the number of shares of
Common Stock reserved for issuance thereunder. The brief summary of the 1988
Plan which follows is qualified in its entirety by reference to the complete
text, a copy of which is attached to this Proxy Statement as Exhibit B.
GENERAL. The purpose of the 1988 Plan is to increase stockholder value and
to advance the interests of the Company by furnishing a variety of economic
incentives ("Incentives") designed to attract, retain and motivate employees of
the Company. The 1988 Plan provides that a committee (the "Committee") composed
of at least two members of the Board of Directors of the Company who have not
received Incentives under the 1988 Plan or any other plan of the Company for at
least one year may grant Incentives to employees in the following forms: (1)
stock options; (2) stock appreciation rights; (3) stock awards; (4) restricted
stock; (5) performance shares; and (6) cash awards. Incentives may be granted
only to employees of the Company (including officers and directors of the
Company, but excluding directors of the Company who are not also employees of or
consultants to the Company) selected from time to time by the Committee.
The number of shares of Common Stock which may be issued under the 1988 Plan
if this amendment is approved, may not exceed 2,906,250 shares, subject to
adjustment in the event of a merger, recapitalization or other corporate
restructuring. This represents approximately 11% of the outstanding shares of
Common Stock on July 26, 1996.
STOCK OPTIONS. Under the 1988 Plan, the Committee may grant non-qualified
and incentive stock options to eligible employees to purchase shares of Common
Stock from the Company. The 1988 Plan confers on the Committee discretion, with
respect to any such stock option, to determine the number and purchase price of
the shares subject to the option, the term of each option and the time or times
during its term when the option becomes exercisable. The purchase price for
incentive stock options may not be less than the fair market value of the shares
subject to the option on the date of grant. The number of shares subject to an
option will be reduced proportionately to the extent that the optionee exercises
a related stock appreciation right ("SAR"). The term of a non-qualified option
may not exceed 10 years and one day from the date of grant and the term of an
incentive stock option may not exceed 10 years from the date of grant. Any
option shall become immediately exercisable in the event of specified changes in
corporate ownership or control. The Committee may accelerate the exercisability
of any option or may determine to cancel stock options in order to make a
participant
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eligible for the grant of an option at a lower price. The Committee may approve
the purchase by the Company of an unexercised stock option for the difference
between the exercise price and the fair market value of the shares covered by
such option.
The option price may be paid in cash, check, bank draft or by delivery of
shares of Common Stock valued at their fair market value at the time of purchase
or by withholding from the shares issuable upon exercise of the option shares of
Common Stock valued at their fair market value or as otherwise authorized by the
Committee.
In the event that an optionee ceases to be an employee of the Company for
any reason, including death, any stock option or unexercised portion thereof
which was otherwise exercisable on the date of termination of employment shall
expire at the time or times established by the Committee.
STOCK APPRECIATION RIGHTS. A stock appreciation right or SAR is a right to
receive, without payment to the Company, a number of shares, cash or any
combination thereof, the amount of which is determined pursuant to the formula
described below. An SAR may be granted with respect to any stock option granted
under the 1988 Plan, or alone, without reference to any stock option. An SAR
granted with respect to any stock option may be granted concurrently with the
grant of such option or at such later time as determined by the Committee and as
to all or any portion of the shares subject to the option.
The 1988 Plan confers on the Committee discretion to determine the number of
shares as to which an SAR will relate as well as the duration and exercisability
of an SAR. In the case of an SAR granted with respect to a stock option, the
number of shares of Common Stock to which the SAR pertains will be reduced in
the same proportion that the holder exercises the related option. The term of an
SAR may not exceed ten years and one day from the date of grant. Unless
otherwise provided by the Committee, an SAR will be exercisable for the same
time period as the stock option to which it relates is exercisable. Any SAR
shall become immediately exercisable in the event of specified changes in
corporate ownership or control. The Committee may accelerate the exercisability
of any SAR.
Upon exercise of an SAR, the holder is entitled to receive an amount which
is equal to the aggregate amount of the appreciation in the shares of Common
Stock as to which the SAR is exercised. For this purpose, the "appreciation" in
the shares consists of the amount by which the fair market value of the shares
of Common Stock on the exercise date exceeds (1) in the case of an SAR related
to a stock option, the purchase price of the shares under the option or (2) in
the case of an SAR granted alone, without reference to a related stock option,
an amount determined by the Committee at the time of grant. The Committee may
pay the amount of this appreciation to the holder of the SAR by the delivery of
Common Stock, cash, or any combination of Common Stock and cash.
RESTRICTED STOCK. Restricted stock consists of the sale or transfer by the
Company to an eligible employee of one or more shares of Common Stock which are
subject to restrictions on their sale or other transfer by the employee. The
price at which restricted stock will be sold will be determined by the
Committee, and it may vary from time to time and among employees and may be less
than the fair market value of the shares at the date of sale. All shares of
restricted stock will be subject to such restrictions as the Committee may
determine. Subject to these restrictions and the other requirements of the 1988
Plan, a participant receiving restricted stock shall have all of the rights of a
stockholder as to those shares.
STOCK AWARDS. Stock awards consist of the transfer by the Company to an
eligible employee of shares of Common Stock, without payment, as additional
compensation for services to the Company. The number of shares transferred
pursuant to any stock award will be determined by the Committee.
PERFORMANCE SHARES. Performance shares consist of the grant by the Company
to an eligible employee of a contingent right to receive cash or payment of
shares of Common Stock. The performance shares shall be paid in shares of Common
Stock to the extent performance objectives set forth in the grant are achieved.
The number of shares granted and the performance criteria will be determined by
the Committee.
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CASH AWARDS. A cash award consists of a monetary payment made by the
Company to an eligible employee as additional compensation for his services to
the Company. Payment may depend on the achievement of specified performance
objectives. The amount of any monetary payment constituting a cash award shall
be determined by the Committee.
NON-TRANSFERABILITY OF MOST INCENTIVES. No stock option, SAR, performance
share or restricted stock granted under the 1988 Plan will be transferable by
its holder, except in the event of the holder's death, by will or by the laws of
descent and distribution. During an employee's lifetime, an Incentive may be
exercised only by him or her or by his or her guardian or legal representative.
AMENDMENT OF THE 1988 PLAN. The Board of Directors may amend or discontinue
the 1988 Plan at any time. However, no such amendment or discontinuance may,
subject to adjustment in the event of a merger, recapitalization, or other
corporate restructuring, (1) change or impair, without the consent of the
recipient thereof, an Incentive previously granted, (2) materially increase the
maximum number of shares of Common Stock which may be issued to all employees
under the 1988 Plan, (3) materially change or expand the types of Incentives
that may be granted under the 1988 Plan, (4) materially modify the requirements
as to eligibility for participation in the 1988 Plan, or (5) materially increase
the benefits accruing to participants. Certain 1988 Plan amendments require
stockholder approval, including amendments which would materially increase
benefits accruing to participants, increase the number of securities issuable
under the 1988 Plan, or change the requirements for eligibility under the 1988
Plan.
FEDERAL INCOME TAX CONSEQUENCES. The following discussion sets forth
certain United States income tax considerations in connection with the ownership
of Common Stock. These tax considerations are stated in general terms and are
based on the Code and judicial and administrative interpretations thereof. This
discussion does not address state or local tax considerations with respect to
the ownership of Common Stock. Moreover, the tax considerations relevant to
ownership of the Common Stock may vary depending on a holder's particular
status.
Under existing federal income tax provisions, an employee who receives a
stock option or performance shares or an SAR under the 1988 Plan or who
purchases or receives shares of restricted stock under the 1988 Plan which are
subject to restrictions which create a "substantial risk of forfeiture" (within
the meaning of Section 83 of the Code) will not normally realize any income, nor
will the Company normally receive any deduction for federal income tax purposes
in the year such Incentive is granted. An employee who receives a stock award
under the 1988 Plan consisting of shares of Common Stock will realize ordinary
income in the year of the award in an amount equal to the fair market value of
the shares of Common Stock covered by the award on the date it is made, and the
Company will be entitled to a deduction equal to the amount the employee is
required to treat as ordinary income. An employee who receives a cash award will
realize ordinary income in the year the award is paid equal to the amount
thereof, and the amount of the cash will be deductible by the Company.
When a non-qualified stock option granted pursuant to the 1988 Plan is
exercised, the employee will realize ordinary income measured by the difference
between the aggregate purchase price of the shares of Common Stock as to which
the option is exercised and the aggregate fair market value of shares of the
Common Stock on the exercise date, and the Company will be entitled to a
deduction in the year the option is exercised equal to the amount the employee
is required to treat as ordinary income.
Options which qualify as incentive stock options are entitled to special tax
treatment. Under existing federal income tax law, if shares purchased pursuant
to the exercise of such an option are not disposed of by the optionee within two
years from the date of granting of the option or within one year after the
transfer of the shares to the optionee, whichever is longer, then (1) no income
will be recognized to the optionee upon the exercise of the option; (2) any gain
or loss will be recognized to the optionee only upon ultimate disposition of the
shares and, assuming the shares constitute capital assets in the optionee's
hands, will be treated as long-term capital gain or loss; (3) the optionee's
basis
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in the shares purchased will be equal to the amount of cash paid for such
shares; and (4) the Company will not be entitled to a federal income tax
deduction in connection with the exercise of the option. The Company understands
that the difference between the option price and the fair market value of the
shares acquired upon exercise of an incentive stock option will be treated as an
"item of tax preference" for purposes of the alternative minimum tax. In
addition, incentive stock options exercised more than three months after
retirement are treated as non-qualified options.
The Company further understands that if the optionee disposes of the shares
acquired by exercise of an incentive stock option before the expiration of the
holding period described above, the optionee must treat as ordinary income in
the year of that disposition an amount equal to the difference between the
optionee's basis in the shares and the lesser of the fair market value of the
shares on the date of exercise or the selling price. In addition, the Company
will be entitled to a deduction equal to the amount the employee is required to
treat as ordinary income.
If the exercise price of an option is paid by surrender of previously owned
shares, the basis of the shares received in replacement of the previously owned
shares is carried over. If the option is a nonstatutory option, the gain
recognized on exercise is added to the basis. If the option is an incentive
stock option, the optionee will recognize gain if the shares surrendered were
acquired through the exercise of an incentive stock option and have not been
held for the applicable holding period. This gain will be added to the basis of
the shares received in replacement of the previously owned shares.
When a stock appreciation right granted pursuant to the 1988 Plan is
exercised, the employee will realize ordinary income in the year the right is
exercised equal to the value of the appreciation which he or she is entitled to
receive pursuant to the formula described above, and the Company will be
entitled to a deduction in the same year and in the same amount.
An employee who receives restricted stock or performance shares subject to
restrictions which create a "substantial risk of forfeiture" (within the meaning
of Section 83 of the Code) will normally realize taxable income on the date the
shares become transferable or no longer subject to substantial risk of
forfeiture or on the date of their earlier disposition. The amount of such
taxable income will be equal to the amount by which the fair market value of the
shares of Common Stock on the date such restrictions lapse (or any earlier date
on which the shares are disposed of) exceeds their purchase price, if any. An
employee may elect, however, to include in income in the year of purchase or
grant the excess of the fair market value of the shares of Common Stock (without
regard to any restrictions) on the date of purchase or grant over its purchase
price. The Company will be entitled to a deduction for compensation paid in the
same year and in the same amount as income is realized by the employee.
PROXIES AND VOTING. The adoption of the proposed 1988 Plan amendment
requires the approval of the affirmative vote of a majority of the votes cast,
provided that the total votes cast represent over fifty percent (50%) in
interest of all shares entitled to vote on this matter. Accordingly, the Board
of Directors recommends a vote FOR approval and adoption of the proposed
amendment to the 1988 Plan. Unless instructed to the contrary, all proxies will
be voted for the approval and adoption of the Director Plan.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit Committee, has
selected Arthur Andersen LLP as independent public accountants for fiscal 1997.
Arthur Andersen LLP has been the independent public accountants for the Company
since 1972. A representative of Arthur Andersen LLP is expected to attend the
meeting and to have an opportunity to make a statement and to respond to
appropriate questions from stockholders.
Unless instructed to the contrary, all proxies will be voted for
ratification of the appointment of Arthur Andersen LLP as independent public
accountants for the Company for fiscal 1997.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who beneficially own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC. Officers, directors and greater
than ten percent beneficial owners are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms filed by them.
Based solely on its review of copies of such forms furnished to the Company,
or written representations that no filings of Form 5 reports were required, the
Company believes that during the fiscal year ended April 27, 1996, the Company's
officers, directors and greater than ten percent beneficial owners complied with
all Section 16(a) filing requirements applicable to them.
PROPOSALS OF STOCKHOLDERS
Pursuant to the Exchange Act, all proposals of stockholders intended to be
presented at the 1997 Annual Meeting of Stockholders of the Company must be
received by the Company at its executive offices on or before March 29, 1997.
Pursuant to the Company's Amended and Restated Bylaws, a stockholder may
generally nominate one or more persons for election as Directors only if written
notice of such stockholder's intent to make such nomination has been given,
either by personal delivery or by U.S. mail, postage prepaid to the Company's
Secretary not later than (1) with respect to an election to be held at an annual
meeting of stockholders, ninety (90) days in advance of such meeting, and (2)
with respect to an election to be held at a special meeting of stockholders for
the election of directors, the close of business on the seventh day following
the date on which notice of such meeting is first given to stockholders. Each
such notice shall set forth: (1) the name and address of the stockholder and of
the person or persons to be nominated; (2) a representation that the stockholder
is a holder of record of stock of the corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (3) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (4) such other
information regarding each nominee proposed by such stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the SEC, had the nominee been nominated, or intended to be nominated,
by the Board of Directors and (5) the consent of each nominee to serve as a
director of the Company if so elected. The chairman of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedures.
OTHER MATTERS
The Board of Directors does not intend to present to the meeting any other
matters not referred to above and does not presently know of any matters that
may be presented to the meeting by others. If other matters are properly brought
before the meeting, the persons named in the enclosed proxy will vote in
accordance with their best judgment.
By Order of the Board of Directors
Robert J. Harter, Jr.
SECRETARY
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EXHIBIT A
RYKOFF-SEXTON, INC. CONVERTIBLE AWARD PLAN
(DIRECTOR EDITION)
I. INTRODUCTION
This Plan is called the Rykoff-Sexton, Inc. Convertible Award Plan (Director
Edition). The Plan is designed to encourage non-management members of the Board
of Directors to acquire or increase their ownership interests in Common Stock of
Rykoff-Sexton, Inc. This objective is achieved by granting restricted shares of
such Common Stock to eligible Directors who elect to purchase Common Stock from
Rykoff-Sexton, Inc. with some or all of their Annual Retainer. This Plan
document sets forth all terms and conditions of the Plan as approved by the
Board of Directors, subject to approval by the shareholders of Rykoff-Sexton,
Inc.
II. DEFINITIONS
For the purposes of the Plan, the following terms have the meanings stated
below:
a. "Annual Retainer" means a Director's annual cash retainer fee for a
Fiscal Year, ordinarily payable to the Director in four equal cash
installments as of the date of each scheduled quarterly meeting of the
Board. For purposes of this Plan, the Annual Retainer earned by a
Director as of the date of a quarterly meeting is the amount that the
Director is entitled to by reason of his or her status as a member of the
Board at that time, whether or not the Director attends the meeting. A
Director's Annual Retainer does not include any meeting fees or any other
special fees for serving as a Director of the Company.
b. "Board" means the Board of Directors of the Company.
c. "Company" means Rykoff-Sexton, Inc.
d. "Conversion Price" means, for a Fiscal Year, the average of the closing
prices of the Company's Common Stock, as reported in the New York Stock
Exchange Composite Index on the last business day of each calendar week
during the three month period ending six months from the end of the first
month of that Fiscal Year. If there is a stock split or other change in
the outstanding Common Stock during that six month period, an appropriate
adjustment in the Conversion Price will be made in accordance with the
procedure set forth in the Company's Stock Option Plan for Directors.
e. "Delivery Date" means, for a Fiscal Year, the date of the last quarterly
Board meeting of the Fiscal Year; provided, however, that actual delivery
of Purchased Shares and Premium Shares may be made as soon as practical
thereafter.
f. "Director" means an individual member of the Board.
g. "Fiscal Year" means any fiscal year of the Company during which a
Participant is eligible to participate in the Plan. The Fiscal Year of
the Plan is the Company's fiscal year. Effective as of June 30, 1996, the
Company's fiscal year is a 52- or 53-week period, as the case may be,
ending on the Saturday nearest the last day of each June. However, the
Plan was not in effect for the short fiscal year of the Company that
began April 28, 1996, and ended June 29, 1996. The first Fiscal Year of
the Plan began in May, 1995, and ended April 27, 1996.
h. "Holding Period" means, with respect to any Purchased Shares and related
Premium Shares, the two year period commencing on the scheduled Delivery
Date of those shares; provided, however, that in some cases the Holding
Period may be shortened as provided in Section IV B below.
i. "Participant," with respect to a Fiscal Year, means only those
individuals who are Directors on the last day of the first month of that
Fiscal Year, are eligible to receive an Annual Retainer and have not been
employees of the Company at any time during that month.
j. "Plan" means this Rykoff-Sexton Convertible Award Plan (Director
Edition).
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k. "Premium Shares" means any shares of the Company's Common Stock granted
to a Participant by the Company as a bonus for purchasing Purchased
Shares; provided however, that all Premium Shares shall be subject to
transferability and forfeiture restrictions under this Plan.
l. "Purchased Shares" means the shares of the Company's Common Stock
purchased by a Participant with any part of his or her Annual Retainer
for a Fiscal Year; provided, however, that the Participant shall not be
entitled to receive such Purchased Shares until the Delivery Date for
that Fiscal Year.
III. ELIGIBILITY AND PLAN OPERATION
A. Election to Defer Annual Retainer and Purchase Purchased Shares
At any time during the first month of each Fiscal Year, each Director who is
eligible to be a Participant for that Fiscal Year may elect in writing to:
(1) defer payment of any part of his or her Annual Retainer for that
Fiscal Year until the Delivery Date for that Fiscal Year; and
(2) receive such payment in the form of a number of Purchased Shares
based on the Conversion Price for that Fiscal Year.
Purchased Shares earned and purchased under this Plan shall vest and become
transferable by the Participant as of the Delivery Date, subject to shareholder
approval of the Plan and any restrictions under applicable securities laws, and
shall not be subject to forfeiture under Section III.
B. Procedures for Election and Pricing of Purchased Shares
Within a reasonable time before the end of the first month of each Fiscal
Year, the Company will provide each Participant with an election form similar to
the form attached hereto and identified as "Attachment 1." Any Participant
making a conversion election for a Fiscal Year must complete and sign that form
to indicate his or her election and acceptance of all terms and conditions of
the Plan. On the form, the Participant must specify the percentage or dollar
amount of his or her Annual Retainer to be used to buy Purchased Shares.
A Participant's election to buy Purchased Shares for a Fiscal Year must be
made and delivered to the Company on or before the last day of the first month
of the Fiscal Year. Once made, this election is irrevocable and will be carried
out by the Company with respect to the amount of Annual Retainer actually earned
by the Participant during such Fiscal Year. A new election form must be signed
for each Fiscal Year, unless the Participant chooses not to buy Purchased Shares
for a Fiscal Year.
If a Participant elects to buy Purchased Shares for a Fiscal Year, the
chosen dollar amount of the Participant's Annual Retainer will be converted into
Purchased Shares, except that the dollar amount will be reduced to the extent
the Participant does not earn all of the Annual Retainer he or she elected to
convert. The Annual Retainer amount elected by the Participant is converted into
a number of Purchased Shares that is equal to (A) the dollar amount of Annual
Retainer to be converted, divided by (B) the Conversion Price for that Fiscal
Year. However, cash will be paid to the Participant in lieu of any fractional
shares. The Company will deliver any such cash and a certificate representing
the Purchased Shares to the Participant on the Delivery Date for that Fiscal
Year.
C. Contingent Award of Premium Shares
On each Delivery Date, each Participant who receives Purchased Stock on that
date will also receive from the Company one Premium Share for each three shares
of Purchased Stock delivered on that date; provided, however, that no fractional
Premium Shares (or cash in lieu thereof) may be issued under this Plan. A
certificate representing those Premium Shares shall be delivered to the
Participant by the Company on the Delivery Date.
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All Premium Shares issued under this Plan with respect to Purchased Shares
shall be subject to transfer restrictions and forfeiture under Section III
during the Holding Period that applies to such shares. Each certificate
representing Premium Shares shall contain a notice stating that the Premium
Shares are subject to transfer restrictions and forfeiture under this Plan.
D. Voting and Dividend Rights
A Participant who receives Purchased Shares and Premium Shares on a Delivery
Date will be entitled to vote all of such shares immediately; and will also be
entitled to receive dividend payments with respect to all of such shares, to the
extent such dividends are declared and paid; provided, however, that all of such
rights shall terminate with respect to Premium Shares on the date (if any) on
which they are forfeited under Section IV.
E. Deferred Annual Retainer and Purchase Rights Are Not Assignable
No part of a Participant's Annual Retainer deferred by an election under
this Plan, nor his or her right to receive Purchased Shares and Premium Shares
as a result of that election, may be assigned or otherwise transferred by the
Participant, except for a transfer resulting from his or her death. Prior to any
delivery of Purchased Shares and Premium Shares, a Participant's rights, if any,
to those shares shall not be secured by any Company property, and shall entitle
the Participant only to the rights of a creditor of the Company.
IV. RISKS OF PREMIUM SHARE FORFEITURE DURING HOLDING PERIOD
A. General Transfer Restrictions and Forfeiture upon Sale of Purchased
Shares
Until the expiration or early termination of the Holding Period, Premium
Shares cannot be sold or otherwise transferred by a Participant and will be
subject to forfeiture as set forth below. Purchased Shares may be sold during
the Holding Period to the extent permitted by applicable securities laws.
However, upon the date of any sale or other voluntary transfer of Purchased
Shares before the end of the Holding Period for such shares, all of the Premium
Shares granted with respect to such Purchased Shares shall be forfeited by the
Participant.
B. Forfeiture Upon Certain Terminations of Board Membership
If a Participant's membership on the Board terminates before the end of a
Holding Period that continues to apply to any of his or her Premium Shares, they
shall be completely forfeited as of the effective date of such termination,
unless it is caused by one or more of the reasons set forth below:
(1) The Participant's death or long-term disability (as determined in
the discretion of the majority of the remaining Directors);
(2) The removal of the Participant from the Board without cause;
(3) The Participant is not re-nominated or re-elected as a Director;
(4) A "change in control" of the Company, as defined in the existing
agreements (if any) between the Company and its senior officers; or
(5) The Participant voluntarily resigns, if a majority of the Board
(excluding the Participant) agrees to waive the balance of the Holding
Period and determines in good faith that such waiver is in the best interest
of the Company.
If a Participant's membership on the Board terminates before the normal
expiration of the Holding Period of any Premium Shares, as a result of one of
the excepted causes listed above in subparagraphs (1) through (5), then the
Holding Period will end, all Premium Shares will be freed from any further risk
of forfeiture and those shares will become fully transferable, subject to
applicable securities laws, as of the effective termination date.
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C. Procedure for Forfeiture
If any Premium Shares are forfeited, such shares shall be void and the
Participant holding such Premium Shares shall promptly endorse the certificates
of those Premium Shares to the Company and return them to the Company without
any consideration.
V. MISCELLANEOUS
A. Term and Adoption of the Plan
The Plan was first adopted by the Board as of June 19, 1995, subject to its
approval by counsel and the shareholders of the Company. The Plan has been
amended in January of 1996, and again as of April 28, 1996, each time subject to
its approval by the shareholders of the Company. The Plan includes the
Supplement attached to the Plan document adopted in January of 1996, describing
special rules for the initial Fiscal Year, which began in 1995.
The Plan amendment adopted as of April 28, 1996, changes its Fiscal Year to
conform to the new fiscal year of the Company, suspends the operation of the
Plan during the Company's short fiscal year consisting of May and June, 1996,
and deletes unnecessary references to the special rules for the initial Fiscal
Year of the Plan.
The Plan shall remain in effect until it is terminated pursuant to Paragraph
B below. The adoption of this Plan or any modification of the Plan does not
imply any commitment to continue the same Plan, or any modification thereof, or
any other Plan for any succeeding year. Neither the Plan, nor any election or
sale or grant of stock made under the Plan, shall create for any Participant any
employment contract or right to continued membership on the Board.
B. Plan Amendment or Discontinuance
The Plan may be amended at any time and from time to time by the Board as it
may deem advisable; provided, however, that no amendment shall become effective
without shareholder approval if such shareholder approval is required by any
law, rule or regulation; and provided further that the Plan shall not be amended
more than once every six months, except to comport with changes in the Internal
Revenue Code (as amended from time to time), the Employee Retirement Income
Security Act of 1974 (as amended from time to time) or the rules thereunder. No
amendment of the Plan shall materially and adversely affect any right of any
Participant with respect to any shares previously granted, unless such
Participant gives his or her written consent.
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EXHIBIT B
RYKOFF-SEXTON, INC.
1988 STOCK OPTION AND COMPENSATION PLAN, AS AMENDED
1. PURPOSE. The purpose of the 1988 Stock Option and Compensation Plan, as
amended (the "Plan"), of Rykoff-Sexton, Inc. ("Rykoff-Sexton") is to increase
stockholder value and to advance the interests of Rykoff-Sexton and its
subsidiaries (collectively, the "Company") by furnishing a variety of economic
incentives ("Incentives") designed to attract, retain and motivate employees.
Incentives may consist of opportunities to purchase or receive shares of common
stock, $.10 par value, of Rykoff-Sexton ("Common Stock"), monetary payments or
both on terms determined under this Plan.
2. ADMINISTRATION. The Plan shall be administered by the stock option
committee (the "Committee") of the Board of Directors of Rykoff-Sexton (the
"Board of Directors"). The Committee shall consist of not less than three
directors of Rykoff-Sexton and shall be appointed from time to time by the Board
of Directors. Each member of the Committee shall be a "disinterested person"
within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, and the
regulations promulgated thereunder (the "1934 Act"). The Board of Directors may
from time to time appoint members of the Committee in substitution for, or in
addition to, members previously appointed, and may fill vacancies, however
caused, in the Committee. The Committee shall select one of its members as its
chairman and shall hold its meetings at such times and places as it shall deem
advisable. A majority of the Committee's members shall constitute a quorum. All
action of the Committee shall be taken by the majority of its members. Any
action may be taken by a written instrument signed by a majority of the members
and actions so taken shall be fully effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may appoint a
secretary, shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it shall deem advisable. The
Committee shall have authority to award Incentives under the Plan, to interpret
the Plan, and to make any other determination which it believes necessary and
advisable for the proper administration of the Plan. The Committee's decisions
and matters relating to the Plan shall be final and conclusive on the Company
and its participants.
3. ELIGIBLE EMPLOYEES. Employees of the Company (including officers and
directors, but excluding directors of Rykoff-Sexton who are not also full-time
employees of the Company) shall become eligible to receive Incentives under the
Plan when designated by the Committee. Employees may be designated individually
or by groups or categories (for example, by pay grade) as the Committee deems
appropriate. Participation by officers of Rykoff-Sexton and any performance
objectives relating to such officers must be approved by the Committee.
Participation by others and any performance objectives relating to others may be
approved by groups or categories (for example, by pay grade) and authority to
designate participants who are not officers and to set or modify such targets
may be delegated.
4. TYPES OF INCENTIVES. Incentives under the Plan may be granted in any
one or a combination of the following forms; (a) incentive stock options and
nonstatutory stock options (section 6); (b) stock appreciation rights ("SARs")
(section 7); (c) stock awards (section 8); (d) restricted stock (section 8); (e)
performance shares (section 9); and (f) cash awards (section 10).
5. SHARES SUBJECT TO THE PLAN:
5.1. NUMBER OF SHARES. Subject to adjustment as provided in section
11.6, the number of shares of Common Stock which may be issued under the
Plan shall not exceed 2,906,250 shares of Common Stock.
5.2. CANCELLATION. To the extent that cash in lieu of shares of Common
Stock is delivered upon the exercise of a SAR pursuant to section 7.4,
the Company shall be deemed, for purposes of applying the limitation on the
number of shares, to have issued the greater of the number of shares of
Common Stock which it was entitled to issue upon such exercise or on the
exercise of any related option. In the event that a stock option or SAR
granted hereunder expires or is terminated or cancelled unexercised as to
any shares of Common Stock, such shares may again be issued under the Plan
either pursuant to stock options, SARs or otherwise. In the event that
shares of
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Common Stock are issued as restricted stock or pursuant to a stock award and
thereafter are forfeited or reacquired by the Company pursuant to rights
reserved upon issuance thereof, such forfeited and reacquired shares may
again be issued under the Plan, either as restricted stock, pursuant to
stock awards or otherwise. The Committee may also determine to cancel, and
agree to the cancellation of, stock options in order to make a participant
eligible for the grant of a stock option at a lower price than the option to
be cancelled.
5.3. TYPE OF COMMON STOCK. Common Stock issued under the Plan in
connection with stock options, SARs, performance shares, restricted stock
or stock awards, may be authorized and unissued shares or issued shares held
as treasury shares.
6. STOCK OPTIONS. A stock option is a right to purchase shares of Common
Stock from the Company. Each stock option granted by the Committee under this
Plan shall be subject to the following terms and conditions:
6.1. PRICE. The option price per share shall be determined by the
Committee, subject to adjustment under section 11.6.
6.2. NUMBER. The number of shares of Common Stock subject to the option
shall be determined by the Committee, subject to adjustment as provided
in section 11.6. The number of shares of Common Stock subject to a stock
option shall be reduced in the same proportion that the holder thereof
exercises a SAR if any SAR is granted in conjunction with or related to the
stock option.
6.3. DURATION AND TIME FOR EXERCISE. Subject to earlier termination as
provided in section 11.4, the term of each stock option shall be
determined by the Committee but shall not exceed ten years and one day from
the date of grant. Each stock option shall become exercisable at such time
or times during its term as shall be determined by the Committee at the time
of grant. No stock option may be exercised during the first twelve months of
its term. Except as provided by the preceding sentence, the Committee may
accelerate the exercisability of any stock option. Subject to the foregoing
and with the approval of the Committee, all or any part of the shares of
Common Stock with respect to which the right to purchase has accrued may be
purchased by the Company at the time of such accrual or at any time or times
thereafter during the term of the option.
6.4. REPURCHASE. Upon approval of the Committee, the Company may
repurchase a previously granted stock option from a participant by mutual
agreement before such option has been exercised by payment to the
participant of the amount per share by which: (i) the Fair Market Value (as
defined in section 11.13) of the Common Stock subject to the option on the
date of purchase exceeds (ii) the option price. The Company shall have the
right but not the obligation to repurchase all shares of Common Stock that
were purchased pursuant to an option exercised within six months prior to
the participant's termination of employment, that is either for cause or
voluntary on the part of the participant and without the written consent of
the Company, for the total amount paid by the participant for such shares
and on such other terms as may be established by the Committee. The Company
shall have 60 days from the date of the participant's termination of
employment to exercise its right to repurchase such shares of Common Stock.
6.5. MANNER OF EXERCISE. A stock option may be exercised, in whole or
in part, by giving written notice to the Company, specifying the number
of shares of Common Stock to be purchased and accompanied by the full
purchase price for such shares. The option price shall be payable in United
States dollars upon exercise of the option and may be paid by cash, bank
draft or uncertified or certified check; by delivery of shares of Common
Stock in payment of all or any part of the option price, which shares shall
be valued for this purpose at the Fair Market Value on the date such option
is exercised; or in such other manner as may be authorized from time to time
by
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the Committee. Prior to the issuance of shares of Common Stock upon the
exercise of a stock option, a participant shall have no rights as a
stockholder with respect to the shares covered by such option.
6.6. INCENTIVE STOCK OPTIONS. Notwithstanding anything in the Plan to
the contrary, the following additional provisions shall apply to the
grant of stock options which are intended to qualify as Incentive Stock
Options (as such term is defined in section 422A of the Internal Revenue
Code of 1986, as amended):
(a) The aggregate Fair Market Value (determined as of the time the
option is granted) of the shares of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any
participant during any calendar year (under all of the Company's plans)
shall not exceed $100,000.
(b) Any Incentive Stock Option certificate authorized under the Plan
shall contain such other provisions as the Committee shall deem
advisable, but shall in all events be consistent with and contain all
provisions required in order to qualify the options as Incentive Stock
Options.
(c) All Incentive Stock Options must be granted within ten years from
the earlier of the date on which this Plan was adopted by the Board of
Directors or the date this Plan was approved by the stockholders.
(d) Unless sooner exercised, all Incentive Stock Options shall expire
no later than ten years after the date of grant.
(e) The option price for Incentive Stock Options shall be not less
than the Fair Market Value of the Common Stock subject to the option on
the date of grant.
(f) No Incentive Stock Options shall be granted to any participant
who, at the time such option is granted, would own (within the meaning of
section 422A of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the employer corporation
or of its parent or subsidiary corporation.
7. STOCK APPRECIATION RIGHTS. A SAR is a right to receive, without payment
to the Company, a number of shares of Common Stock, cash or any combination
thereof, the amount of which is determined pursuant to the formula set forth in
section 7.4. A SAR may be granted (a) with respect to any stock option granted
under this Plan, either concurrently with the grant of such stock option or at
such later time as determined by the Committee (as to all or any portion of the
shares of Common Stock subject to the stock option), (b) with respect to any
stock option currently outstanding under the Rykoff-Sexton, Inc. 1980 Stock
Option Plan (the "1980 Plan") (as to all or any portion of the shares subject to
the stock option) on terms established by the Committee, or (c) alone, without
reference to any related stock option. Each SAR granted by the Committee under
this Plan shall be subject to the following terms and conditions:
7.1. NUMBER. Each SAR granted to any participant shall relate to such
number of shares of Common Stock as shall be determined by the Committee,
subject to adjustment as provided in section 11.6. In the case of a SAR
granted with respect to a stock option, the number of shares of Common Stock
to which the SAR pertains shall be reduced in the same proportion that the
holder of the option exercises the related stock option.
7.2. DURATION. Subject to earlier termination as provided in section
11.4, the term of each SAR shall be determined by the Committee but shall
not exceed ten years and one day from the date of grant. Unless otherwise
provided by the Committee, each SAR shall become exercisable at such time or
times, to such extent and upon such conditions as the stock option, if any,
to which it relates is exercisable. No SAR may be exercised during the first
twelve months of its term. Except as provided in the preceding sentence, the
Committee may in its discretion accelerate the exercisability of any SAR.
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7.3. EXERCISE. A SAR may be exercised, in whole or in part, by giving
written notice to the Company, specifying the number of SARs which the
holder wishes to exercise. Upon receipt of such written notice, the Company
shall, within 90 days thereafter, deliver to the exercising holder
certificates for the shares of Common Stock or cash or both, as determined
by the Committee, to which the holder is entitled pursuant to section 7.4.
7.4. PAYMENT. Subject to the right of the Committee to deliver cash in
lieu of shares of Common Stock (which, as it pertains to officers and
directors of Rykoff-Sexton, shall comply with all requirements of the 1934
Act), the number of shares of Common Stock which shall be issuable upon the
exercise of a SAR shall be determined by dividing:
(a) the number of shares of Common Stock as to which the SAR is
exercised multiplied by the amount of the appreciation in such shares
(for this purpose, the "appreciation" shall be the amount by which the
Fair Market Value of the shares of Common Stock subject to the SAR on the
exercise date exceeds (1) in the case of a SAR related to a stock option,
the purchase price of the shares of Common Stock under the stock option
or (2) in the case of a SAR granted alone, without reference to a related
stock option, an amount which shall be determined by the Committee at the
time of grant, subject to adjustment under section 11.6); by
(b) the Fair Market Value of a share of Common Stock on the exercise
date.
In lieu of issuing shares of Common Stock upon the exercise of a SAR,
the Committee may elect to pay the holder of the SAR cash equal to the Fair
Market Value on the exercise date of any or all of the shares which would
otherwise be issuable. No fractional shares of Common Stock shall be issued
upon the exercise of a SAR; instead, the holder of the SAR shall be entitled
to receive a cash adjustment equal to the same fraction of the Fair Market
Value of a share of Common Stock on the exercise date or to purchase the
portion necessary to make a whole share at its Fair Market Value on the date
of exercise.
7.5. REPURCHASE. The Company shall have the right but not the
obligation to require a participant to return all shares of Common Stock
or cash received by a participant pursuant to the exercise of a SAR within
six months prior to the date of termination of employment, that is either
for cause or voluntary on the part of the participant and without the
written consent of the Company. The Company shall have 60 days from the date
of termination of employment to exercise its right to reacquire such shares
of Common Stock or cash.
8. STOCK AWARDS AND RESTRICTED STOCK. A stock award consists of the
transfer by the Company to a participant of shares of Common Stock, without
other payment therefor, as additional compensation for services to the Company.
A share of restricted stock consists of shares of Common Stock which are sold or
transferred by the Company to a participant at a price determined by the
Committee (which price shall be at least equal to the minimum price required by
applicable law for the issuance of a share of Common Stock) and subject to
restrictions on their sale or other transfer by the participant. The transfer of
Common Stock pursuant to stock awards and the transfer and sale of restricted
stock shall be subject to the following terms and conditions:
8.1. NUMBERS OF SHARES. The number of shares to be transferred or sold
by the Company to a participant pursuant to a stock award or as
restricted stock shall be determined by the Committee.
8.2. SALE PRICE. The Committee shall determine the price, if any, at
which shares of restricted stock shall be sold to a participant, which
may vary from time to time and among participants and which may be below the
Fair Market Value of such shares of Common Stock at the date of sale.
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8.3. RESTRICTIONS. All shares of restricted stock transferred or sold
hereunder shall be subject to such restrictions as the Committee may
determine, including, without limitation any or all of the following:
(a) a prohibition against the sale, transfer, pledge or other
encumbrance of the shares of restricted stock, such prohibition to lapse
at such time or times as the Committee shall determine (whether in annual
or more frequent installments, at the time of the death, disability or
retirement of the holder of such shares, or otherwise);
(b) a requirement that the holder of shares of restricted stock
forfeit, or (in the case of shares sold to a participant) resell back to
the Company at his cost, all or part of such shares in the event of
termination of his employment during any period in which such shares are
subject to restrictions; and
(c) such other conditions or restrictions as the Committee may deem
advisable.
8.4. ESCROW. In order to enforce the restrictions imposed by the
Committee pursuant to section 8.3, the participant receiving restricted
stock shall enter into an agreement with the Company setting forth the
conditions of the grant. Shares of restricted stock shall be registered in
the name of the participant and deposited, together with a stock power
endorsed in blank, with the Company. Each such certificate shall bear a
legend in substantially the following form:
The transferability of this certificate and the shares of Common Stock
represented by it are subject to the terms and conditions (including
conditions of forfeiture) contained in the 1988 Stock Option and
Compensation Plan of Rykoff-Sexton, Inc. (the "Company"), and an agreement
entered into between the registered owner and the Company. A copy of the
Plan and the agreement is on file in the office of the secretary of the
Company.
8.5. END OF RESTRICTIONS. Subject to section 11.5, at the end of any
time period during which the shares of restricted stock are subject to
forfeiture and restrictions on transfer, such shares will be delivered free
of all restrictions to the participant or to the participant's legal
representative, beneficiary or heir.
8.6. STOCKHOLDER. Subject to the terms and conditions of the Plan, each
participant receiving restricted stock shall have all the rights of a
stockholder with respect to shares of stock during any period in which such
shares are subject to forfeiture and restrictions on transfer, including
without limitation, the right to vote such shares. Dividends paid in cash or
property other than Common Stock with respect to shares of restricted stock
shall be paid to the participant currently.
9. PERFORMANCE SHARES. A performance share consists of an award which
shall be paid in shares of Common Stock, as described below. The grant of
performance share shall be subject to such terms and conditions as the Committee
deems appropriate, including the following:
9.1. PERFORMANCE OBJECTIVE. Each performance share will be subject to
performance objectives for the Company or one of its operating units to
be achieved by the end of a specified period. The number of performance
shares granted shall be determined by the Committee and may be subject to
such terms and conditions, as the Committee shall determine. If the
performance objectives are achieved, each participant will be paid in shares
of Common Stock or cash. If such objectives are not met, each grant of
performance shares may provide for lesser payments in accordance with
formulas established in the award.
9.2. NOT STOCKHOLDER. The grant of performance shares to a participant
shall not create any rights in such participant as a stockholder of the
Company, until the payment of shares of Common Stock with respect to an
award.
9.3. NO ADJUSTMENTS. No adjustment shall be made in performance shares
granted on account of cash dividends which may be paid or other rights
which may be issued to the holders of Common Stock to the end of any period
for which performance objectives were established.
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9.4. EXPIRATION OF PERFORMANCE SHARE. If a participant's employment
with the Company is terminated for any reason other than normal
retirement, death or disability prior to the achievement of the
participant's stated performance objectives, all the participant's rights on
the performance shares shall expire and terminate unless otherwise
determined by the Committee. In the event of termination of employment by
reason of death, disability, or normal retirement, the Committee, in its own
discretion may determine what portions, if any, of the performance shares
should be paid to the participant.
10. CASH AWARDS. A cash award consists of a monetary payment made by the
Company to a participant as additional compensation for his services to the
Company. Payment of a cash award will normally depend on achievement of
performance objectives by the Company or by individuals. The amount of any
monetary payment constituting a cash award shall be determined by the Committee
in its sole discretion. Cash awards may be subject to other terms and
conditions, which may vary from time to time and among participants, as the
Committee determines to be appropriate.
11. GENERAL:
11.1. EFFECTIVE DATE. The Plan will become effective upon its approval
by the affirmative vote of the holders of a majority of the voting stock
of Rykoff-Sexton at a meeting of its stockholders. Unless approved within
one year after the date of the Plan's adoption by the Board of Directors,
the Plan shall not be effective for any purpose.
11.2. DURATION. The Plan shall remain in effect until all Incentives
granted under the Plan have either been satisfied by the issuance of
shares of Common Stock or the payment of cash or been terminated under the
terms of the Plan and all restrictions imposed on shares of Common Stock in
connection with their issuance under the Plan have lapsed. No Incentives may
be granted under the Plan after the tenth anniversary of the date the Plan
is approved by the stockholders of Rykoff-Sexton.
11.3. NONTRANSFERABILITY OF INCENTIVES. No stock option, SAR,
restricted stock or performance award may be transferred, pledged or
assigned by the holder thereof (except, in the event of the holder's death,
by will or the laws of descent and distribution to the limited extent
provided in the Plan or in the Incentive) and the Company shall not be
required to recognize any attempted assignment of such rights by any
participant. During a participant's lifetime, an Incentive may be exercised
only by him or by his guardian or legal representative.
11.4. EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH. In the event that a
participant ceases to be an employee of the Company for any reason,
including death, any Incentives may be exercised or shall expire at such
times as may be determined by the Committee.
11.5. ADDITIONAL CONDITION. Notwithstanding anything in this Plan to
the contrary: (a) the Company may, if it shall determine it necessary or
desirable for any reason, at the time of award of any Incentive or the
issuance of any shares of Common Stock pursuant to any Incentive, require
the recipient of the Incentive, as a condition to the receipt thereof or to
the receipt of shares of Common Stock issued pursuant thereto, to deliver to
the Company a written representation of present intention to acquire the
Incentive or the shares of Common Stock issued pursuant thereto for his own
account for investment and not for distribution; and (b) if at any time the
Company further determines, in its sole discretion, that the listing,
registration or qualification (or any updating of any such document) of any
Incentive or the shares of Common Stock issuable pursuant thereto is
necessary on any securities exchange or under any federal or state
securities or blue sky law, or that the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or
in connection with the award of any Incentive, the issuance of shares of
Common Stock pursuant thereto, or the removal of any restrictions imposed on
such shares, such Incentive shall not be awarded or such shares of Common
Stock shall not be issued or such restrictions shall not be removed, as the
case may be, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free
of any conditions not acceptable to the Company.
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11.6. ADJUSTMENT. In the event of any merger, consolidation or
reorganization of the Company with any other corporation or corporations,
there shall be substituted for each of the shares of Common Stock then
subject to the Plan, including shares subject to restrictions, options, or
achievement of performance share objectives, the number and kind of shares
of stock or other securities to which the holders of the shares of Common
Stock will be entitled pursuant to the transaction. In the event of any
recapitalization, stock dividend, stock split, combination of shares or
other change in the Common Stock, the number of shares of Common Stock then
subject to the Plan, including shares subject to restrictions, options or
achievements of performance shares, shall be adjusted in proportion to the
change in outstanding shares of Common Stock. In the event of any such
adjustments, the purchase price of any option, the performance objectives of
any Incentive, and the shares of Common Stock issuable pursuant to any
Incentive shall be adjusted as and to the extent appropriate, in the
discretion of the Committee, to provide participants with the same relative
rights before and after such adjustment.
11.7. INCENTIVE PLANS AND AGREEMENTS. Except in the case of stock
awards or cash awards, the terms of each Incentive shall be stated in a
plan or agreement approved by the Committee. The Committee may also
determine to enter into agreements with holders of options to reclassify or
convert certain outstanding options, within the terms of the Plan, as
Incentive Stock Options or as nonstatutory stock options and in order to
eliminate SARs with respect to all or part of such options and any other
previously issued options.
11.8. WITHHOLDING.
(a) The Company shall have the right to withhold from any payments
made under the Plan or to collect as a condition of payment, any taxes
required by law to be withheld. At any time when a participant is
required to pay to the Company an amount required to be withheld under
applicable income tax laws in connection with a distribution of Common
Stock or upon exercise of an option or SAR, the participant may satisfy
this obligation in whole or in part by electing (the "Election") to have
the Company withhold from the distribution shares of Common Stock having
a value up to the amount required to be withheld. The value of the shares
to be withheld shall be based on the Fair Market Value of the Common
Stock on the date that the amount of tax to be withheld shall be
determined ("Tax Date").
(b) Each Election must be made prior to the Tax Date. The Committee
may disapprove of any Election, may suspend or terminate the right to
make Elections, or may provide with respect to any Incentive that the
right to make Elections shall not apply to such Incentive. An Election is
irrevocable.
(c) If a participant is an officer or director of Rykoff-Sexton with
the meaning of section 16 of the 1934 Act, then an Election is subject to
the following additional restrictions:
(1) No Election shall be effective for a Tax Date which occurs
within six months of the grant of the award, except that this
limitation shall not apply in the event death or disability of the
participant occurs prior to the expiration of the six-month period.
(2) The Election must be made either six months prior to the Tax
Date or must be effected during a period beginning on the third
business day following the date of release for publication of the
Company's quarterly or annual summary statements of sales and
earnings and ending on the twelfth business day following such date.
11.9. NO CONTINUED EMPLOYMENT OR RIGHT TO CORPORATE ASSETS. No
participant under the Plan shall have any right, because of his or her
participation, to continue in the employ of the Company for any period of
time or to any right to continue his or her present or any other rate of
compensation. Nothing contained in the Plan shall be construed as giving an
employee, the
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employee's beneficiaries or any other person any equity or interests of any
kind in the assets of the Company or creating a trust of any kind or a
fiduciary relationship of any kind between the Company and any such person.
11.10. DEFERRAL PERMITTED. Payment of cash or distribution of any
shares of Common Stock to which a participant is entitled under any
Incentive shall be made as provided in the Incentive. Payment may be
deferred at the option of the participant if provided in the Incentive.
11.11. AMENDMENT OF THE PLAN. The Board of Directors may amend or
discontinue the Plan at any time. However, no such amendment or
discontinuance shall, subject to adjustment under section 11.6, (a) change
or impair, without the consent of the recipient, an Incentive previously
granted, (b) increase the maximum number of shares of Common Stock which may
be issued to all participants under the Plan, (c) change or expand the types
of Incentives that may be granted under the Plan, (d) change the class of
persons eligible to receive Incentives under the Plan, or (e) materially
increase the benefits accruing to participants under the Plan.
11.12. IMMEDIATE ACCELERATION OF INCENTIVES. Notwithstanding any
provision in this Plan or in any Incentive to the contrary, (a) the
restrictions on all shares of restricted stock award shall lapse
immediately, (b) all outstanding options and SARs will become exercisable
immediately, and (c) all performance shares shall be deemed to be met and
payment made immediately if any of the following events occur unless
otherwise determined by the Board of Directors and a majority of the
Continuing Directors (as defined below):
(a) any person or group of persons becomes the beneficial owner of
30% or more of any equity security of Rykoff-Sexton entitled to vote for
the election of directors;
(b) a majority of the members of the Board of Directors of is
replaced within the period of less than two years by directors not
nominated and approved by the Board of Directors; or
(c) the stockholders of Rykoff-Sexton approve an agreement to merge
or consolidate with or into another corporation or an agreement to sell
or otherwise dispose of all or substantially all of the Company's assets
(including a plan of liquidation).
For purposes of this section 11.12, beneficial ownership by a person or
group of persons shall be determined in accordance with Regulation 13D (or
any similar successor regulation) promulgated by the Securities and Exchange
Commission pursuant to the 1934 Act. Beneficial ownership of more than 30%
of an equity security may be established by any reasonable method, but shall
be presumed conclusively as to any person who files a Schedule 13D report
with the Securities and Exchange Commission reporting such ownership. If the
restrictions and forfeitability periods are eliminated by reason of
provision (a), the limitations of this Plan shall not become applicable
again should the person cease to own 30% or more of any equity security of
Rykoff-Sexton.
For purposes of this section 11.12, "Continuing Directors" are directors
(i) who were in office prior to the time any of provisions (a), (b) or (c)
occurred or any person publicly announced an intention to acquire 20% or
more of any equity security of Rykoff-Sexton, (ii) directors in office for a
period of more than two years, and (iii) directors nominated and approved by
the Continuing Directors.
11.13. DEFINITION OF FAIR MARKET VALUE. Whenever "Fair Market Value" of
Common Stock shall be determined for purposes of this Plan, it shall be
determined by reference to the closing sale price of a share of Common Stock
on the New York Stock Exchange ("NYSE") on the applicable date. If the NYSE
is closed for trading on such date, or if the Common Stock does not trade on
such date, then the closing sale price used shall be the one on the date the
Common Stock last traded on the NYSE.
B-8
<PAGE>
RYKOFF-SEXTON, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - SEPTEMBER 5, 1996
The undersigned, a stockholder of Rykoff-Sexton, Inc., hereby appoints
Mark Van Stekelenburg, James Miscoll and Bernard Sweet and each of them, as
proxies, with full power of substitution, to vote on behalf of the
undersigned the number of shares which the undersigned is then entitled to
vote, at the Annual Meeting of the Stockholders of Rykoff-Sexton, Inc. to be
held at the Ritz-Carlton Hotel, 160 East Pearson Street, Chicago, Illinois,
on Thursday, September 5, 1996 at 10:00 A.M., and at any adjournments
thereof, with all the powers which the undersigned would possess if
personally present, upon the following:
(CONTINUED ON THE REVERSE SIDE)
______________________________________________________________________________
FOLD AND DETACH HERE
<PAGE>
Please
mark your choices /X/
like this
Please mark your choices
in blue or black ink
FOR all nominees
(except as marked WITHHOLD AUTHORITY
to the contrary) to vote for all nominees listed
(1) To elect four persons / / / /
to the Board of Directors
for terms ending in 1999.
Frank H. Bevevino Matthias B. Bowman
James I. Maslon Neil I. Sell
(INSTRUCTION: To withhold authority to vote for any individual nominee write
that nominee's name in the space provided below.)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH PROPOSAL
FOR AGAINST ABSTAIN
(2) Proposal to adopt the Rykoff-Sexton, Inc. / / / / / /
Convertible Award Plan (Director Edition);
(3) Proposal to approve an amendment to the / / / / / /
Rykoff-Sexton, Inc. 1988 Stock Option and
Compensation Plan to increase the number of
shares of Common Stock reserved for issuance
thereunder by 1,500,000 shares.
(4) Approval of Arthur Andersen, LLP as independent / / / / / /
public accountants for the Company for fiscal 1997.
(5) Upon such other business as may properly come / / / / / /
before the meeting or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IT WILL BE VOTED ON
THE PROPOSALS SET FORTH HEREIN AS DIRECTED BY THE STOCKHOLDERS, BUT IF NO
DIRECTION IS MADE IN THE SPACE PROVIDED, IT WILL BE VOTED FOR EACH OF THE
PROPOSALS.
THE UNDERSIGNED HEREBY REVOKES ALL PREVIOUS PROXIES RELATING TO THE SHARES
COVERED HEREBY AND ACKNOWLEDGES RECEIPT OF THE NOTICE AND PROXY STATEMENT
RELATING TO THE ANNUAL MEETING.
Signature(s)________________________________________ Dated,_______________1996
(Stockholder must sign exactly as the name appears at left. When signed as a
corporate officer, executor, administrator, trustee, guardian, etc., please give
full title as such. Both joint tenants must sign.)
______________________________________________________________________________
FOLD AND DETACH HERE
