<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1996
REGISTRATION NO. 333-07321
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JP FOODSERVICE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
5141
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
52-1634568
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
------------------------
9830 PATUXENT WOODS DRIVE
COLUMBIA, MARYLAND 21046
(410) 312-7100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LEWIS HAY, III
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
JP FOODSERVICE, INC.
9830 PATUXENT WOODS DRIVE
COLUMBIA, MARYLAND 21046
(410) 312-7100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
RICHARD J. PARRINO, ESQ.
SHAW, PITTMAN, POTTS & TROWBRIDGE
2300 N STREET, N.W.
WASHINGTON, D.C. 20037
(202) 663-8000
JOHN C. COATES IV, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 7, 1996
PROSPECTUS
3,000,000 SHARES
[JP FOODSERVICE LOGO]
COMMON STOCK
------------------
All 3,000,000 shares of common stock (the "Common Stock") of JP
Foodservice, Inc. (the "Company" or "JP Foodservice") offered hereby (the
"Offering") are being sold by the Company. Each share will have attached one
preferred share purchase right which will initially be represented by such
share. The Common Stock is quoted on the Nasdaq National Market under the symbol
"JPFS." On July 15, 1996, the last reported sale price of the Common Stock, as
reported on the Nasdaq National Market, was $21.00 per share. See "Price Range
of Common Stock and Dividend Policy."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share $ $ $
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Total(3) $ $ $
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</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $ , which are payable by the
Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase
up to 450,000 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $ , $ and $ , respectively.
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1996, at the offices of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001.
------------------
SMITH BARNEY INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
RODMAN & RENSHAW, INC.
, 1996
<PAGE> 3
[COLOR MAP OF CURRENT DISTRIBUTION SERVICE AREA, WITH THE
LOCATIONS OF VALLEY INDUSTRIES, INC. AND ARROW PAPER AND
SUPPLY CO., INC. SHOWN IN A CONTRASTING COLOR TO INDICATE
PENDING ACQUISITIONS, AND COLOR PHOTOGRAPHS OF FOODSERVICE
PRODUCTS AND OPERATIONS INSERTED HERE]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
(IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN TRANSACTIONS (INCLUDING
PASSIVE MARKET MAKING) FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN
THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET OR OTHERWISE IN
ACCORDANCE WITH RULES 10b-6, 10b-6A AND 10b-7 UNDER THE SECURITIES EXCHANGE ACT
OF 1934. SEE "UNDERWRITING."
2
<PAGE> 4
CURRENTLY WITH NINE BRANCHES in the Mid-Atlantic, Midwestern and Northeastern
regions of the United States, JP Foodservice, Inc.(R) ranks as the nation's
sixth largest broadline distributor of food and related products to restaurants
and other institutional foodservice establishments. In addition, the pending
acquisitions of Valley Industries, Inc. and Arrow Paper and Supply Co., Inc. are
expected to extend JP Foodservice's distribution network into the Western region
of the U.S. and increase the Company's presence in the Northeastern region of
the U.S., respectively. The Company markets and distributes approximately 28,000
national, private and signature brand items to over 23,000 foodservice customers
including restaurants, hotels, healthcare facilities, cafeterias and schools. JP
Foodservice, Inc.(R) provides customers with a single source of supply to
satisfy substantially all of their foodservice needs and offers a comprehensive
range of products, including canned and dry food products, fresh meats, poultry,
seafood, frozen foods, fresh produce, dairy and other refrigerated foods, paper
products, cleaning supplies, light
<PAGE> 5
restaurant equipment and other supplies. The Company's product line is one of
the largest in the industry, with national brand products accounting for
approximately 88% of net sales in fiscal 1995. The Company's private label
brands offer its customers a wide range of quality-assured, value-priced
products and its exclusive line of signature products are comparable in quality
and price to national brand items. The Company believes it has one of the best
records in the industry in providing customers with accurate and timely delivery
of product orders. This superior customer service, coupled with the full array
of value-added services offered by the Company, enables the Company to compete
effectively against other foodservice distributors.
<PAGE> 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by the Company (File
No. 0-24954) with the Securities and Exchange Commission are incorporated herein
by reference: (a) the Company's Annual Report on Form 10-K for the fiscal year
ended July 1, 1995; (b) the Company's Quarterly Reports on Form 10-Q for the
fiscal quarters ended September 30, 1995, December 30, 1995 and March 30, 1996;
(c) the Company's Current Reports on Form 8-K filed for reportable events dated
November 2, 1995, November 30, 1995, December 21, 1995, January 22, 1996,
February 19, 1996, May 17, 1996, June 28, 1996, July 1, 1996, July 17, 1996 and
August 5, 1996; (d) the Company's Proxy Statement for the Annual Meeting of
Stockholders held on November 17, 1995; and (e) the description of the Company's
Common Stock which is contained in its Registration Statement on Form 8-A filed
under the Securities Exchange Act of 1934, as amended, on October 14, 1994,
including any amendments or reports filed for the purpose of updating such
description.
All reports and other documents subsequently filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, prior to the filing of a post-effective amendment which indicates that
all securities offered hereby have been sold or which deregisters all securities
remaining unsold, shall be deemed to be incorporated by reference herein and to
be a part hereof from the date of filing of such reports and documents. Any
statement contained in a document incorporated by reference herein shall be
deemed modified or superseded for purposes of this Prospectus to the extent that
a statement contained or incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered a copy of any or all of such documents which are
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into the documents that
this Prospectus incorporates). Written or oral requests for copies should be
directed to Corporate Secretary, JP Foodservice, Inc., at the Company's
executive offices located at 9830 Patuxent Woods Drive, Columbia, Maryland
21046, telephone number (410) 312-7100.
3
<PAGE> 7
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and the
Consolidated Financial Statements and related notes thereto appearing elsewhere
in this Prospectus and incorporated herein by reference. Except as otherwise
indicated herein, all share and per share amounts set forth in this Prospectus
assume no exercise of the Underwriters' over-allotment option and exclude (i)
the 2,009,900 shares of Common Stock (subject to adjustment) issuable upon
consummation of the Valley Acquisition (as defined) and (ii) the 80,952 shares
of Common Stock (subject to adjustment) issuable upon consummation of the Arrow
Acquisition (as defined). Unless the context otherwise requires, as used in this
Prospectus, the "Company" or "JP Foodservice" refers to JP Foodservice, Inc. and
its subsidiaries. The Company's fiscal year is a 52-week or 53-week period
ending on the Saturday closest to June 30.
THE COMPANY
JP Foodservice is a leading broadline distributor of food and related
products to restaurants and other institutional foodservice establishments in
the Mid-Atlantic, Midwestern and Northeastern regions of the United States. The
Company ranks as the nation's sixth largest broadline distributor based on 1995
calendar year net sales. Upon consummation of its proposed acquisitions of
Valley Industries, Inc. located in Nevada and Arrow Paper and Supply Co., Inc.
located in Connecticut, as described below, the Company will rank as the
nation's fifth largest broadline distributor based on pro forma 1995 calendar
year net sales. JP Foodservice believes that it is one of the three leading
broadline distributors in each of its principal geographic service areas, which
it defines as the areas within a 150-mile radius of each of its nine
full-service distribution centers. The Company markets and distributes
approximately 28,000 national, private and signature brand items to over 23,000
foodservice customers, including restaurants, hotels, healthcare facilities,
cafeterias and schools. This diverse customer base encompasses both independent
(or "street") and multi-unit (or "chain") businesses, including Old Country
Buffet, Perkins Family Restaurants, Subway, Compass Group, Ruby Tuesday,
Pizzeria Uno and other foodservice establishments. The Company also is a
foodservice supplier to the United States Congress, Fenway Park and other
prominent institutions. The Company's comprehensive product line includes canned
and dry food products, fresh meats, poultry, seafood, frozen foods, fresh
produce, dairy and other refrigerated products, paper products, cleaning
supplies, light restaurant equipment and other supplies. This broad product line
provides the Company's customers with a single source to satisfy substantially
all of their foodservice needs.
In recent years, the Company has grown at a significantly greater rate than
that of the foodservice distribution industry. The Company's net sales increased
7.7% in fiscal 1995 and 12.1% in the nine months ended March 30, 1996, compared
to the foodservice distribution industry's growth of approximately 3.0% for the
same periods. The Company's net sales have increased predominantly as a result
of internal expansion through continued growth in street account and chain
account sales. In addition, the Company completed acquisitions in the fourth
quarter of fiscal 1995 and the second quarter of fiscal 1996, which accounted
for net sales growth of approximately 2.0% in the nine months ended March 30,
1996. The Company's gross profit margin improved from 16.7% in fiscal 1994 to
16.8% in fiscal 1995 and 17.2% in the nine months ended March 30, 1996. This
improvement resulted in part from an increase in sales of private and signature
brand products as a percentage of the Company's net sales from approximately 12%
in fiscal 1995 to approximately 15% in the nine months ended March 30, 1996. As
a result, the Company's income from operations increased 11.6% in fiscal 1995
and 15.9% in the nine months ended March 30, 1996 over the prior corresponding
periods.
COMPETITIVE STRENGTHS
JP Foodservice believes that its primary competitive strengths are the
following:
- Leading Market Position. The Company's large-scale operations provide it
with significant name recognition and operating efficiencies. In
addition, the scope of its distribution network gives the Company the
ability to offer its growing chain customers a consistent array of
products and services across a broad geographic area encompassing
approximately one-half of the U.S. population. The size
4
<PAGE> 8
and diverse nature of its customer base reduces the Company's dependence
on any individual customer or chain account to sustain growth or
profitability.
- Diverse High-Quality Product Line. The Company's product line is one of
the largest in the industry. Compared to its principal competitors, the
Company devotes a larger portion of its product line to national brand
products, which currently account for approximately 83% of net sales. The
Company also offers its customers an expanding line of quality-assured,
value-priced products under its JP(TM), JP Power(TM) and Harvest
Value(TM) private brands. In recent years, the Company has introduced an
exclusive line of signature products, which are comparable in quality to
national brand items and priced competitively with such items. Signature
products are currently marketed under the Roseli(TM), Hilltop Hearth(TM),
Cattlemen's Choice(TM), Patuxent Farms(TM), el Pasado(TM) and Rituals(TM)
brands. In the first half of fiscal 1997, the Company plans to introduce
a full line of Oriental-style products under its Beijing
Chef (TM)signature brand and a full line of seafood products under its
Harbor Banks(TM) signature brand. The Company, unlike certain of its
competitors, utilizes centralized purchasing, which promotes a
consistently high level of quality for its proprietary brand products
throughout the Company's distribution network.
- Superior Customer Service. The Company believes it has one of the best
records in the industry in providing customers with accurate and timely
delivery of product orders. The Company has achieved its superior
customer service by (i) employing a decentralized operating strategy that
enables the Company to be more responsive to customer needs, (ii)
utilizing proprietary information systems for managing inventory,
processing orders and scheduling deliveries and (iii) providing an array
of value-added services designed to assist its customers in managing
their foodservice operations more efficiently and profitably. The
Company's value-added services include advice and assistance on product
selection, menu planning and recipes, nutritional information, inventory
analysis, product costing and marketing strategies, and in-service
training of customer personnel.
- Low Cost Structure. Management believes that the Company's overall cost
structure is lower than that of many of its principal competitors. The
Company's modern, large-scale distribution centers enable it to realize
cost savings in branch overhead, warehouse operations and transportation
services. The Company has centralized only those functions that benefit
from significant economies of scale or require consistent application of
management controls, such as purchasing, finance and accounting,
advertising and promotion, and information systems. The Company's
information systems allow it to reduce administrative costs and improve
responsiveness to operational requirements at the branch level.
- Proprietary Information Systems. The Company has made a significant
investment in sophisticated and integrated information systems, which it
believes are among the most advanced in the industry. The ordering,
shipment, storage and delivery of the Company's products are managed
through a centralized information system that allows all of the Company's
distribution facilities and its corporate headquarters to access
information on a "real time" basis regarding the Company's inventory,
product availability, customers, sales, financial reports, truck routing
and other significant operating areas. In coordination with this system,
the Company employs, at both the corporate and branch levels, a strategic
information system that allows it to analyze systematically the
profitability of customer accounts, sales territories and product groups.
BUSINESS STRATEGY
The Company's business strategy is to achieve internal growth and increased
profitability by increasing sales penetration of its existing accounts,
attracting new high-growth customers, expanding street account sales by
increasing its commission sales force, increasing sales of its proprietary
signature and private brand products, and targeting rapidly growing specialized
markets, such as healthcare service providers.
JP Foodservice supplements internal expansion with a program of strategic
acquisitions to take advantage of growth opportunities from ongoing
consolidation in the fragmented foodservice distribution industry. The Company
seeks to increase penetration of its existing markets through "fold-in"
acquisitions of small,
5
<PAGE> 9
privately-owned distributors within its current markets and to expand into new
markets through acquisitions of larger-sized distributors. The Company believes
it can enhance the sales and profitability of acquired businesses by eliminating
redundant overhead expenses, reducing purchasing costs, adding the Company's
proprietary brands to the product lines of the acquired businesses, and
integrating such businesses into the Company's marketing programs, centralized
purchasing operations and information systems. The Company's ability to compete
for acquisition opportunities with other foodservice businesses is enhanced by
its financial resources, which include access to the public capital markets.
RECENT AND PENDING ACQUISITIONS
Since June 1995, the Company has completed two fold-in acquisitions of
businesses with combined annual net sales of approximately $50 million in the
Company's Pennsylvania market. In addition, the Company has sought to extend the
scope of its distribution network into the Western region of the United States
by entering into a definitive agreement on May 17, 1996 to acquire Valley
Industries, Inc. located in Nevada (together with its affiliates, "Valley
Foods"), a broadline distributor with a leading market share of the Las Vegas,
Nevada foodservice market (the "Valley Acquisition"). Valley Foods achieved net
sales of $121.5 million in its most recent fiscal year, which ended January 31,
1996, and recently entered into prime vendor relationships with two large
hotel-casinos. Valley Foods serves a broad base of institutional foodservice
customers, including casinos, hotels, chain restaurants, schools, cafeterias and
hospitals. Valley Foods distributes over 4,000 foodservice products from its
large, newly expanded distribution center in downtown Las Vegas. The Company
believes that Las Vegas is one of the country's fastest growing foodservice
markets.
The Company's agreement with Valley Foods provides that JP Foodservice will
acquire Valley Foods in consideration for 2,009,900 shares of Common Stock
(subject to adjustment). Consummation of the Valley Acquisition, which is
subject to satisfaction of customary conditions, is currently expected to occur
on or before August 31, 1996.
On July 17, 1996, the Company entered into a definitive agreement to
purchase Arrow Paper and Supply Co., Inc. (together with its affiliates,
"Arrow"), a broadline distributor serving the New England, New York, New Jersey
and Pennsylvania markets (the "Arrow Acquisition"). Arrow achieved net sales of
$74.6 million in its most recent fiscal year, which ended December 29, 1995, and
in November 1995 was awarded a contract from the State of Connecticut that is
expected to generate $18 million in annual sales. Arrow serves a broad base of
foodservice customers, distributing over 6,000 products from its Norwich,
Connecticut facilities.
As consideration for the Arrow Acquisition, the Company has agreed to
assume certain liabilities of Arrow and to pay $29.6 million (subject to
adjustment), consisting of approximately $1.7 million in the form of Common
Stock and the remainder in cash. Consummation of the Arrow Acquisition, which is
subject to satisfaction of certain conditions (including the obtaining of
financing by the Company), is currently expected to occur on or before August
31, 1996.
None of the Offering, the Valley Acquisition or the Arrow Acquisition is
conditioned upon consummation of either of the other transactions.
HISTORY
Portions of the Company's business date back to the formation of Monarch
Foods in 1853. In 1946, Monarch Foods was acquired by Consolidated Foods
Corporation (now named Sara Lee Corporation) and in 1967 was merged with Pearce,
Young, Angel ("PYA"), a Southeast institutional foodservice distributor. JP
Foodservice began operations in July 1989 following a management-led leveraged
acquisition of certain operations of PYA/Monarch, Inc., a wholly owned
subsidiary of Sara Lee Corporation. In November 1994, the Company completed its
initial public offering of Common Stock as part of a recapitalization which
reduced the Company's indebtedness and related interest expense and improved its
operating and financial flexibility.
6
<PAGE> 10
THE OFFERING
<TABLE>
<S> <C>
Offering..................................... 3,000,000 shares
Common Stock to be outstanding after the
Offering................................... 19,025,929 shares(1)
Use of proceeds.............................. The net proceeds of the Offering will be used
for repayment of indebtedness (including
indebtedness to be assumed in connection with
the proposed acquisitions) and for working
capital and general corporate purposes.
Nasdaq National Market symbol................ JPFS
</TABLE>
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(1) Does not include (i) 450,000 shares subject to the Underwriters'
over-allotment option, (ii) 461,504 shares subject to stock options granted
by the Company under its stock option plans as of June 29, 1996, (iii)
2,009,900 shares (subject to adjustment) issuable upon consummation of the
Valley Acquisition, (iv) 80,952 shares (subject to adjustment) issuable upon
consummation of the Arrow Acquisition or (v) 40,000 shares subject to
options to be granted by the Company under employment agreements to be
entered into upon consummation of the Arrow Acquisition. See "Unaudited Pro
Forma Condensed Combined Financial Statements."
7
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------
JULY 1, 1995
----------------------------
PRO FORMA,
JULY 3, 1993(1) JULY 2, 1994 ACTUAL AS ADJUSTED(2)
--------------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............ $ 1,025,854 $1,029,000 $1,108,253 $1,304,347
Gross profit......... 175,046 171,883 186,351 221,818
Amortization of
intangible
assets............. 2,266 2,265 2,263 3,027
Stock compensation
charge............. -- -- 709 709
Income from
operations......... 26,579 29,537 32,951 39,374
Nonrecurring
charge............. -- -- -- --
Interest expense..... 36,971 30,711 20,419 20,337
Income (loss) before
income taxes and
extraordinary
charge............. (10,392) (1,174) 12,532 19,246
Income (loss) before
extraordinary
charge............. (7,596) (1,815) 6,570 10,868
Net income (loss).... (7,596) (1,815) 1,980 6,278
Preference
dividends.......... (2,427) (504) (40) (40)
Net income (loss)
applicable to
common
stockholders....... (10,023) (2,319) 1,940 6,238
PER SHARE DATA:
Net income (loss) per
common share before
extraordinary
charge............. $ (2.55) $ (0.59) $ 0.59(3) $ 0.70(3)
Net income (loss) per
common share....... (2.55) (0.59) 0.17(3) 0.40(3)
Weighted average
number of shares of
common stock
outstanding........ 3,932,748 3,932,748 11,122,343 15,598,289
<CAPTION>
NINE MONTHS ENDED
-------------------------------------------
MARCH 30, 1996
----------------------------
APRIL 1, PRO FORMA,
1995 ACTUAL AS ADJUSTED(2)
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<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............$ 810,804 $ 908,905 $1,063,745
Gross profit......... 135,397 156,230 183,851
Amortization of
intangible
assets............. 1,697 1,741 2,314
Stock compensation
charge............. 709 -- --
Income from
operations......... 22,083 25,596 30,095
Nonrecurring
charge............. -- 1,517 1,517
Interest expense..... 16,933 9,913 9,880
Income (loss) before
income taxes and
extraordinary
charge............. 5,150 14,166 18,910
Income (loss) before
extraordinary
charge............. 2,197 8,069 11,116
Net income (loss).... (2,393) 8,069 11,116
Preference
dividends.......... (40) -- --
Net income (loss)
applicable to
common
stockholders....... (2,433) 8,069 11,116
PER SHARE DATA:
Net income (loss) per
common share before
extraordinary
charge.............$ 0.23 (3) $ 0.51(4) $ 0.53(4)
Net income (loss) per
common share....... (0.25)(3) 0.51(4) 0.53(4)
Weighted average
number of shares of
common stock
outstanding........ 9,599,520 15,944,455 21,023,203
</TABLE>
<TABLE>
<CAPTION>
MARCH 30, 1996
--------------------------
PRO FORMA,
ACTUAL AS ADJUSTED(5)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................................. $116,464 $131,587
Total assets.................................................................................... 411,041 492,758
Long-term debt, excluding current maturities.................................................... 160,467 159,813
Stockholders' equity............................................................................ 113,248 176,674
</TABLE>
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(1) 53-week fiscal year.
(2) The pro forma, as adjusted Statement of Operations Data assume (i) the
consummation of the Valley Acquisition and the Arrow Acquisition and (ii)
the receipt and application of the estimated net proceeds of the Offering
(as described under "Use of Proceeds"), each as of the first day of each
period indicated. See "Unaudited Pro Forma Condensed Combined Financial
Statements."
(3) Reflects a reduction in net income of $709 resulting from a one-time
non-cash stock compensation charge equal to $0.06 per common share, actual,
and $0.05 per common share, pro forma, for the fiscal year ended July 1,
1995, and $0.07 per common share for the nine months ended April 1, 1995.
(4) Reflects a reduction in net income of $933 resulting from the nonrecurring
charge equal to $0.06 per common share for the actual nine months ended
March 30, 1996, and $0.04 per common share for the pro forma nine months
ended March 30, 1996.
(5) The pro forma, as adjusted Balance Sheet Data assume the Valley Acquisition
and the Arrow Acquisition are consummated on March 30, 1996 (see "Unaudited
Pro Forma Condensed Combined Financial Statements") and give effect to the
receipt and application of the estimated net proceeds of the Offering as
described under "Use of Proceeds."
8
<PAGE> 12
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following risk factors
relating to the Company and the Common Stock before making an investment in the
Common Stock offered hereby.
LOW MARGIN BUSINESS; ECONOMIC SENSITIVITY
The foodservice distribution industry is characterized by relatively high
inventory turnover with relatively low profit margins. A significant portion of
the Company's sales are made at prices that are based on product cost plus a
percentage markup. As a result, the Company's profit levels may be negatively
affected during periods of food price deflation, even though the Company's gross
profit percentage may remain relatively constant. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations."
The foodservice industry is sensitive to national and regional economic
conditions, and the demand for foodservice products supplied by the Company has
been adversely affected in past years by economic downturns. The Company's
operating results also are particularly sensitive to, and may be adversely
affected by, difficulties with the collectability of accounts receivable,
inventory control, competitive price pressures, severe weather conditions and
unexpected increases in fuel or other transportation-related costs. Although
these factors generally have not had a material adverse impact on the Company's
past operations, there can be no assurance that one or more of such factors will
not adversely affect future operating results.
ACQUISITION STRATEGY
The Company's business strategy emphasizes supplementing internal expansion
with acquisitions. See "Business -- Business Strategy -- Strategic
Acquisitions." There can be no assurance that the Company will successfully
identify suitable acquisition candidates, complete acquisitions (including the
Valley Acquisition and the Arrow Acquisition), integrate acquired operations
into its existing operations or expand into new markets. Further, there can be
no assurance that acquisitions will not have an adverse effect upon the
Company's operating results, particularly in quarters immediately following the
consummation of such transactions, while the operations of the acquired
businesses are being integrated into the Company's operations. Once integrated,
acquired operations may not achieve levels of net sales or profitability
comparable to those achieved by the Company's existing operations, or otherwise
perform as expected. Management may determine that it is necessary or desirable
to obtain financing for such acquisitions through bank borrowings or the
issuance of debt or equity securities. Debt financing of any such acquisition
could increase the leverage of the Company. Equity financing of any such
acquisition may dilute the ownership of the Company's stockholders. There can be
no assurance that the Company will be able to obtain financing on acceptable
terms.
COMPETITION
The Company operates in highly competitive markets, and its future success
will depend in large part on its ability to provide superior service and
high-quality products at competitive prices. The Company encounters competition
from a variety of sources, including specialty and system foodservice
distributors and other broadline distributors. Some of the Company's competitors
have substantially greater financial and other resources than the Company. See
"Business -- Competition."
LABOR RELATIONS
As of March 30, 1996, approximately 940 employees, representing
approximately 36% of the Company's full-time employees and approximately 75% of
the employees employed in the Company's warehouse and distribution operations,
were members of ten different local unions associated with the International
Brotherhood of Teamsters. Although the Company has not experienced any labor
disputes or work stoppages and believes that its relations with its employees
are satisfactory, a work stoppage could have a material adverse effect on the
Company. See "Business -- Employees."
9
<PAGE> 13
DEPENDENCE ON SENIOR MANAGEMENT
The Company's success is largely dependent on the skills, experience and
efforts of its senior management. The loss of the services of one or more of the
Company's senior management could have a material adverse effect on the
Company's business and development. To date, the Company generally has been
successful in retaining the services of its senior management. See "Management."
POTENTIAL INFLUENCE BY AND RELATIONSHIP WITH CERTAIN STOCKHOLDERS
After the Offering, Sara Lee Corporation ("Sara Lee") will beneficially own
approximately 27.0% of the outstanding Common Stock. To the extent that Sara Lee
exercises its voting and investment rights in concert with other stockholders,
Sara Lee and such other stockholders may be able to exercise control over the
Company's business by virtue of their voting power with respect to the election
of directors and actions requiring stockholder approval. The Sara Lee Foundation
will beneficially own approximately 5.3% of the outstanding Common Stock after
the Offering. See "Principal Stockholders." The Company and Sara Lee engage in a
material amount of transactions in the ordinary course of their businesses. See
Note 10 to the Company's Consolidated Financial Statements.
PROVISIONS WITH POSSIBLE ANTI-TAKEOVER EFFECTS
The Company's Certificate of Incorporation and By-Laws contain provisions
that may have the effect of discouraging certain transactions involving an
actual or threatened change of control of the Company. These provisions include
a requirement that the Board of Directors be divided into three classes with
approximately one-third of the Board to be elected each year. The classification
of directors has the effect of making it more difficult for stockholders to
change the composition of the Board. In addition, the Board of Directors of the
Company has the authority to issue up to 5,000,000 shares of preferred stock in
one or more series and to fix the powers, preferences and rights of any such
series without stockholder approval. The ability to issue preferred stock could
have the effect of discouraging unsolicited acquisition proposals or making it
more difficult for a third party to gain control of the Company, or otherwise
could adversely affect the market price of the Common Stock. In February 1996,
the Company adopted a shareholder rights plan under which preferred share
purchase rights will be triggered upon the acquisition (or certain actions that
would result in the acquisition) of 10% or more of the Common Stock by any
person or group or the acquisition (or certain actions that would result in the
acquisition) of additional Common Stock by any person or group owning 10% or
more of the Common Stock on February 19, 1996. See the Company's Current Report
on Form 8-K for the reportable event dated February 19, 1996 incorporated herein
by reference.
VOLATILITY OF MARKET PRICE FOR COMMON STOCK
From time to time after the Offering, there may be significant volatility
in the market price for the Common Stock. Quarterly operating results of the
Company or other distributors of food and related goods, changes in general
conditions in the economy, the financial markets or the food distribution or
foodservice industries, announcement of proposed acquisitions and failure to
complete announced acquisitions (including the Valley Acquisition and the Arrow
Acquisition), unusual weather conditions or other developments affecting the
Company or its competitors could cause the market price of the Common Stock to
fluctuate substantially. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations. This volatility has had a
significant effect on the market prices of securities issued by many companies
for reasons unrelated to their operating performance.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Future sales of substantial amounts of Common Stock in the public market
could adversely affect the market price of the Common Stock. There will be
19,025,929 outstanding shares of Common Stock upon completion of the Offering
(excluding 2,009,900 shares and 80,952 shares issuable upon consummation of the
Valley Acquisition and the Arrow Acquisition, respectively). All of the
3,000,000 shares offered in the Offering will be freely transferable without
restriction or further registration under the Securities Act of 1933,
10
<PAGE> 14
as amended (the "Securities Act"), except that any shares held by an "affiliate"
of the Company (as that term is defined under Rule 144 of the Securities Act)
will be subject to the resale limitations of Rule 144. Of the Company's
remaining outstanding shares, 6,907,763 are "restricted securities" within the
meaning of Rule 144. Such restricted securities may not be sold except in
compliance with the registration requirements of the Securities Act or pursuant
to an exemption from registration, such as the exemption provided by Rule 144.
The Company, certain of its executive officers and directors and the
current stockholders of Valley Foods have agreed that, for a period of 90 days
after the date of this Prospectus, and Sara Lee and the Sara Lee Foundation have
agreed that, until the earlier of the 90th day after the date of this Prospectus
or November 22, 1996, they will not, without the prior consent of Smith Barney
Inc., offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock or any securities convertible into, or exercisable or exchangeable for,
Common Stock (subject, in the case of the Company, to an exception for the grant
of options pursuant to the Company's stock option plans) in the public market.
Such consent permitting shares to be sold before the expiration of such periods
(collectively, the "lock-up period") may be granted without prior notice to the
other stockholders of the Company or to any public market in which the Common
Stock trades. Upon the expiration of the lock-up period, 6,690,076 shares of
Common Stock will be eligible for sale in the public market pursuant to Rule
144. The remaining restricted shares of Common Stock will become eligible for
sale pursuant to Rule 144 at various times thereafter. See "Shares Eligible for
Future Sale."
The Company has filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission to register 2,009,900 shares of Common Stock
(subject to adjustment) issuable in connection with the Valley Acquisition. See
"Prospectus Summary -- Recent and Pending Acquisitions." Approximately 200,000
of such shares upon consummation of the Valley Acquisition, and the remainder of
such shares after publication of the results of at least 30 days of combined
operations of the Company and Valley Foods, will be eligible for sale in the
public market subject to compliance with certain requirements of Rule 144.
The Company has granted certain registration rights with respect to the
5,138,210 shares of Common Stock beneficially owned by Sara Lee and the
1,000,000 shares beneficially owned by the Sara Lee Foundation. Agreements
relating to such registration rights are filed as exhibits to the Registration
Statement of which this Prospectus is a part. Sara Lee and the Sara Lee
Foundation are entitled to require the Company to register the sale of their
shares on up to four occasions under the Securities Act. In addition, in
connection with any such registration or if the Company otherwise proposes to
register any shares of Common Stock under the Securities Act in the future, Sara
Lee, the Sara Lee Foundation, certain management stockholders and (upon
consummation of the Valley Acquisition and the Arrow Acquisition) the current
stockholders of Valley Foods and Arrow are entitled to require the Company,
subject to certain conditions, to include all or a portion of their shares in
such registration. The registration rights described herein are subject to
certain notice requirements, timing restrictions and volume limitations which
may be imposed by the underwriters of an offering. The Company is required to
bear the expenses of all such registrations, except for underwriting discounts
and commissions. Following completion of the Offering, 6,739,408 shares of
Common Stock (excluding shares issuable upon consummation of the Valley
Acquisition and the Arrow Acquisition), or 35.4% of the total number of shares
of Common Stock outstanding, will be entitled to the benefits of such
registration rights.
DIVIDEND POLICY
The Company does not anticipate declaring or paying cash dividends on the
Common Stock in the foreseeable future. The Company's ability to pay cash
dividends is restricted by the terms of the Company's senior notes and the
Company's existing credit facility, consisting of a $110.0 million revolving
credit loan (the "Bank Facility"). See "Price Range of Common Stock and Dividend
Policy."
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"),
11
<PAGE> 15
and is subject to the safe-harbor created by such sections. Such forward-looking
statements include those concerning the Company's business strategy, operations,
economic performance, financial condition and liquidity and capital resources.
Such statements are subject to various risks and uncertainties. The Company's
actual results may differ materially from the results discussed in such
forward-looking statements because of a number of factors, including those
identified under this "Risk Factors" section and elsewhere in this Prospectus.
See the inside front cover pages of this Prospectus, "Prospectus Summary,"
"Recent Results of Operations," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." The
forward-looking statements are made as of the date of this Prospectus, and the
Company assumes no obligation to update the forward-looking statements or to
update the reasons why actual results could differ from those projected in the
forward-looking statements.
RECENT RESULTS OF OPERATIONS
The following table sets forth certain unaudited operating and other data
for the three months and year ended June 29, 1996 as compared with the prior
corresponding periods. In the opinion of management, the following unaudited
results of operations contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the results of operations for
such periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
-------------------------- --------------------------
JULY 1, JUNE 29, JULY 1, JUNE 29,
1995 1996 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................................... $ 297,449 $ 333,771 $ 1,108,253 $ 1,242,676
Gross profit.................................. 50,954 57,459 186,351 213,689
Operating expenses............................ 39,520 43,585 150,428 172,478
Amortization of intangible assets............. 566 597 2,263 2,338
Stock compensation charge(1).................. 709
Income from operations........................ 10,868 13,277 32,951 38,873
Interest expense.............................. 3,486 3,426 20,419 13,339
Nonrecurring charge(2)........................ 1,517
Income before extraordinary charge............ 4,373 5,988 6,570 14,057
Net income applicable to common
shareholders................................ $ 4,373 $ 5,988 $ 1,940 $ 14,057
PER SHARE DATA:
Net income per common share................... $ 0.28 $ 0.37 $ 0.17 $ 0.88
Weighted average number of shares of common
stock outstanding........................... 15,740,820 16,025,138 11,122,343 15,964,626
OTHER DATA:
Depreciation and amortization................. 2,728 3,090 11,247 11,470
</TABLE>
- ---------------
(1) Reflects a one-time non-cash stock compensation charge with respect to stock
purchased by the management investors in fiscal 1995.
(2) Reflects costs written off (primarily special committee, legal and advisory
fees) related to terminated merger discussions. On an after-tax basis these
costs amounted to $933 or $0.06 per common share.
(3) Reflects an extraordinary charge of $4,590 or $0.42 per common share,
resulting from the write-off of deferred financing costs related to the
Company's recapitalization in November 1994.
Net sales increased 12.2% or $36.3 million to $333.8 million for the three
months ended June 29, 1996 (the "1996 quarter") from $297.4 million for the
three months ended July 1, 1995 (the "1995 quarter"). The increase was
attributable to a 15.1% increase in chain account sales, which reflected the
continued growth in sales to the Company's largest customers, and to a 9.8%
increase in street account sales.
12
<PAGE> 16
Gross profit margin increased to 17.2% in the 1996 quarter from 17.1% in
the 1995 quarter, primarily as a result of increased sales of private and
signature brand products. Sales of these proprietary products accounted for
24.0% of street sales at the end of fiscal 1996, compared to 17.6% at the end of
fiscal 1995.
As a percentage of net sales, operating expenses decreased to 13.1% for the
1996 quarter from 13.3% in the 1995 quarter. Operating efficiencies were
principally responsible for the decrease in the current period.
Income from operations, as a percentage of net sales, increased from 3.7%
in the 1995 quarter to 4.0% in the 1996 quarter. The increase was primarily
attributable to higher gross margins resulting from the increased sales of
private and signature brand products.
Net income applicable to common shareholders increased 36.9% as a result of
the 22.2% increase in income from operations, a consistent level of interest
expense and a decrease in the effective tax rate from 40.8% in the 1995 quarter
to 39.2% in the 1996 quarter.
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be $59.0
million ($68.0 million if the Underwriters exercise their over-allotment option
in full), after deducting underwriting discounts and commissions and other
expenses payable by the Company. Approximately $27.9 million of the net proceeds
will be used to fund the cash portion of the Arrow Acquisition. In addition,
approximately $16.3 million of the net proceeds will be used to repay
indebtedness of Arrow to be assumed by the Company. This indebtedness consists
of various notes and lines of credit maturing at various dates from 1996 to 2007
and bearing interest at annual rates from 6.7% to 10.5%.
Approximately $14.4 million of the net proceeds will be used to repay
indebtedness of Valley Foods to be assumed by the Company upon consummation of
the Valley Acquisition. The indebtedness to be repaid consists of (i) a secured
revolving credit loan which expires on May 31, 1998 and bears interest at
varying floating rates (averaging 7.6% annually) and (ii) secured and unsecured
notes payable maturing at various dates from 1997 to 2009 and bearing interest
at annual rates from 6.0% to 11.5%.
The balance of the net proceeds will be used for working capital and
general corporate purposes.
Pending application of the net proceeds of the Offering as described above,
the Company intends to invest the net proceeds in short-term, interest-bearing
investment grade securities.
13
<PAGE> 17
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock began trading on the Nasdaq National Market on
November 16, 1994 under the symbol "JPFS." The following table sets forth the
range of high and low closing sale prices for the Common Stock as reported on
the Nasdaq National Market for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
-------------------------------------------------------------- ----- -----
<S> <C> <C>
1995
Second quarter (from November 16, 1994)..................... $11 1/2 $ 9 1/4
Third quarter............................................... 13 1/4 9 1/4
Fourth quarter.............................................. 14 3/8 10 3/4
1996
First quarter............................................... $18 $12 3/4
Second quarter.............................................. 19 3/4 15 1/4
Third quarter............................................... 22 3/4 18
Fourth quarter.............................................. 25 18
1997
First quarter (through July 15, 1996)....................... $25 1/4 $21
</TABLE>
On July 15, 1996, the closing sale price of the Common Stock as reported on
the Nasdaq National Market was $21.00 per share. There were approximately 180
holders of record of the Common Stock on such date.
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate declaring or paying any cash dividends on its
Common Stock in the foreseeable future. The current policy of the Company's
Board of Directors is to retain all earnings to support operations and to
finance the expansion of the Company's business. The agreement under which the
Company's senior notes were issued and the agreement for the Bank Facility
contain provisions restricting the Company's ability to pay cash dividends on
the Common Stock. See Note 15 to the Company's Financial Statements.
14
<PAGE> 18
CAPITALIZATION
The following table sets forth, as of March 30, 1996, (i) the actual
capitalization of the Company, (ii) the pro forma combined capitalization of the
Company after giving effect to the Valley Acquisition and the Arrow Acquisition
and (iii) the pro forma capitalization of the Company as adjusted to give effect
to the sale by the Company of 3,000,000 shares of Common Stock in the Offering
and the application of the net proceeds therefrom. This table should be read in
conjunction with "Use of Proceeds" and "Unaudited Pro Forma Condensed Combined
Financial Statements."
<TABLE>
<CAPTION>
AS OF MARCH 30, 1996
------------------------------------
PRO FORMA PRO FORMA,
ACTUAL COMBINED AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Current portion of obligations under capital leases..... $ 5,513 $ 5,759 $ 5,759
Current portion of long-term debt....................... -- 5,361 --
-------- --------- ----------
Total short-term debt.............................. $ 5,513 $ 11,120 $ 5,759
======== ======== =========
Long-term debt:
Bank Facility(1)........................................ $ 54,500 $ 82,400 $ 53,314
Senior notes............................................ 85,000 85,000 85,000
Mortgage notes.......................................... -- 20,456 --
Related party indebtedness.............................. -- 4,097 --
Offset Notes(2)......................................... 4,050 4,050 4,050
Obligations under capital leases........................ 16,917 17,449 17,449
-------- --------- ----------
Total long-term debt............................... 160,467 213,452 159,813
-------- --------- ----------
Stockholders' equity (3):
Preferred Stock, $.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding
Common Stock, $.01 par value, 45,000,000 shares
authorized; 16,025,014 shares issued and outstanding;
18,115,866 shares issued and outstanding, pro forma;
21,115,866 shares issued and outstanding, pro forma
as adjusted........................................... 160 181 211
Additional paid-in capital.............................. 189,425 192,255 251,225
Accumulated deficit..................................... (31,394) (29,819) (29,819)
Distribution in excess of net book value of continuing
stockholder's interest(4)............................. (44,943) (44,943) (44,943)
-------- --------- ----------
Total stockholders' equity......................... 113,248 117,674 176,674
-------- --------- ----------
Total capitalization............................... $273,715 $ 331,126 $ 336,487
======== ======== =========
</TABLE>
- ---------------
(1) Subsequent to March 30, 1996, the Company repaid $49.3 million of
outstanding borrowings under the Bank Facility with the proceeds from the
Company's trade receivables securitization program. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
(2) See Note 10 to the Company's Consolidated Financial Statements.
(3) Does not include 461,504 shares of Common Stock subject to stock options
granted by the Company under its stock option plans as of June 29, 1996.
(4) See Note 4 to the Company's Consolidated Financial Statements.
15
<PAGE> 19
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to the Valley Acquisition, the Arrow Acquisition and the Offering.
In the Valley Acquisition, the Company will acquire a foodservice distribution
business conducting operations from Las Vegas, Nevada in consideration for the
assumption by the Company of certain liabilities of the acquired business and
the issuance by the Company of its Common Stock. See "Prospectus
Summary -- Recent and Pending Acquisitions." The Valley Acquisition has two
components: (i) the merger of Valley Industries, Inc., a Nevada corporation
("Industries"), with and into JP Foodservice Distributors, Inc., a Delaware
corporation and wholly owned subsidiary of JP Foodservice, Inc., and (ii) the
acquisition of all of the assets and assumption of all of the liabilities by the
Company of "Z" Leasing Co., a Nevada general partnership affiliated with
Industries. Industries, its wholly owned subsidiary E&H Distributing Co., Inc.,
a Nevada corporation doing business as Valley Food Distributors of Nevada, and
"Z" Leasing Co. are collectively referred to as "Valley Foods." In the Arrow
Acquisition, the Company will acquire a foodservice distribution business
conducting operations from Norwich, Connecticut through the purchase of
substantially all of the assets used in the operation of the business (including
the distribution facilities which are owned by an affiliate of the acquired
business) in consideration for the assumption by the Company of certain
liabilities of the acquired business, issuance by the Company of its Common
Stock and cash. In the Offering, the Company will issue 3,000,000 shares of its
Common Stock.
The following unaudited pro forma condensed combined financial statements
assume a business combination between the Company and Valley Foods accounted for
as a pooling of interests, a business combination between the Company and Arrow
accounted for as a purchase and the Offering. The unaudited pro forma condensed
combined statement of operations for the fiscal year ended July 1, 1995 combines
the following historical condensed consolidated statements of operations: (i)
the Company for the fiscal year ended July 1, 1995; (ii) Valley Foods for the
fiscal year ended January 31, 1996; and (iii) Arrow for the fiscal year ended
December 29, 1995. The unaudited pro forma condensed combined statement of
operations for the nine months ended March 30, 1996 combines the following
unaudited condensed consolidated statements of operations: (i) the Company for
the nine months ended March 30, 1996; (ii) Valley Foods for the nine months
ended March 31, 1996; and (iii) Arrow for the nine months ended March 29, 1996.
The unaudited pro forma condensed combined statements of operations assume the
Valley Acquisition, the Arrow Acquisition and the Offering each occurred at the
beginning of the respective periods presented. The unaudited pro forma condensed
combined balance sheet combines the historical condensed consolidated balance
sheet of the Company as of March 30, 1996 with the historical condensed
consolidated balance sheets of Valley Foods as of March 31, 1996 and Arrow as of
March 29, 1996, respectively, and gives effect to the receipt and application of
the estimated net proceeds of the Offering as described under "Use of Proceeds"
as of March 30, 1996.
The pro forma combined net income per share is based on the combined
weighted average number of shares of Common Stock of the Company and common
stock of Valley Foods for each period (assuming for the purposes hereof that
Valley Foods constituted a single corporate entity), based on the respective
ownership percentages of the Company and Valley Foods in the combined entity
after the Valley Acquisition as well as the number of shares to be issued in
connection with the Arrow Acquisition and the Offering (assuming that such
shares are issued as of the beginning of the periods presented). The pro forma
condensed combined balance sheet reflects the issuance of 2,009,900 shares of
Common Stock of the Company in exchange for all shares of Valley Foods common
stock outstanding at March 30, 1996 (assuming for the purposes hereof that
Valley Foods constituted a single corporate entity), based on the applicable
exchange ratio as well as the issuance of 80,952 shares of Common Stock of the
Company as part of the consideration for the Arrow Acquisition and the issuance
of 3,000,000 shares of Common Stock of the Company in connection with the
Offering.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred if the Valley Acquisition, the Arrow Acquisition and
the Offering had been consummated as presented in the accompanying unaudited pro
forma condensed combined financial statements, nor is it necessarily indicative
of future operating results.
16
<PAGE> 20
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the Company's historical Consolidated Financial
Statements and the related notes thereto included elsewhere in this Prospectus.
For historical consolidated statements of income and consolidated balance sheets
of Valley Foods, see the Company's Current Report on Form 8-K for the reportable
event dated July 1, 1996 incorporated herein by reference. For historical
consolidated statements of income and consolidated balance sheets of Arrow, see
the Company's Current Report on Form 8-K for the reportable event dated July 17,
1996 incorporated herein by reference.
17
<PAGE> 21
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 1, 1995
-----------------------------------------------------------------------
PRO FORMA
--------------------------
JP FOODSERVICE VALLEY FOODS ARROW ADJUSTMENTS AS ADJUSTED
-------------- ------------ ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales........................... $1,108,253 $121,504 $74,590 $ -- $1,304,347
Cost of sales....................... 921,902 100,370 60,257 -- 1,082,529
-------------- ------------ ------- ----------- -----------
Gross profit........................ 186,351 21,134 14,333 -- 221,818
Operating expenses.................. 150,428 17,455 12,756 (1,931)(a) 178,708
Amortization of intangible assets... 2,263 -- -- 764 (b) 3,027
Stock compensation charge........... 709 -- -- -- 709
-------------- ------------ ------- ----------- -----------
Income from operations.............. 32,951 3,679 1,577 1,167 39,374
-------------- ------------ ------- ----------- -----------
Other (income) expenses
Interest expense................ 20,419 1,313 1,055 (2,450)(c) 20,337
Other income.................... -- (69) (140) -- (209)
-------------- ------------ ------- ----------- -----------
Total other expenses................ 20,419 1,244 915 (2,450) 20,128
-------------- ------------ ------- ----------- -----------
Income before income taxes and
extraordinary charge.............. 12,532 2,435 662 3,617 19,246
Provision for income taxes.......... (5,962) (611) (9) (1,796)(d) (8,378)
-------------- ------------ ------- ----------- -----------
Income before extraordinary
charge............................ 6,570 1,824 653 1,821 10,868
Extraordinary charge on early
extinguishment of debt............ (4,590) -- -- -- (4,590)
-------------- ------------ ------- ----------- -----------
Net income.......................... 1,980 1,824 653 1,821 6,278
Preference dividend................. (40) -- -- -- (40)
-------------- ------------ ------- ----------- -----------
Net income applicable to common
stockholders...................... $ 1,940 $ 1,824 $ 653 $ 1,821 $ 6,238
============= =========== ======== =========== ===========
Net income per common share:
Before extraordinary item....... $ 0.59(e) $ 0.70 (e)
Extraordinary item.............. (0.42) (0.30)
-------------- -----------
Net income.......................... $ 0.17(e) $ 0.40 (e)
============= ===========
Weighted average number of common
shares outstanding................ 11,122,343 15,598,289
============= ===========
</TABLE>
- ---------------
(a) Represents a reduction in officer compensation for Valley Foods and Arrow of
$400 and $1,531, respectively, based on employment agreements to be entered
into upon consummation of the Valley Acquisition and the Arrow Acquisition.
(b) Represents amortization of goodwill related to the Arrow Acquisition on a
straight-line basis over 40 years.
(c) Represents a reduction of interest expense on debt to be repaid from
proceeds of the Offering consisting of $1,313 for Valley Foods, $1,055 for
Arrow and $82 for the Company ($1,276 reduction in the Bank Facility at an
average interest rate of 6.50%).
(d) Represents (i) an increase in tax expense of $370 and $541 for Valley Foods
and Arrow, respectively, to reflect Valley Foods and Arrow as C corporations
for federal income tax purposes and (ii) an increase in tax expense of $885
relating to the adjustment described in note (c).
(e) Reflects a reduction in net income of $709 resulting from the one-time
non-cash stock compensation charge equal to $0.06 per common share, actual,
and $0.05 per common share, pro forma, for the fiscal year ended July 1,
1995.
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
18
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 30, 1996
-----------------------------------------------------------------------
PRO FORMA
--------------------------
JP FOODSERVICE VALLEY FOODS ARROW ADJUSTMENTS AS ADJUSTED
-------------- ------------ ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales........................ $ 908,905 $ 94,647 $60,193 $ -- $1,063,745
Cost of sales.................... 752,675 78,147 49,072 -- 879,894
-------------- ------------ ------- ----------- -----------
Gross profit..................... 156,230 16,500 11,121 -- 183,851
Operating expenses............... 128,893 13,459 10,294 (1,204)(a) 151,442
Amortization of intangible
assets......................... 1,741 -- -- 573 (b) 2,314
-------------- ------------ ------- ----------- -----------
Income from operations........... 25,596 3,041 827 631 30,095
-------------- ------------ ------- ----------- -----------
Other (income) expenses
Interest expense............. 9,913 980 775 (1,788)(c) 9,880
Nonrecurring charge.......... 1,517 -- -- -- 1,517
Other income................. -- (68) (144) -- (212)
-------------- ------------ ------- ----------- -----------
Total other expenses............. 11,430 912 631 (1,788) 11,185
-------------- ------------ ------- ----------- -----------
Income before income taxes....... 14,166 2,129 196 2,419 18,910
Provision for income taxes....... (6,097) (551) (8) (1,138)(d) (7,794)
-------------- ------------ ------- ----------- -----------
Net income applicable to common
stockholders................... $ 8,069 $ 1,578 $ 188 $ 1,281 $ 11,116
============= =========== ======== =========== ===========
Net income per common share...... $ 0.51(e) $ 0.53 (e)
============= ===========
Weighted average number of common
shares outstanding............. 15,944,455 21,023,203
============= ===========
</TABLE>
- ---------------
(a) Represents a reduction in officer compensation for Valley Foods and Arrow of
$280 and $924, respectively, based on employment agreements to be entered
into upon consummation of the Valley Acquisition and the Arrow Acquisition.
(b) Represents amortization of goodwill related to the Arrow Acquisition on a
straight-line basis over 40 years.
(c) Represents a reduction of interest expense on debt to be repaid from
proceeds of the Offering consisting of $980 for Valley Foods, $775 for Arrow
and $33 for the Company ($654 reduction in the Bank Facility at an average
interest rate of 6.50%).
(d) Represents (i) an increase in tax expense of $291 and $203 for Valley Foods
and Arrow, respectively, to reflect Valley Foods and Arrow as C corporations
for federal income tax purposes and (ii) an increase in tax expense of $644
relating to the adjustment described in note (c).
(e) Reflects a reduction in net income of $933 resulting from the nonrecurring
charge equal to $0.06 per common share for the actual nine months ended
March 30, 1996, and $0.04 per common share for the pro forma nine months
ended March 30, 1996.
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
19
<PAGE> 23
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 30, 1996
-----------------------------------------------------------------------
PRO FORMA
--------------------------
JP FOODSERVICE VALLEY FOODS ARROW ADJUSTMENTS AS ADJUSTED
-------------- ------------ ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............. $ 7,960 $ 454 $ 7 $ -- $ 8,421
Receivables, net of allowance......... 141,784 11,791 7,522 -- 161,097
Inventories........................... 81,071 5,720 7,433 -- 94,224
Current deferred tax asset............ 540 -- 74 (74)(a) 540
Other current assets.................. 10,637 516 498 -- 11,651
------------- ----------- ------- ----------- -----------
Total current assets............. 241,992 18,481 15,534 (74) 275,933
------------- ----------- ------- ----------- -----------
Property and equipment, net............... 91,625 8,543 7,794 -- 107,962
Goodwill and other intangible assets,
net..................................... 77,424 -- -- 30,559 (b) 107,983
Other noncurrent assets................... -- 543 563 (226)(a) 880
------------- ----------- ------- ----------- -----------
Total noncurrent assets.......... 169,049 9,086 8,357 30,333 216,825
------------- ----------- ------- ----------- -----------
Total assets..................... $411,041 $ 27,567 $23,891 $ 30,259 $ 492,758
============= =========== ======== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of senior debt..... $ -- $ 768 $ 793 $ (1,561)(c) $ --
Revolving bank line of credit......... -- 3,800 -- (3,800)(c) --
Current obligations under capital
leases.............................. 5,513 246 -- -- 5,759
Accounts payable...................... 108,769 8,992 6,027 -- 123,788
Accrued expenses...................... 11,246 1,299 1,404 850 (d) 14,799
------------- ----------- ------- ----------- -----------
Total current liabilities........ 125,528 15,105 8,224 (4,511) 144,346
------------- ----------- ------- ----------- -----------
Noncurrent liabilities
Senior debt........................... 139,500 6,938 13,518 (21,642)(c) 138,314
Subordinated debt with related
parties............................. 4,050 2,139 1,958 (4,097)(c) 4,050
Obligations under capital leases...... 16,917 532 -- -- 17,449
Noncurrent deferred tax liability..... 11,798 127 27 (27)(a) 11,925
------------- ----------- ------- ----------- -----------
Total noncurrent liabilities..... 172,265 9,736 15,503 (25,766) 171,738
------------- ----------- ------- ----------- -----------
Total liabilities................ 297,793 24,841 23,727 (30,277) 316,084
------------- ----------- ------- ----------- -----------
Stockholders' equity
Common stock and additional paid-in
capital............................. 189,585 1,151 50 60,650 (e) 251,436
Retained earnings (accumulated
deficit)............................ (31,394) 1,575 114 (114)(f) (29,819)
Distribution in excess of book value
of continuing stockholder's
interest............................ (44,943) -- -- -- (44,943)
------------- ----------- ------- ----------- -----------
Total stockholders' equity....... 113,248 2,726 164 60,536 176,674
------------- ------------ ------- ----------- -----------
Total liabilities and stockholders'
equity.................................. $411,041 $ 27,567 $23,891 $ 30,259 $ 492,758
============= =========== ======== =========== ===========
</TABLE>
- ---------------
(a) Represents assets or liabilities not acquired or not assumed by the Company
in the Arrow Acquisition.
(b) Represents goodwill associated with the Arrow Acquisition.
(c) Reflects application of net proceeds from the Offering.
(d) Represents accrued Arrow Acquisition transaction costs.
(e) Reflects the issuance of 3,000,000 shares of Common Stock and related net
proceeds of $59,000 received in the Offering, the issuance of 80,952 shares
of Common Stock valued at $1,700 in connection with the Arrow Acquisition
and the elimination of Arrow's common stock and additional paid-in capital
accounts.
(f) Reflects elimination of Arrow's retained earnings account.
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
20
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1 -- In order to conform Valley Foods' year-end to the Company's
fiscal year-end, the unaudited pro forma condensed combined statement of
operations for the nine months ended March 30, 1996 includes seven months (July
1995 through January 1996) for Valley Foods which are also included in the
unaudited pro forma condensed combined statement of operations for the year
ended January 31, 1996. Accordingly, an adjustment has been made in the nine
months ended March 30, 1996 to retained earnings for the duplication of net
income of $1.1 million for such seven-month period. Other results of operations
for such seven-month period of Valley Foods include net sales of $73.1 million,
income before taxes of $1.7 million and income tax expense of $0.6 million.
NOTE 2 -- Certain reclassifications, none of which is material, have been
made to the financial statements of Valley Foods and Arrow in the unaudited pro
forma condensed combined financial statements to conform to classifications of
the Company. Other than as reflected in the foregoing statements and the notes
thereto, there are no material adjustments required to the historical financial
statements of the Company, Valley Foods and Arrow to arrive at the unaudited pro
forma condensed combined balance sheet and statements of income.
NOTE 3 -- Total costs to be incurred by the Company and Valley Foods in
connection with the Valley Acquisition are estimated to be approximately $5.5
million. These costs, relating to legal, printing, accounting, financial
advisory services and other related expenses, will be charged against income in
the periods subsequent to the unaudited pro forma condensed combined financial
statements. Accordingly, the effects of these costs have not been reflected in
these unaudited pro forma condensed combined financial statements. Total costs
to be incurred by the Company in connection with the Arrow Acquisition are
estimated to be approximately $0.85 million. Such amount has been added to the
purchase price of Arrow in determining total costs to be allocated in purchase
accounting.
21
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents, for the periods and at the dates indicated,
selected statement of operations data and balance sheet data of the Company on a
consolidated basis. The selected historical consolidated financial data for each
of the three fiscal years in the period ended July 1, 1995 presented below are
derived from the consolidated financial statements of the Company, which have
been audited by Price Waterhouse LLP, independent accountants. Such data should
be read in conjunction with the Consolidated Financial Statements of the Company
and related notes included elsewhere in this Prospectus. The selected historical
consolidated financial data at April 1, 1995 and March 30, 1996 and for the nine
months ended April 1, 1995 and March 30, 1996 presented below are unaudited, but
include all adjustments (consisting only of normal recurring entries) which
management believes to be necessary for the fair presentation of the financial
position, results of operations and cash flows of the Company at and for the
periods presented. The results of operations of the Company for the nine months
ended March 30, 1996 are not necessarily indicative of the results to be
expected for the full year. The selected unaudited pro forma consolidated
financial data presented below are based on the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus, adjusted to
give effect to the Valley Acquisition, the Arrow Acquisition and the Offering.
See "Unaudited Pro Forma Condensed Combined Financial Statements."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------
JULY 1, 1995
----------------------------
PRO FORMA,
JULY 3, 1993(1) JULY 2, 1994 ACTUAL AS ADJUSTED(2)
--------------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................ $ 1,025,854 $1,029,000 $1,108,253 $1,304,347
Gross profit............. 175,046 171,883 186,351 221,818
Amortization of
intangible assets...... 2,266 2,265 2,263 3,027
Stock compensation
charge................. -- -- 709 709
Income from operations... 26,579 29,537 32,951 39,374
Interest expense......... 36,971 30,711 20,419 20,337
Nonrecurring charge...... -- -- -- --
Income (loss) before
income taxes and
extraordinary charge... (10,392) (1,174) 12,532 19,246
Income (loss) before
extraordinary charge... (7,596) (1,815) 6,570 10,868
Net income (loss)........ (7,596) (1,815) 1,980 6,278
Preference dividends..... (2,427) (504) (40) (40)
Net income (loss)
applicable to common
stockholders........... (10,023) (2,319) 1,940 6,238
PER SHARE DATA:
Net income (loss) per
common share before
extraordinary charge... $ (2.55) $ (0.59) $ 0.59(3) $ 0.70(3)
Net income (loss) per
common share........... (2.55) (0.59) 0.17(3) 0.40(3)
Weighted average number
of shares of common
stock outstanding...... 3,932,748 3,932,748 11,122,343 15,598,289
<CAPTION>
NINE MONTHS ENDED
-------------------------------------------
MARCH 30, 1996
----------------------------
APRIL 1, PRO FORMA,
1995 ACTUAL AS ADJUSTED(2)
----------- ---------- --------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS D
Net sales................$ 810,804 $ 908,905 $1,063,745
Gross profit............. 135,397 156,230 183,851
Amortization of
intangible assets...... 1,697 1,741 2,314
Stock compensation
charge................. 709 -- --
Income from operations... 22,083 25,596 30, 095
Interest expense......... 16,933 9,913 9,880
Nonrecurring charge...... -- 1,517 1,517
Income (loss) before
income taxes and
extraordinary charge... 5,150 14,166 18,910
Income (loss) before
extraordinary charge... 2,197 8,069 11,116
Net income (loss)........ (2,393) 8,069 11,116
Preference dividends..... (40) -- --
Net income (loss)
applicable to common
stockholders........... (2,433) 8,069 11,116
PER SHARE DATA:
Net income (loss) per
common share before
extraordinary charge...$ 0.23 (3) $ 0.51(4) $ 0.53(4)
Net income (loss) per
common share........... (0.25)(3) 0.51(4) 0.53(4)
Weighted average number
of shares of common
stock outstanding...... 9,599,520 15,944,455 21,023,203
</TABLE>
<TABLE>
<CAPTION>
MARCH 30, 1996
--------------------------
PRO FORMA,
ACTUAL AS ADJUSTED(5)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................................................... $116,464 $131,587
Total assets........................................................................................ 411,041 492,758
Long-term debt, excluding current maturities........................................................ 160,467 159,813
Stockholders' equity................................................................................ 113,248 176,674
</TABLE>
- ---------------
(1) 53-week fiscal year.
(2) The pro forma, as adjusted Statement of Operations Data assume (i) the
consummation of the Valley Acquisition and the Arrow Acquisition and (ii)
the receipt and application of the estimated proceeds of the Offering (as
described under "Use of Proceeds"), each as of the first day of each period
indicated. See "Unaudited Pro Forma Condensed Combined Financial
Statements."
(3) Reflects a reduction in net income of $709 resulting from the one-time
non-cash stock compensation charge equal to $0.06 per common share, actual,
and $0.05 per common share, pro forma, for the fiscal year ended July 1,
1995, and $0.07 per common share for the nine months ended April 1, 1995.
(4) Reflects a reduction in net income of $933 resulting from the nonrecurring
charge equal to $0.06 per common share for the actual nine months ended
March 30, 1996, and $0.04 per common share for the pro forma nine months
ended March 30, 1996.
(5) The pro forma, as adjusted Balance Sheet Data assume the Valley Acquisition
and the Arrow Acquisition are consummated on March 30, 1996 (see "Unaudited
Pro Forma Condensed Combined Financial Statements") and give effect to the
receipt and application of the estimated net proceeds of the Offering as
described under "Use of Proceeds."
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Overview. In recent years, the Company's net sales have increased
predominantly as a result of internal expansion through continued growth in
street account and chain account sales. The Company has increased its street
account sales through growth of its street sales force, improved sales
productivity and the implementation of new street sales promotion programs. The
Company's chain account sales have increased as a result of the continued growth
in sales to existing accounts and the development of relationships with new
accounts. The Company has supplemented internal growth with acquisitions
completed in the fourth quarter of fiscal 1995 and the second quarter of fiscal
1996. The Company's gross profit margin has improved in part as a result of an
increase in sales of private and signature brand products as a percentage of the
Company's net sales.
During this period, the balance sheet improved as a result of enhanced
management of inventory and accounts payable and consummation of a
recapitalization in the second quarter of fiscal 1995 that included the
Company's initial public offering of Common Stock (the "Recapitalization"). The
Recapitalization enabled the Company to reduce its overall indebtedness by
$123.7 million and the effective annual interest rate on such indebtedness to
7.6% in fiscal 1995 from 10.4% prior to the Recapitalization. See Note 6 to the
Company's Consolidated Financial Statements.
Fiscal Year. The Company's fiscal year ends on the Saturday closest to
June 30. Consequently, the Company occasionally will have a 53-week fiscal year.
Fiscal 1995 and 1994 each consisted of 52 weeks, while fiscal 1993 was a 53-week
year.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain income
and expense items expressed as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
---------------------------- -------------------------------
JULY 2, 1994 JULY 1, 1995 APRIL 1, 1995 MARCH 30, 1996
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Net sales............................. 100.00% 100.00% 100.00% 100.00%
Cost of sales......................... 83.30 83.19 83.30 82.81
------------ ------------ ------------- -------
Gross profit.......................... 16.70 16.81 16.70 17.19
Operating expenses.................... 13.61 13.57 13.68 14.18
Amortization of intangible assets..... 0.22 0.20 0.21 0.19
Stock compensation charge............. -- 0.06 0.09 --
------------ ------------ ------------- -------
Income from operations................ 2.87 2.98 2.72 2.82
Interest expense...................... 2.98 1.84 2.09 1.09
Nonrecurring charge................... -- -- -- 0.17
------------ ------------ ------------- -------
Income (loss) before taxes and
extraordinary charge................ (0.11) 1.14 0.63 1.56
Income taxes.......................... (0.06) (0.54) (0.36) (0.67)
------------ ------------ ------------- -------
Income (loss) before extraordinary
charge.............................. (0.17) 0.60 0.27 0.89
Extraordinary charge on early
extinguishment of debt.............. -- (0.41) (0.57) --
------------ ------------ ------------- -------
Net income (loss)..................... (0.17)% 0.19% (0.30)% 0.89%
========= ========= ========= ===========
</TABLE>
The principal components of expenses include cost of sales, which
represents the amount paid to manufacturers and growers for products sold, and
operating expenses, which include selling (primarily labor-related) expenses,
warehousing, transportation and other distribution costs, and administrative
expenses. Because distribution and administrative expenses are relatively fixed
in the short term, unexpected changes in
23
<PAGE> 27
the Company's net sales, such as those resulting from adverse weather, can have
a significant short-term impact on operating income.
The Company sells a significant proportion of its products at prices based
on product cost plus a percentage markup. Periods of inflation in food prices
result in higher product costs, which are reflected in higher sales prices and
higher gross profits. The Company's operating results were positively affected
by estimated food price inflation of 0.5%, 0.7% and 1.4% in fiscal 1995, 1994
and 1993, respectively.
Gross margins generally are lower for chain accounts than for street
accounts. However, because there are typically no commission sales costs related
to chain account sales and because chain accounts usually have larger deliveries
to individual locations, sales and delivery costs generally are lower for chain
accounts than for street accounts.
Gross margins are generally higher for the Company's proprietary products
than for national branded products of comparable quality. However, the Company
incurs additional advertising and other marketing costs in promoting its
proprietary products.
NINE MONTHS ENDED MARCH 30, 1996 COMPARED TO NINE MONTHS ENDED APRIL 1, 1995
Net Sales. The Company's net sales increased 12.1% to $908.9 million for
the nine months ended March 30, 1996 (the "1996 fiscal period") from the $810.8
million net sales level achieved for the nine months ended April 1, 1995 (the
"1995 fiscal period"). Sales generated by foodservice businesses acquired by the
Company in the last quarter of fiscal 1995 and the second quarter of fiscal 1996
contributed 2.0% to this increase. The increase in net sales in the 1996 fiscal
period was attributable to strong growth in both chain account sales and street
sales. Chain account sales increased 16.1% in the 1996 fiscal period. The
increase in chain account sales reflected the continued growth in sales to the
Company's larger customers and the development of new chain account
relationships. As a percentage of net sales, chain account sales increased to
46.7% in the 1996 fiscal period from 45.0% in the 1995 fiscal period. Street
sales increased 8.8% in the 1996 fiscal period over the prior corresponding
period. The street sales growth resulted principally from the growth of the
street sales force, improved sales force productivity and the implementation of
new street sales promotion programs.
Gross Profit. The Company's gross profit margin increased to 17.2% in the
1996 fiscal period from 16.7% in the prior corresponding period. The increase
was primarily attributable to higher sales of the Company's private and
signature brand products, which increased to 22.3% of street sales at the end of
the 1996 fiscal period from 15.8% of street sales at the end of the 1995 fiscal
period. The increase in gross profit margin was also attributable to income
resulting from promotional programs, including promotional income from vendors
in support of the Company's private brand program.
Operating Expenses. Operating expenses increased 16.2% to $128.9 million
in the 1996 fiscal period from $110.9 million in the 1995 fiscal period. As a
percentage of net sales, operating expenses increased to 14.2% from 13.7% in the
1995 fiscal period. The increase in operating expenses, as a percentage of net
sales in the 1996 fiscal period, resulted primarily from increased costs
incurred in connection with the promotion of the Company's private and signature
brand products and costs associated with the adverse winter weather conditions
experienced in a majority of the Company's markets in the third quarter of
fiscal 1996.
Income from Operations. Income from operations (after amortization charges
of $1.7 million) increased 15.9% to $25.6 million in the 1996 fiscal period from
$22.1 million in the prior corresponding period. The increase was attributable
to increased sales volume and related gross profit, and to the absence of any
charge corresponding to the one-time stock compensation charge of $0.7 million
recorded in the 1995 fiscal period. Operating margin increased to 2.8% in the
1996 fiscal period from 2.7% in the 1995 fiscal period.
Interest Expense. Interest expense for the 1996 fiscal period decreased
41.5% to $9.9 million in 1996 from $16.9 million in 1995. The decrease was
primarily attributable to the repayment or refinancing of substantially all of
the Company's indebtedness in connection with the Recapitalization.
24
<PAGE> 28
Nonrecurring Charge. On February 19, 1996, the Company terminated
discussions with Sara Lee regarding a proposed combination of the Company and
Sara Lee's wholly owned subsidiary, PYA Monarch, Inc. As a result of the
termination of these discussions, which began with a proposal submitted by Sara
Lee in November 1995, the Company wrote off the costs incurred related to the
transaction (primarily legal and advisory fees) of approximately $1.5 million.
Income Taxes. The provision for income tax for the 1996 fiscal period
increased $3.1 million over the provision for the 1995 fiscal period. The
increase in the provision was attributable to the Company's greater pretax
profit level in the 1996 fiscal period. The Company's effective tax rate (before
extraordinary charge) of 43.1% for the 1996 fiscal period decreased from the
effective rate of 57.3% for the 1995 fiscal period primarily because of the
effect on the 1995 fiscal period of the non-deductible stock compensation charge
of $0.7 million.
Extraordinary Charge. The Company incurred no extraordinary charge in the
1996 fiscal period. In the 1995 fiscal period, in connection with the
Recapitalization, the Company incurred a $4.6 million extraordinary charge (net
of tax benefits of $3.1 million) for the write-off of deferred financing costs
relating to existing indebtedness, as well as other fees and expenses related to
the early extinguishment of debt.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales increased 7.7% to $1.108 billion in fiscal 1995 from
$1.029 billion in fiscal 1994. Higher chain account and street sales both
contributed to the Company's sales growth in fiscal 1995. An increase of 9.3% in
chain account sales in fiscal 1995 reflected the continued growth in sales to
the Company's larger customers and, to a lesser extent, the development of new
chain account relationships. As a percentage of net sales, chain account sales
increased to 45% in fiscal 1995 from 44% in fiscal 1994. Street sales increased
6.5% over fiscal 1994 primarily as a result of improved sales force
productivity, the implementation of new street sales promotion programs and an
increase in the commission sales force. As part of the Company's strategy to
increase its street sales, the Company expanded its street sales force by 12% in
fiscal 1995, with 75% of that increase occurring in the fourth fiscal quarter.
The rate of increase in street sales over the prior year accelerated during
fiscal 1995, from 3.8% in the first fiscal quarter to 7.9% in the fourth fiscal
quarter. Fiscal 1995 net sales also benefited from the general absence of the
severe weather conditions that adversely affected fiscal 1994 sales in certain
of the Company's markets.
Gross Profit. Gross profit margin increased to 16.8% in fiscal 1995 from
16.7% in fiscal 1994. The increase was primarily attributable to increased sales
of proprietary products. The increase in sales of proprietary products more than
offset the effects of the shift in customer mix to a higher percentage of sales
to chain accounts.
Operating Expenses. Operating expenses increased 7.4% to $150.4 million in
fiscal 1995 from $140.1 million in fiscal 1994 primarily as a result of the
increases in net sales. As a percentage , operating expenses remained constant
at 13.6% in fiscal 1995 and 1994. Increases in costs incurred in connection with
the Company's investment in street sales promotion programs and in the expansion
of its street sales force were offset by the costs savings resulting from a
higher percentage of sales to chain accounts.
Stock Compensation Charge. The Company incurred a one-time non-cash stock
compensation charge of $0.7 million relating to common stock offered to certain
management investors in the first quarter of fiscal 1995. See Note 7 to the
Company's Consolidated Financial Statements.
Income from Operations. As a result of the increases in net sales and
gross profit margin, income from operations increased 11.6% to $33.0 million in
fiscal 1995 from $29.5 million in fiscal 1994. Operating margin increased to
3.0% in fiscal 1995 from 2.9% in fiscal 1994.
Interest Expense. Interest expense decreased 33.5% to $20.4 million in
fiscal 1995 from $30.7 million in fiscal 1994. The decrease was primarily
attributable to the reduction in the Company's aggregate indebtedness and annual
interest rate on borrowings effected in the Recapitalization, which was
consummated in the second quarter of fiscal 1995.
25
<PAGE> 29
Extraordinary Charge. In connection with the Recapitalization, the Company
incurred a $4.6 million extraordinary charge (net of tax benefits of $3.1
million) in the second quarter of fiscal 1995 for the write-off of deferred
financing costs relating to existing indebtedness as well as other fees and
expenses related to the early extinguishment of debt.
Income Taxes. The Company recorded an income tax provision of $6.0 million
in fiscal 1995, compared to an income tax provision of $0.6 million in fiscal
1994. The increase was due to the increase in taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations and growth primarily
with cash flow from operations, borrowings under its credit facilities,
operating and capital leases and normal trade credit terms. The Company finances
its investment in inventory principally with trade accounts payable.
The Company's cash flow from operations was ($4.9) million, $11.3 million
and $40.6 million in the nine months ended March 30, 1996, fiscal 1995 and
fiscal 1994, respectively. The significant cash flows in fiscal 1994 were
related to a one-time improvement in the Company's working capital management
compared to the prior fiscal year. The decrease in the nine months ended March
30, 1996 was primarily attributable to a change in the scheduled receipt date
from a major customer (which increased the month-end accounts receivable balance
by approximately $8.0 million), temporary seasonal inventory increases and
increased working capital requirements associated with the Company's accelerated
sales growth.
The Company's working capital requirement generally averages between 9% and
10% of annual sales. The Company's working capital balance at March 30, 1996 was
$116.5 million.
As of March 30, 1996, the Company's long-term indebtedness, including
current portion, was $166.0 million, with an overall weighted average interest
rate of 7.7% (excluding deferred financing costs and costs of interest rate
swaps and interest cap arrangements). As of the same date, $54.5 million of
borrowings and $11.5 million of letters of credit were outstanding under the
Bank Facility and an additional $44.0 million remained available to finance the
Company's working capital requirements.
Subsequent to March 30, 1996, the Company strengthened its liquidity
position by applying $49.3 million in proceeds from the securitization and sale
of trade receivables to reduce its outstanding borrowings under the Bank
Facility by the same amount. The effective interest rate on proceeds of the
securitization program is currently equivalent to LIBOR plus 32 basis points.
The application of such proceeds has enabled the Company to reduce its working
capital investment and to reduce the interest rate on borrowings under the Bank
Facility from LIBOR plus 87.5 basis points to LIBOR plus 50 basis points.
Approximately $27.9 million of the net proceeds of the Offering will be
used to fund the cash portion of the Arrow Acquisition. The Company currently
expects to assume approximately $20 million of indebtedness of Valley Foods upon
consummation of the Valley Acquisition and approximately $19 million of
indebtedness of Arrow upon consummation of the Arrow Acquisition. The net
proceeds of the Offering will be used to repay a portion of such indebtedness.
See "Use of Proceeds."
The Company made capital expenditures of $16.9 million in the nine months
ended March 30, 1996 and $7.3 million in fiscal 1995, primarily for new trucks
and trailers and the expansion of the Company's distribution centers in
Streator, Illinois and Boston. The expenditures for new trucks and trailers were
primarily funded from capital leases. The Company currently expects to make
capital expenditures of approximately $24 million in fiscal 1997, including
approximately $7 million to upgrade and expand its existing facilities.
The Company believes that the combination of cash flow generated by its
operations, additional capital leasing activity, borrowings under the Bank
Facility and the net proceeds of the Offering will be sufficient to enable it to
finance its growth and meet its projected capital expenditures and other
short-term and long-term liquidity requirements. Management may determine that
it is necessary or desirable to obtain financing for acquisitions through
additional bank borrowings or the issuance of new debt or equity securities.
26
<PAGE> 30
QUARTERLY RESULTS AND SEASONALITY
The Company's operating results historically have reflected seasonal
variations. The Company experiences lower net sales and income from operations
during its third quarter, which includes the winter months. The following table
sets forth certain summary information with respect to the Company's operations
for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 2, 1994
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................. $ 263,944 $ 250,723 $ 239,543 $ 274,790
Income from operations.................... 7,011 7,471 4,752 10,303
Operating margin.......................... 2.7% 3.0% 2.0% 3.7%
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 1, 1995
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................. $ 279,839 $ 272,405 $ 258,560 $ 297,449
Income from operations.................... 7,746 8,294 6,043 10,868
Operating margin.......................... 2.8% 3.0% 2.3% 3.7%
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 30, 1996
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................. $ 310,760 $ 302,342 $ 295,803
Income from operations.................... 9,242 8,909 7,445
Operating margin.......................... 3.0% 2.9% 2.5%
</TABLE>
27
<PAGE> 31
BUSINESS
JP Foodservice is a leading broadline distributor of food and related
products to restaurants and other institutional foodservice establishments in
the Mid-Atlantic, Midwestern and Northeastern regions of the United States. The
Company ranks as the nation's sixth largest broadline distributor based on 1995
calendar year net sales. Upon consummation of the Valley Acquisition and the
Arrow Acquisition, the Company will rank as the nation's fifth largest broadline
distributor based on pro forma 1995 calendar year net sales. The Company
believes that it is one of the three leading broadline distributors in each of
its principal geographic service areas, which it defines as the areas within a
150-mile radius of each of its nine full-service distribution centers. The
Company markets and distributes approximately 28,000 national, private and
signature brand items to over 23,000 foodservice customers, including
restaurants, hotels, healthcare facilities, cafeterias, and schools. This
diverse customer base encompasses both independent (or "street") and multi-unit
(or "chain") businesses.
FOODSERVICE DISTRIBUTION INDUSTRY
Companies in the U.S. foodservice distribution industry purchase, store,
market and transport food products, paper products and other supplies and
food-related items to establishments that prepare and serve meals to be eaten
away from home. Net sales for the industry were approximately $129 billion in
1995. For the three-year period ended 1995, foodservice distribution sales
increased at a compounded annual rate of 2.4%, which was comparable to the rate
of increase in the U.S. gross national product during the same period.
Foodservice distribution companies generally are classified as "broadline,"
"specialty" or "system" distributors. Broadline distributors offer a
comprehensive range of food and related products from a single source of supply
and provide foodservice establishments with the cost savings associated with
large, full-service deliveries. Specialty distributors generally are small,
family-owned enterprises that supply only one or two product categories. System
distributors typically supply a narrow range of products to a limited number of
multi-unit businesses operating in a broad geographical area.
The foodservice distribution industry is extremely fragmented, with over
3,000 companies in operation in 1995. Nevertheless, over the last 20 years, the
industry has experienced substantial consolidation as larger distributors have
acquired small and regional distributors and have used their superior
competitive position to grow at the expense of smaller distributors.
Consolidation in turn has permitted large foodservice distributors to benefit
from various economies of scale produced by large, low-cost distribution
facilities, increased net purchasing power and the elimination of redundant
management and other overhead expenses. Larger distributors also have been able
to take advantage of more sophisticated management techniques and the
development of management information systems specifically designed to enhance
customer service and increase operating efficiency. The following table
illustrates the impact of these trends on the percentage of total net sales in
the industry generated by the largest broadline distributors during the periods
indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY NET SALES
YEAR ENDED DECEMBER
31
-------------------
1985 1995
---- ----
<S> <C> <C>
Ten largest broadline distributors............................... 9.8% 21.2%
Fifty largest broadline distributors............................. 19.7 25.8
</TABLE>
Management anticipates further consolidation in the industry as smaller
specialty distributors confront increasingly difficult competitive challenges
from broadline companies that have access to the significant capital investment
needed to construct and equip large, efficient distribution centers, maintain a
modern fleet of delivery vehicles and develop the sophisticated information
systems required for cost-efficient operations. The Company believes that large,
well-capitalized broadline distributors generally will benefit from continuing
industry consolidation as well as from certain forecasted demographic and
economic trends. These trends include an increasing number of two wage-earner
families who eat meals away from home, the increasing availability of convenient
take-out meals and restaurant home delivery services and the increasing
affluence of the "baby boomer" segment of the population. In addition,
forecasted expansion of many chain restaurants is
28
<PAGE> 32
anticipated to generate additional sales volume for broadline distributors that
can satisfy the product and delivery requirements of this customer segment.
COMPETITIVE STRENGTHS
JP Foodservice believes that its primary competitive strengths are the
following:
Leading Market Position. The Company derives significant benefits from its
position as one of the three leading broadline distributors in each of its
principal geographic service areas. The Company's large-scale operations provide
it with significant name recognition and operating efficiencies. In addition,
the scope of its distribution network gives the Company the ability to offer its
growing chain customers a consistent array of products and services across a
broad geographic area encompassing approximately one-half of the U.S.
population. The size and diverse nature of the customer base reduces the
Company's dependence on any individual customer or chain account to sustain
growth or profitability.
Diverse High-Quality Product Line. The Company's product line is one of
the largest in the industry and enables the Company to provide a single source
of supply to its customers. To satisfy the needs of its diverse customer base,
the Company continually updates its product mix. Compared to its principal
competitors, the Company devotes a larger portion of its product line to
national brand products, which currently account for approximately 83% of net
sales. In addition to national brands, the Company provides its customers with
an expanding line of quality-assured, value-priced products under its JP(TM), JP
Power(TM) and Harvest Value(TM)private brands. The Company also offers an
exclusive line of signature products, which are comparable in quality to
national brand items and priced competitively with such items. Signature
products are marketed under the Roseli(TM), Hilltop Hearth(TM), Cattlemen's
Choice(TM), Patuxent Farms(TM), el Pasado(TM) and Rituals(TM) brands. The
Company, unlike certain of its competitors, utilizes centralized purchasing,
which promotes a consistently high level of quality for its proprietary brand
products throughout the Company's distribution network.
Superior Customer Service. The Company's focus on customer service ensures
accurate fulfillment of customer orders and on-time product delivery. During
fiscal 1995, the Company maintained an order fill rate that exceeded 98.4%,
excluding substituted products, and 99%, including substituted products, which
the Company believes is one of the highest order fill rates in the industry. The
Company's ability to maintain these rates is attributable to its sophisticated
inventory management system, professional centralized purchasing staff,
proprietary order fulfillment system and inbound freight management techniques.
The Company has achieved its superior customer service by employing a
decentralized operating strategy, utilizing proprietary information systems and
providing an array of value-added services. The Company's decentralized
operating strategy allows each of the Company's nine distribution centers to
function as autonomous divisions. This approach, which permits the personnel of
each branch to control the branch's sales, marketing and distribution functions,
enables the Company to be more responsive to customer needs.
The Company's sophisticated information systems contribute significantly to
its ability to maintain high service levels. The information systems have the
flexibility to accommodate a range of customer requirements, and include
features that provide a variety of order entry alternatives for customers,
produce special price lists for key accounts and create customized reports and
data bases for customer use.
The Company offers its customers a broad range of value-added services to
assist them in managing their foodservice operations more efficiently and
profitably, including advice and assistance on product selection, menu planning
and recipes, nutritional information, inventory analysis, product costing and
marketing strategies, and in-service training of customer personnel.
Low Cost Structure. Management believes that the Company's overall cost
structure is lower than that of many of its principal competitors. The Company's
modern, large-scale distribution centers enable it to realize cost savings in
branch overhead, warehouse operations and transportation services. The Company
has centralized only those functions that benefit from significant economies of
scale or require consistent application of management controls, such as
purchasing, finance and accounting, advertising and promotion,
29
<PAGE> 33
and information systems. The Company's information systems allow it to reduce
administrative costs and improve responsiveness to operational requirements at
the branch level.
Proprietary Information Systems. The Company has made a significant
investment in its proprietary information systems, which it believes are among
the most advanced in the industry, and continually upgrades those systems in an
effort to achieve additional cost reductions and operating efficiencies. The
ordering, shipment, storage and delivery of the Company's products are managed
through a centralized information system that allows all of the Company's
distribution facilities and its corporate headquarters to obtain information on
a "real time" basis regarding the Company's inventory, product availability,
customers, sales, financial reports, truck routing and other significant
operating areas. The Company's facilities utilize common information systems
that permit them to access and consolidate invoices, inventory data, customer
records and financial information, thereby ensuring consistency of product,
sales and financial information. In coordination with its integrated information
systems, the Company employs, at both the corporate and branch levels, a
proprietary strategic information system that allows it to analyze
systematically the profitability of customer accounts, sales territories and
product groups.
BUSINESS STRATEGY
The Company's business strategy is to target customers and product segments
that allow for internal growth and provide favorable profitability levels and to
take advantage through strategic acquisitions of growth opportunities resulting
from the industry's continuing consolidation.
Increased Sales to Existing Customers. The Company seeks to be the primary
broadline distributor to each of its customers, and believes that there is a
significant opportunity to increase sales penetration of its existing accounts.
The typical foodservice customer uses one broadline distributor for the majority
of its foodservice needs, but also relies on one or two additional broadline
distributors and a number of specialty and system distributors. Increased sales
to existing customers generally are more profitable than sales to new customers,
because they often do not require significant additional delivery expenses,
sales calls or other additional administrative services.
The Company's strategy also emphasizes supporting the growth of its
existing chain accounts. Many of the Company's current chain customers,
primarily restaurants, are experiencing more rapid sales growth than other types
of foodservice businesses. Because of the proven concepts of these chains and
the operating economies accruing to their large-scale operations, the Company
believes that the future growth prospects for these chains are significant.
Targeting of New Accounts. The fragmented nature of the industry favors
expansion of the Company's operations through an increase in market share. The
Company will continue to pursue its long-term strategy of increasing street
account sales as a percentage of net sales by attempting to expand sales to
street customers at a faster rate than sales to chain customers. To achieve
street account sales growth, the Company currently plans to continue to increase
the number of commission sales people that service such accounts. Management
believes that increased street account sales will contribute to the stability of
the Company's customer base by diversifying sales over a larger number of
customers. As independent operators, street customers are more likely than chain
customers to utilize the full range of value-added services offered by the
Company. Street account sales increased 6.2% in fiscal 1995 and 8.8% in the nine
months ended March 30, 1996 over the prior corresponding periods.
The Company also plans to target new chain customers which it believes
represent attractive growth opportunities. The Company intends to focus on those
accounts that are located primarily within the Company's current distribution
network and that can benefit from the Company's existing product line and
service capabilities.
Increased Sales of Proprietary Products. Private and signature brand items
enable the Company to offer its customers attractive product alternatives to
comparable national brands across a wide range of prices. The Company
historically has sold a significantly lower proportion of proprietary private
and signature brand products than its primary competitors, whose proprietary
brand sales have accounted for 30% to over 60% of
30
<PAGE> 34
their sales volume. Sales of the Company's proprietary brands are expected to
account for approximately 15% of net sales in fiscal 1996, compared to
approximately 12% in fiscal 1995. Although it intends to continue to emphasize
sales of national brand products, the Company plans to expand sales of its newly
developed private and signature brand product lines through national and local
advertising, representation at national and Company-sponsored food shows and
training of its sales force regarding the attributes of these products.
Sales of private and signature brand items are supported by the Company's
centralized purchasing operations, which enable the Company to provide
consistent product quality and pricing to its entire customer base. Because the
sale of proprietary brands does not entail payment of the price premiums
associated with national brands and their associated higher overhead costs, the
Company believes sales of its proprietary brands will enhance both its
profitability and the profitability of its customers. The Company also believes
that because its signature brands are available exclusively through the Company,
sales of these products promote increased customer loyalty.
Focus on Specialized Markets. JP Foodservice has directed its product and
service development efforts to satisfy the needs of specialized markets believed
to have strong growth potential. Through its integrated service program called
DirectCare: Meals, Menus and More(R), the Company provides over 700 nursing
homes and hospitals with special nutritional plans, inventory analysis, a
variety of marketing services and in-service training of institutional
personnel. Sales to healthcare institutions under this program are expected to
amount to $62 million in fiscal 1996, compared to $30 million in fiscal 1994. In
addition, the Company has responded to the increasing popularity of foodservice
specialities by marketing a variety of Italian-style products under its
Roseli(TM) signature brand, which the Company introduced in fiscal 1994, as well
as a full line of Mexican products under its el Pasado(TM) signature brand and a
complete line of gourmet and foodservice coffees and related products under its
Rituals(TM) signature brand, both of which the Company introduced in fiscal
1996. In the first half of fiscal 1997, the Company plans to introduce a full
line of Oriental-style products under its Beijing Chef(TM) signature brand and
a full line of seafood products under its Harbor Banks(TM) signature brand.
Strategic Acquisitions. The Company supplements internal growth with a
program of strategic acquisitions to increase its market presence in its
existing operating areas and to expand its operations into new markets. The
Company expects that the continued presence of many small, privately-owned
distributors within the Company's existing markets will provide it with
opportunities to effect "fold-in" acquisitions of these concerns by integrating
their customer base and sales force into the Company's current operations. The
Company also will consider acquiring larger-sized distributors as a means of
expanding into new geographic markets. The Company believes that it can reduce
the operating expenses and purchasing costs and enhance the sales and profit
margins of an acquired business by providing the acquired business with access
to its centralized purchasing programs, information systems, broad product line
and value-added services. The Company further believes that its decentralized
operating strategy and the flexibility of its centralized, mainframe-based
computer system will facilitate the integration of acquired operations. The
Company's ability to compete for acquisition opportunities with other
foodservice businesses is enhanced by its financial resources, which include
access to the public capital markets.
Pursuant to its acquisition strategy, the Company recently consummated two
"fold-in" acquisitions. In the fourth quarter of fiscal 1995, the Company
acquired Tri River Foods, Inc., a foodservice distribution company specializing
in custom-cut meat products, frozen seafood and other complementary canned, dry
and frozen food products. The acquired company, which conducted operations
primarily within a 50-mile radius of Pittsburgh, had net sales of approximately
$15 million. In the second quarter of fiscal 1996, the Company purchased certain
assets of Rotelle, Inc., a foodservice distribution company operating in
Pennsylvania with annual net sales of approximately $35 million.
In the fourth quarter of fiscal 1996, the Company entered into a definitive
agreement to acquire Valley Foods, a broadline distributor with a leading market
share of the Las Vegas, Nevada foodservice market. The Company believes that Las
Vegas is one of the country's fastest growing foodservice markets and that the
Valley Acquisition will provide a basis for the Company to expand its operations
into the Western region of the United States. See "Prospectus Summary -- Recent
and Pending Acquisitions" and "Unaudited Pro Forma Condensed Combined Financial
Statements."
31
<PAGE> 35
During the first quarter of fiscal 1997, the Company entered into a
definitive agreement to purchase Arrow, a broadline distributor based in
Norwich, Connecticut. The Company believes that the Arrow Acquisition will
increase the Company's presence in the New England marketplace, as well as
position the Company for further expansion into the southern Connecticut,
Westchester County and New York City markets. See "Prospectus Summary -- Recent
and Pending Acquisitions" and "Unaudited Pro Forma Condensed Combined Financial
Statements."
The Company has adopted a policy pursuant to which it generally does not
announce proposed acquisitions until it enters into definitive agreements with
respect to such acquisitions.
PRODUCTS AND SERVICES
Products
The Company's extensive selection of food and related products enables it
to provide a single source of supply to a diverse base of customers whose
product needs vary significantly. The Company's product line of approximately
28,000 items encompasses a broad selection of canned and dry food products,
fresh meats, poultry, seafood, frozen foods, fresh produce, dairy and other
refrigerated products and related goods and supplies. Many of the Company's
product offerings feature "center of the plate" or entree selections. The
Company also distributes a wide variety of nonfood products and equipment,
including paper products, disposable napkins, plates, cups and cleaning
supplies. In most locations, the Company also offers coffee and beverage
equipment, supplies and service and, to a limited extent, tableware (such as
china and silverware), glassware and light restaurant equipment and supplies.
The following table sets forth the product categories of the items sold by
the Company and the percentage of the Company's net sales generated by each
product category during the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
NINE MONTHS
FISCAL YEAR ENDED ENDED
-------------------------------------------- --------------
JULY 3, 1993 JULY 2, 1994 JULY 1, 1995 MARCH 30, 1996
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Canned and dry products....................... 27% 27% 27% 26%
Meats......................................... 20 20 20 20
Other frozen foods............................ 17 18 18 18
Poultry....................................... 9 9 9 10
Seafood....................................... 8 8 8 8
Dairy products................................ 8 7 8 8
Perishable food products...................... 4 4 4 3
Paper products................................ 3 4 4 5
Equipment and supplies........................ 2 2 1 1
Janitorial supplies........................... 2 1 1 1
--- --- --- ---
Total net sales............................... 100% 100% 100% 100%
========= ========= ========= ===========
</TABLE>
National Brands. The Company supplies more than 26,000 national brand
items, which currently account for approximately 83% of the Company's net sales.
National brand products represent a greater proportion of the Company's product
line than the product lines of the Company's principal competitors. Management
believes that national brands are attractive to chain accounts and other
customers seeking consistent product quality throughout their operations. The
Company's national brand strategy has promoted closer relationships with many
national suppliers, who provide important sales and marketing support to the
Company.
Private Brands. The Company offers its customers an expanding line of
products under its JP(TM), JP Power(TM) and Harvest Value(TM) private brands.
The Company currently offers over 1,000 private brand products, including frozen
and canned goods, fruits, vegetables and meats, through its JP Gold(TM) (highest
quality), JP Blue(TM), JP Red(TM) and Harvest Value(TM) private labels and
approximately 50 cleaning products
32
<PAGE> 36
under its JP Power(TM) brand. The multi-tier quality system has been developed
to meet the specific requirements of different market segments.
Signature Brands. The Company offers its customers an exclusive and
expanding line of signature products which are comparable in quality to national
brand items and priced competitively with such items. The Company markets these
products under the names Roseli(TM) (Italian-style products), Hilltop Hearth(TM)
(bread and bakery products), Cattlemen's Choice(TM) (meats), Patuxent Farms(TM)
(processed meats), el Pasado(TM) (Mexican products), Rituals(TM) (gourmet
coffee) brands, and, beginning in the first half of fiscal 1997, Beijing
Chef (TM) (Oriental-style products) and Harbor Banks(TM) (seafood products). The
Company currently offers more than 1,000 signature brand items.
Services
To strengthen its customer relationships and increase account penetration,
JP Foodservice offers an array of value-added services that, in their scope and
quality, differentiate it from other foodservice distributors. The Company
offers the following types of services:
- Management Support and Assistance. The Company's highly trained sales
force assists customers in managing their foodservice operations more
efficiently and profitably by providing advice and assistance on product
selection, menu planning and recipes, nutritional information, inventory
analysis and product costing and marketing strategies. The Company also
provides in-service training of customer personnel.
- Specialized Market Services. The Company offers services and programs
tailored to specialized markets. For example, through its integrated
service program, called DirectCare: Meals, Menus and More(R), the Company
provides healthcare service providers with special nutritional plans,
customized software packages (JP directAdvantage(TM)), a variety of
marketing services and in-service training of institutional personnel. In
order to be eligible to participate in this program, healthcare
institutions must maintain a specified minimum volume of purchases from
the Company.
- Customized Technology. The Company offers its customers a proprietary
hand-held computer system, the JP Connection(TM), which automates many
restaurant management functions, including the management and reordering
of product inventory. The system automatically re-orders products
directly through the Company's mainframe computer. The Company also is
upgrading the electronic order entry system utilized by its sales
personnel by equipping them with laptop computers which it believes
enables the sales force to present product and menu ideas, take orders
and prepare presentations more efficiently. Through this upgrade, the
Company will be providing its customers with an enhanced personal
computer-based order entry system.
- Publications. The Company promotes active customer use of its other
services and its products through the distribution of professionally
printed publications, including its biweekly newsletter, JP FoodNews(TM).
The Company's publications highlight selected products, including
proprietary private and signature brand items, present menu suggestions,
provide nutritional information and include recipes using the Company's
products. Customers also may participate, at no cost, in the Company's
recipe program, To Your Taste(R), in which the Company furnishes
participants every two weeks with recipe cards that describe new menu
concepts.
CUSTOMERS
The Company's customer base of over 23,000 accounts encompasses a wide
variety of foodservice establishments. The Company's chain customers include Old
Country Buffett, Perkins Family Restaurants, Subway, Compass Group, Ruby
Tuesday, Pizzeria Uno and other foodservice establishments. The Company also is
a foodservice supplier to the United States Congress, Fenway Park and other
prominent institutions.
33
<PAGE> 37
The following table sets forth the segments of the Company's customer base by
type of institution for the nine months ended March 30, 1996.
<TABLE>
<CAPTION>
PERCENTAGE
TYPE OF CUSTOMER OF NET SALES
------------------------------------------------------------------------- ------------
<S> <C>
Restaurants.............................................................. 70%
Limited menu establishments.............................................. 12
Hotels................................................................... 2
Healthcare institutions.................................................. 5
Schools and colleges..................................................... 3
Other.................................................................... 8
---
100%
=========
</TABLE>
Street Customers. The Company's street customers are independent
restaurants, hotels, schools and other foodservice businesses. Street customers
are serviced directly by commission sales personnel who personally call on
customers, place orders, coordinate product delivery and provide the value-added
services offered to these customers. Street accounts represented approximately
53% of the Company's net sales in the nine months ended March 30, 1996.
Chain Customers. The majority of the Company's chain customers consist of
franchises or corporate-owned units of national or regional family dining and
other restaurant "concepts" and, to a lesser extent, hotels and other regional
institutional operators. Many of the Company's current chain account customers,
primarily restaurants, are experiencing more rapid sales growth than other types
of foodservice businesses. The Company has developed strong working
relationships with its chain accounts, which have enabled these accounts, in
conjunction with the Company, to develop distribution programs tailored to
precise delivery and product specifications. These distribution programs have
created operating and cost efficiencies for both the chain customers and the
Company.
Chain customers generally are serviced by salaried sales and service
representatives who coordinate the procurement and delivery of all products
throughout the system from a central location. Gross profit margins generally
are lower for chain customers than for street customers. However, because there
are typically no commission sales costs related to chain account sales and
because chain customers usually have larger deliveries to individual locations,
sales and delivery costs generally are lower for chain accounts than for street
accounts. Chain accounts represented approximately 47% of the Company's net
sales in the nine months ended March 30, 1996.
No single customer accounts for 10% or more of the Company's net sales.
Consistent with industry practice, the Company has no long-term contract with
any customer that may not be canceled by either party at its option.
SALES AND MARKETING
The Company's principal marketing activities are conducted by approximately
480 street sales, 50 chain sales and 100 customer service representatives. As
part of its strategy to increase street account sales, the Company currently
plans to continue to increase its commission sales force, which grew an average
of 7% in fiscal 1995 and fiscal 1996. The Company's sales and service
representatives are responsible for soliciting and processing orders, servicing
customers by telephone, reviewing account balances and assisting with new
product information. In addition, the Company's sales representatives advise
customers on menu selection, methods of preparing and serving food and other
operating issues. The Company provides an extensive in-house training program
for its entry-level sales and service representatives, which includes seminars,
on-the-job training and direct one-on-one supervision by experienced sales
personnel.
The Company's commission program is designed to reward account
profitability and promote sales growth. The Company systematically measures the
profitability of each account and product segment and modifies its incentive
program accordingly.
34
<PAGE> 38
The Company maintains sales offices at each of its nine distribution
centers and at three additional locations in Pennsylvania, Illinois and South
Dakota. The Company employs sales and marketing staff at both the corporate and
branch levels to solicit and manage relationships with multiunit chain accounts.
The Company supplements its market presence with advertising campaigns in
national and regional trade publications, which typically focus on the Company's
services and its ability to service targeted industry segments. The Company
supports this effort with a variety of promotional services and programs,
including its biweekly newspaper, JP FoodNews(R), and its recipe program, To
Your Taste(R).
DISTRIBUTION
JP Foodservice distributes its products out of its nine full-service
distribution centers located in Massachusetts, Connecticut, Pennsylvania,
Maryland, Minnesota, Indiana, Illinois and Iowa. The Company extends this
geographic coverage through remote distribution locations including, among
others, facilities in Ohio, Maryland, Michigan, Vermont and New Jersey. The
Company's customers generally are located within 150 miles of one of the
Company's distribution centers, although the Company's distribution network and
reciprocal arrangements with other distributors enable the Company to serve
customers outside of its principal market areas. Services to both street and
chain customers are supported by the same distribution facilities and equipment.
The nine full-service distribution centers have a total of approximately
1.3 million square feet of warehouse space. Each distribution center operates
from a warehouse complex that contains dry, refrigerated and frozen storage
areas, as well as office space for sales, marketing and distribution personnel.
Products are delivered to the Company's distribution centers by
manufacturers, common carriers and the Company's own fleet of trucks. The
Company employs a management information system which, together with its
centralized purchasing operations, enables it to lower its inbound
transportation costs by making optimal use of its own fleet of trucks or by
consolidating deliveries into full truckloads. Orders from multiple suppliers or
to multiple distribution centers are consolidated into single truckloads for
efficient use of available vehicle capacity and return-trip hauls.
Orders typically are entered electronically by the commission sales force
with the appropriate distribution center through a hand-held computer device or
laptop computer. These devices facilitate order entry through the use of
pre-coded price lists which automatically price orders, apply pricing controls
and allow the sales representative to review the gross profit of each order at
the time of sale. Customers also have the option to place orders by telephone to
service representatives at each of the branches. Certain large customers place
orders through a direct connection to the Company's mainframe computer by means
of a computer terminal, personal computer or touchtone telephone, or through the
Company's proprietary restaurant inventory and management system, the JP
Connection(TM).
Under all forms of order placement, the salesperson or customer is notified
immediately about product availability, which facilitates instant product
substitution, if necessary. Products are reserved automatically at the time of
order, thereby ensuring complete fulfillment of orders upon delivery. Customers'
orders are assembled in the warehouse, sorted and shrink-wrapped to ensure order
completeness. The products are staged according to the required delivery
sequence.
Products are delivered door-to-door, typically on the day following
placement of the order. The Company delivers its products through its fleet of
over 570 tractor-trailer and straight trucks, each of which is equipped with
separate temperature-controlled compartments. In dispatching trucks, the Company
employs a computerized routing system designed to optimize delivery efficiency
and minimize drive time, wait time and excess mileage. The majority of the
Company's fleet utilizes onboard computer systems that monitor vehicle speeds,
fuel efficiency, idle time and other vital statistical information. The Company
collects and analyzes such data in an effort continually to monitor and improve
transportation efficiency and reduce costs.
In certain geographic markets, the Company utilizes its remote
redistribution facilities to achieve a higher level of customer service.
Products are transported in large tractor-trailers or double trailers to the
35
<PAGE> 39
redistribution facility, where the loads are then transferred to smaller
equipment for delivery in the normal fashion.
SUPPLIERS
JP Foodservice employs approximately 20 purchasing agents with expertise in
specific product lines to purchase products for the Company from over 2,000
suppliers located throughout the United States and overseas. Substantially all
types of products distributed by the Company are available from a variety of
suppliers, and the Company is not dependent on any single source of supply.
The management of all purchasing operations from the Company's corporate
headquarters in Columbia, Maryland results in lower costs through increased
purchasing leverage with suppliers and greater ordering efficiency. To maximize
the benefits of its centralized purchasing function, the Company attempts to
concentrate purchases with selected suppliers. Through this strategy, the
Company is able to buy high-quality products on advantageous terms. The Company
cooperates closely with these suppliers to promote new and existing products.
The suppliers assist in training the Company's sales force and customers
regarding new products, new trends in the industry and new menu ideas, and
collaborate with the Company in advertising and promoting these products both
through printed advertisements and through annual branch-sponsored food shows
and national trade shows.
Through its centralized purchasing department, the Company is able to
monitor the quality of the products offered by various suppliers and ensure
consistency of product quality across its distribution network. The
concentration of purchasing power at the corporate level often provides the
Company's buyers with early access to new product concepts which, if attractive,
can be quickly introduced to the Company's customers.
The Company maintains a comprehensive quality control and assurance program
that actively involves over 60 employees in daily quality control activities.
The program is managed by members of the central purchasing department,
including product group managers who each manage specific segments of the
product line and product line managers who purchase products for the nine
branches, and is supported at each branch by the merchandising manager, the
branch buyer and an inventory control specialist. The quality control process
includes the selection of suppliers and the policing of quality standards
through product sampling at both the Company's corporate offices and branch
locations and through visits to growing fields, manufacturing facilities and
storage operations.
The Company requires all of its suppliers and manufacturers to maintain
specified levels of product liability insurance and to name the Company as an
additional insured on the applicable insurance policies.
COMPETITION
The foodservice distribution industry is extremely fragmented, with over
3,000 companies in operation in 1995. In recent years, the foodservice
distribution industry has been characterized by significant consolidation and
the emergence of larger competitors. The Company competes in each of its markets
with at least one other large national distribution company, generally SYSCO
Corp. or Alliant (formerly Kraft) Foodservice, Inc., as well as with numerous
regional and local distributors.
The Company believes that, although price is an important consideration,
distributors in the foodservice industry compete principally on the basis of
service, product quality and customer relations. The Company attributes its
ability to compete effectively against smaller regional and local distributors
in part to its wider product selection, the cost advantages resulting from its
size and centralized purchasing operations and its ability to offer broad and
consistent market coverage. The Company competes effectively against other
broadline distributors primarily by providing its customers with accurate and
timely fulfillment of orders and an array of value-added services.
The Company typically competes against other foodservice distribution
companies for potential acquisitions. The Company believes that its financial
resources and its ability to offer owners of acquisition targets an interest in
the combined business through ownership of JP Foodservice Common Stock provide
the Company with an advantage over many of its competitors.
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<PAGE> 40
REGULATION
The Company's operations are subject to regulation by state and local
health departments, the U.S. Department of Agriculture and the Food and Drug
Administration, which generally impose standards for product quality and
sanitation. The Company's facilities generally are inspected at least annually
by state or federal authorities.
The Company's relationship with its fresh food suppliers with respect to
the grading and commercial acceptance of produce shipments is governed by the
Federal Produce and Agricultural Commodities Act, which specifies standards for
sale, shipment, inspection and rejection of agricultural products. The Company
also is subject to regulation by state authorities for the accuracy of its
weighing and measuring devices.
Federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, generally are not directly
applicable to the Company. Certain of the Company's distribution facilities have
underground and above-ground storage tanks for diesel fuel and other petroleum
products, which are subject to laws regulating such storage tanks. Such laws
have not had a material adverse effect on the capital expenditures, earnings or
competitive position of the Company.
Certain hazardous substances have been released on the site of the
Company's Boston branch. The Massachusetts Department of Environmental
Protection has advised the Company that such agency has entered into an
administrative consent decree with three parties responsible under Massachusetts
law to clean up hazardous substances in areas contiguous to the site. The agency
also advised the Company in 1990 that, as the current owner of the site, the
Company also may be deemed to be a responsible party under Massachusetts law for
hazardous substances on the site. The Company has not been the subject of any
action or proceeding seeking to require it to remove hazardous substances from
the site or to make payment in respect of the cleanup of the site or related
costs. In June 1996, the Massachusetts Department of Environmental Protection
advised the Company that, based on the information currently available to it,
the agency is not requiring the Company to remove hazardous substances from the
site. The Company has been indemnified against any losses it may incur in
connection with hazardous substances on the site, and does not believe
resolution of this matter will have a material adverse effect on its financial
condition or operating results.
INTELLECTUAL PROPERTY
JP Foodservice has proprietary rights to a number of trademarks used in its
business, including trademarks used in connection with the marketing of its
private and signature brand products, its proprietary restaurant inventory and
management system and a variety of customized service programs. A number of
these trademarks are registered with the U.S. Patent and Trademark Office, each
for an initial period of 20 years, which is renewable for as long as the Company
continues to use the trademarks. The Company considers its trademarks to be of
material importance to its business plans.
FACILITIES AND EQUIPMENT
JP Foodservice occupies its corporate headquarters in Columbia, Maryland,
which consists of 30,800 square feet of office space, pursuant to a lease which
expires on December 31, 2003.
The Company owns all of its nine full-service distribution centers, which
contain a total of 1.3 million square feet of warehouse space. The centers
contain dry, refrigerated and frozen storage areas and office space
37
<PAGE> 41
for the sales and administrative operations of the branch. The following chart
provides information on the approximate size of each of the Company's
distribution centers.
<TABLE>
<CAPTION>
AREA IN
LOCATION SQUARE FEET
------------------------------------------------------------------------- -----------
<S> <C>
Baltimore, Maryland...................................................... 187,000
Altoona, Pennsylvania.................................................... 164,000
Minneapolis, Minnesota................................................... 160,000
Boston, Massachusetts.................................................... 149,000
Streator, Illinois....................................................... 146,000
Hartford, Connecticut.................................................... 141,000
Des Moines, Iowa......................................................... 131,000
Fort Wayne, Indiana...................................................... 111,000
Allentown, Pennsylvania.................................................. 110,000
-----------
Total............................................................... 1,299,000
=========
</TABLE>
Equipment and machinery owned by the Company and used in its operations
consist principally of electronic data processing equipment and product handling
equipment. The Company also operates a fleet of over 570 vehicles, consisting of
tractors, trailers and straight trucks, which are used for long hauls and local
deliveries. At March 30, 1996, the Company owned approximately 5% of these
vehicles and leased the remainder. See Note 16 to the Company's Consolidated
Financial Statements.
The Company outsources its data center operations pursuant to a five-year
contract which expires on December 31, 1997 and which may be extended by the
Company. As the Company's business needs warrant, it can either increase or
decrease the amount of computer capacity it purchases upon short notice to the
vendor. Management believes that this arrangement provides the Company with more
reliable and flexible service at a lower cost than the Company could achieve by
operating its own data center.
The Company regularly evaluates the capacity of its various facilities and
equipment and makes capital investments to expand capacity where necessary. In
fiscal 1995 and the nine months ended March 30, 1996, the Company spent a total
of $24.2 million on capital expenditures, primarily for new trucks and trailers
and expansion of its distribution centers in Streator, Illinois and Boston. The
Company will undertake expansion or replacement of its facilities as and when
needed to accommodate the Company's growth. The Company is currently expanding
its Allentown, Pennsylvania distribution center, with completion expected in
October 1996. Facility expansion costs are expected to total approximately $7
million in fiscal 1997.
EMPLOYEES
At March 30, 1996, JP Foodservice had approximately 2,600 full-time
employees, of whom approximately 120 were employed in corporate management and
administration and approximately 1,350 of whom were hourly employees.
Approximately 940 of the Company's employees were covered by collective
bargaining contracts with ten different local unions which are associated with
the International Brotherhood of Teamsters. Five collective bargaining
contracts, which cover approximately 325 employees, will expire during fiscal
1997. The Company has not experienced any labor disputes or work stoppages. The
Company believes that its relationships with its employees are satisfactory.
LITIGATION
From time to time, the Company is involved in litigation and proceedings
arising out of the ordinary course of its business. There are no pending
material legal proceedings to which the Company is a party or to which the
property of the Company is subject.
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<PAGE> 42
MANAGEMENT
The following table sets forth certain information regarding the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- ---------------------------------------------------------
<S> <C> <C>
James L. Miller........ 47 Chairman of the Board of Directors, President and Chief
Executive Officer
Lewis Hay, III......... 40 Director, Senior Vice President and Chief Financial
Officer
Mark P. Kaiser......... 39 Senior Vice President-Sales, Marketing and Procurement
George T. Megas........ 43 Vice President-Finance, Assistant Secretary and Assistant
Treasurer
David M. Abramson...... 43 Director, Senior Vice President and General Counsel
Michael J. Drabb....... 62 Director
Eric E. Glass.......... 56 Director
George A. Midwood...... 62 Director
</TABLE>
James L. Miller has served as Chairman of the Board of Directors and as
President and Chief Executive Officer of the Company since July 1989. From 1986
to 1989, Mr. Miller served as Executive Vice President and Chief Operating
Officer of the Northern Division of PYA/Monarch, Inc. ("PYA/Monarch"), a
subsidiary of Sara Lee. From 1983 to 1985, Mr. Miller served as Vice President
and General Manager of PYA/Monarch's Northeast division. Before joining
PYA/Monarch, Mr. Miller was employed by SYSCO Corp., from 1972 to 1983, where he
held the positions of Vice President of Operations, Vice President of Sales,
Vice President and General Manager.
Lewis Hay, III joined the Company in 1991 as Senior Vice President and
Chief Financial Officer, and has served as a director since that date. Before
joining the Company, Mr. Hay was a Vice President and partner of Mercer
Management Consulting (formerly Strategic Planning Associates, Inc.), a
management consulting firm, where he led the strategy consulting practice in the
firm's Washington, D.C. office. Mr. Hay joined the firm in 1982 and, beginning
in 1986, participated in a number of consulting projects for PYA/Monarch,
including the transaction resulting in the formation of the Company in 1989.
Mark P. Kaiser has served as the Senior Vice President-Sales, Marketing and
Procurement of the Company since 1993. From 1989 to 1991, Mr. Kaiser served as
the Company's Vice President-Sales and Marketing and as Executive Vice
President-Sales, Marketing and Procurement of the Company from 1991 to 1993. Mr.
Kaiser previously held a number of positions at PYA/Monarch, including Vice
President-Sales from 1985 to 1989.
George T. Megas joined the Company in 1991 as Vice President-Finance,
Assistant Secretary and Assistant Treasurer and is responsible for the
accounting, treasury and finance functions. Mr. Megas, a Certified Public
Accountant, previously served as the Corporate Controller for Strategic Planning
Associates, Inc., a management consulting firm, from 1979 to 1990, when it was
acquired by Mercer Management Consulting, and served as a Controller for certain
regions of Mercer Management Consulting until 1991.
David M. Abramson has served as Senior Vice President and General Counsel
of the Company since July 1, 1996 and as a director of the Company since August
1994. Mr. Abramson was the President and Managing Principal of the law firm of
Levan, Schimel, Belman & Abramson, P.A. from 1992 to 1996. Previously, Mr.
Abramson was a Vice President and Principal of that firm. Mr. Abramson serves as
a director of Monocacy Bancshares, Inc., which is the parent corporation of
Taneytown Bank & Trust Company in Taneytown, Maryland.
Michael J. Drabb has served as a director of the Company since 1994. Mr.
Drabb has served as Executive Vice President of O'Brien Asset Management, Inc.,
an institutional asset management firm, since August 1993. From April 1992 to
July 1993, Mr. Drabb was retired. Mr. Drabb served as an Executive Vice
President and a member of the cabinet of The Mutual Life Insurance Company of
New York ("MONY") from 1989 to 1992 and was employed by MONY from 1961 until his
retirement in 1992. Mr. Drabb also
39
<PAGE> 43
serves as a director of the New York Life Fund, Inc., the New York Life MFA
Series Fund, Inc., the MONY Series Fund, Inc. and United States Leather, Inc.
Eric E. Glass has served as a director of the Company since February 1996.
Mr. Glass has served as the Chairman of the Board for The Taney Corporation, a
manufacturer of wooden stairway components and stairways, since 1995.
Previously, from 1962 to 1995, Mr. Glass served as President of The Taney
Corporation. Mr. Glass also serves as a director of the Gettysburg Hospital in
Gettysburg, Pennsylvania and Vice Chairman of the Board and Chairman of the
Executive Committee of Monocacy Bancshares, Inc., which is the parent
corporation of Taneytown Bank & Trust Company in Taneytown, Maryland.
George A. Midwood has served as a director of the Company since 1990. Mr.
Midwood has been a consultant with Phillips International L.P., of Atlanta, a
Georgia merchant banking firm, since 1990. Mr. Midwood served as Vice President
and Treasurer of R.J.R. Nabisco from 1987 to 1989 and as Treasurer of American
Cyanamid Company from 1979 to 1987.
Prior to June 27, 1996, Sara Lee had designated three members of the Board
of Directors of the Company pursuant to a Board Membership Agreement, dated as
of November 15, 1994, between Sara Lee and the Company, which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. In
view of Sara Lee's active continuing involvement in the foodservice distribution
industry through its subsidiary PYA/Monarch, Sara Lee determined that continued
service by its designees on the Company's Board of Directors might raise the
possibility of a conflict of interest. Effective June 27, 1996, Sara Lee's
designees resigned from the Company's Board of Directors.
40
<PAGE> 44
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of June 29, 1996,
regarding the beneficial ownership of the Common Stock by (i) each person known
to the Company to be the beneficial owner of more than 5% of the Common Stock,
(ii) each director of the Company, (iii) each executive officer of the Company
and (iv) all directors and executive officers of the Company as a group. Under
rules of the Securities and Exchange Commission, beneficial ownership of Common
Stock includes any shares as to which a person has the sole or shared voting
power or investment power and also any shares which a person has the right to
acquire within 60 days through the exercise of any stock option or other right.
Except as indicated, each person identified in the following table has the sole
voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
PERCENT OF CLASS
AMOUNT AND NATURE --------------------
NAME OF OF BENEFICIAL BEFORE AFTER
BENEFICIAL OWNER OWNERSHIP(1) OFFERING OFFERING
- ------------------------------------------------------------ ----------------- -------- --------
<S> <C> <C> <C>
Sara Lee Corporation(2)..................................... 5,138,210 32.0% 27.0%
Three First National Plaza
Chicago, Illinois 60602
Sara Lee Foundation......................................... 1,000,000 6.2 5.3
Three First National Plaza
Chicago, Illinois 60602
T. Rowe Price Associates, Inc.(3)........................... 1,668,300 10.4 8.8
100 E. Pratt Street
Baltimore, Maryland 21202
Janus Capital Corporation
Thomas H. Bailey
100 Filmore Street, Suite 300
Denver, Colorado 80206(4)................................. 1,291,100 8.1 6.8
Janus Venture Fund
100 Filmore Street, Suite 300
Denver, Colorado 80206(4)................................. 928,550 5.8 4.9
David M. Abramson(5)(6)..................................... 5,125 * *
Michael J. Drabb(6)......................................... 2,750 * *
Eric E. Glass(6)............................................ 1,650 * *
Lewis Hay, III(6)(7)........................................ 84,240 * *
Mark P. Kaiser(6)........................................... 44,759 * *
George T. Megas(6).......................................... 14,290 * *
George A. Midwood(6)........................................ 6,326 * *
James L. Miller(6)(8)....................................... 216,992 1.4 1.1
All directors and executive officers as a group (8
persons).................................................. 376,132 2.3 2.0
</TABLE>
- ---------------
(*) Represents holdings of less than 1%.
(1) The shares shown as beneficially owned include shares credited to
participant accounts in the Company's 401(k) retirement savings plan, which
are voted by the plan's trustees, as follows: Mr. Hay, 481; Mr. Kaiser, 459;
Mr. Megas, 417; and Mr. Miller, 10,780.
(2) Shares are held of record by Sara Lee Corporation's wholly owned subsidiary,
PYA/Monarch, Inc., which may be deemed to be the beneficial owner of such
shares.
(3) Shares shown are reported on a Schedule 13G dated June 10, 1996 filed with
the Securities and Exchange Commission. Voting power with respect to all but
202,900 shares is exercised by other persons.
(4) Shares shown are reported on a Schedule 13G dated February 13, 1996 filed
with the Securities and Exchange Commission. Janus Capital Corporation and
Mr. Bailey share voting power with respect to 1,291,100 shares, and disclaim
any beneficial interest in such shares. Janus Venture Fund shares voting
power with respect to 928,550 of the 1,291,100 shares reported by Janus
Capital Corporation and Mr. Bailey.
(5) Includes 2,000 shares held by a family trust for the benefit of Mr.
Abramson's minor children, of which Mr. Abramson acts as the trustee and
with respect to which he exercises voting power and investment power, and
375 shares credited to Mr. Abramson's account in the Levan, Schimel, Belman
& Abramson, P.A. 401(k) Profit Sharing Plan & Trust, which are voted by such
plan's trustees.
(6) Includes shares which may be acquired within 60 days pursuant to outstanding
options by the person or persons listed, as follows: Mr. Abramson, 2,750;
Mr. Drabb, 2,750; Mr. Glass, 1,250; Mr. Hay, 14,057; Mr. Kaiser, 13,150; Mr.
Megas, 4,380; Mr. Midwood, 2,750; Mr. Miller, 33,128; and all directors and
executive officers as a group, 74,215.
(7) Includes 381 shares held by Mr. Hay's wife as a custodian for their minor
children. Mr. Hay disclaims any beneficial interest in such shares.
(8) Includes 1,028 shares owned by members of Mr. Miller's family. Mr. Miller
disclaims any beneficial interest in such shares.
41
<PAGE> 45
SHARES ELIGIBLE FOR FUTURE SALE
There will be 19,025,929 outstanding shares of Common Stock upon completion
of the Offering (excluding 2,009,900 shares and 80,952 shares issuable upon
consummation of the Valley Acquisition and the Arrow Acquisition, respectively).
All of the 3,000,000 shares offered in the Offering will be freely transferable
without restriction or further registration under the Securities Act, except
that any shares held by an "affiliate" of the Company (as that term is defined
under Rule 144 of the Securities Act) will be subject to the resale limitations
of Rule 144. Of the Company's remaining outstanding shares, 6,907,763 are
"restricted securities" within the meaning of Rule 144. Such restricted
securities may not be sold except in compliance with the registration
requirements of the Securities Act or pursuant to an exemption from
registration, such as the exemption provided by Rule 144.
In general, Rule 144 provides that any person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for at
least a two-year period (as computed under Rule 144) is entitled to sell within
any three-month period the number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of the Common Stock (approximately 200,000
shares after giving effect to the Offering) and (ii) the average weekly reported
trading volume of the then outstanding shares of Common Stock during the four
calendar weeks immediately preceding the date on which the notice of sale is
filed with the Securities and Exchange Commission. Sales under Rule 144 also are
subject to certain provisions relating to the manner and notice of sale and the
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed an affiliate of the
Company at any time during the 90 days immediately preceding a sale, and who has
beneficially owned shares for at least a three-year period (as computed under
Rule 144), would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitation and other conditions described above. Rule 144A
under the Securities Act permits the immediate sale by the current holders of
restricted securities of all or a portion of those securities to certain
qualified institutional buyers, as defined in Rule 144A, subject to certain
conditions. The foregoing summary of Rule 144 and Rule 144A is not intended to
be a complete description of such rules.
The Company, certain of its executive officers and directors and the
current stockholders of Valley Foods have agreed that, for a period of 90 days
after the date of this Prospectus, and Sara Lee and the Sara Lee Foundation have
agreed that, until the earlier of the 90th day after the date of this Prospectus
or November 22, 1996, they will not, without the prior consent of Smith Barney
Inc., offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock or any securities convertible into, or exercisable or exchangeable for,
Common Stock (subject, in the case of the Company, to an exception for the grant
of options pursuant to the Company's stock option plans) in the public market.
With the consent of Smith Barney Inc., such shares may be sold before the
expiration of the lock-up period without prior notice to the other stockholders
of the Company or to any public market in which the Common Stock trades. Upon
the expiration of the lock-up period, 6,690,076 shares will be eligible for sale
in the public market pursuant to Rule 144.
The Company has filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission to register 2,009,900 shares of Common Stock
(subject to adjustment) issuable in connection with the Valley Acquisition. See
"Prospectus Summary -- Recent and Pending Acquisitions." Approximately 200,000
of such shares upon consummation of the Valley Acquisition, and the remainder of
such shares, after publication of the results of at least 30 days of combined
operations of the Company and Valley Foods, will be eligible for sale in the
public market subject to compliance with certain requirements of Rule 144.
The Company has granted registration rights with respect to the Common
Stock held by certain of its current stockholders. Following completion of the
Offering, 6,739,408 shares of Common Stock (excluding shares issuable upon
consummation of the Valley Acquisition and the Arrow Acquisition), or 35.4% of
the total number of shares of Common Stock outstanding, will be entitled to the
benefits of such registration rights. See "Risk Factors -- Shares Eligible for
Future Sale; Registration Rights."
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares for future sale will have
on the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect the prevailing market prices of the Common Stock
and the Company's ability to raise capital in the future through the sale of
additional securities.
42
<PAGE> 46
UNDERWRITING
Under the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each of the underwriters named below (the
"Underwriters"), for whom Smith Barney Inc., The Robinson-Humphrey Company, Inc.
and Rodman & Renshaw, Inc. are acting as the representatives (the
"Representatives"), has severally agreed to purchase, and the Company has agreed
to sell to each Underwriter, the number of shares of Common Stock set forth
opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Smith Barney Inc.....................................................
The Robinson-Humphrey Company, Inc...................................
Rodman & Renshaw, Inc................................................
----------------
3,000,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
The Underwriters initially propose to offer part of the shares directly to
the public at the public offering price set forth on the cover page of this
Prospectus and part of the shares to certain dealers at a price which represents
a concession not in excess of $ per share under the public offering price.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to the other Underwriters or to certain other dealers.
After the Offering, the public offering price and such concessions may be
changed by the Underwriters. The Representatives of the Underwriters have
advised the Company that the Underwriters do not intend to confirm any shares to
any accounts over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 450,000 additional
shares of Common Stock at the price to public set forth on the cover page of
this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the offering of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding Underwriters' table bears to the total
number of shares.
The Company, certain of its officers and directors and the current
stockholders of Valley Foods have agreed that, for a period of 90 days after the
date of this Prospectus, and Sara Lee and the Sara Lee Foundation have agreed
that, until the earlier of the 90th day after the date of this Prospectus or
November 22, 1996, they will not, without the prior written consent of Smith
Barney Inc., offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock or any securities convertible into, or exercisable or exchangeable
for, Common Stock (subject, in the case of the Company, to an exception for the
grant of options pursuant to the Company's stock option plans) in the public
market. With the consent of Smith Barney Inc., such shares may be sold before
the expiration of the lock-up period without prior notice to the other
stockholders of the Company or to any public market in which the Common Stock
trades.
43
<PAGE> 47
In connection with the Offering, the Underwriters and certain selling group
members may engage in transactions (including passive market making) for their
own accounts or the accounts of others in the Common Stock on the Nasdaq
National Market immediately prior to the commencement of the sale of the shares
in the Offering, in accordance with Rules 10b-6A, 10b-6 and 10b-7 under the
Exchange Act. Such transactions may stabilize the market price of the Common
Stock at a level above that which might otherwise prevail and, if commenced, may
be discontinued at any time. Rule 10b-6A permits, upon satisfaction of certain
conditions, persons participating in a distribution that are Nasdaq market
makers in the security being distributed to engage in limited market making
"passive market making" transactions during the period when Rule 10b-6 would
otherwise prohibit such activity. Distribution participants may not effect
transactions in, or display bids for, the Common Stock at a price that exceeds
the highest bid for the Common Stock displayed on the Nasdaq National Market by
a market maker that is not participating in the distribution of the Common
Stock, may not have net daily purchases of the Common Stock that exceed 30% of
average daily trading volume for the two full consecutive calendar months
immediately preceding the filing date of the registration statement of which
this Prospectus is a part, and must identify their bids as bids made by a
passive market maker.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
The Representatives have provided and continue to provide the Company with
additional investment banking services.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Shaw, Pittman, Potts & Trowbridge, Washington, D.C., a partnership
including professional corporations. Certain legal matters will be passed upon
for the Underwriters by Wachtell, Lipton, Rosen & Katz. Wachtell, Lipton, Rosen
& Katz has provided and continues to perform services for the Company.
EXPERTS
The consolidated financial statements of the Company as of July 1, 1995 and
July 2, 1994 and for each of the three fiscal years in the period ended July 1,
1995 included in this Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The combined financial statements of Valley Industries, Inc. and
Subsidiaries and Z Leasing Company (A General Partnership) as of January 31,
1994, 1995 and 1996 and for each of the years in the three-year period ended
January 31, 1996, appearing in the Company's Current Report on Form 8-K filed
for a reportable event dated July 1, 1996, have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, and upon the
authority of such firm as experts in accounting and auditing.
The combined financial statements of Arrow Paper and Supply Co., Inc. and
Affiliate as of December 29, 1995, appearing in the Company's Current Report on
Form 8-K filed for a reportable event dated July 17, 1996, have been
incorporated by reference herein and in the registration statement in reliance
upon the report of Blum Shapiro and Company, P.C., independent public
accountants, and upon the authority of such firm as experts in accounting and
auditing.
44
<PAGE> 48
ADDITIONAL INFORMATION
This Prospectus, which constitutes a part of a Registration Statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act, omits certain of the
information set forth in the Registration Statement in accordance with the rules
and regulations of the Commission. Reference is hereby made to the Registration
Statement and to the exhibits thereto for further information with respect to
the Company and the securities offered hereby. Copies of the Registration
Statement and the exhibits thereto are on file at the offices of the Commission
and may be obtained upon payment of the prescribed fee or may be examined
without charge at the public reference facilities of the Commission described
below. The Commission also maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants such as the Company which file electronically with the
Commission.
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission may be inspected and copied
at the public reference facility maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the
following regional offices of the Commission: New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material also may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
The Company furnishes its stockholders with annual reports containing
audited financial statements and quarterly reports for each of the first three
quarters of each fiscal year containing unaudited interim financial information.
45
<PAGE> 49
JP FOODSERVICE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
-----------
<S> <C>
Report of Independent Accountants............................................... F-2
Consolidated Balance Sheets as of July 2, 1994 and July 1, 1995................. F-3
Consolidated Statements of Operations of the Company for the fiscal years ended
July 3, 1993, July 2, 1994 and July 1, 1995................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the fiscal years
ended
July 3, 1993, July 2, 1994 and July 1, 1995................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended July 3, 1993,
July 2, 1994 and July 1, 1995................................................. F-6
Notes to Consolidated Financial Statements...................................... F-7
Condensed Consolidated Balance Sheets as of July 1, 1995 and March 30, 1996..... F-21
Condensed Consolidated Statements of Operations for the nine months ended April
1, 1995 and March 30, 1996.................................................... F-22
Condensed Consolidated Statements of Cash Flows for the nine months ended April
1, 1995 and March 30, 1996.................................................... F-23
Notes to Condensed Consolidated Financial Statements............................ F-24
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of JP Foodservice, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit), and of
cash flows present fairly, in all material respects, the financial position of
JP Foodservice, Inc. and its subsidiaries at July 2, 1994 and July 1, 1995, and
the results of their operations and their cash flows for each of the fiscal
years ended July 3, 1993, July 2, 1994 and July 1, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATER HOUSE LLP
-------------------------
PRICE WATERHOUSE LLP
Baltimore, Maryland
August 2, 1995
F-2
<PAGE> 51
JP FOODSERVICE, INC.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JULY 2, 1994 JULY 1, 1995
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents........................................ $ 11,298 $ 15,418
Receivables...................................................... 101,624 123,491
Inventories...................................................... 65,810 67,629
Current deferred tax asset....................................... 3,091 434
Other current assets............................................. 6,620 8,319
---------- ----------
Total current assets........................................ 188,443 215,291
---------- ----------
Property and equipment................................................ 82,201 81,153
---------- ----------
Goodwill and other noncurrent assets.................................. 79,445 76,594
---------- ----------
Total assets................................................ $350,089 $373,038
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current maturities of senior debt................................ $ 3,000
Current obligations under capital leases......................... 4,955 $ 4,092
Accounts payable
Trade....................................................... 76,180 91,559
Related parties............................................. 5,816 5,060
Accrued expenses................................................. 10,676 10,857
---------- ----------
Total current liabilities................................... 100,627 111,568
---------- ----------
Noncurrent liabilities
Senior debt...................................................... 129,621 130,000
Subordinated debt with related parties........................... 121,609 4,000
Obligations under capital leases................................. 13,030 12,557
Noncurrent deferred tax liability................................ 12,225 11,542
---------- ----------
276,485 158,099
---------- ----------
Total liabilities........................................... 377,112 269,667
---------- ----------
Commitments and contingent liabilities (Notes 15, 16 and 21)
Mandatorily redeemable stock (related parties)........................ 2,388
----------
Stockholders' equity (deficit)
Preferred stock, 5,000,000 shares authorized, none issued
Common stock
Voting, $.01 par value, 7,080,864 and 45,000,000 shares
authorized, 3,192,096 and 15,920,434 issued and
outstanding............................................... 32 159
Paid-in-capital.................................................. 56,903 187,618
Accumulated deficit.............................................. (41,403) (39,463)
Distribution in excess of net book value of continuing
stockholder's interest.......................................... (44,943) (44,943)
---------- ----------
Total stockholders' equity (deficit)........................ (29,411) 103,371
---------- ----------
Total liabilities and stockholders' equity (deficit).................. $350,089 $373,038
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 52
JP FOODSERVICE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------
(UNAUDITED)
PRO FORMA
JULY 3, 1993 JULY 2, 1994 JULY 1, 1995 JULY 1, 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales..................................... $ 1,025,854 $ 1,029,000 $ 1,108,253 $ 1,108,253
Cost of sales................................. 850,808 857,117 921,902 921,902
------------ ------------ ------------ ------------
Gross profit.................................. 175,046 171,883 186,351 186,351
Operating expenses............................ 146,201 140,081 150,428 150,428
Amortization of intangible assets............. 2,266 2,265 2,263 2,263
Stock compensation charge..................... 709 709
------------ ------------ ------------ ------------
Income from operations........................ 26,579 29,537 32,951 32,951
------------ ------------ ------------ ------------
Interest expense
Borrowings............................... 16,733 14,731 13,901 12,316
Borrowings-related parties............... 19,109 14,851 5,879 602
Amortization of loan acquisition costs... 1,129 1,129 639 639
------------ ------------ ------------ ------------
36,971 30,711 20,419 13,557
------------ ------------ ------------ ------------
Income (loss) before income taxes and
extraordinary charge........................ (10,392) (1,174) 12,532 19,394
Recovery of (provision for) income taxes...... 2,796 (641) (5,962) (8,707)
------------ ------------ ------------ ------------
Income (loss) before extraordinary charge..... (7,596) (1,815) 6,570 10,687
Extraordinary charge on early extinguishment
of debt (net of $3,059 of taxes)............ (4,590) (4,590)
------------ ------------ ------------ ------------
Net income (loss)............................. (7,596) (1,815) 1,980 6,097
Preference dividends.......................... (2,427) (504) (40)
------------ ------------ ------------ ------------
Net income (loss) applicable to common
stockholders................................ $ (10,023) $ (2,319) $ 1,940 $ 6,097
========= ========= ========= =========
Net income (loss) per common share
Before extraordinary charge.............. $ (2.55) $ (0.59) $ 0.59 $ 0.68
Extraordinary charge..................... (0.42) (0.29)
------------ ------------ ------------ ------------
Net income (loss) per common share............ $ (2.55) $ (0.59) $ 0.17 $ 0.39
========= ========= ========= =========
Weighted average common shares outstanding
(giving retroactive effect to a
3.936-for-one stock split effective as of
October 20, 1994)........................... 3,932,748 3,932,748 11,122,343 15,700,211
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 53
JP FOODSERVICE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
JUNE 27, 1992 THROUGH JULY 1, 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------------------
PREFERRED CLASS A CLASS C CLASS B CLASS E PAID-IN
STOCK VOTING VOTING VOTING NONVOTING NONVOTING CAPITAL
--------- ------ ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 27, 1992.......................... $ 7,765 $12 $ 27 $ 10,005
Net income (loss)..............................
Net (purchases) of common stock for cash.......
Preference dividends
Preferred stock............................ 700
Yield support..............................
--------- ------ ------- ------- --------- --- ---------
Balance July 3, 1993........................... 8,465 12 27 10,005
--------- ------ ------- ------- --------- --- ---------
Net income (loss)..............................
Exchange agreement............................. (8,582) (4) $ 8 (27) $16 46,898
Net (purchases) of common stock for cash.......
Preference dividends
Preferred stock............................ 117
Yield support..............................
--------- ------ ------- ------- --------- --- ---------
Balance July 2, 1994........................... 8 8 16 56,903
--------- ------ ------- ------- --------- --- ---------
Net income (loss)..............................
Preference dividends
Preferred stock............................ 40
Initial public offering........................ (40) $110 (8) (8) (16) 81,094
Debt conversion................................ 47 47,221
Stock issued in connection with business
acquisition.................................. 2 2,098
Employee stock purchase........................ 302
--------- ------ ------- ------- --------- --- ---------
Balance July 1, 1995........................... $ $159 $ $ $ $ $ 187,618
--------- ------ ------- ------- --------- --- ---------
<CAPTION>
DISTRIBUTION IN
EXCESS OF
NET BOOK
ACCUMULATED TREASURY VALUE OF CONTINUING
DEFICIT STOCK STOCKHOLDER'S INTEREST TOTAL
----------- -------- ---------------------- --------
<S> <C> <C> <C> <C>
Balance June 27, 1992.......................... $ (29,061) $ (457) $(44,943) $ (56,652)
Net income (loss).............................. (7,596) (7,596)
Net (purchases) of common stock for cash....... (13) (13)
Preference dividends
Preferred stock............................ (700)
Yield support.............................. (1,727) (1,727)
----------- -------- -------- --------
Balance July 3, 1993........................... (39,084) (470) (44,943) (65,988)
----------- -------- -------- --------
Net income (loss).............................. (1,815) (1,815)
Exchange agreement............................. 527 38,836
Net (purchases) of common stock for cash....... (57) (57)
Preference dividends
Preferred stock............................ (199) (82)
Yield support.............................. (305) (305)
----------- -------- -------- --------
Balance July 2, 1994........................... (41,403) (44,943) (29,411)
----------- -------- -------- --------
Net income (loss).............................. 1,980 1,980
Preference dividends
Preferred stock............................ (40)
Initial public offering........................ 81,132
Debt conversion................................ 47,268
Stock issued in connection with business
acquisition.................................. 2,100
Employee stock purchase........................ 302
----------- -------- -------- --------
Balance July 1, 1995........................... $ (39,463) $ $(44,943) $ 103,371
----------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 54
JP FOODSERVICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
JULY 3, 1993 JULY 2, 1994 JULY 1, 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)..................................... $ (7,596) $ (1,815) $ 1,980
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation of property and equipment........... 8,038 7,780 8,345
Amortization of intangible assets................ 3,395 3,394 2,902
Preferred stock liquidation expense.............. 182
Write-off of loan acquisition costs.............. 3,065
Stock compensation............................... 709
(Gain) on disposal of property and equipment..... (412) (1,102) (248)
Increase (decrease) in deferred taxes payable.... 723 4,224 (683)
Yield support interest payable in senior
subordinated notes............................. 2,624 406
PIK note interest payable in additional notes.... 11,152 9,516 1,284
Changes in assets and liabilities
(Increase) decrease in receivables, net.......... (3,396) (9,401) (20,825)
(Increase) decrease in inventories.......... (12,837) 8,442 (1,560)
(Increase) decrease in other current
assets.................................... 785 (1,723) (1,131)
(Increase) decrease in current portion of
deferred taxes............................ 1,554 (3,978) 2,657
Increase (decrease) in accounts payable..... 5,693 23,619 14,481
Increase (decrease) in accrued expenses..... (7,099) 229 (471)
Increase (decrease) in PYA/Monarch accrued
interest, net............................. 507 1,005 602
---------- ---------- ----------
Net cash provided by operating activities.................. 3,131 40,596 11,289
---------- ---------- ----------
Cash flows from investing activities
Additions to property and equipment................... (2,193) (1,895) (3,610)
Cost of business acquisition, net of cash acquired.... (434)
Proceeds from sales of property and equipment......... 474 1,235 248
---------- ---------- ----------
Net cash used in investing activities...................... (1,719) (660) (3,796)
---------- ---------- ----------
Cash flows from financing activities
Net proceeds from initial public offering............. 79,927
Long-term debt repayments............................. (74,848)
Payment of recapitalization costs..................... (1,430) (1,432)
Payment of loan acquisition costs..................... (132) (1,690)
Reduction of senior debt.............................. (250) (37,900)
Proceeds from issuance of subordinated debt........... 7,500
Redemption of preferred stock......................... (643)
Proceeds from employee stock purchases................ 302
Principal payments under capital lease obligations.... (4,326) (3,926) (4,989)
Purchases of treasury stock........................... (13) (57)
---------- ---------- ----------
Net cash used in financing activities...................... (4,721) (35,813) (3,373)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents....... (3,309) 4,123 4,120
Cash and cash equivalents
Beginning of period................................... 10,484 7,175 11,298
---------- ---------- ----------
End of period......................................... $ 7,175 $ 11,298 $ 15,418
========= ========= =========
Supplemental disclosure of cash paid during the year for:
Interest.............................................. $ 23,425 $ 18,332 $ 16,546
========= ========= =========
Income taxes.......................................... $ 316 $ 313 $ 730
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 55
JP FOODSERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT WHERE NOTED)
NOTE 1 -- UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma consolidated statement of operations of JP
Foodservice, Inc. ("JPF") and its consolidated subsidiaries (the "Company") for
the year ended July 1, 1995 are based on the Consolidated Financial Statements
of the Company, adjusted to give effect to the Recapitalization (as hereinafter
defined) as if it had occurred on the first day of the fiscal year. The
unaudited pro forma adjustments are based upon currently available information
and upon certain assumptions that management of the Company believes are
reasonable. The unaudited pro forma financial information do not purport to
represent what the Company's actual results of operations would have been if the
Recapitalization had been consummated on the first day of the fiscal year, or
which may result from future operations. The unaudited pro forma financial
information should be read in conjunction with these notes and the audited
Consolidated Financial Statements of the Company.
NOTE 2 -- BUSINESS
The Company operates as a broadline distributor of fresh, frozen and
packaged foods, paper products, equipment and ancillary products to foodservice
businesses, with distribution centers in the Mid-Atlantic, Midwest and Northeast
United States. The Company's operations are considered to be in one predominant
business segment. The principal operating subsidiary is JP Foodservice
Distributors, Inc. ("JP"), including JP's consolidated subsidiaries, Sky Bros.,
Inc. and Illinois Fruit and Produce, Inc. The Company uses a 52/53 week fiscal
year ending on the Saturday closest to June 30. Each of fiscal years 1994 and
1995 was 52 weeks. Fiscal year 1993 was 53 weeks.
Sales to the Company's single largest customer constituted approximately
6.3%, 7.0% and 8.1% of net sales in fiscal 1993, 1994 and 1995, respectively.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation
The consolidated financial statements include the accounts of JPF and its
wholly-owned subsidiaries. Significant intercompany transactions have been
eliminated in consolidation.
B. Cash Equivalents
For purposes of financial statement disclosure, cash equivalents consist of
all highly liquid instruments with original maturities of three months or less.
The cost of these investments is equivalent to fair market value.
C. Revenue and Receivables
Revenue is recognized when product is shipped to the customer. Allowances
are provided for estimated uncollectible receivables based on historical
experience and review of specific accounts.
Receivables from suppliers for promotional allowances or rebates are
recorded when the Company has received product in sufficient quantity to be
entitled to the allowance.
D. Inventories
Inventories, consisting principally of fresh, frozen and packaged foods,
are valued at the lower of cost or market, with cost (net of applicable purchase
rebates) being determined under the first-in, first-out (FIFO) method.
F-7
<PAGE> 56
JP FOODSERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT WHERE NOTED)
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
E. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
The cost of property and equipment transferred during the original
capitalization of the Company was based on fair market value at the date of
transfer. Major renewals and betterments are capitalized, and ordinary repairs
and maintenance are charged against operations in the period incurred. Related
costs and accumulated depreciation are eliminated from the accounts upon
disposition of an asset and the resulting gain or loss is reflected in the
statement of operations. Depreciation is computed using the straight-line method
over estimated useful lives from date of acquisition as follows:
<TABLE>
<S> <C>
Buildings and improvements............................................. 25-40 years
Machinery and equipment................................................ 5-15 years
Leasehold improvements................................................. Life of lease
Delivery vehicles...................................................... 7 years
</TABLE>
F. Goodwill and Other Noncurrent Assets
Goodwill and other intangible assets are amortized over the periods
expected to be benefited but not exceeding 40 years, using the straight-line
method.
Legal and bank fees associated with the acquisition of loans are
capitalized and amortized using the effective interest method over the term of
the related debt. Such costs are written-off upon refinancing or restructuring
of the related debt. (See Note 8).
G. Recoverability of Long-Lived Assets
The recoverability of goodwill and other long-lived assets is assessed
annually and whenever adverse events or changes in circumstances or business
climate indicate that undiscounted cash flows previously anticipated warrant a
reassessment.
H. Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes".
FAS 109 prescribes an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial statements or tax
returns. In estimating future tax consequences, FAS 109 generally considers all
expected future events other than changes in the tax law or rates.
F-8
<PAGE> 57
JP FOODSERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT WHERE NOTED)
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
I. Statement of Cash Flows
Cash equivalents include interest bearing investments with an original
maturity of less than 90 days. Noncash financing activities for fiscal 1993,
1994 and 1995 include the following:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Capital lease obligations for additions to the Company's
transportation fleet...................................... $6,127 $6,320 $3,652
Noncash dividends on:
Accretion of mandatorily redeemable preferred stock.... 82 40
Preferred stock (9% on outstanding shares)............. 700 117
Yield support (20% compounded rate on $5,000 of
equity).............................................. 1,727 305
------ ------ ------
$8,554 $6,824 $3,692
====== ====== ======
</TABLE>
J. Net Income (Loss) Per Common Share
Net income (loss) per common share is based on the weighted average number
of shares outstanding, after giving retroactive effect to a 3.936-for-one stock
split approved by the Board of Directors of the Company on September 13, 1994
and effective on October 20, 1994. Shares used in such calculation for all years
also include shares issued to management on October 20, 1994.
K. Reclassifications
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the current year's presentation.
NOTE 4 -- ORGANIZATION AND ORIGINAL CAPITALIZATION
The Company was formed on July 3, 1989, pursuant to a Contribution and
Subscription Agreement with PYA/Monarch, Inc. ("PYA/Monarch"), a wholly-owned
subsidiary of Sara Lee Corporation ("Sara Lee"). PYA/Monarch contributed the
stock of JP and institutional and management investors contributed cash.
PYA/Monarch received consideration in the form of cash, debt, stock and warrants
over a series of financial transactions in exchange for the stock of JP.
For financial reporting purposes, the original capitalization of the
Company is accounted for under guidelines established for leveraged buyout
transactions when the previous owner's interest declines as established by the
Financial Accounting Standards Board's Emerging Issues Task Force. Under this
guidance, the capitalization of the Company is treated as an asset purchase
(fair value accounting) to the extent of new investors' interests and as a
capital reorganization (carryover basis) to the extent of PYA/Monarch's
continuing interest. Distributions to PYA/Monarch in excess of its carryover
basis for its continuing ownership interest are treated as a separate component
of stockholders' equity.
NOTE 5 -- EXCHANGE AGREEMENT
The Company's equity holders entered into an Exchange Agreement dated
August 26, 1993 (the "Exchange Agreement") pursuant to which PYA/Monarch and the
senior subordinated debtholder adjusted their subordinated debt and preferred
stock claims in exchange for a revised distribution of the common stock
ownership of the Company. PYA/Monarch and one of the institutional investors
also received $2.4 million of
F-9
<PAGE> 58
JP FOODSERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT WHERE NOTED)
NOTE 5 -- EXCHANGE AGREEMENT -- (CONTINUED)
zero coupon preferred stock with a mandatory redemption date of July 3, 2004.
All existing treasury stock was canceled and 37,195 new Class B shares were
reserved as treasury shares for issuance to management investors. All warrants
issued in connection with the initial capitalization were canceled and all
vested options were canceled. In conjunction with the Exchange Agreement, the
Company's obligation to provide minimum returns to one investor was eliminated
and other corporate agreements were amended.
NOTE 6 -- RECAPITALIZATION
During the second quarter of fiscal 1995, the Company completed a
recapitalization plan (the "Recapitalization"), which was designed to reduce
further the Company's indebtedness and related interest costs, improve its
operating and financial flexibility and enhance its ability to access the
capital markets.
The principal components of the Recapitalization included: (1) the initial
public offering (the "Offering") of 7,825,000 shares of common stock, par value
$0.01 per share (the "Common Stock"), of the Company at a price of $11.00 per
share, (2) the establishment of a new $110 million bank credit facility, (3) the
private placement of $85 million aggregate principal amount of 8.55% Senior
Notes due 2004, (4) the conversion into shares of Common Stock of $47.3 million
principal amount of subordinated payment-in-kind Promissory Notes due 2004 (the
"10% Junior Subordinated PIK Notes") and into shares of Common Stock of all of
the outstanding shares of the Company's zero coupon senior preferred stock
having a mandatory redemption date of July 3, 2004 (the "Senior Preferred
Stock") and (5) the redemption of all of the outstanding shares of the Company's
zero coupon junior preferred stock having a mandatory redemption date of July 3,
2004 (the "Junior Preferred Stock").
The net proceeds from the Recapitalization were used to repay or refinance
substantially all of the existing indebtedness of the Company and to redeem the
Junior Preferred Stock. The indebtedness repaid or refinanced consisted of the
following indebtedness: (1) the Company's existing credit facility, consisting
of a $110 million combined term loan and revolving credit loan and $12.5 million
bulge facility, (2) all of the outstanding indebtedness evidenced by the Senior
Secured (Series A) Notes due 1998 and the Senior Secured (Series B) Notes due
1998, (3) all of the outstanding indebtedness evidenced by the 13.75% Senior
Subordinated Notes due 1999, (4) all of the outstanding indebtedness evidenced
by the 14% Senior Subordinated Promissory Notes due July 2, 1999, (5) all of the
outstanding indebtedness evidenced by the 13.75% Senior Subordinated PIK Notes
due 1999 and (6) $26.0 million principal amount of the 10% Junior Subordinated
PIK Notes.
As of the Offering closing date all outstanding shares of all classes of
the Company's common stock were converted into the class of Common Stock issued
in the Offering.
NOTE 7 -- STOCK COMPENSATION CHARGE
The Company incurred a one-time non-cash stock compensation charge of $0.7
million ($0.05 per common share on a pro forma basis) with respect to 94,150
shares of Class B voting stock offered to certain management investors in the
first quarter of fiscal 1995. These shares were reserved for issuance to the
management investors in August 1993 pursuant to the Exchange Agreement, and the
sale price was determined in accordance with a stockholders agreement. The
compensation charge was calculated based on
F-10
<PAGE> 59
JP FOODSERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT WHERE NOTED)
NOTE 7 -- STOCK COMPENSATION CHARGE -- (CONTINUED)
the difference between the price paid for such shares and the then-assumed
initial public offering price of the Common Stock sold in the Offering.
NOTE 8 -- EXTRAORDINARY CHARGE
In connection with the Recapitalization, the Company incurred a $4.6
million extraordinary charge (net of tax benefits of $3.1 million) in the second
quarter of fiscal 1995 for the write-off of deferred financing costs relating to
existing indebtedness as well as other fees and expenses related to the early
extinguishment of debt.
NOTE 9 -- ACQUISITION
Effective June 30, 1995, the Company purchased 100% of the outstanding
common stock of a foodservice distributor for $2.8 million, of which 25% was in
the form of cash and 75% in Common Stock. The excess of purchase price over the
fair value of net assets is approximately $1.4 million and will be amortized
using the straight-line method over 40 years. Unaudited fiscal 1995 sales for
the acquired company approximated $15.8 million.
NOTE 10 -- RELATED PARTY TRANSACTIONS
Accounts Payable to Related Parties
The Company regularly purchases products from Sara Lee and its affiliates
for resale to customers. Related party payables arise from such transactions.
The Company believes that such purchases are at prices not more favorable than
those charged to unrelated distributors of Sara Lee products. Total purchases
from Sara Lee and its affiliates aggregated $63,907, $69,820 and $72,590 in
fiscal 1993, 1994 and 1995, respectively.
PYA/Monarch Note Receivable and Promissory Note Payable
In 1989, prior to the transaction described in Note 4, the Company loaned
to PYA/Monarch $110 million in exchange for a promissory note. The note is due
in installments through December 31, 1998 and bears interest at rates between
10.35% and 10.8% per annum. The Company assumed a promissory note payable to
PYA/Monarch of $112 million which is due in installments through May 31, 1998
and bears interest at 11.0% per annum. Under a Note Offset Agreement between the
parties, maturities of principal and interest payable under the two notes are to
be settled by offsetting amounts due, with the net difference being carried
until settlement as an obligation or receivable. The net principal amount, which
is a $2 million obligation of JPF, plus accrued interest, is payable in 1998.
Interest can be paid in additional payment-in-kind notes. The accompanying
consolidating balance sheets reflect a net noncurrent note payable balance of
$3,398 and $4,000 at July 2, 1994 and July 1, 1995, respectively. Gross
principal and interest receivable (payable) related to these notes are as
follows:
<TABLE>
<CAPTION>
JULY 2, 1994 JULY 1, 1995
------------ ------------
<S> <C> <C>
Note receivable............................................... $ 105,000 $ 100,000
Note payable.................................................. (107,000) (102,000)
Interest receivable........................................... 62,535 73,873
Interest payable.............................................. (63,933) (75,873)
------------ ------------
Net........................................................... $ (3,398) $ (4,000)
========= =========
</TABLE>
F-11
<PAGE> 60
JP FOODSERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT WHERE NOTED)
NOTE 11 -- RECEIVABLES
Receivables are composed of the following:
<TABLE>
<CAPTION>
JULY 2, 1994 JULY 1, 1995
------------ ------------
<S> <C> <C>
Customer accounts and notes................................... $ 80,730 $ 87,279
Less allowance for doubtful accounts.......................... (2,201) (2,253)
------------ ------------
Net customer.................................................. 78,529 85,026
------------ ------------
From suppliers................................................ 16,893 28,636
From related parties.......................................... 1,425 3,818
Less allowance for doubtful accounts.......................... (541) (273)
------------ ------------
Net supplier.................................................. 17,777 32,181
------------ ------------
Tax refunds................................................... 1,030 799
Other......................................................... 4,288 5,485
------------ ------------
Total other................................................... 5,318 6,284
------------ ------------
$101,624 $123,491
========= =========
</TABLE>
NOTE 12 -- PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
JULY 2, 1994 JULY 1, 1995
------------ ------------
<S> <C> <C>
Land.......................................................... $ 9,498 $ 9,685
Buildings..................................................... 45,681 47,059
Machinery and equipment....................................... 25,399 27,849
Leasehold improvements........................................ 5,766 5,831
Vehicles held under capital leases (Note 16).................. 30,395 33,950
------------ ------------
116,739 124,374
Accumulated depreciation...................................... (34,538) (43,221)
------------ ------------
$ 82,201 $ 81,153
========= =========
</TABLE>
F-12
<PAGE> 61
JP FOODSERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT WHERE NOTED)
NOTE 13 -- GOODWILL AND OTHER NONCURRENT ASSETS
Goodwill and other noncurrent assets are composed of the following:
<TABLE>
<CAPTION>
JULY 2, 1994 JULY 1, 1995
------------ ------------
<S> <C> <C>
Goodwill...................................................... $ 81,717 $ 83,143
Accumulated amortization...................................... (10,299) (12,340)
------------ ------------
71,418 70,803
------------ ------------
Loan acquisition costs........................................ 9,079 1,690
Accumulated amortization...................................... (5,532) (158)
------------ ------------
3,547 1,532
------------ ------------
Other intangible assets....................................... 5,601 5,601
Accumulated amortization...................................... (1,121) (1,342)
------------ ------------
4,480 4,259
------------ ------------
$ 79,445 $ 76,594
========= =========
</TABLE>
NOTE 14 -- ACCRUED EXPENSES
The components of accrued expenses are as follows:
<TABLE>
<CAPTION>
JULY 2, 1994 JULY 1, 1995
------------ ------------
<S> <C> <C>
Compensation.................................................. $ 2,741 $ 3,343
Benefits/taxes................................................ 1,879 2,175
Interest...................................................... 2,118 1,903
Operating expenses............................................ 3,938 3,436
------------ ------------
$ 10,676 $ 10,857
========= =========
</TABLE>
F-13
<PAGE> 62
JP FOODSERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT WHERE NOTED)
NOTE 15 -- DEBT
Long-term debt is composed of the following:
<TABLE>
<CAPTION>
JULY 2, 1994* JULY 1, 1995
------------- ------------
<S> <C> <C>
Senior bank facilities
JP term loan............................................ $ 26,658
JP revolving credit loan................................ 22,000 $ 45,000
----------- ----------
48,658 45,000
----------- ----------
Senior institutional notes
JP senior notes, Series A............................... 69,146
JP senior notes, Series B............................... 14,817
JP senior notes......................................... 85,000
----------- ----------
83,963 85,000
----------- ----------
Total senior debt............................................ 132,621 130,000
Less current portion......................................... (3,000)
----------- ----------
Noncurrent senior debt....................................... 129,621 130,000
----------- ----------
Subordinated debt
JP 13.75% senior subordinated notes payable to
stockholders.......................................... 27,500
JP 13.75% senior subordinated PIK notes payable to
stockholders.......................................... 16,811
JPF 14% senior subordinated PIK notes payable to
stockholders.......................................... 3,359
JPF junior subordinated PIK notes payable to
PYA/Monarch........................................... 65,115
JPF junior subordinated PIK notes payable to
stockholders.......................................... 5,426
JP promissory note payable to PYA/Monarch -- see Note
10.................................................... 3,398 4,000
----------- ----------
Noncurrent subordinated debt................................. 121,609 4,000
----------- ----------
Total long-term debt......................................... $ 251,230 $134,000
========= =========
</TABLE>
- ---------------
(* See Note 6.)
Under the JP revolving credit loan arrangement, the Company is entitled to
borrow up to $110 million with interest payable quarterly at the bank's prime
rate or, at the option of the Company, the London Interbank Offered Rate
("LIBOR"), plus .875% per annum. Borrowings are limited to 85% of eligible
receivables plus 50% of eligible inventory. While the Company may repay all or a
portion of such borrowings at any time, any outstanding principal must be paid
in full on or before November 10, 1999. The Company is required to pay an annual
commitment fee of 1/4 of 1% on the unused portion of the credit arrangement.
The JP senior notes are payable in seven annual installments beginning in
October 1998. Interest is paid semiannually at an annual rate of 8.55%.
At July 1, 1995, the Company has approximately $11.5 million of outstanding
letters of credit securing the Company's medical and worker's compensation
insurance policies.
Bank loan and senior note covenants restrict the payment of dividends and
require the Company and certain subsidiaries to maintain specified levels of
working capital and net worth to meet various financial ratios. Bank and senior
note borrowings are unsecured.
F-14
<PAGE> 63
JP FOODSERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT WHERE NOTED)
NOTE 15 -- DEBT -- (CONTINUED)
Aggregate annual principal payments applicable to long-term debt, excluding
capital leases (see Note 16), are as follows:
<TABLE>
<CAPTION>
FISCAL
YEAR ENDING
--------------------------------------------------------------------------
<S> <C>
1996...................................................................... $ 0
1997...................................................................... 0
1998...................................................................... 4,000
1999...................................................................... 12,143
2000...................................................................... 57,143
2001 and thereafter....................................................... 60,714
--------
$134,000
========
</TABLE>
On April 12, 1994, the Company entered into interest rate cap agreement to
reduce risks from interest rate fluctuations on its variable rate debt. The
contract is for a notional principal amount of $32 million through April 12,
1995 and $27 million for April 13, 1995 through April 12, 1996 and caps the
LIBOR rate, to be measured at quarterly settlement dates, at 11%.
On May 12, 1995, the Company entered into two $15 million interest rate
swap agreements. Under the terms of these agreements, the Company has fixed its
cost of borrowing on $30 million of floating rate debt at an effective annual
rate of 6.56%. The agreements which have an initial term of one year, can be
extended one additional year at the option of the counterparty.
Based on the borrowing rates currently available to the Company for
indebtedness with similar terms and average maturities, the fair value of the
Company's long-term debt is estimated to be $137,656.
NOTE 16 -- LEASES
Operating
The Company leases its corporate office facilities and certain equipment
under operating leases. Charges to operations for all operating leases were
$5,836, $5,432 and $6,026 in fiscal 1993, 1994 and 1995, respectively.
Capital
The Company leases the majority of its delivery fleet under capital leases.
Capitalized delivery fleet leases are reflected for the targeted lease periods.
The interest portion of the future minimum capital lease payments has been
calculated using a combination of a floating interest rate, currently at 4.5%,
and fixed rates ranging from 5.5% to 10.2% based on the terms of the lease. The
Company is charged interest monthly based on a fixed or floating rate option
based on the prime rate or the lessor's commercial paper rate.
F-15
<PAGE> 64
JP FOODSERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT WHERE NOTED)
NOTE 16 -- LEASES -- (CONTINUED)
Set forth below are the future minimum lease payments under capital leases
and operating leases with noncancelable terms beyond one year.
<TABLE>
<CAPTION>
FISCAL OPERATING CAPITAL
YEAR ENDING LEASES LEASES
------------------------------------------------------------------ --------- -------
<S> <C> <C>
1996.............................................................. $ 4,540 $ 4,979
1997.............................................................. 4,198 4,359
1998.............................................................. 3,131 3,304
1999.............................................................. 1,439 2,774
2000.............................................................. 1,124 2,433
Thereafter........................................................ 2,811 1,615
--------- -------
$17,243 19,464
=======
Less interest portion............................................. (2,815)
-------
16,649
Less current obligations.......................................... (4,092)
-------
Noncurrent obligations............................................ $12,557
=======
</TABLE>
NOTE 17 -- INCOME TAXES
The Company's income is taxable only in the United States. The 1993
statement of operations reflects an income tax benefit which results from the
Company's ability to utilize losses generated in fiscal 1993 to recover taxes
paid in previous years. The components of income tax (before extraordinary
charge) are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------
1993 1994 1995
------- ----- -------
<S> <C> <C> <C>
Current tax (expense) benefit
U.S. federal......................................... $ 5,288 $ 125 $(2,632)
State and local...................................... (215) (244) (928)
------- ----- -------
Total current................................... 5,073 (119) (3,560)
------- ----- -------
Deferred tax (expense) benefit
U.S. federal......................................... (2,334) (516) (2,332)
State and local...................................... 57 (6) (70)
------- ----- -------
Total deferred.................................. (2,277) (522) (2,402)
------- ----- -------
Total tax (expense) benefit recorded...................... $ 2,796 $(641) $(5,962)
======= ===== =======
</TABLE>
Deferred income taxes represent the taxes payable by the Company in future
periods arising from temporary differences between assets and liabilities for
financial reporting and tax purposes. Deferred tax
F-16
<PAGE> 65
JP FOODSERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT WHERE NOTED)
NOTE 17 -- INCOME TAXES -- (CONTINUED)
(expense) benefit results from changes in the liability for deferred taxes.
Temporary differences and the resulting deferred income taxes are as follows:
<TABLE>
<CAPTION>
JULY 2, 1994 JULY 1, 1995
------------ ------------
<S> <C> <C>
Current
Inventory................................................ $ (370) $ (361)
Allowance for doubtful accounts.......................... 544 567
Accrued expenses and other............................... 516 228
Net operating loss carryforwards......................... 2,401
------------ ------------
Current deferred tax asset (liability).............. 3,091 434
------------ ------------
Noncurrent
Property and equipment................................... (8,390) (8,846)
Intangible assets........................................ (1,819) (1,712)
Other, net............................................... (2,016) (984)
------------ ------------
Noncurrent deferred tax liability................... (12,225) (11,542)
------------ ------------
Total deferred income taxes......................... $ (9,134) $(11,108)
========= =========
</TABLE>
The effective income tax rate on consolidated pre-tax income (loss) differs
from the statutory U.S. federal income tax rate for fiscal 1993, 1994 and 1995
as shown below:
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------
1993 1994 1995
--------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Computed statutory (expense)
benefit......................... $3,533 34.00% $ 411 35.00% $(4,386) (35.00)%
State and local income tax, net of
federal tax..................... (103) (0.99) (161) (13.71) (649) (5.20)
Permanent differences............. (758) (7.29) (761) (64.82) (1,161) (9.29)
Enacted tax rate change........... (156) (13.29)
Gas tax credit.................... 124 1.19 125 10.65 156 1.25
Other............................. (99) (8.43) 78 0.64
------ ----- ----- ------ ------- ------
$2,796 26.91% $(641) (54.60)% $(5,962) (47.6)%
====== ===== ===== ====== ======= ======
</TABLE>
All tax years of the Company are open for examination. The Internal Revenue
Service and certain state authorities have examinations in process. In fiscal
1994, the Company increased its U.S. deferred tax liability as a result of tax
legislation enacted August 10, 1993 increasing the corporate tax rate from 34%
to 35%.
NOTE 18 -- MANDATORILY REDEEMABLE STOCK (RELATED PARTIES)
As of July 2, 1994, the Company had outstanding shares of preferred and
common stock with mandatory redemption features as follows:
<TABLE>
<S> <C>
Senior preferred stock, redemption value of $788 in July 2004............... $ 195
Junior preferred stock, redemption value of $1,750 in July 2004............. 433
Class B voting stock, $.01 par value, 743,904 shares authorized, 676,402
shares issued and outstanding............................................. 1,760
------
$2,388
======
</TABLE>
F-17
<PAGE> 66
JP FOODSERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT WHERE NOTED)
NOTE 18 -- MANDATORILY REDEEMABLE STOCK (RELATED PARTIES) -- (CONTINUED)
The Senior Preferred Stock and the Class B voting common stock were
converted into shares of newly authorized Common Stock and the junior preferred
stock was redeemed as part of the Recapitalization (see Note 6).
NOTE 19 -- STOCKHOLDERS' EQUITY
Common Stock
As of July 2, 1994, after giving effect to the 3.936 for one stock split
effected on October 20, 1994, common stock consisted of the following:
<TABLE>
<CAPTION>
TOTAL
PAR VALUE
---------
<S> <C>
Class A voting, $.01 par value, 3,936,000 shares authorized,
830,496 shares issued and outstanding........................... $ 8
Class C voting, $.01 par value, 783,264 shares authorized,
783,264 shares issued and outstanding........................... 8
Class E nonvoting, $.01 par value, 2,361,600 shares authorized,
1,578,336 shares issued and outstanding......................... 16
---
$32
===
</TABLE>
Effective October 20, 1994 the Company's amended and restated certificate
of incorporation authorized issuance of 45,000,000 shares of common stock, $.01
par value, and 5,000,000 shares of preferred stock, $.01 par value. All of the
outstanding shares of all classes of common stock automatically were converted
into the class of Common Stock issued in the Offering.
Registration Rights and Yield Support Agreement
Prior to August 26, 1993 under the Registration Rights and Yield Support
Agreement with certain investors, the Company had granted yield support to a
group of investors who held the senior subordinated notes ($35 million) and
1,968,000 shares of combined Class A and B common stock ($5 million). The
Company was obligated to ensure that this investor group received a 20%
compounded rate of return on its aggregate investment through January 3, 1996.
Accordingly, operations were charged for $2,624 and $410 in fiscal 1993 and
1994, respectively, of additional interest expense to yield a 20% compound rate
of return on the senior subordinated notes. Dividends of $1,727 and $305 were
accrued in fiscal 1993 and 1994, respectively, to yield a 20% preference return
on equity.
As part of the Exchange Agreement (see Note 5), the Registration Rights and
Yield Support Agreement was amended to eliminate the yield support provisions.
Under the terms of the Exchange Agreement, all prior accrued balances related to
the yield support obligation were eliminated.
Management Stock Options
Effective on the Offering closing date, the Company adopted the 1994 Stock
Incentive Plan (the "Stock Option Plan"). The Stock Option Plan, which
terminates on the tenth anniversary of the effective date of the Plan,
authorizes the grant of incentive stock options, non-qualified stock options,
restricted stock awards, stock appreciation rights, or any combination thereof,
at the discretion of the Compensation Committee of JP's Board of Directors.
Subject to adjustment in certain circumstances, the aggregate number of shares
of Common Stock which may be issued under the Stock Option Plan upon the
exercise of options or stock appreciation rights and vesting of restricted stock
may not exceed 1,532,404 shares.
F-18
<PAGE> 67
JP FOODSERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT WHERE NOTED)
NOTE 19 -- STOCKHOLDERS' EQUITY -- (CONTINUED)
The option price per share under each option granted under the Stock Option
Plan may not be less than 100% (110% in the case of an optionee who is a 10%
stockholder) of the fair market value per share on the date of the option grant.
One-third of each option granted to a participant vests on each of the first,
second and third anniversary of the date on which the option was granted. Upon a
change in control (as defined in the Stock Option Plan) of the Company, all
outstanding and previously unvested options will become immediately exercisable.
A summary of changes in outstanding stock options follows:
<TABLE>
<CAPTION>
INCENTIVE OPTION PRICE
STOCK OPTIONS PER SHARE
------------- ---------------
<S> <C> <C>
Balance, July 2, 1994................................... 0
Options granted.................................... 400,877 $11.00 - $12.50
Options cancelled.................................. (32,245) $11.00
Options exercised.................................. 0
------------- ---------------
Balance, July 1, 1995................................... 368,632 $11.00 - $12.50
</TABLE>
Awards under the Stock Option Plan also may be made in the form of
restricted stock, at the discretion of the Compensation Committee. The
Compensation Committee has the authority to determine the terms and conditions
of any restricted stock awards. No such awards were made through July 1, 1995.
Directors Stock Options
Effective on the Offering closing date, the Company adopted the Outside
Directors Stock Option Plan (the "Plan"). The Plan provides for an initial grant
of an option to each director of the Company who is not also an employee of the
Company or a nominee or officer of Sara Lee or its affiliates to purchase 5,000
shares and for an annual grant of an option to purchase 1,000 shares at the then
current market value. Options are granted for a term of ten years. One fourth of
each option granted under the Plan vests on the date of grant, and an additional
one-fourth of each such option vests on each of the first, second and third
anniversary of the option grant date. During fiscal 1995, 15,000 shares were
granted under the Plan at an exercise price of $11.00 per share. All such
options granted remain outstanding at July 1, 1995.
NOTE 20 -- EMPLOYEE RETIREMENT BENEFITS
The majority of the Company's union employees are covered by
union-administered pension plans. Since these plans are part of multi-employer
pension arrangements, it is not practicable to determine the amount of
accumulated plan benefits or plan net assets applicable solely to the Company's
employees. Charges to operations for all employer defined benefit pension
contributions required by union agreements aggregated $1,466, $1,632 and $1,848
in fiscal 1993, 1994 and 1995, respectively.
The Company sponsors a savings and retirement plan which qualifies under
Section 401(k) of the Internal Revenue Code and for which all full-time
non-union employees of the Company are eligible. In accordance with the terms of
the plan, employees may contribute up to 15% of their annual compensation,
subject to certain limitations. The Company is required to match up to 2% of
each qualified employee's annual contribution, and may make any additional
contributions on an elective basis. The Company's matching contribution may be
made with Common Stock of the Company. Employer contributions to this plan vest
on the fifth anniversary of participation in the plan. Charges to operations for
employer contributions under this plan were $1,142, $1,145 and $1,274 in fiscal
1993, 1994 and 1995, respectively.
F-19
<PAGE> 68
JP FOODSERVICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT WHERE NOTED)
NOTE 20 -- EMPLOYEE RETIREMENT BENEFITS -- (CONTINUED)
Effective on the Offering closing date, the Company adopted the 1994
Employee Stock Purchase Plan, pursuant to which all full-time employees of the
Company and its subsidiaries who have been employed by the Company for 90 days
or more are eligible to purchase shares of Common Stock from the Company. An
aggregate 1,500,000 shares of Common Stock may be issued and purchased under the
plan. Eligible employees may purchase shares of Common Stock at a price equal to
85% of the market price per share on each quarterly investment date. Purchases
under this plan totaled 28,080 shares during fiscal 1995.
The Company has no defined benefit pension plan for non-union employees.
The Company does not grant any post-retirement benefits other than those
described above.
NOTE 21 -- CONTINGENCIES
The Company is involved, from time to time, in litigation and proceedings
arising out of the ordinary course of business. There are no pending material
legal proceedings or environmental investigations to which the Company is a
party or to which the property of the Company is subject.
The Company is aware of an unasserted environmental claim related to the
Company's Boston branch. The Company has not been the subject of any action or
proceeding related to the site. The Company has been indemnified against any
losses it may incur in connection with hazardous substances on the site, and
does not believe resolution of this matter will have a material adverse effect
on its financial condition or operating results.
NOTE 22 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the fiscal years ended July 2, 1994
and July 1, 1995 is as follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1995
Net sales................................... $279,839 $272,405 $258,560 $297,449
Gross profit................................ 46,586 45,387 43,424 50,954
Net income (loss) before extraordinary
item...................................... (614) 1,302 1,510 4,372
Net income (loss)........................... (614) (3,288) 1,510 4,372
Net income (loss) per common share before
extraordinary charge...................... $ (0.16) $ 0.14 $ 0.10 $ 0.28
Net income (loss) per common share.......... $ (0.16) $ (0.36) $ 0.10 $ 0.28
======== ======== ======== ========
1994
Net sales................................... $263,944 $250,723 $239,543 $274,790
Gross profit................................ 44,559 42,117 39,526 45,681
Net income (loss)........................... (1,257) (239) (1,289) 937
Net income (loss) per common share.......... $ (0.43) $ (0.07) $ (0.33) $ 0.24
======== ======== ======== ========
</TABLE>
F-20
<PAGE> 69
JP FOODSERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 1, 1995 MARCH 30, 1996
------------ --------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents...................................... $ 15,418 $ 7,960
Receivables, net............................................... 123,491 141,784
Inventories.................................................... 67,629 81,071
Other current assets........................................... 8,319 10,637
Current deferred tax asset..................................... 434 540
---------- -----------
Total current assets...................................... 215,291 241,992
Property and equipment, net......................................... 81,153 91,625
Goodwill and other noncurrent assets................................ 76,594 77,424
---------- -----------
Total assets.............................................. $373,038 $411,041
========= ===========
LIABILITY AND STOCKHOLDERS' EQUITY
Current liabilities
Current obligations under capital leases....................... $ 4,092 $ 5,513
Accounts payable............................................... 96,619 108,769
Accrued expenses............................................... 10,857 11,246
---------- -----------
Total current liabilities................................. 111,568 125,528
Nonrecurrent liabilities
Senior debt.................................................... 130,000 139,500
Subordinated debt with related parties......................... 4,000 4,050
Obligations under capital leases............................... 12,557 16,917
Noncurrent deferred tax liability.............................. 11,542 11,798
---------- -----------
Total noncurrent liabilities.............................. 158,099 172,265
---------- -----------
Total liabilities......................................... 269,667 297,793
========= ===========
Commitments and contingent liabilities
Stockholders' equity
Common stock................................................... 159 160
Paid-in-capital................................................ 187,618 189,425
Accumulated deficit............................................ (39,463) (31,394)
Distribution in excess of net book value of continuing
stockholder's interest........................................ (44,943) (44,943)
---------- -----------
Total stockholders' equity................................ 103,371 113,248
========= ===========
Total liabilities and stockholders' equity.......................... $373,038 $411,041
========= ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-21
<PAGE> 70
JP FOODSERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
APRIL 1, 1995 MARCH 30, 1996
------------- --------------
<S> <C> <C>
Net sales.......................................................... $ 810,804 $ 908,905
Cost of sales...................................................... 675,407 752,675
----------- ------------
Gross profit....................................................... 135,397 156,230
Operating expenses................................................. 110,908 128,893
Amoritization of intangible assets................................. 1,697 1,741
Stock compensation charge.......................................... 709
----------- ------------
Income from operations............................................. 22,083 25,596
----------- ------------
Interest expense................................................... 16,933 9,913
Nonrecurring charge................................................ 1,517
----------- ------------
Other expenses..................................................... 16,933 11,430
----------- ------------
Income before income taxes and extraordinary charge................ 5,150 14,166
Provision for income taxes......................................... 2,953 6,097
----------- ------------
Income before extraordinary charge................................. 2,197 8,069
Extraordinary charge on early extinguishment of debt
(net of $3,059 of taxes)......................................... (4,590)
----------- ------------
Net income (loss).................................................. (2,393) 8,069
Preference dividends............................................... (40)
----------- ------------
Net income (loss) applicable to common stockholders................ $ (2,433) $ 8,069
========= ===========
Net income (loss) per common share
Before extraordinary charge................................... $ 0.23 $ 0.51
Extraordinary charge.......................................... (0.48)
----------- ------------
Net income (loss)............................................. $ (0.25) $ 0.51
========= ===========
Weighted average number of shares of common stock outstanding...... 9,599,520 15,944,455
========= ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-22
<PAGE> 71
JP FOODSERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
APRIL 1, 1995 MARCH 30, 1996
------------- --------------
<S> <C> <C>
Net cash provided by (used in) operating activities................ $ 1,800 $ (4,865)
----------- -----------
Cash flows from investing activities
Additions to property and equipment........................... (1,608) (7,854)
Net cost of business acquisition.............................. (2,765)
----------- -----------
Net cash used in investing activities.............................. (1,608) (10,619)
----------- -----------
Cash flows from financing activities
Net proceeds from initial public offering..................... 79,927
Long-term debt (repayments) borrowings........................ (70,749) 9,500
Payment of recapitalization costs............................. (1,256)
Payment of loan acquisition costs............................. (1,626)
Liquidation of preferred stocks............................... (643)
Principal payments under capital lease obligations............ (3,670) (3,282)
Proceeds from employee stock purchases........................ 1,808
----------- -----------
Net cash provided by financing activities.......................... 1,983 8,026
----------- -----------
Net increase (decrease) in cash and cash equivalents............... 2,175 (7,458)
Cash and cash equivalents
Beginning of period........................................... 11,298 15,418
----------- -----------
End of period................................................. $ 13,473 $ 7,960
========= ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-23
<PAGE> 72
JP FOODSERVICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements of JP Foodservice, Inc.
(the "Company") at March 30, 1996 and the three and nine months ended April 1,
1995 and March 30, 1996, respectively, included herein are unaudited, but
include all adjustments (consisting only of normal recurring entries) which the
Company's management believes to be necessary for the fair presentation of the
financial position, results of operations and cash flows of the Company at and
for the periods presented. The July 1, 1995 Condensed Consolidated Balance Sheet
was derived from the Company's annual financial statements. Interim results are
not necessarily indicative of results that may be expected for the full year.
NOTE 2 -- NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is based on the weighted average number
of common and common equivalent shares outstanding during the period.
NOTE 3 -- NONRECURRING CHARGE
On February 19, 1996, the Company terminated discussions with Sara Lee
Corporation regarding the proposed combination of the Company and PYA Monarch,
Inc. (a wholly-owned subsidiary of Sara Lee Corporation). As a result of the
termination of these discussions, which began with a proposal submitted by Sara
Lee Corporation in November 1995, the Company wrote off the cost incurred
related to the transaction (primarily legal and advisory fees) of approximately
$1.5 million. The after-tax impact of this nonrecurring charge was $0.9 million
$(.06) per share. Excluding this charge, net income would have been $2.3 million
and $9.0 million for the three-month and nine-month periods, respectively, and
net income per share would have been $0.15 and $0.57 for the three-month and
nine-month periods, respectively.
NOTE 4 -- STOCKHOLDERS' EQUITY
On February 19, 1996, the Board of Directors of the Company adopted a
shareholder rights plan. Issuance of preferred share purchase rights (the
"Rights") under the plan will be triggered upon the acquisition (or certain
actions that would result in the acquisition) of 10% or more of the Company's
common stock by any person or group or by the acquisition (or certain actions
that would result in the acquisition) of any additional shares of common stock
by any person or group owning 10% or more of the common stock on February 19,
1996.
Pursuant to this plan, the Board of Directors of the Company declared a
dividend of one Right for each outstanding share of common stock of the Company.
The dividend was paid on March 1, 1996 to stockholders of record at the close of
business on March 1, 1996. Each Right entitles the registered holder or common
stock to purchase from the Company, upon the occurrence of the specified
triggering events, one one-hundredth of a share of a newly authorized issue of
junior participating preferred stock at a price of $95, subject to adjustment.
The Company may redeem the Rights at a price of $.01 per Right prior to a
triggering event. The Rights expire on February 19, 2006.
NOTE 5 -- CONTINGENCIES
From time to time, the Company is involved in litigation and proceeding
arising out of the ordinary course of business. There are no pending material
legal proceedings or environmental investigations to which the Company is a
party or to which the property of the Company is subject at this time.
F-24
<PAGE> 73
JP Foodservice has introduced several exclusive signature brand lines in
response to the increasing popularity of foodservice specialties. The Roseli(TM)
line features authentic Italian ingredients in a full line of products. In
addition, during 1996 the Company introduced a full line of Mexican products
under its el Pasado(TM) signature brand and a complete line of gourmet and
foodservice coffees under its Rituals(TM) signature brand.
The Company offers customers a comprehensive range of products, including canned
and dry food products, fresh meats, poultry, seafood, frozen foods, fresh
produce, dairy and other refrigerated foods.
<PAGE> 74
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THIS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference............................ 3
Prospectus Summary..................... 4
Risk Factors........................... 9
Recent Results of Operations........... 12
Use of Proceeds........................ 13
Price Range of Common Stock
and Dividend Policy.................. 14
Capitalization......................... 15
Unaudited Pro Forma Condensed Combined
Financial Statements................. 16
Selected Consolidated Financial Data... 22
Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................... 23
Business............................... 28
Management............................. 39
Principal Stockholders................. 41
Shares Eligible for Future Sale........ 42
Underwriting........................... 43
Legal Matters.......................... 44
Experts................................ 44
Additional Information................. 45
Index to Consolidated Financial
Statements........................... F-1
<CAPTION>
</TABLE>
3,000,000 SHARES
JP FOODSERVICE, INC.
COMMON STOCK
[JP FOODSERVICE LOGO]
---------
PROSPECTUS
, 1996
------------
SMITH BARNEY INC.
THE ROBINSON-HUMPHREY
COMPANY, INC.
RODMAN & RENSHAW, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts except the
Securities and Exchange Commission registration fee are estimated. All of the
expenses below will be paid by the Company.
<TABLE>
<CAPTION>
ITEM AMOUNT
------------------------------------------------------------------ --------
<S> <C>
Registration fee.................................................. $ 28,968
NASD filing fee................................................... 8,901
Nasdaq Additional Listing fee..................................... 17,500
Blue Sky fees and expenses........................................ 15,000
Printing and engraving expenses................................... 300,000
Legal fees and expenses........................................... 200,000
Accounting fees and expenses...................................... 100,000
Transfer Agent and Registrar fees................................. 1,000
Miscellaneous..................................................... 78,631
--------
Total........................................................ $750,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to the provisions of Article XII of the registrant's
Restated Certificate of Incorporation filed as Exhibit 3.1 hereto and the
provisions of Article XII of the registrant's Amended and Restated By-laws filed
as Exhibit 3.2 hereto.
The registrant is a Delaware corporation, subject to the applicable
indemnification provisions of the General Corporation Law of the State of
Delaware (the "DGCL"). Section 145 of the DGCL provides for the indemnification,
under certain circumstances, of any person in connection with any action, suit
or proceeding, whether civil, criminal, administrative or investigative (other
than derivative actions), brought or threatened involving such persons because
of such person's service in any such capacity with respect to another
corporation or other entity at the request of such corporation.
The registrant's Amended and Restated By-Laws provide for the
indemnification of the officers and directors of the registrant to the fullest
extent permitted by the DGCL. Article XII of the By-laws provides that each
person who was or is made a party to (or is threatened to be made a party to)
any civil or criminal action, suit or proceeding by reason of the fact that such
person is or was a director or officer of the registrant shall be indemnified
and held harmless by the registrant to the fullest extent authorized by the DGCL
against all expense, liability and loss (including, without limitation,
attorneys' fees) incurred by such person in connection therewith, if such person
acted in good faith and in a manner he or she reasonably believed to be or not
opposed to the best interests of the registrant and had no reason to believe
that his or her conduct was illegal.
Article XII of the registrant's Restated Certificate of Incorporation
provides that, to the fullest extent permitted by the DGCL, the registrant's
directors will not be personally liable to the registrant or its stockholders
for monetary damages resulting from a breach of their fiduciary duties as
directors. However, nothing contained in such Article XII shall eliminate or
limit the liability of directors (i) for any breach of the director's duty of
loyalty to the registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of the
law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which
the director derived an improper personal benefit.
II-1
<PAGE> 76
Under the terms of the Amended and Restated Registration Rights Agreement
by and among the registrant, PYA/Monarch, Inc. ("PYA/Monarch") and the other
investors named therein (filed as Exhibit 10.16 hereto), the registrant has
agreed to indemnify PYA/Monarch (and its permitted transferees), its officers
and directors and each underwriter and person, if any, who controls PYA/Monarch,
from certain liabilities relating to any registration statement that may be
filed by the registrant on behalf of such stockholder, under the terms of that
agreement.
There are in effect directors' and officers' liability insurance policies
which insure the registrant's directors and officers against certain liabilities
that they may incur in such capacities.
The Underwriting Agreement (filed as Exhibit 1.1 hereto) provides for
indemnification by the Underwriters of the Company and its officers and
directors, and by the Company of the Underwriters, for certain liabilities
arising under the Securities Act or otherwise.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following Exhibits are filed herewith and incorporated herein by
reference:
<TABLE>
<C> <S>
**1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Company. Filed as Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 30, 1996 and incorporated herein by reference.
3.2 Amended and Restated By-Laws of the Company. Filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended March
30, 1996 and incorporated herein by reference.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Restated Certificate of
Incorporation and the Amended and Restated By-Laws of the Company defining the
rights of holders of the Company's Common Stock.
4.2 Specimen certificate representing common stock, par value $.01 per share, of
the Company. Filed as Exhibit 4.3 to the Company's Registration Statement on
Form S-1 (No. 33-82724) and incorporated herein by reference.
**5.1 Opinion of Shaw, Pittman, Potts & Trowbridge, counsel to the Company, regarding
the validity of the securities being issued.
10.1 Employment Agreement dated as of July 3, 1989, as amended, by and between the
Company and James L. Miller. Filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (No. 33-82724) and incorporated herein by
reference.
10.2 Employment Agreement, dated as of August 9, 1991, by and between the Company
and Lewis Hay, III. Filed as Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (No. 33-82724) and incorporated herein by reference.
10.3 Second Amendment, dated as of June 27, 1995, to Employment Agreement, dated as
of July 3, 1989, as amended, by and between the Company and James L. Miller.
Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 30, 1995 and incorporated herein by reference.
10.4 First Amendment, dated as of June 27, 1995, to Employment Agreement, dated as
of August 9, 1991, by and between the Company and Lewis Hay, III. Filed as
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 30, 1995 and incorporated herein by reference.
10.5 Severance Agreement, dated as of September 27, 1995, by and between the Company
and Mark P. Kaiser. Filed as Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended December 30, 1995 and incorporated
herein by reference.
</TABLE>
II-2
<PAGE> 77
<TABLE>
<C> <S>
10.6 Severance Agreement, dated as of September 27, 1995, by and between the Company
and George T. Megas. Filed as Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended December 30, 1995 and incorporated
herein by reference.
10.7 Employment Agreement, dated as of January 4, 1996, between the Company and
James L. Miller. Filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 30, 1996 and incorporated herein
by reference.
10.8 Employment Agreement, dated as of January 4, 1996, between the Company and
Lewis Hay, III. Filed as Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 30, 1996 and incorporated herein by
reference.
10.9 Employment Agreement, dated as of January 4, 1996, between the Company and Mark
P. Kaiser. Filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 30, 1996 and incorporated herein by
reference.
10.10 Employment Agreement, dated as of January 4, 1996, between the Company and
George T. Megas. Filed as Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 30, 1996 and incorporated herein
by reference.
10.11 JP Foodservice, Inc. 1994 Stock Incentive Plan. Filed as Exhibit 10.3 to the
Company's Registration Statement on Form S-1 (No. 33-82724) and incorporated
herein by reference.
10.12 JP Foodservice, Inc. Stock Option Plan for Outside Directors. Filed as Exhibit
10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended July
1, 1995 and incorporated herein by reference.
10.13 JP Foodservice, Inc. 401(k) Retirement Plan, as amended. Filed as Exhibit 10.5
to the Company's Annual Report on Form 10-K for the fiscal year ended July 1,
1995 and incorporated herein by reference.
10.14 JP Foodservice, Inc. 1994 Employee Stock Purchase Plan. Filed as Exhibit 10.6
to the Company's Registration Statement on Form S-1 (No. 33-82724) and
incorporated herein by reference.
10.15 Lease dated October 29, 1993 between JP Foodservice Distributors, Inc. and
CMANE -- Patuxent Woods II Limited Partnership relating to the lease of the
Company's corporate headquarters. Filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (No. 33-82724) and incorporated herein by
reference.
10.16 Amended and Restated Registration Rights Agreement, dated as of November 22,
1994, by and among the Company, PYA/Monarch, Inc., Chase Manhattan Investment
Holdings, Inc., the Equitable Investors named therein and the management
investors named therein. Filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended October 1, 1994 and
incorporated herein by reference.
10.17 Description of the Company's annual bonus plan. Filed as Exhibit 10.9 to the
Company's Registration Statement on Form S-1 (No. 33-82724) and incorporated
herein by reference.
10.18 Board Membership Agreement, dated as of November 15, 1994, between the Company
and Sara Lee Corporation. Filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended October 1, 1994 and
incorporated herein by reference.
10.19 Note Purchase Agreement, dated as of November 10, 1994, relating to the 8.55%
Senior Notes due 2004 of JP Foodservice Distributors, Inc. Filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period
ended October 1, 1994 and incorporated herein by reference.
10.20+ Amendment No. 2, dated as of May 29, 1996, to Note Purchase Agreement, dated as
of November 10, 1994, relating to the 8.55% Senior Notes due 2004 of JP
Foodservice Distributors, Inc.
</TABLE>
II-3
<PAGE> 78
<TABLE>
<C> <S>
10.21 Credit Agreement, dated as of November 10, 1994, among JP Foodservice
Distributors, Inc., the lenders party thereto, NationsBank of North Carolina,
N.A., as Administrative Agent and Co-Arranger, and The Chase Manhattan Bank,
N.A., as Syndication Agent and Co-Arranger. Filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended October
1, 1994 and incorporated herein by reference.
10.22+ Amendment No. 1, dated as of May 29, 1996, to Credit Agreement, dated as of
November 10, 1994, among JP Foodservice Distributors, Inc., the lenders party
thereto, NationsBank of North Carolina, N.A. as Administrative Agent and
Co-Arranger, and the Chase Manhattan Bank, N.A., as Syndication Agent and
Co-Arranger.
10.23 Form of Stock Option Agreement used generally in connection with the JP
Foodservice, Inc. 1994 Stock Incentive Plan. Filed as Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year ended July 1, 1996 and
incorporated herein by reference.
10.24 Form of Stock Option Agreement used generally in connection with the JP
Foodservice, Inc. Stock Option Plan for Outside Directors. Filed as Exhibit
10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended
July 1, 1996 and incorporated herein by reference.
10.25 Rights Agreement, dated as of February 19, 1996, between the Company and The
Bank of New York, as Rights Agent. The Rights Agreement includes as Exhibit A
the form of Certificate of Designations of the Series A Junior Participating
Preferred Stock, as Exhibit B the form of Right Certificate and as Exhibit C
the form of Summary of Rights to Purchase Preferred Shares. Filed as Exhibit 4
to the Company's Current Report on Form 8-K filed on February 22, 1996 with the
Securities and Exchange Commission and incorporated herein by reference.
10.26+ Amendment No. 1, dated as of May 17, 1996, to the Rights Agreement, dated as of
February 19, 1996, between the Company and The Bank of New York, as Rights
Agent.
**10.27 Receivables Purchase Agreement, dated as of May 30, 1996, among JP Foodservice
Distributors, Inc., Illinois Fruit & Produce Corp. and Sky Bros., Inc., JPFD
Funding Corporation and the Company.
**10.28 Transfer and Administration Agreement, dated as of May 30, 1996, among
Enterprise Funding Corporation, JPFD Funding Company, JP Foodservice
Distributors, Inc., NationsBank, N.A. and certain other financial institutions
from time to time parties thereto.
**10.29 Employment Agreement, dated as of June 10, 1996, between the Company and David
M. Abramson.
**10.30 Amendment, dated July 16, 1996, to the Amended and Restated Registration Rights
Agreement, dated as of November 22, 1994, by and among the Company,
PYA/Monarch, Inc., Chase Manhattan Investment Holdings, Inc., the Equitable
Investors named therein and the management investors named therein.
10.31 Agreement and Plan of Merger, dated as of May 17, 1996, by and among the
Company, JP Foodservice Distributors, Inc., Valley Industries, Inc., E & H
Distributing Co., Inc., Lloyd K. Benson, Duane H. Zobrist, E. Mark Zobrist,
Gerry R. Zobrist, R. Phillip Zobrist and Richard D. Zobrist. Filed as Exhibit A
to the Information Statement/Prospectus filed as a part of the Company's
Registration Statement on Form S-4 (No. 333-6645) and incorporated herein by
reference; the Company agrees to furnish supplementally to the Commission upon
request a copy of any omitted exhibit or schedule.
10.32 Purchase and Sale Contract, dated as of May 17, 1996, between "Z" Leasing Co.,
a Nevada general partnership, and the Company. Filed as Exhibit B to the
Information Statement/Prospectus filed as a part of the Company's Registration
Statement on Form S-4 (No. 333-6645) and incorporated herein by reference; the
Company agrees to furnish supplementally to the Commission upon request a copy
of any omitted exhibit or schedule.
</TABLE>
II-4
<PAGE> 79
<TABLE>
<C> <S>
**10.33 Amendment No. 1, dated as of July 1, 1996, to the Transfer and Administration
Agreement, dated as of May 30, 1996, by and among JPFD Funding Company, JP
Foodservice Distributors, Inc., Enterprise Funding Corporation, NationsBank
N.A. and the financial institutions from time to time parties thereto.
**10.34 Agreement, dated as of July 17, 1996, for the Purchase and Sale of Assets among
the Company, JP Foodservice Distributors, Inc., Shareholders of Arrow Paper and
Supply Co., Inc., SGD Associates Limited Liability Company and Members of SGD
Associates Limited Liability Company.
**23.1 Consent of Price Waterhouse LLP, Independent Accountants.
**23.2 Consent of KPMG Peat Marwick LLP, Independent Accountants.
**23.3 Consent of Blum Shapiro and Company, P.C., Independent Accountants.
**23.4 Consent of Shaw, Pittman, Potts & Trowbridge (contained in Exhibit 5.1).
24.1 Power of Attorney (included on page II-6).
27+ Financial Data Schedule.
</TABLE>
- ---------------
** Filed herewith.
+ Previously filed.
(b) Financial Statement Schedules
Schedule
Either not applicable or shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted as to directors, officers, and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Restated
Certificate of Incorporation or the Amended and Restated By-laws of Registrant,
indemnification agreements entered into between Registrant and its officers and
directors, the Underwriting Agreement, or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE> 80
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering herein.
II-6
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Columbia, State of Maryland, on August 6, 1996.
JP FOODSERVICE, INC.
(Registrant)
By /s/ JAMES L. MILLER
------------------------------------
James L. Miller
President and Chief Executive
Officer
(Duly Authorized Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James L. Miller, Lewis Hay, III and
George T. Megas, and each of them, as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the date indicated.
<TABLE>
<S> <C>
August 6, 1996 /s/ JAMES L. MILLER
-----------------------------------------------
James L. Miller, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
August 6, 1996 /s/ LEWIS HAY, III
-----------------------------------------------
Lewis Hay, III, Director,
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
August 6, 1996 /s/ GEORGE T. MEGAS
-----------------------------------------------
George T. Megas, Vice President -- Finance
(Principal Accounting Officer)
August 6, 1996 /s/ GEORGE A. MIDWOOD*
-----------------------------------------------
George A. Midwood, Director
August 6, 1996 /s/ MICHAEL J. DRABB*
-----------------------------------------------
Michael J. Drabb, Director
August 6, 1996 /s/ DAVID M. ABRAMSON*
-----------------------------------------------
David M. Abramson, Director,
Senior Vice President and General Counsel
August 6, 1996 /s/ ERIC E. GLASS*
-----------------------------------------------
Eric E. Glass, Director
</TABLE>
*By power of attorney.
II-7
<PAGE> 1
Exhibit 1.1
3,000,000 Shares
JP FOODSERVICE, INC.
Common Stock
FORM OF UNDERWRITING AGREEMENT
------------------------------
August , 1996
SMITH BARNEY INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
RODMAN & RENSHAW, INC.
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
JP Foodservice, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell an aggregate of 3,000,000 shares (the "Firm Shares")
of its common stock, $0.01 par value per share (the "Common Stock") , to the
several Underwriters named in Schedule I hereto (the "Underwriters") for whom
Smith Barney Inc., The Robinson-Humphrey Company, Inc. and Rodman & Renshaw,
Inc. are acting as representatives (the "Representatives"). In addition, solely
for the purpose of covering over-allotments, the Company proposes to sell to the
Underwriters, upon the terms and conditions set forth in Section 2 hereof, up to
an additional 450,000 shares (the "Additional Shares") of Common Stock. The Firm
Shares and the Additional Shares are hereinafter collectively referred to as the
"Shares".
The Company wishes to confirm as follows its agreement with
you and the other several Underwriters on whose behalf you are acting, in
connection with the several purchases of the Shares by the Underwriters.
1. Registration Statement and Prospectus. The Company has
-------------------------------------
prepared and filed with the Securities and Exchange
<PAGE> 2
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Act"), a registration statement on
Form S-3 under the Act (the "registration statement"), including a prospectus
subject to completion relating to the Shares. The term "Registration Statement"
as used in this Agreement means the registration statement (including all
financial schedules and exhibits), as amended at the time it becomes effective,
or, if the registration statement became effective prior to the execution of
this Agreement, as supplemented or amended prior to the execution of this
Agreement. If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Shares may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If an abbreviated
registration statement is prepared and filed with the Commission in accordance
with Rule 462(b) under the Act (an "Abbreviated Registration Statement"), the
term "Registration Statement" as used in this Agreement includes the Abbreviated
Registration Statement. The term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement, or, if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included in the registration
statement at the time of the initial filing of the registration statement with
the Commission, and as such prospectus shall have been amended from time to time
prior to the date of the Prospectus. Any reference in this Agreement to the
registration statement, the Registration Statement, any Prepricing Prospectus or
the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act,
as of the date of the registration statement, the Registration Statement, such
Prepricing Prospectus or the Prospectus, as the case may be, and any reference
to any amendment or supplement to the registration
-2-
<PAGE> 3
statement, the Registration Statement, any Prepricing Prospectus or the
Prospectus shall be deemed to refer to and include any documents filed after
such date under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which, upon filing, are incorporated by reference therein, as required by
paragraph (b) of Item 12 of Form S-3. As used herein, the term "Incorporated
Documents" means the documents which at the time are incorporated by reference
in the registration statement, the Registration Statement, any Prepricing
Prospectus, the Prospectus, or any amendment or supplement thereto.
2. Agreements to Sell and Purchase. The Company hereby agrees,
-------------------------------
upon the basis of the agreements of the Underwriters herein contained and
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not jointly,
to purchase from the Company, at a purchase price of $[ ] per Share (the
"purchase price per share"), the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto (or such number of Firm Shares
increased as set forth in Section 10 hereof).
The Company also agrees, upon the basis of the agreements of
the Underwriters herein contained and subject to all the terms and conditions
set forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the Underwriters shall
have the right to purchase from the Company, at the purchase price per share,
pursuant to an option (the "over-allotment option") which may be exercised at
any time and from time to time prior to 9:00 P.M., New York City time, on the
30th day after the date of the Prospectus (or, if such 30th day shall be a
Saturday or Sunday or a holiday, on the next business day thereafter when the
New York Stock Exchange is open for trading), up to an aggregate of 450,000
Additional Shares. Additional Shares may be purchased only for the purpose of
covering over-allotments made in connection with the offering of the Firm
Shares. Upon any exercise of the over-allotment option, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number of
Additional Shares (subject to such adjustments as you may determine in order to
avoid fractional shares) which
-3-
<PAGE> 4
bears the same proportion to the number of Additional Shares to be purchased by
the Underwriters as the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I hereto (or such number of Firm Shares increased
as set forth in Section 10 hereof) bears to the aggregate number of Firm Shares.
3. Terms of Public Offering. The Company has been advised by
------------------------
you that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to
-------------------------------------------
the Underwriters of and payment for the Firm Shares shall be made at the office
of Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M.,
New York City time, on , 1996 (the "Closing Date"). The place of closing for the
Firm Shares and the Closing Date may be varied by agreement between you and the
Company.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at the aforementioned
office of Smith Barney Inc. at such time on such date (the "Option Closing
Date"), which may be the same as the Closing Date but shall in no event be
earlier than the Closing Date nor later than ten business days after the giving
of the notice hereinafter referred to, as shall be specified in a written notice
from you on behalf of the Underwriters to the Company of the Underwriters'
determination to purchase a number, specified in such notice, of Additional
Shares. The place of closing for any Additional Shares and the Option Closing
Date for such Shares may be varied by agreement between you and the Company.
Certificates for the Firm Shares and for any Additional Shares
to be purchased hereunder shall be registered in such names and in such
denominations as you shall request prior to 9:30 A.M., New York City time, on
the second business day preceding the Closing Date or any Option Closing Date,
as the case may be. Such certificates shall be made available to you in New York
City for inspection and packaging not later than 9:30 A.M., New York City time,
on the business day next preceding the Closing Date or the Option Closing Date,
as the case may be. The
-4
<PAGE> 5
certificates evidencing the Firm Shares and any Additional Shares to be
purchased hereunder shall be delivered to you on the Closing Date or the Option
Closing Date, as the case may be, against payment of the purchase price therefor
by wire transfer in immediately available funds.
5. Agreements of the Company. The Company agrees with the
-------------------------
several Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective amendment
thereto or any Abbreviated Registration Statement to be declared effective
before the offering of the Shares may commence, the Company will use its best
efforts to cause the Registration Statement or such post-effective amendment or
Abbreviated Registration Statement to become effective as soon as possible and
will advise you promptly and, if requested by you, will confirm such advice in
writing, when the Registration Statement or such post-effective amendment or
Abbreviated Registration Statement has become effective.
(b) The Company will advise you promptly and, if requested by
you, will confirm such advice in writing: (i) of any request by the Commission
for amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the receipt
by the Company of any notification with respect to the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement; (iii) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Shares for offering or sale in any
jurisdiction or the initiation of any proceeding for such purpose; and (iv)
within the period of time referred to in paragraph (f) below, of any change in
the Company's condition (financial or other), business, prospects, properties,
net worth or results of operations, or of the happening of any event, which
makes any statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
(as then amended or supplemented) in order to state a material fact required by
the Act to be stated therein or necessary in order to make the statements
therein not misleading (in the case of the Prospectus or any such supplement or
amendment, in the light of the
-5-
<PAGE> 6
circumstances under which they were made), or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented) to comply with the
Act or any other law. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will
make every reasonable effort to obtain the withdrawal of such order at the
earliest possible time.
(c) The Company will furnish to you, without charge (i) three
signed copies of the registration statement as originally filed with the
Commission and of each amendment thereto, including financial statements and all
exhibits to the registration statement, (ii) such number of conformed copies of
the registration statement as originally filed and of each amendment thereto,
but without exhibits, as you may request, (iii) such number of copies of the
Incorporated Documents, without exhibits, as you may request, and (iv) four
copies of the exhibits to the Incorporated Documents.
(d) The Company will not file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus or,
prior to the end of the period of time referred to in the first sentence in
paragraph (f) below, file any document which, upon filing becomes an
Incorporated Document, of which you shall not previously have been advised or to
which, after you shall have received a copy of the document proposed to be
filed, you shall reasonably object.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you have
requested, copies of each form of the Prepricing Prospectus. The Company
consents to the use, in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares are offered
by the several Underwriters and by dealers, prior to the date of the Prospectus,
of each Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement
as possible and thereafter from time to time for such period as in the opinion
of counsel for the Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer, the Company
will expeditiously deliver to each Underwriter and each dealer, without
-6-
<PAGE> 7
charge, as many copies of the Prospectus (and of any amendment or supplement
thereto) as you may request. The Company consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the provisions
of the Act and with the securities or Blue Sky laws of the jurisdictions in
which the Shares are offered by the several Underwriters and by all dealers to
whom Shares may be sold, both in connection with the offering and sale of the
Shares and for such period of time thereafter as the Prospectus is required by
the Act to be delivered in connection with sales by any Underwriter or dealer.
If during such period of time any event shall occur that in the judgment of the
Company or in the opinion of counsel for the Underwriters is required to be set
forth in the Prospectus (as then amended or supplemented) or should be set forth
therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
to supplement or amend the Prospectus (or to file under the Exchange Act any
document which, upon filing, becomes an Incorporated Document) in order to
comply with the Act or any other law, the Company will forthwith prepare and,
subject to the provisions of paragraph (d) above, file with the Commission an
appropriate supplement or amendment thereto (or to such document), and will
expeditiously furnish to the Underwriters and dealers a reasonable number of
copies thereof. In the event that the Company and you, as Representatives of the
several Underwriters, agree that the Prospectus should be amended or
supplemented, the Company, if requested by you, will promptly issue a press
release announcing or disclosing the matters to be covered by the proposed
amendment or supplement.
(g) The Company will cooperate with you and with counsel for
the Underwriters in connection with the registration or qualification of the
Shares for offering and sale by the several Underwriters and by dealers under
the securities or Blue Sky laws of such jurisdictions as you may designate and
will file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to service of process in suits, other than those arising out of the
offering or sale of the Shares, or to taxation in any jurisdiction where it is
not now so subject.
-7-
<PAGE> 8
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing not later than the first day of the fiscal
quarter following the fiscal quarter that includes the Closing Date, as soon as
practicable after the end of such period; but in any event not later than 120
days after the end of such period which consolidated earnings statement shall
satisfy the provisions of Section 11(a) of the Act and Rule 158 thereunder.
(i) During the period of three years hereafter, the Company
will furnish to the Representatives (i) as soon as practicable after they are
available, copies of each report of the Company mailed to stockholders or filed
with the Commission and (ii) from time to time such other information concerning
the Company as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 10 hereof or by notice given by you terminating
this Agreement pursuant to Section 10 or Section 11 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company to comply with the terms or fulfill any of the conditions of
this Agreement, the Company agrees to reimburse the Representatives for all
out-of-pocket expenses (including reasonable fees and expenses of counsel for
the Underwriters) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of
the Shares substantially as set forth in the Prospectus under the caption "Use
of Proceeds".
(l) If Rule 430A of the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act and will advise
you of the time and manner of such filing.
(m) Except pursuant to this Agreement or as otherwise provided
in this paragraph (m), the Company will not sell, contract to sell or otherwise
dispose of any Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or grant any options or warrants to purchase
Common Stock, for a period of 180 days after the date of the Prospectus, without
the prior written consent of Smith Barney Inc. This
-8-
<PAGE> 9
paragraph (m) shall not prohibit or limit any of the following: (i) the grant of
options to purchase Common Stock or the making of other awards pursuant to the
Company's 1994 Stock Incentive Plan or the grant of options to purchase Common
Stock pursuant to the Company's Stock Option Plan for Outside Directors; (ii)
the offering, issuance or sale of Common Stock pursuant to the Company's
Employee Stock Purchase Plan or 401(k) Retirement Plan; (iii) the offering,
issuance or sale of Common Stock registered on Form S-4 under the Act in
connection with the Valley Acquisition (as such item is defined in the
Prospectus); (iv) the offering, issuance or sale of Common Stock in connection
with the Arrow Acquisition (as such term is defined in the Prospectus); or (v)
the filing of a registration statement under the Act in accordance with the
terms of the amendment, dated as of July 16, 1996, to the Amended and Restated
Registration Rights Agreement, dated as of November 22, 1994, filed as an
exhibit to the Registration Statement.
(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by (i) certain
executive officers of the Company set forth on Schedule II hereto, (ii)
PYA/Monarch, Inc., (iii) the Sara Lee Foundation and (iv) certain stockholders
of Valley Food Industries, Inc. (collectively, the "Lock-Up Letters"). The
Company will not amend, modify or waive any rights under any existing agreement
with Sara Lee Corporation or its affiliates that is material to the offering of
the Shares, or enter into any such agreement without the prior written consent
of Smith Barney Inc.
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(p) The Company will use its best efforts to have the shares
of Common Stock which it agrees to sell under this Agreement listed, subject to
notice of issuance, on the Nasdaq National Market on or before the Closing Date.
6. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to each Underwriter that:
-9-
<PAGE> 10
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The Commission
has not issued any order preventing or suspending the use of any Prepricing
Prospectus.
(b) The Company and the transactions contemplated by this
Agreement meet the requirements for use of Form S-3 under the Act. The
registration statement in the form in which it became or becomes effective and
also in such form as it may be when any post-effective amendment thereto or any
Abbreviated Registration Statement shall become effective and the Prospectus and
any supplement or amendment thereto when filed with the Commission under Rule
424(b) under the Act, complied or will comply in all material respects with the
provisions of the Act and did not or will not at any such times contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading (in
the case of the Prospectus or any such supplement or amendment, in the light of
the circumstances under which they were made), except that this representation
and warranty does not apply to statements in or omissions from the registration
statement or the Prospectus made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
or on behalf of any Underwriter through you expressly for use therein.
(c) The Incorporated Documents heretofore filed, when they
were filed (or, if any amendment with respect to any such document was filed,
when such amendment was filed), conformed in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder, any
further Incorporated Documents so filed will, when they are filed, conform in
all material respects with the requirements of the Exchange Act and the rules
and regulations thereunder; no such document when it was filed (or, if an
amendment with respect to any such document was filed, when such amendment was
filed), contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and no such further document, when it is
filed, will contain an untrue
-10-
<PAGE> 11
statement of a material fact or will omit to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading.
(d) All the outstanding shares of Common Stock of the Company
have been duly authorized and validly issued, are fully paid and nonassessable
and are free of any preemptive or similar rights; the Shares have been duly
authorized and, when issued and delivered to the Underwriters against payment
therefor in accordance with the terms hereof, will be validly issued, fully paid
and nonassessable and free of any preemptive or similar rights; and the capital
stock of the Company conforms to the description thereof in the Registration
Statement and the Prospectus.
(e) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify would not have
a material adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Company and the
Subsidiaries (as hereinafter defined) taken as a whole.
(f) All the Company's significant subsidiaries (as defined in
Rule 1-02(w) of Regulation S-X and as required by Item 601(b)(21) of Regulation
S-K) (collectively, the "Subsidiaries") are listed in an exhibit to the
Company's Annual Report on Form 10-K which is incorporated by reference into the
Registration Statement. Each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement and the Prospectus, and is duly registered and qualified to conduct
its business and is in good standing in each jurisdiction or place where the
nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify would not have a material
-11-
<PAGE> 12
adverse effect on the condition (financial or other), business, properties, net
worth or results of operations of the Company and the Subsidiaries, taken as a
whole. All the outstanding shares of capital stock of each of the Subsidiaries
have been duly authorized and validly issued, are fully paid and nonassessable,
and are owned by the Company directly, or indirectly through one of the other
Subsidiaries, free and clear of any lien, adverse claim, security interest,
equity or other encumbrance.
(g) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which the Company, any of the Subsidiaries, or any of their
respective properties is subject, that are required by the Act or the Exchange
Act to be described in the Registration Statement or the Prospectus but are not
described as required, and there are no agreements, contracts, indentures,
leases or other instruments that are required by the Act to be described in the
Registration Statement or the Prospectus or required by the Act or the Exchange
Act to be filed as an exhibit to the Registration Statement or any Incorporated
Document that are not described or filed as required by the Act or the Exchange
Act.
(h) Neither the Company nor any of the Subsidiaries is in
violation of its certificate or articles of incorporation or by-laws, or other
organizational documents, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Subsidiaries or of any decree of any court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries, or in default in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any agreement,
indenture, lease or other instrument to which the Company or any of the
Subsidiaries is a party or by which any of them or any of their respective
properties may be bound, which default or violation (other than of its
certificate of incorporation or articles of incorporation or by-laws, or other
organizational documents) could reasonably be expected to have a material
adverse effect on the condition (financial or other), business, net worth, or
results of operations of the Company and the Subsidiaries taken as a whole.
(i) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the
-12-
<PAGE> 13
Company nor the consummation by the Company of the transactions contemplated
hereby (i) requires any consent, approval, authorization or other order of or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency or official by or on behalf of the Company
(except such as may be required for the registration of the Shares under the Act
and compliance with the securities or Blue Sky laws of various jurisdictions,
all of which have been or will be effected in accordance with this Agreement) or
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, the certificate or articles of incorporation or by-laws, or
other organizational documents, of the Company or any of the Subsidiaries or
(ii) conflicts or will conflict with or constitutes or will constitute a breach
of, or a default under, any agreement, indenture, lease or other instrument to
which the Company or any of the Subsidiaries is a party or by which any of them
or any of their respective properties may be bound, or violates or will violate
any statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any of the Subsidiaries or any of their respective
properties, or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to the terms of any agreement or instrument to which any
of them is a party or by which any of them may be bound or to which any of the
property or assets of any of them is subject.
(j) The accountants, Price Waterhouse, LLP, who have certified
or shall certify the financial statements included or incorporated by reference
in the Registration Statement and the Prospectus (or any amendment or supplement
thereto) are independent public accountants as required by the Act.
(k) The consolidated historical and pro forma financial
---------
statements, together with related schedules and notes, set forth in the
Prospectus and the Registration Statement comply as to form in all material
respects with the requirements of the Act. Such historical financial statements
and related schedules and notes fairly present the consolidated financial
position of the Company and the Subsidiaries at the respective dates indicated
and the results of their operations and their cash flows for the respective
periods indicated, in accordance with generally accepted accounting principles
("GAAP") consistently applied (except as set forth in such financial statements)
-13-
<PAGE> 14
throughout such periods. Such pro forma financial statements and related
---------
schedules and notes have been prepared on a basis consistent with such
historical statements, except for the pro forma adjustments specified therein,
---------
and give effect to assumptions made on a reasonable basis and present fairly the
historical and proposed transactions contemplated by the Prospectus and this
Agreement. The other historical and pro forma financial and statistical
---------
information and data included in the Prospectus and in the Registration
Statement are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company.
(l) The execution and delivery of, and the performance by the
Company of its obligations under, this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except that (i) rights to indemnity and contribution hereunder may be limited by
federal or state securities laws or by general equitable principles and (ii) the
enforceability of this Agreement may be limited by the effects of bankruptcy,
insolvency, reorganization, moratorium and other similar laws, relating to or
affecting creditors' rights generally and by the application of general
equitable principles and the discretion of a court in which any proceeding is
brought.
(m) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock, or material increase in the short-term debt or long-term debt, of the
Company or any of the Subsidiaries, or any material adverse change, or any
development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
business, net worth or results of operations of the Company and the Subsidiaries
taken as a whole.
-14-
<PAGE> 15
(n) Each of the Company and the Subsidiaries has good and
marketable title to all property (real and personal) described in the Prospectus
as being owned by it, free and clear of all liens, claims, security interests or
other encumbrances except such as are disclosed in the Registration Statement
and the Prospectus or in a document filed as an exhibit to the Registration
Statement and all the property described in the Prospectus as being held under
lease by each of the Company and the Subsidiaries is held by it under valid,
subsisting and enforceable leases.
(o) The Company has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Prepricing Prospectus, the Prospectus or other materials, if any, permitted by
the Act.
(p) Each of the Company and the Subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own its properties and to conduct
its business in the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus; the Company and each of
the Subsidiaries has fulfilled and performed all its material obligations with
respect to such permits and no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of any such permit,
subject in each case to such qualification as may be set forth in the
Prospectus; and, except as described in the Prospectus, none of such permits
contains any restriction that is materially burdensome to the Company or any of
the Subsidiaries.
(q) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for
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<PAGE> 16
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(r) To the Company's knowledge, neither the Company nor any of
its Subsidiaries nor any employee or agent of the Company or any Subsidiary has
made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be disclosed in the
Prospectus.
(s) Each of the Company and the Subsidiaries has filed all tax
returns required to be filed, which returns are complete and correct, and
neither the Company nor any Subsidiary is in default in the payment of any taxes
which were payable pursuant to said returns or any assessments with respect
thereto.
(t) No holder of any security of the Company has any right to
require registration of shares of Common Stock or any other security of the
Company because of the filing of the registration statement or consummation of
the transactions contemplated by this Agreement.
(u) The Company and the Subsidiaries own or possess all
patents, trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets and
rights described in the Prospectus as being owned by them or any of them or
necessary for the conduct of their respective businesses, and the Company is not
aware of any claim to the contrary or any challenge by any other person to the
rights of the Company and the Subsidiaries with respect to the foregoing.
(v) The Company is not now, and after sale of the Shares to be
sold by it hereunder and application of the net proceeds from such sale as
described in the Prospectus under the caption "Use of Proceeds" will not be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(w) There are no labor disputes with the Company's employees
or with employees of the Subsidiaries that exist or, to the Company's knowledge,
are imminent that could materially adversely affect the Company and the
Subsidiaries taken as a
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<PAGE> 17
whole, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or the Subsidiaries' principal
suppliers, contractors or customers that could be expected to materially
adversely affect the condition (financial or other), business, net worth or
results of operations of the Company and the Subsidiaries taken as a whole.
(x) With respect to each employee benefit plan, program and
arrangement (including, without limitation, any "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), maintained or contributed to by the Company or the
Subsidiaries, or with respect to which the Company or the Subsidiaries could
incur any liability under ERISA (collectively, the "Benefit Plans"), no event
has occurred and there exists no condition or set of circumstances in connection
with which the Company or the Subsidiaries could be subject to any liability
under the terms of such Benefit Plan or applicable law (including, without
limitation, ERISA and the Internal Revenue Code of 1986, as amended (the
"Code")) that could materially adversely affect the condition (financial or
other), business, net worth or results of operations of the Company and the
Subsidiaries taken as a whole.
(y) The Company and the Subsidiaries are (i) in full
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) and are in full compliance with all terms
and conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the aggregate,
have a material adverse effect on the Company and its Subsidiaries taken as a
whole. Except for the action captioned Delta Quarries & Disposal, Inc. v. ABC
------------------------------ ---
Mack Sales, Inc. et al., with respect to which a Subsidiary executed a
- ----------------------
settlement agreement with the plaintiffs in October 1992, neither the Company
nor any of the Subsidiaries has been named as a "potentially responsible party"
under the Comprehensive
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<PAGE> 18
Environmental Response Compensation and Liability Act of 1980, as amended
("CERCLA").
(a) Except as specifically disclosed in the Prospectus, or as
is not reasonably likely to have a material adverse effect on the condition
(financial or other), business properties, net worth or results of operations of
the Company and the Subsidiaries taken as a whole: (i) each of the Company and
the Subsidiaries is in compliance with all applicable laws relating to pollution
or the discharge of materials into the environment, including common law
relating to damage to property or injury to persons ("Environmental Laws"); (ii)
each of the Company and the Subsidiaries currently holds all government
authorizations required under Environmental Laws in order to conduct their
businesses as described in the Prospectus, and none of the above has any basis
to believe that any such governmental authorization may be modified, suspended
or revoked, or cannot be renewed in the ordinary course of business; (iii) there
are no past or present actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the release, threatened release, or
disposal of any material (including radiation and noise), that could form the
basis of any claim (whether by a governmental authority or other person or
entity) under Environmental Laws for cleanup costs, damages, penalties, fines,
or otherwise, against any of the Company or the Subsidiaries, or against any
person or entity whose liability for such claim may have been retained by any of
the Company or the Subsidiaries, whether by contract or law; and (iv) the
Company and the Subsidiaries have fully disclosed to the Underwriters and their
counsel all studies, reports, assessments, audits and other information in their
possession or control relating to any pollution or release, threatened release
or disposal of materials regulated under Environmental Laws on, at, under, from
or transported from any of their currently or formerly owned, leased or operated
properties, including, without limitation, all information relating to
underground storage tanks and asbestos containing materials.
(aa) The Company has complied with all provisions of Florida
Statutes, Section 517.075, relating to issuers doing business with Cuba.
7. Indemnification and Contribution. (a) The Company agrees to
---------------------------------
indemnify and hold harmless each of you and each
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<PAGE> 19
other Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Prepricing Prospectus or in the Registration Statement or the Prospectus or in
any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
the case of the Prepricing Prospectus or the Prospectus or any amendment or
supplement thereto, in the light of the circumstances under which they were
made), except insofar as such losses, claims, damages, liabilities or expenses
arise out of or are based upon any untrue statement or omission or alleged
untrue statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to such
Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with respect
to any Prepricing Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of any
such loss, claim, damage, liability or expense arising from the sale of the
Shares by such Underwriter to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the Act
and the regulations thereunder, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus, provided that the Company
has delivered the Prospectus to the several Underwriters in requisite quantity
on a timely basis to permit such delivery or sending. The foregoing indemnity
agreement shall be in addition to any liability which the Company may otherwise
have.
(b) If any action, suit or proceeding shall be brought against
any Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
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<PAGE> 20
have the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the Company has agreed in writing to pay such fees and expenses, (ii)
the Company has failed to assume the defense and employ counsel, or (iii) the
named parties to any such action, suit or proceeding (including any impleaded
parties) include both such Underwriter or such controlling person and the
Company and such Underwriter or such controlling person shall have been advised
by its counsel that representation of such indemnified party and the Company by
the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between them (in
which case the Company shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such Underwriter or such controlling
person). It is understood, however, that the Company shall, in connection with
any one such action, suit or proceeding or separate but substantially similar or
related actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such Underwriters and controlling persons not
having actual or potential differing interests with you or among themselves,
which firm shall be designated in writing by Smith Barney Inc., and that all
such fees and expenses shall be reimbursed as they are incurred. The Company
shall not be liable for any settlement of any such action, suit or proceeding
effected without its written consent, but if settled with such written consent,
or if there be a final judgment for the plaintiff in any such action, suit or
proceeding, the Company agrees to indemnify and hold harmless any Underwriter,
to the extent provided in the preceding paragraph, and any such controlling
person from and against any loss, claim, damage, liability or expense by reason
of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter,
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<PAGE> 21
but only with respect to information relating to such Underwriter furnished in
writing by or on behalf of such Underwriter through you expressly for use in the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Company, any of its directors, any such officer, or any such
controlling person based on the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against any Underwriter pursuant to this paragraph
(c), such Underwriter shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company shall have assumed the defense
thereof such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriter's expense), and the
Company, its directors, any such officer, and any such controlling person shall
have the rights and duties given to the Underwriters by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which the
Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraph (a) or (c) hereof in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then an indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions
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<PAGE> 22
received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault of the Company on the
one hand and the Underwriters on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or by the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(e) The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 7 were determined
by a pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (d) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 7 are several
in proportion to the respective numbers of Firm Shares set forth opposite their
names in Schedule I hereto (or such numbers of Firm Shares increased as set
forth in Section 10 hereof) and not joint.
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such
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<PAGE> 23
indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 7 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers, or any person
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
8. Conditions of Underwriters' Obligations. The several
----------------------------------------
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a post-effective amendment
thereto or any Abbreviated Registration Statement to be declared effective
before the offering of the Shares may commence, the registration statement or
such post-effective amendment or Abbreviated Registration Statement shall have
become effective not later than 5:30 P.M., New York City time, on the date
hereof, or at such later date and time as shall be consented to in writing by
you, and all filings, if any, required by Rules 424 and 430A under the Act shall
have been timely made; no stop order suspending the effectiveness of the
registration statement shall have been issued and no proceeding for that purpose
shall have been instituted or, to the knowledge of the Company or any
Underwriter, threatened by the Commission, and any request of the Commission for
additional information (to
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<PAGE> 24
be included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business,
properties, net worth, or results of operations of the Company or the
Subsidiaries not contemplated by the Prospectus, which in your opinion, as
Representatives of the several Underwriters, would materially adversely affect
the market for the Shares, or (ii) any event or development relating to or
involving the Company or any executive officer or director of the Company which
makes any statement made in the Prospectus untrue or which, in the opinion of
the Company and its counsel or the Underwriters and their counsel, requires the
making of any addition to or change in the Prospectus in order to state a
material fact required by the Act or any other law to be stated therein or
necessary in order to make the statements therein not misleading, if amending or
supplementing the Prospectus to reflect such event or development would, in your
opinion, as Representatives of the several Underwriters, materially adversely
affect the market for the Shares.
(c) You shall have received on the Closing Date, an opinion of, and a
letter from, Shaw, Pittman, Potts & Trowbridge, counsel for the Company, dated
the Closing Date and addressed to you, as Representatives of the several
Underwriters, to the effect that:
(i) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to own, lease and
operate its properties and to conduct its business as described in
the Registration Statement and the Prospectus (and any amendment or
supplement thereto), and is duly qualified or licensed to conduct
its business as a foreign corporation and is in good standing in the
State of Maryland;
(ii) JP Foodservice Distributors, Inc. is a corporation
validly existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to own, lease and
operate its properties and to conduct its business as described in
the Registration Statement and the
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<PAGE> 25
Prospectus (and any amendment or supplement thereto); all of the
outstanding shares of capital stock of JP are owned by the Company
directly, free and clear of any perfected security interest, or, to
our knowledge, any other security interest, lien, adverse claim,
equity or other encumbrance. Based upon such counsel's review of the
capital stock records of Sky Bros., Inc. and Illinois Fruit and
Produce, Inc., all of the outstanding shares of capital stock of
each such corporation are owned indirectly by the Company through
subsidiaries of the Company;
(iii) All of the shares of capital stock of the Company
outstanding prior to issuance of the Shares have been duly
authorized and validly issued and are fully paid and nonassessable.
The authorized and outstanding capital stock of the Company is as
set forth under the caption "Capitalization" in the Prospectus; and
the authorized capital stock of the Company conforms in all material
respects as to legal matters to the description thereof contained in
the Prospectus under the caption "Description of Capital Stock";
(iv) The Shares have been duly authorized and, when
issued and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued, fully
paid and nonassessable and free of any preemptive rights under the
General Corporation Law of the State of Delaware. To such counsel's
knowledge, except as described in the Prospectus, (i) when issued
and delivered to the Underwriters against payment therefor in
accordance with the terms of the Underwriting Agreement, the Shares
will be free of any contractual preemptive right or similar rights
that would entitle any person to acquire any Shares upon the
issuance thereof by the Company, (ii) there are no outstanding
options, warrants or other rights calling for the issuance of, or
any commitment, plan or arrangement to issue, any shares of capital
stock of the Company or any security convertible into or
exchangeable or exercisable for capital stock of the Company and
(iii) no holder of any security of the Company or any other person
has the right, contractual or otherwise, to cause the Company to
sell or otherwise issue to them, or to permit them to underwrite the
sale of, the Shares or the right to have any shares of Common Stock
or other securities of the Company included in
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<PAGE> 26
the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act
of any shares of Common Stock or other securities of the Company;
(v) The form of certificates for the Shares conforms to
the requirements of the Delaware General Corporation Law;
(vi) The Registration Statement and all post-effective
amendments, if any, or any Abbreviated Registration Statement have
become effective under the Act and, to such counsel's knowledge, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose are
pending before or contemplated by the Commission. Any required
filing of the Prospectus pursuant to Rule 424(b) has been made in
accordance with Rule 424(b);
(vii) The Company has the corporate power and authority
to enter into this Agreement and to issue, sell and deliver the
Shares to the Underwriters as provided herein, and this Agreement
has been duly authorized, executed and delivered by the Company;
(viii) The offer, sale and delivery of the Shares by
the Company pursuant to this Agreement (i) do not conflict and will
not conflict with, and do not constitute and will not constitute a
breach of, or a default under, the certificate of incorporation or
bylaws of the Company or JP or any agreement, indenture, lease or
other instrument to which the Company or JP is a party or by which
either of them or any of their respective properties is bound that
is filed as an exhibit to the Registration Statement or to any
Incorporated Document, or which is otherwise known to such counsel,
(ii) do not result and will not result in the creation or impo
sition of any lien, charge or encumbrance upon any property or
assets of the Company or JP, and (iii) do not result and will not
result in any violation of (A) any existing law, regulation, ruling
(assuming compliance with all applicable state securities and Blue
Sky laws), or (B) any judgment, injunction, order or decree known to
such counsel, applicable to the Company, JP or any of their
respective properties;
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<PAGE> 27
(ix) No consent, approval, authorization or other order
of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency, or
official is required on the part of the Company (except as have been
obtained under the Act and the Exchange Act or such as may be
required under state securities or Blue Sky laws governing the
purchase and distribution of the Shares) for the valid issuance and
sale of the Shares to the Underwriters as contemplated by this
Agreement;
(x) The Registration Statement and the Prospectus and
any supplements or amendments thereto (except for the financial
statements and the notes thereto and the schedules and other
financial and statistical data included therein, as to which such
counsel need not express any opinion) comply as to form in all
material respects with the requirements of the Act; and each of the
Incorporated Documents (except for the financial statements and the
notes thereto and the schedules and other financial and statistical
data included therein, as to which counsel need not express any
opinion) complies as to form in all material respects with the
Exchange Act and the rules and regulations of the Commission
thereunder;
(xi) To such counsel's knowledge, (A) there are no
legal or governmental proceedings pending or threatened against the
Company or any of the Subsidiaries, or to which the Company, any of
the Subsidiaries or any of their respective properties, is subject
which are required to be described in the Registration Statement or
Prospectus (or any amendment or supplement thereto) that are not
described as required by the Act and (B) there are no agreements,
contracts, indentures, leases or other instruments, that are
required to be described in the Registration Statement or the
Prospectus (or any amendment or supplement thereto) or to be filed
as an exhibit to the Registration Statement or any Incorporated
Document that are not described or filed as required by the Act or
the Exchange Act, as the case may be;
(xii) The statements in the Registration Statement and
Prospectus, insofar as they constitute statements of law or legal
conclusions, are accurate in all material respects;
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<PAGE> 28
(xiii) Although counsel has not undertaken, except as
otherwise indicated in their opinion, to determine independently,
and does not assume any responsibility for, the accuracy or
completeness of the statements in the Registration Statement, such
counsel has participated in the preparation of the Registration
Statement and the Prospectus, including review and discussion of
the contents thereof (including review and discussion of the
contents of all Incorporated Documents), and nothing has come to the
attention of such counsel that has caused them to believe that the
Registration Statement (including the Incorporated Documents) at the
time the Registration Statement became effective contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus or any amendment or
supplement thereto, as of its respective date, and as of the Closing
Date or the Option Closing Date, as the case may be, contained any
untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading (it
being understood that such counsel need express no opinion with
respect to the financial statements and the notes thereto and the
schedules and other financial and statistical data included in the
Registration Statement or the Prospectus or any Incorporated
Document).
In rendering their opinion as aforesaid, such counsel may rely upon an
opinion or opinions, each dated the Closing Date, of other counsel retained by
them or the Company as to laws of any jurisdiction other than the United States
or the State of Maryland, provided that (1) each such local counsel is
acceptable to the Representatives, (2) such reliance is expressly authorized by
each opinion so relied upon and a copy of each such opinion is delivered to the
Representatives and is, in form and substance satisfactory to them and their
counsel, and (3) counsel shall state in their opinion that they believe that
they and the Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date an opinion from
corporate counsel to the Company, dated the Closing Date and addressed to you,
as Representatives of the several Underwriters, to the effect that:
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<PAGE> 29
(i) Each of the Company and the Subsidiaries has all
necessary governmental authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental
regulatory officials and bodies to own its properties and to conduct
its businesses as now being conducted, as described in the
Prospectus, except where the failure so to have any such
authorizations, approvals, orders, licenses, certificates,
franchises or permits, individually or in the aggregate, would not
have a material adverse effect on the business, properties,
operations or financial condition of the Company and its
Subsidiaries taken as a whole;
(ii) Neither the Company nor any of the Subsidiaries is
in violation of its respective certificate or articles of
incorporation or bylaws, or other organizational documents, or to
the best knowledge of such counsel after reasonable inquiry, is in
default in the performance of any material obligation, agreement or
condition contained in any bond, debenture, note or other evidence
of indebtedness, except as may be disclosed in the Prospectus;
(iii) To the best knowledge of such counsel after rea-
sonable inquiry, neither the Company nor any of the Subsidiaries is
in violation of any law, ordinance, administrative or governmental
rule or regulation applicable to the Company or any of the
Subsidiaries or of any decree of any court or governmental agency or
body having jurisdiction over the Company or any of the
Subsidiaries; and
(iv) The Company and the Subsidiaries own all patents,
trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade
secrets and rights described in the Prospectus as being owned by
them or any of them or necessary for the conduct of their respective
businesses, and such counsel is not aware of any claim to the
contrary or any challenge by any other person to the rights of the
Company and the Subsidiaries with respect to the foregoing.
(e) You shall have received on the Closing Date an opinion of Wachtell,
Lipton, Rosen & Katz, counsel for the Underwriters, dated the Closing Date and
addressed to you, as
-29-
<PAGE> 30
Representatives of the several Underwriters, with respect to such matters as you
may request.
(f) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Price Waterhouse LLP, independent certified public
accountants, substantially in the forms heretofore approved by you and of a form
satisfactory to Price Waterhouse LLP.
(g)(i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Company, shall be contemplated by the
Commission at or prior to the Closing Date; (ii) there shall not have been any
change in the capital stock of the Company nor any material increase in the
short-term or long-term debt of the Company (other than in the ordinary course
of business) from that set forth or contemplated in the Registration Statement
or the Prospectus (or any amendment or supplement thereto); (iii) there shall
not have been, since the respective dates as of which information is given in
the Registration Statement and the Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectus (or any amendment or supplement thereto), any material adverse change
in the condition (financial or other), business, prospects, properties, net
worth or results of operations of the Company and the Subsidiaries taken as a
whole; (iv) the Company and the Subsidiaries shall not have any liabilities or
obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the Company and the Subsidiaries taken as a
whole, other than those reflected in the Registration Statement or the
Prospectus (or any amendment or supplement thereto); and (v) all the
representations and warranties of the Company contained in this Agreement shall
be true and correct on and as of the date hereof and on and as of the Closing
Date as if made on and as of the Closing Date, and you shall have received a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of the Company (or such other officers as are
acceptable to you), to the effect set forth in this Section 8(g) and in Section
8(h) hereof.
-30-
<PAGE> 31
(h) The Company shall not have failed at or prior to the Closing Date
to have performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(i) Prior to the Closing Date the Shares shall have been listed,
subject to notice of issuance, on the Nasdaq National Market.
(j) The Company shall have furnished or caused to be furnished to you
such further certificates and documents as you shall have requested.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.
Any certificate or document signed by any officer of the Company and
delivered to you, as Representatives of the Underwriters, or to counsel for the
Underwriters, shall be deemed a representation and warranty by the Company to
each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 8, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (g) shall be dated the Option
Closing Date in question and the opinions called for by paragraphs (c), (d) and
(e) shall be revised to reflect the sale of Additional Shares.
9. Expenses. The Company agrees to pay the following costs and expenses
---------
and all other costs and expenses incident to the performance by it of its
obligations hereunder: (i) the preparation, printing or reproduction, and filing
with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Prepricing
-31-
<PAGE> 32
Prospectus, the Prospectus, the Incorporated Documents, and all amendments or
supplements to any of them, as may be reasonably requested for use in connection
with the offering and sale of the Shares; (iii) the preparation, printing,
authentication, issuance and delivery of certificates for the Shares, including
any stamp taxes in connection with the original issuance and sale of the Shares;
(iv) the printing (or reproduction) and delivery of this Agreement, the
preliminary and supplemental Blue Sky Memoranda and all other agreements,
memoranda, correspondence or documents printed (or reproduced) and delivered in
connection with the offering of the Shares; (v) the listing of the Shares on the
Nasdaq National Market; (vi) the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the several states as
provided in Section 5(g) hereof (including the reasonable fees, expenses and
disbursements of counsel for the Underwriters relating to the preparation,
printing or reproduction, and delivery of the preliminary and supplemental Blue
Sky Memoranda and such registration and qualification); (vii) the filing fees
and the fees and expenses of counsel for the Underwriters in connection with any
filings required to be made with the National Association of Securities Dealers,
Inc.; (viii) the transportation and other expenses incurred by or on behalf of
Company representatives in connection with presentations to prospective
purchasers of the Shares; and (ix) the fees and expenses of the Company's
accountants and the fees and expenses of counsel (including local and special
counsel) for the Company.
10. Effective Date of Agreement. This Agreement shall become effective:
----------------------------
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the registration statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Company, by notifying you, or
by you, as Representatives of the several Underwriters, by notifying the
Company.
If any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder on the Closing Date,
and the aggregate number
-32-
<PAGE> 33
of Shares which such defaulting Underwriter or Underwriters are obligated but
fail or refuse to purchase is not more than one-tenth of the aggregate number of
Shares which the Underwriters are obligated to purchase on the Closing Date,
each non-defaulting Underwriter shall be obligated, severally, in the proportion
which the number of Firm Shares set forth opposite its name in Schedule I hereto
bears to the aggregate number of Firm Shares set forth opposite the names of all
non-defaulting Underwriters or in such other proportion as you may specify in
accordance with Section 20 of the Master Agreement Among Underwriters of Smith
Barney Inc., to purchase the Shares which such defaulting Underwriter or
Underwriters are obligated, but fail or refuse, to purchase. If any one or more
of the Underwriters shall fail or refuse to purchase Shares which it or they are
obligated to purchase on the Closing Date and the aggregate number of Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date and arrangements satisfactory to you and the Company for the
purchase of such Shares by one or more non-defaulting Underwriters or other
party or parties approved by you and the Company are not made within 36 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject to
-------------------------
termination in your absolute discretion, without
-33-
<PAGE> 34
liability on the part of any Underwriter to the Company by notice to the
Company, if prior to the Closing Date or any Option Closing Date (if different
from the Closing Date and then only as to the Additional Shares to be purchased
on such Option Closing Date), as the case may be, (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market shall have been suspended or materially limited, (ii) a
general moratorium on commercial banking activities in New York or Maryland
shall have been declared by either federal or state authorities, or (iii) there
shall have occurred any outbreak or escalation of hostilities or other
international or domestic calamity, crisis or change in political, financial or
economic conditions, the effect of which on the financial markets of the United
States is such as to make it, in your judgment, impracticable or inadvisable to
commence or continue the offering of the Shares at the offering price to the
public set forth on the cover page of the Prospectus or to enforce contracts for
the resale of the Shares by the Underwriters. Notice of such termination may be
given to the Company by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
12. Information Furnished by the Underwriters. The statements set forth
------------------------------------------
in the last paragraph on the cover page, the stabilization legend on the inside
front cover page, and the statements in the first, third and sixth paragraphs
under the caption "Underwriting" in any Prepricing Prospectus and in the
Prospectus, constitute the only information furnished by or on behalf of the
Underwriters through you as such information is referred to in Sections 6(b) and
7 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5, 10 and
--------------
11 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at JP Foodservice, Inc. 9830 Patuxent Woods Drive, Columbia, Maryland
21046, Attention: Lewis Hay III, Senior Vice President and Chief Financial
Officer; or (ii) if to you, as Representatives of the several Underwriters, care
of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention:
Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors
-34-
<PAGE> 35
and officers, and the other controlling persons referred to in Section 7 hereof
and their respective successors and assigns, to the extent provided herein, and
no other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term "successors and assigns" as
used in this Agreement shall include a purchaser from any Underwriter of any of
the Shares in his status as such purchaser.
In the event that Smith Barney Inc. shall amend, modify or waive any of
its rights under the Lock-Up Letters, Smith Barney Inc. shall promptly notify
each of the other Representatives of such amendment, modification or waiver.
14. Applicable Law; Counterparts. This Agreement shall be governed by
-----------------------------
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
-35-
<PAGE> 36
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
JP FOODSERVICE, INC.
By .............................
James L. Miller
Chairman of the Board and
Chief Executive Officer
Confirmed as of the date first above mentioned on behalf of themselves and the
other several Underwriters named in Schedule I hereto.
SMITH BARNEY INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
RODMAN & RENSHAW, INC.
As Representatives of the Several Underwriters
By SMITH BARNEY INC.
By ..........................
Managing Director
-36-
<PAGE> 37
<TABLE>
<CAPTION>
SCHEDULE I
NAME OF COMPANY
Number of Number of
Underwriter Firm Shares Underwriter Firm Shares
----------- ----------- ----------- -----------
<S> <C> <C> <C>
Smith Barney Inc. ....
The Robinson-Humphrey
Company, Inc. ......
Rodman & Renshaw, Inc.
</TABLE>
-37-
<PAGE> 38
<TABLE>
<S> <C>
Total..... ___________
</TABLE>
-38-
<PAGE> 39
SCHEDULE II
James L. Miller
Lewis Hay, III
-39-
<PAGE> 1
Exhibit 5.1
August 6, 1996
JP Foodservice, Inc.
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Re: JP Foodservice, Inc. -- Registration Statement on
Form S-3 (Registration Statement No. 333-07321)
-------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to JP Foodservice, Inc., a Delaware
corporation (the "Company"), in connection with the sale and delivery by the
Company of 3,000,000 shares (the "Firm Shares") of Common Stock, $0.01 par
value, of the Company (the "Common Stock") to the underwriters (the
"Underwriters") in Schedule I to the Underwriting Agreement to be entered into
by the Company with Smith Barney Inc., The Robinson-Humphrey Company, Inc. and
Rodman & Renshaw, Inc., as Representatives of the several Underwriters. We also
have acted as counsel to the Company in connection with the grant to the
Underwriters by the Company of an over-allotment option to purchase all or part
of up to 450,000 shares of Common Stock (the "Additional Shares"). The Firm
Shares and the Additional Shares are collectively referred to herein as the
"Shares."
This opinion is being furnished pursuant to the requirements of Item
16(a) of Form S-3 under the Securities Act of 1933, as amended (the "Securities
Act"), and Items 601(a) and 601(b)(5) of Regulation S-K under the Securities
Act. Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Underwriting Agreement.
We have participated in the preparation of the Registration Statement
on Form S-3 (Registration Statement No. 333-07321) (the "Registration
Statement") filed by the Company with the Securities and Exchange Commission
under the Securities Act. We also have examined the form of Underwriting
Agreement filed as an exhibit to the Registration Statement, the Restated
Certificate of Incorporation of the Company, the Amended and Restated By-laws
of the Company, resolutions adopted by the Board of
<PAGE> 2
JP Foodservice, Inc.
Page 2
Directors of the Company and such other documents and instruments as we
determined to be necessary in order to render our opinion.
Based on the foregoing and subject to the following limitations, we are
of the opinion that the Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with the
terms of the Underwriting Agreement, the Shares will be validly issued, fully
paid and nonassessable.
The foregoing opinion is, with your concurrence, predicated upon and
qualified by the following:
a. The foregoing opinion is based upon and limited to the
corporate law of the State of Delaware and the relevant laws of the United
States of America, in each case excluding the choice of law provisions thereof,
and we render no opinion with respect to the laws of any other jurisdiction.
b. Our opinion letter is based upon and limited to laws and
regulations as in effect on the date of this letter. We assume no obligation to
update the opinion set forth herein.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus included as a part of the Registration
Statement.
Very truly yours,
SHAW, PITTMAN, POTTS & TROWBRIDGE
RJP/jed
<PAGE> 1
Exhibit 10.27
RECEIVABLES PURCHASE AGREEMENT
Dated as of May 30, 1996
among
JP FOODSERVICE DISTRIBUTORS, INC.,
ILLINOIS FRUIT & PRODUCE CORP.,
and
SKY BROS., INC.
as the Sellers
and
JPFD FUNDING COMPANY
and
JP FOODSERVICE, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
ARTICLE I
DEFINITIONS
1.01. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.02. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.03. Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.04 Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
2.01. Purchases of Receivables; Agreement to Purchase . . . . . . . . . . . . . . . . . . . . . . -4-
2.02. Payment for the Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.03. Settlement Procedures on each Report Date . . . . . . . . . . . . . . . . . . . . . . . . -9-
2.04. Payments and Computations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
2.05. Transfer of Records to JPFD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
ARTICLE III
CONDITIONS PRECEDENT
3.01. Conditions Precedent to Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
3.02. Conditions Precedent to Ongoing Purchases . . . . . . . . . . . . . . . . . . . . . . . . . -12-
3.03. Effect of Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01. Representations and Warranties of the Sellers . . . . . . . . . . . . . . . . . . . . . . . -13-
4.02. Representations and Warranties of JPFD . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
ARTICLE V
GENERAL COVENANTS OF THE SELLERS
5.01. Affirmative Covenants of the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
5.02. Negative Covenants of the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
ARTICLE VI
ADMINISTRATION AND COLLECTION
6.01. Collection of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
6.02. Designation of Collection Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
6.03. Duties of the Collection Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
6.04. Responsibilities of the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
6.05. Further Action Evidencing Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
6.06. Application of Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
6.07. Servicing Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
6.08. Collection Agent Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VII
INDEMNIFICATION
7.01. Indemnities by the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
ARTICLE VIII
MISCELLANEOUS
8.01. Waivers; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
8.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
8.03. Effectiveness; Binding Effect; Assignability . . . . . . . . . . . . . . . . . . . . . . . . -38-
8.04. GOVERNING LAW; SUBMISSION TO JURISDICTION;
WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
8.05. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
8.06. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
8.07. Execution in Counterparts; Severability . . . . . . . . . . . . . . . . . . . . . . . . . . -41-
8.08. Purchase Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41-
8.09. No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41-
8.10. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
8.11. Survival of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
</TABLE>
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A - Form of Subordinated Note
Exhibit B - Form of Daily Report
Schedule 4.01(g) - Actions, Suits
Schedule 4.01(h) - Addresses and Locations of Books and
Records of the Sellers
Schedule 4.01(j) - Tradenames, Subsidiaries, Etc.
Schedule 4.01(n) - ERISA Matters
Schedule 4.01(o) - Lock-Box Banks; Lock-Box Accounts; Lock-
Box Numbers; Deposit Account Banks;
Deposit Account Numbers
</TABLE>
-ii-
<PAGE> 4
RECEIVABLES PURCHASE AGREEMENT
Dated as of May 30, 1996
This RECEIVABLES PURCHASE AGREEMENT (the "Agreement"), dated as of
May 30, 1996, is made by and among JP FOODSERVICE DISTRIBUTORS, INC., a
Delaware corporation ("Distributors"), ILLINOIS FRUIT & PRODUCE CORP., an
Illinois corporation ("IFPC"), SKY BROS., INC., a Pennsylvania corporation
("Sky Bros.") (each of Distributors, IFPC and Sky Bros., individually, a
"Seller" and collectively, the "Sellers"), JPFD FUNDING COMPANY, a Delaware
corporation ("JPFD"), and JP FOODSERVICE, INC., a Delaware corporation (the
"Parent").
WITNESSETH:
WHEREAS, Distributors, IFPC and Sky Bros. desire to sell, and JPFD
has agreed to purchase, all of such Sellers' right, title and interest in
certain of their accounts receivable on the terms and conditions provided
herein; and
WHEREAS, JPFD, as "Transferor", Distributors, as the initial
"Collection Agent", Enterprise Funding Company (the "Company"), those financial
institutions from time to time party thereto as "Bank Investors", and
NationsBank, N.A., as "Agent" have entered into that certain Transfer and
Administration Agreement of even date herewith (as amended, restated,
supplemented or otherwise modified from time to time, the "TAA"), pursuant to
which JPFD may from time to time convey, transfer and assign undivided
percentage interests in accounts receivable purchased from the Sellers, and the
Company may, and the Bank Investors, if requested, shall, accept such
conveyance, transfer and assignment of such undivided percentage interests;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Definitions. For all purposes of this
Agreement, except as otherwise specifically provided herein, capitalized terms
used in this Agreement without definition shall have the meanings ascribed to
such terms in the TAA, the terms of which are incorporated by reference herein
and
<PAGE> 5
made a part hereof. In addition, as used in this Agreement, the following
terms shall have the following meanings:
"Collection Date" means the date occurring after the Termination Date
upon which the Aggregate Unpaids shall have been paid in full, in cash.
"Contributed Assets" has the meaning specified in Section 2.01(a)
hereof.
"Cut-Off Date" means the last day of each Fiscal Month.
"Daily Report" has the meaning specified in Section 2.02 (b)
"Dilution Adjustment" means, with respect to all Receivables sold by
any Seller to JPFD hereunder as of any Report Date, an amount calculated on
each Investor Report for the immediately preceding Fiscal Month equal to the
aggregate reductions in the Outstanding Balances of all such Receivables during
the Fiscal Month covered by such Investor Report as a result of Dilution.
"Discount Rate" has the meaning specified in Section 2.02(b) hereof.
"Loss Discount" has the meaning specified in Section 2.02(b) hereof.
"Noncomplying Receivable" means any Receivable which, as of the date
of the Purchase thereof by JPFD hereunder, did not meet the criteria for an
"Eligible Receivable" set forth in the definition thereof in the TAA, except
that, for purposes of determining which Receivables are Noncomplying
Receivables, (a) the criteria listed in clause (ii) of such definition in the
TAA shall not be applicable with respect to such determination and (ii)
references in clauses (iv) and (v) of such definition in the TAA to "the time
of the initial creation of an interest therein hereunder" shall instead be
deemed to mean and refer to "the time such Receivable was sold or transferred
by such Seller to JPFD hereunder."
"Purchase" means, on any Business Day, the sale, assignment,
contribution, transfer and/or other conveyance of all Receivables from the
Sellers to JPFD for which the Purchase Price has not been previously paid
(including by increasing the outstanding balance of the Subordinated Note or
the applicable Seller's equity interest in JPFD) and which have not previously
been sold, assigned, contributed, transferred or otherwise conveyed to JPFD by
the Sellers, in either case, in accordance with the terms of Sections 2.01 and
2.02 hereof; and "Purchased" means the past tense of Purchase.
-2-
<PAGE> 6
"Purchase Discount Reserve Ratio" has the meaning specified in
Section 2.02(b) hereof.
"Purchase Price" has the meaning specified in Section 2.02(b) hereof.
"Purchase Price Percentage" has the meaning specified in Section
2.02(b) hereof.
"Purchased Assets" has the meaning specified in Section 2.01(a)
hereof.
"Receivable" means the indebtedness or other obligations owed to any
of the Sellers by any Obligor (prior to giving effect to any transfer or
conveyance thereof by such Seller to JPFD as contemplated hereunder) under a
Contract and existing or arising at any time prior to the Termination Date,
whether constituting an account, chattel paper, instrument, investment property
or general intangible, arising in connection with the sale of goods,
merchandise or inventory or the rendering of services by such Seller and
includes the right to payment of any Finance Charges and other obligations of
such Obligor with respect thereto. Notwithstanding the foregoing, once a
Receivable has been deemed collected pursuant to Section 2.9 of the TAA and the
applicable Seller shall have satisfied its obligations with respect to Section
2.03(b) with respect thereto, it shall no longer constitute a Receivable
hereunder.
"Related Assets" has the meaning specified in Section 2.01(a) hereof.
"Report Date" means the 10th day of each Fiscal Month.
"Seller Loans" has the meaning specified in Section 2.02(c) hereof.
"Subordinated Note" has the meaning specified in Section 2.02(d)
hereof.
"Transferred Assets" has the meaning specified in Section 2.01(a)
hereof.
SECTION 1.02. Accounting Terms. Under this Agreement, all
accounting terms not specifically defined herein shall be interpreted, all
accounting determinations made, and all financial statements prepared, in
accordance with GAAP.
SECTION 1.03. Other Terms. All other undefined terms contained in
this Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein.
The words "herein," "hereof," and "hereunder" and other words of similar import
refer
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to this Agreement as a whole, including the exhibits and schedules hereto, as
the same may from time to time be amended or supplemented and not to any
particular section, subsection, or clause contained in this Agreement, and all
references to Sections, Exhibits and Schedules shall mean, unless the context
clearly indicates otherwise, the Sections hereof and the Exhibits and Schedules
attached hereto, the terms of which Exhibits and Schedules are hereby
incorporated into this Agreement. Whenever appropriate, in the context, terms
used herein in the singular also include the plural, and vice versa.
SECTION 1.04. Computation of Time periods. In this Agreement, in
the computation of a period of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and
"until" each mean "to but excluding", and the word "within" means "from and
excluding a specified date and to and including a later specified date".
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
SECTION 2.01. Purchases of Receivables; Agreement to Purchase. (a)
Subject to the terms and conditions hereinafter set forth (including the
conditions set forth in Article III), JPFD hereby purchases from each Seller,
and each Seller hereby severally sells, transfers, assigns and otherwise
conveys to JPFD all of such Seller's right, title and interest in all of such
Seller's Receivables existing as of the Business Day immediately preceding the
Closing Date or thereafter arising until the Business Day, immediately
preceding the Termination Date, in each case together with all of the Related
Security relating to such Receivables and all Collections with respect to and
other Proceeds of such Receivables and Related Security (such Related Security,
Collections and Proceeds, collectively, the "Related Assets"). On each
Business Day until the Termination Date, JPFD shall pay for the Purchases
described in the preceding sentence no later than 5:00 p.m. (New York time) by
making available to the Sellers the payment of the Purchase Price required
under Section 2.02. To the extent that any such Receivables and Related
Assets shall have been or are to be contributed to JPFD's capital at or prior
to such time in accordance with Section 2.02, JPFD shall increase each
applicable Seller's percentage equity ownership in JPFD accordingly (on a pro
rata basis with all other Sellers then making such capital contributions as
determined by the relationship that such Seller's contribution bears to the
aggregate contribution of all of the Sellers at such time) in accordance with
Delaware law. Prior to paying the Purchase Price hereunder, JPFD may request
of any Seller, and such Seller shall deliver, such approvals, opinions,
information, reports or documents as JPFD may reasonably request. As used in
this Agreement, (i) the term "Purchased Assets" shall mean all
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Receivables which are paid for through cash and/or Seller Loans under this
Agreement and all Related Assets relating thereto, (ii) the term "Contributed
Assets" shall mean all Receivables which are contributed to JPFD's capital and
all Related Assets relating thereto and (iii) the term "Transferred Assets"
shall mean, collectively, all Purchased Assets and all Contributed Assets.
(b) Each of the parties hereto hereby acknowledges that the
Receivables of each of the Sellers may be invoiced under the name of the Parent
and that payments on such Receivables are often remitted to the Sellers in the
name of the Parent. The Parent and each of the Sellers hereby represent and
warrant that this arrangement exists for purposes of administrative convenience
and that the Parent claims no legal or beneficial interest in any of the
Receivables or the Related Assets of any of the Sellers, all of which (prior to
giving effect to the sale thereof by such Seller to JPFD hereunder) shall be
the sole and exclusive property of the applicable Seller. If, notwithstanding
the foregoing, (i) any court, (ii) any other Official Body, (iii) the
Agent, (iv) any creditor of any of the Seller, the Parent or JPFD (or any
successor or assign of any such creditor, including a trustee in bankruptcy or
debtor in possession), or (v) any Seller, the Parent or JPFD (or any successor
or assign thereof, including a trustee in bankruptcy or debtor in possession of
or for any of the foregoing) determines (or institutes or threatens to
institute a cause of action seeking a determination) or otherwise alleges that
the Parent has or had any rights, title or interests in, to or under any of the
Receivables and/or the Related Assets of any of the Sellers which were intended
to have been or are intended to be transferred, sold, contributed or otherwise
conveyed by such Seller to JPFD hereunder, then the Parent shall (x) be
deemed to have sold, contributed, transferred or otherwise conveyed and be
required to sell, contribute, transfer or otherwise convey, such Receivables
and Related Assets to JPFD in accordance with the terms of this Agreement and
(y) be deemed to be a "Seller" for all purposes hereunder and under the other
Transaction Documents and be bound by all of the terms hereof and thereof
applicable to the Sellers, and all references herein or in any of the
Transaction Documents to the "Sellers" or a "Seller" shall thereafter include
and be deemed a reference to the Parent. In connection with the foregoing,
the Parent, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, (1) hereby grants, sells and conveys all of
its rights, title and interests in, to and under any and all such Receivables
and Related Assets which it may now or hereafter own or acquire to JPFD, and
(2) hereby agrees to take, and to cause each of the other Sellers and JPFD to
take, all action necessary or desirable (in the determination of the Agent) to
effectuate such grant, sale and conveyance and to perfect JPFD's and the
Agent's respective interests in such Receivables and Related Assets,
including, without limitation,
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(i) the reconciliation and settlement as among the Parent and the other
Sellers of any amounts previously paid by JPFD to any such other Sellers for
Receivables owned by the Parent, (ii) the execution and delivery by JPFD of a
Subordinated Note in favor of the Parent, and (iii) the filing of any UCC
Financing Statements in respect of the Receivables, the Related Assets and the
Parent's sale thereof in accordance with the provisions of this Section
2.01(b).
(c) It is the intention of the parties hereto that each Purchase of
Receivables made hereunder shall constitute a "sale" from each applicable
Seller (the term "Seller" as used in this clause (c) shall include the Parent
to the extent of any transfers of Receivables and Related Assets by the Parent
to JPFD pursuant to the immediately preceding clause (b)) to JPFD under
applicable state law and Federal bankruptcy law and, more particularly, but
without limitation, a "sale of accounts," as such term is used in Article 9 of
the UCC, which sales are, in each case, absolute and irrevocable and provide
JPFD with all indicia and rights of ownership of the Receivables. Neither any
Seller nor JPFD intends the transactions contemplated hereunder to be, or for
any purpose to be characterized as, loans from JPFD to the Sellers secured by
such accounts. Except for the Dilution Adjustment made on each Report Date
and certain indemnities pursuant to Section 7.01, each sale of Receivables by a
Seller to JPFD is made without recourse to such Seller; provided, however, that
(i) each Seller shall be liable to JPFD for all representations, warranties and
covenants made by such Seller pursuant to the terms of this Agreement, and (ii)
such sale does not constitute and is not intended to result in an assumption by
JPFD or any assignee thereof of any obligation of any Seller or any other
person to any of Obligor or otherwise arising in connection with the
Receivables, the Related Assets and/or the related Contracts, or any other
obligations of the Sellers thereunder or in connection therewith. In view of
the intention of the parties hereto that the Purchases of Receivables made
hereunder shall constitute sales of such Receivables rather than a loan secured
by such Receivables, each Seller agrees to note on its financial statements and
in its books and records that its Receivables have been sold to JPFD and to
respond to any inquiries made by third-parties as to the ownership of the
Receivables so sold that such Receivables have been sold to JPFD.
(d) Notwithstanding any other provision of this Agreement to the
contrary, JPFD shall not purchase from any Seller nor shall any Seller sell to
JPFD any Receivable from and after the time of any bankruptcy filing by or
against such Seller or against JPFD.
(e) If, notwithstanding the provisions of the immediately preceding
clause (c), the Purchases hereunder are deemed for any reason not to
constitute valid "sales of accounts"
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as set forth above, then this Agreement shall be deemed to create a security
interest (within the meaning of Articles 8 and 9 of the Uniform Commercial
Code as in effect in all applicable jurisdictions) in favor of JPFD in all of
the applicable Seller's rights, title and interest in, to and under the
Transferred Assets. Upon each such Purchase, the applicable Seller hereby
grants such a security interest to JPFD in the Transferred Assets which are the
subject of such Purchase, and this Agreement shall constitute a security
agreement within the meaning of Article 8 and Article 9 of the UCC of all
applicable jurisdictions.
SECTION 2.02. Payment for the Purchases. (a) Except as
otherwise provided below in this Section 2.02, the Purchase Price for the
Receivables sold by each of the Sellers under this Agreement shall be payable
in full in cash by JPFD to the applicable Seller, in each case on the date of
each such Purchase, except that (A) to the extent that JPFD has insufficient
funds and availability under the Subordinated Notes to pay the Purchase Price
for any Receivables to be purchased by it on any date, such remaining portion
of the Receivables of each Seller for which the Purchase Price has not been
received (either in cash or by an increase to the applicable Seller's
Subordinated Note) shall be contributed to the capital of JPFD by each such
Seller, which contribution shall be in an amount equal to each such Seller's
pro rata share of the Purchase Price for all such Receivables being contributed
on such date by all of the Sellers and (B) JPFD may, with respect to any
Purchase, offset against such Purchase Price (i) any amounts shown on an
Investor Report as owing from the applicable Seller to JPFD and which remain
unpaid or (ii) any other uncontested amounts owed by such Seller to JPFD
hereunder and which remain unpaid.
(b) On each Business Day, each Seller shall deliver to the
Collection Agent (and, if requested, to the Agent) a report (a "Daily
Report") in the form attached hereto as Exhibit B, which Daily Report shall
set forth, among other things, the aggregate Outstanding Balance of all
Receivables being sold to JPFD by such Seller on such date and the Purchase
Price owed to such Seller on such date. The Purchase Price (the "Purchase
Price") payable on any Business Day shall be calculated to equal the aggregate
Outstanding Balances of new Receivables noted on such Daily Report (i.e.,
Receivables existing as of the close of business of such Seller on the Business
Day immediately preceding the date of such Daily Report and not previously sold
or contributed to JPFD hereunder) times the Purchase Price Percentage (the
"Purchase Price Percentage") then in effect pursuant to the remaining
provisions of this Section 2.02(b). From the Closing Date until the first
Report Date thereafter, the purchase Price Percentage shall equal 98%.
Thereafter, the Purchase Price Percentage shall be calculated in accordance
with the following formula:
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PPP = 100% - (LD + PDRR)
where:
PPP = the Purchase Price Percentage in effect on such day;
LD = from and after each Report Date, the "Loss Discount" (expressed
as a percentage) calculated in the most recent Investor Report
to equal the greater of (i) one-fifth of one percent (0.20%) and
(ii) the average of the Loss-to-Liquidation Ratios for the three
Fiscal Months most recently ended and for which Investor Reports
shall have been delivered to the Agent, as such amount shall be
set forth in the Investor Report for the most recent such Fiscal
Month; and
PDRR = from and after each Report Date, the "Purchase Discount Reserve
Ratio" (expressed as a percentage) calculated in the most
recent Investor Report in accordance with the following formula:
PDRR = ACP X DR
--------
360
where:
PDRR = the Purchase Discount Reserve Ratio in effect on such day;
ACP = the average of the Average Collection Periods for the preceding
six (6) Fiscal Months most recently ended and for which Investor
Reports shall have been delivered to the Agent, as such average
shall be set forth in the Investor Report for the most recent
such Fiscal Month; and
DR = the "Discount Rate" calculated in the most recent Investor
Report to be equal to the Base Rate as of the last Business Day
of the most recently ended calendar quarter (or, until June 30,
1996, as of the Closing Date).
The Purchase Price Percentage shall be calculated on each Report Date and such
calculation shall be utilized in the calculation of the Purchase Price owed
under this Agreement for all Purchases occurring from and after such Report
Date until (but not including) the next Report Date.
(c) On each Business Day, to the extent that JPFD receives either
Collections or proceeds from any Incremental Transfers, which, in any case,
it is not required to hold in
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trust for, or remit to, the Collection Agent or the Agent pursuant to the TAA,
then JPFD shall remit such funds to the Sellers (net of any funds needed to
pay existing expenses which are then accrued and unpaid) in the following
order of priority and application: first to pay the Purchase Price for any
Receivables Purchased from the Sellers on such Business Day; and second to pay
amounts owed by JPFD to the Sellers under the Subordinated Notes described in
Section 2.02(d) below. All such payments shall be made ratably according to
the amounts in each such category owed to each of the Sellers. If, on any
day, the amount of cash available to pay for all Purchases of Receivables to be
made on such day is less than the Purchase Price owing therefor, then JPFD
shall, with notice to the applicable Sellers, pay such remaining part of the
Purchase Price by borrowing a revolving loan (each a "Seller Loan") under its
Subordinated Note issued in favor of such Seller, and each Seller shall have
irrevocably agreed to advance, and shall be deemed to have advanced, a Seller
Loan in the amount so specified by JPFD; provided, however, that no such Seller
Loan shall be made to JPFD to the extent that, after giving effect thereto,
JPFD's net worth (calculated (i) after giving effect to all such Purchases and
Seller Loans to be made on such date and (ii) without giving effect to any
Receivables that are not included in the Net Receivables Balance at such time)
would be less than 12% of the aggregate Outstanding Balance of all Receivables
at such time.
(d) The Seller Loans shall be subordinated to the prior right and
payment in full of the Aggregate Unpaids and any other obligations of JPFD
arising under the TAA. JPFD shall allocate the payment of the Purchase Price,
including the amount of Seller Loans made on any day, ratably among all of the
Sellers according to the respective Purchase Prices owing thereto for all
Receivables sold on such date. The Seller Loans advanced by each Seller shall
be evidenced by, and payable in accordance with the terms and provisions of, a
promissory note (each, a "Subordinated Note") payable to such Seller in the
form of Exhibit A attached hereto. JPFD shall allocate payments of principal
and interest on the Subordinated Notes ratably among all of the Sellers
according to the outstanding principal amounts thereof.
(e) Unless and until the Termination Date has occurred, if, after
giving effect to all allocations of cash and Seller Loans provided for in
Section 2.02(c), the Purchase Price payable by JPFD to the Sellers on any
Business Day is not paid in full as a result of the limitation on the amount of
the Subordinated Notes, then each of the Sellers shall be deemed to have
contributed to JPFD's capital Receivables having a Purchase Price equal to the
otherwise unpaid portion of the total Purchase Price owed to such Seller on
such day.
SECTION 2.03. Settlement Procedures on each Report Date. (a)
With respect to each Fiscal Month, the Collection
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Agent shall prepare and deliver, by the following Report Date, an Investor
Report, in the form required under the TAA, to each Seller, the Agent and each
Bank Investor, which Investor Report shall include, among other things, the
Dilution Adjustment, if any, due to JPFD from such Seller for such Fiscal
Month.
Promptly after the end of each Fiscal Month, the Sellers shall
provide to the Collection Agent, as applicable, all information necessary for
each such party to calculate the foregoing matters and to prepare the Investor
Report within the time frame specified herein.
(b) On each Report Date, to the extent that any Dilution Adjustment
shall be owing to JPFD from a Seller, JPFD and such Seller shall credit all
such amounts against the Purchase Price which would otherwise be owing to such
Seller on such Report Date in respect of the Receivables to be Purchased from
such Seller by JPFD on such date and any remaining Dilution Adjustment then
owing to JPFD shall be payable by such Seller to JPFD in cash on such date.
SECTION 2.04. Payments and Computations, Etc. All amounts to be
paid by the Sellers or the Collection Agent to JPFD hereunder shall be paid in
accordance with the terms hereof no later than 1:00 P.M. (New York time) on
the day when due in Dollars in immediately available funds to a Lock-Box
Account or Deposit Account to be specified by JPFD from time to time in
writing. Payments received by JPFD after such time shall be deemed to have
been received on the next Business Day. In the event that any payment becomes
due on a day which is not a Business Day, then such payment shall be made on
the next succeeding Business Day. Each Seller and the Collection Agent (if any
of the Sellers or any Affiliate thereof) shall, to the extent permitted by
law, pay to JPFD, on demand, interest on all amounts not paid when due
hereunder (whether owing by the Seller individually or as Collection Agent) at
2% per annum above the Base Rate in effect on the date such payment was due;
provided, however, that such interest rate shall not at any time exceed the
maximum rate permitted by applicable law. All computations of interest
payable hereunder shall be made on the basis of a year of 360 days for the
actual number of days (including the first but excluding the last day)
elapsed.
SECTION 2.05. Transfer of Records to JPFD. (a) In connection
with the Purchases of Receivables hereunder, each Seller hereby severally
sells, transfers, assigns and otherwise conveys to JPFD all of the applicable
Seller's right and title to and interest in the Records relating to all
Receivables included in the Transferred Assets, without the need for any
further documentation in connection with any Purchase. In connection with
such transfer, each Seller hereby grants to each of JPFD and the Collection
Agent (including, without limitation, any
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successor Collection Agent appointed in accordance with the TAA) an
irrevocable, non-exclusive license to use, without royalty or payment of any
kind, all software now or hereafter used by such Seller to account for the
Receivables, to the extent necessary to administer the Receivables, whether
such software is owned by such Seller or is owned by others and used by such
Seller under license agreements with respect thereto; provided, that if such
software is owned by another Seller, such Seller hereby grants JPFD and the
Collection Agent an irrevocable, non-exclusive license to use such software as
aforesaid. Each Seller hereby represents that the rights to use such software
(whether or not owned by such Seller) are freely assignable by such Seller to
JPFD and the Collection Agent (including, without limitation, any successor
Collection Agent) without the consent of any Person, or if such consent is
required, such consent shall have been obtained and evidence thereof shall have
been delivered to JPFD and the Agent. The license granted hereby shall be
irrevocable, and shall terminate on the date occurring after the Termination
Date upon which all Aggregate Unpaids shall have been paid in full, in cash.
(b) Each Seller shall take such action requested by JPFD and/or the
Collection Agent (including any successor Collection Agent appointed in
accordance with the TAA), from time to time hereafter, that may be reasonably
necessary or appropriate to ensure that JPFD (and its assignees, including,
without limitation, the Agent and the Purchasers) has (i) an enforceable
ownership interest in the Records relating to the Receivables purchased from
such Seller hereunder and (ii) an enforceable right (whether by license or
sublicense or otherwise) to use all of the computer software used to account
for the Receivables and/or to recreate such Records. Each of the Sellers
hereby represents that as of the Closing Date there are no consents required
for the use by JPFD and the Collection Agent of any such software.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01. Conditions Precedent to Agreement. This Agreement is
subject to the conditions precedent that (i) each of the conditions precedent
to the execution, delivery and effectiveness of each other Transaction Document
(other than a condition precedent in any such other Transaction Document
relating to the effectiveness of this Agreement) shall have been fulfilled to
the satisfaction of JPFD and the Agent, and (ii) JPFD and the Agent shall have
received each of the following, on or before the Closing Date, each (unless
otherwise indicated) dated as of the Closing Date or such other recent date
acceptable
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to JPFD and the Agent and each in form and substance satisfactory to JPFD and
the Agent:
1. Resolutions. A copy of the resolutions of the Board of
Directors of each Seller, certified by its Secretary or Assistant
Secretary, approving this Agreement and the other Transaction Documents to
be delivered by it hereunder and the transactions contemplated hereby and
thereby and addressing such other matters as may be reasonably required by
JPFD and the Agent;
2. Good Standing Certificates Of the Sellers; Certificates as to
Foreign Qualification of the Sellers. Good standing certificates for each
of the Sellers issued by the applicable Secretaries of the State of the
respective states in which such Seller is incorporated or organized and in
which its chief executive office and principal place of business is
located and of any other state in which such Seller transacts business, is
required to be in good standing and where the failure to be in good
standing could have a Material Adverse Effect;
3. Incumbency Certificate. A certificate of the Secretary or
Assistant Secretary of each of the Sellers substantially in the form of
Exhibit L-1 to the TAA.
4. Other Transaction Documents. Original copies, executed by each
of the parties thereto in such reasonable number as shall be specified by
JPFD and the Agent, of each of the other Transaction Documents to be
executed and delivered in connection herewith;
5. Opinions of Counsel. Opinions of Counsel as set forth in
Section 4.1 of the TAA; and
6. Officer's Certificates. Original copies of a certificate for
each of the Sellers executed by the Chief Financial Officer, the President
or a Vice President of such Seller certifying the accuracy of its
representations and warranties hereunder, under the TAA and under the
other Transaction Documents to which it is a party, that no Termination
Event or Potential Termination Event has occurred and is continuing under
the TAA and that all conditions precedent and covenants required to be
complied with or performed on or prior to the Closing date by such Seller
have been so complied with or performed, which certificate shall be in the
form of Exhibit N-2 to the TAA and dated as of the Closing Date.
SECTION 3.02. Conditions Precedent to Ongoing Purchases. The
obligation of JPFD on any Business Day to accept and pay for the transfers of
Receivables under this Agreement is
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subject to the conditions precedent that the representations and warranties
contained in Article IV are true and correct in all material respects as of
such Business Day. Each Seller, by accepting the Purchase Price paid for each
Purchase of Receivables generated by such Seller and the Related Assets of such
Seller, shall be deemed to have certified, with respect to the Receivables and
the Related Assets paid for on such day, that its representations and
warranties contained in Article IV are true and correct on and as of such day,
with the same effect as though made on and as of such day.
SECTION 3.03. Effect of Payment of Purchase Price and/or
Contribution. Upon the payment of the Purchase Price for any Purchase,
(whether in cash or by an increase in the applicable Seller's Subordinated Note
pursuant to Section 2.02(c)) or the contribution of any Contributed Assets by
the Sellers to the capital of JPFD pursuant to Section 2.02(e), title to the
Receivables and the Related Assets included in such Purchase shall vest in
JPFD, whether or not the conditions precedent to such Purchase were in fact
satisfied; provided, however, that JPFD shall not be deemed to have waived any
claim it may have under this Agreement for the failure by any Seller in fact to
satisfy any such condition precedent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Sellers. Each
Seller represents and warrants that as of the Closing Date and (except for
representations and warranties which relate to a specific date only) and on
each date thereafter until the Collection Date:
(a) Corporate Existence and Power. Such Seller is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate power and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business in each jurisdiction in which its business is now conducted,
except where the failure to have obtained or received any such governmental
license, authorization, consent or approval would not have a Material Adverse
Effect. Such Seller is duly qualified to do business in, and is in good
standing in, every other jurisdiction in which the nature of its business
requires it to be so qualified, except where the failure to be so qualified or
in good standing would not have a Material Adverse Effect.
(b) Corporate and Governmental Authorization: Contravention. The
execution, delivery and performance by such
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Seller of this Agreement and the other Transaction Documents to which it is a
party (i) are within such Seller's corporate powers and have been duly
authorized by all necessary corporate and shareholder action, (ii) require no
action by or in respect of, or filing with, any Official Body or official
thereof (except as contemplated by Section 5.01(a)), (iii) do not contravene,
or constitute a default under, any provision of applicable law, rule or
regulation or of any agreement, judgment, injunction, order, writ, decree or
other instrument binding upon such Seller, except where any such contravention
or default would not have a Material Adverse Effect, (iv) do not contravene
the Charter or Bylaws of such Seller, or (v) do not result in the creation or
imposition of any Adverse Claim on the assets of such Seller (except as
contemplated hereunder).
(c) Binding Effect. Each of this Agreement and the other
Transaction Documents to which such Seller is a party constitutes the legal,
valid and binding obligation of such Seller, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws affecting the rights of creditors generally.
(d) Perfection of Ownership Interest. Immediately preceding each
Purchase hereunder, such Seller shall be the owner of all of its Receivables,
free and clear of all Adverse Claims. On or prior to each Purchase and on each
day thereafter (except as would not, when considered with the Receivables and
Related Security of each of the other Sellers, violate Section 7.1(f) of the
TAA at such time), all financing statements and other documents required to be
recorded or filed in order to perfect and protect the Receivables against all
creditors of such Seller will have been duly filed (and continued and/or
amended, as applicable) in each filing office necessary for such purpose and
all filing fees and taxes, if any, payable in connection with such filings
shall have been paid in full.
(e) Accuracy of Information. All information heretofore furnished
by such Seller (including without limitation, in the case of JP Foodservice
Distributors, Inc., such Seller's consolidated and consolidating financial
statements) to JPFD and the Agent for purposes of or in connection with this
Agreement, any other Transaction Document to which such Seller is a party or
any transaction contemplated hereby or thereby is, and all such information
hereafter furnished by such Seller to JPFD and the Agent will be, true and
accurate in every material respect, on the date such information is stated or
certified.
(f) Tax Status. Such Seller has filed all tax returns (federal,
state and local) required to be filed and has paid or made adequate provision
for the payment of all taxes, assessments and other governmental charges,
except any such taxes,
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assessments and/or other governmental charges which such Seller is contesting
in good faith and by appropriate proceedings and in respect of which (x) such
Seller has established adequate reserves on its books and records and (y) no
Adverse Claim has resulted from the non-payment thereof.
(g) Action, Suits. Except as set forth on Schedule 4.01(g) hereof,
there are no actions, suits or proceedings pending, or to the knowledge of such
Seller threatened, against or affecting such Seller, any Affiliate of such
Seller or any of the foregoing's respective properties, in or before any
court, arbitrator or other body, which may, individually or in the aggregate,
have a Material Adverse Effect.
(h) Place of Business. The principal place of business and chief
executive office of such Seller are located at the address of the Seller
indicated in Section 8.02 hereof and the offices where the Seller keeps all its
Records, are located at the address(es) described on Schedule 4.01(h) or such
other locations notified to JPFD and the Agent in accordance with Section
5.02(h) hereof in jurisdictions where all action required by Section 6.05
hereof has been taken and completed.
(i) Good Title. Upon each Purchase from such Seller, JPFD shall
acquire a first priority perfected ownership interest in each of such Seller's
Receivables and the Related Assets relating thereto, free and clear of any
Adverse Claim and no such Transferred Assets shall constitute property of such
Seller. No effective financing statement or other instrument similar in
effect covering all or any part of such Transferred Assets shall be on file in
any filing or recording office except as may be filed in favor of the Agent (as
assignee of JPFD) pursuant to the Transaction Documents.
(j) Tradenames, Etc. As of the date hereof: (i) such Seller has
no Subsidiaries other than those disclosed on Schedule 4.01(j) hereto and (ii)
such Seller has, within the last five (5) years, operated only under the
tradenames identified on Schedule 4.01(j) hereto, and, within the last five (5)
years, has not changed its name, merged with or into or consolidated with any
other corporation or been the subject of any proceeding under the Bankruptcy
Code, except as disclosed on Schedule 4.01(j) hereto.
(k) Nature of Receivables. Each Receivable purchased from such
Seller by JPFD hereunder shall be an "eligible asset" as defined in Rule 3a-7
under the Investment Company Act, of 1940, as amended, and, except as disclosed
in any Daily Report, shall not be a Noncomplying Receivable.
(l) Credit and Collection Policy. Since August 2, 1995, there have
been no material changes in the Credit and
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Collection Policy other than as permitted hereunder and under the TAA.
(m) Not an Investment Company. Such Seller is not, nor is it
controlled by, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(n) ERISA. Except as set forth on Schedule 4.01(n), neither such
Seller nor any of its ERISA Affiliates maintains any Benefit Plans. Such
Seller and its ERISA Affiliates are in compliance in all material respects with
ERISA and no Adverse Claims exist in favor of the Pension Benefit Guaranty
Corporation or the U.S. Department of Labor on any of the Receivables or on the
assets or properties of such Seller or any of its ERISA Affiliates.
(o) Lock-Box Accounts; Deposit Accounts. The names and addresses
of all the Lock-Box Banks of such Seller, together with the account numbers of
the Lock-Box Accounts and the numbers of the related Lock-Boxes at such
Lock-Box Banks are specified on Schedule 4.01(o) hereto (or at such other
Lock-Box Banks and/or with such other Lock-Box Accounts as have been notified
to JPFD and the Agent and for which Lock-Box Agreements have been executed in
accordance with Section 5.02(f) hereof and delivered to the Agent). The names
and addresses of all the Deposit Account Banks of such Seller, together with
the account numbers of the Deposit Accounts are specified on Schedule 4.01(o)
hereto (or at such other Deposit Account Banks and/or with such other Deposit
Account numbers as have been notified to JPFD and the Agent and for which
Deposit Account Agreements have been executed in accordance with Section
5.02(f) hereof and delivered to the Agent). Such Seller has instructed all of
its Obligors to make payments on the Receivables directly to a Lock-Box or a
Lock-Box Account and only Collections of such Seller's Receivables and Related
Security are deposited into Lock-Box Accounts and Deposit Accounts.
(p) Bulk Sales. No transaction contemplated hereby requires
compliance with any bulk sales act or similar law.
(q) Financial Statements; Material Adverse Change. The audited
consolidated and the unaudited consolidating balance sheets of Distributors and
its Subsidiaries, in each case, dated as of July 1, 1995, and the consolidated
and unconsolidated statements of income, cash flows and changes in financial
position relating thereto for the Fiscal Year then ended, copies of which have
been furnished to the Agent, fairly present the financial condition of each
such Persons as at such date and the results of the operations and cash flows
of each such Person for the period ended on such date, all in accordance with
generally accepted accounting principles consistently applied. Since July 1,
1995, there has been no material adverse change in the
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business, properties or condition (financial or otherwise) of such Seller or
its Subsidiaries.
(r) Preference; Voidability. Each Receivable transferred by such
Seller to JPFD hereunder shall have been transferred in exchange for reasonably
equivalent value to the Seller, and no such Purchase shall have been made for
or on account of an antecedent debt owed by such Seller to JPFD. No such
Purchase from any such Seller is voidable under any Section of the Bankruptcy
Reform Act of 1978 (11 U.S.C. Sections 101 et seq.), as amended.
(s) Corporate Separateness. Each Seller acknowledges that it is
entering into the transactions contemplated by this Agreement and the other
Transaction Documents in reliance upon JPFD's identity as a separate legal
entity from the Parent and each of its Subsidiaries and Affiliates.
(t) Collection and Servicing. Since July 1, 1995, there has been
no material adverse change in the ability of such Seller then acting as
Collection Agent or Sub-Collection Agent to service and collect the
Receivables.
(u) Environmental Matters. (i) Such Seller and its Affiliates
currently hold and at all times heretofore such Seller and its Affiliates held
all Environmental Permits required under all Environmental Laws except to the
extent that the failure to have any such Environmental Permit, either alone or
considered together with all other such failures, has not had and can not
reasonably be expected to have a Material Adverse Effect.
(ii) Such Seller and its Affiliates currently are, and at all times
heretofore such Seller and its Affiliates have been, in compliance with all
terms and conditions of all such Environmental Permits and all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in all applicable Environmental
Laws except to the extent failure to comply therewith, either alone or
considered together will all other such failures, has not had and can not
reasonably be expected to have a Material Adverse Effect.
(iii) Except as set forth in Exhibit O of the TAA, neither such
Seller nor any of its Affiliates has ever received, and, so far as is known to
such Seller, no predecessor in interest of such Seller and its Affiliates in
respect of any of the Affiliate Premises has ever received, from any Official
Body or other Person any notice of, and such Seller has no knowledge of, any
events, conditions or circumstances that could prevent continued compliance in
all material respects with the Environmental Permits referred to in subclause
(ii) of this clause (u) or any scheduled renewals thereof or any applicable
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Environmental Laws currently in effect, or that could give rise to any
liability on the part of such Seller and its Affiliates or otherwise form the
basis of any claim, action, demand, request, notice, suit, proceeding, hearing,
study or investigation (collectively, "Environmental Claims") involving such
Seller and its Affiliates, based on or related to (x) a violation of any
applicable Environmental Laws currently in effect or (y) the manufacture,
generation, refining, processing, distribution, use, sale, treatment, receipt,
storage, disposal, transport, arranging for transport or handling, or the
emission, discharge, release or threatened release into the environment, of any
Hazardous Substance in violation of any applicable Environmental Laws currently
in effect, other than any liability or Environmental Claim referred to in this
subclause (iii) which, either alone or considered together with all other such
liabilities and Environmental Claims, has not had and can not reasonably be
expected to have a Material Adverse Effect. Neither the matters set forth in
Exhibit O of the TAA nor the resolution thereof nor any action required to be
taken by such Seller and/or any of its Affiliates in connection therewith have
had or, in such Seller's good faith judgment, can reasonably be expected to
have, a Material Adverse Effect.
Any document, instrument, certificate or notice delivered by such
Seller or by any other Person on behalf of such Seller to JPFD or the Agent
hereunder shall be deemed a representation and warranty by such Seller.
SECTION 4.02. Representations and Warranties of JPFD. JPFD
represents and warrants that as of the Closing Date and (except for
representations and warranties which relate to a specific date only) as of the
date of each Purchase:
(a) Corporate Existence and Power. JPFD is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all, corporate power and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business in each jurisdiction in which its business is now conducted.
JPFD is duly qualified to do business in, and is in good standing in, every
other jurisdiction in which the nature of its business requires it to be so
qualified, except where the failure to be so qualified or in good standing
would not have a Material Adverse Effect.
(b) Corporate and Governmental Authorization; Contravention. The
execution, delivery and performance by JPFD of this Agreement and the other
Transaction Documents to which it is a party are within JPFD's corporate
powers, have been duly authorized by all necessary corporate action, require no
action by or in respect of, or filing with, any Official Body or official
thereof (except as contemplated by Section 2.8 of the
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TAA), and do not contravene, or constitute a default under, any provision of
applicable law, rule or regulation or of the Certificate of Incorporation or
Bylaws of JPFD or of any agreement, judgment, injunction, order, writ, decree
or other instrument binding upon JPFD or result in the creation or imposition
of any Adverse Claim on the assets of JPFD (except as contemplated by Section
2.8 of the TAA).
(c) Binding Effect. Each of this Agreement, the Subordinated
Notes and the other Transaction Documents to which JPFD is a party constitutes
the legal, valid and binding obligation of JPFD, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws affecting the rights of creditors generally.
ARTICLE V
GENERAL COVENANTS OF THE SELLERS
SECTION 5.01. Affirmative Covenants of the Sellers. At all times
from the date hereof to the Collection Date, each Seller will (except where
only one specific Seller is referenced), unless JPFD, the Agent and the
Majority Investors shall otherwise consent in writing:
(a) Protection of Ownership Interest. (i) Promptly execute and
deliver all instruments and documents and take all actions as may be necessary
or as the Agent may reasonably request in order to perfect or protect the
Transferred Interest or to enable JPFD, the Company or the Bank Investors to
exercise or enforce any of their respective rights under this Agreement and the
TAA.
(A) Without limiting the foregoing, each Seller shall execute
and file such financing statements (which statements may be in any form,
including in the form of a carbon, photographic or other reproduction of
this Agreement) continuation statements or amendments thereto or
assignments thereof as may be requested by the Agent, the Company or any
of the Bank Investors;
(B) Mark its master data processing records and, upon the
Agent's, any Bank Investor's or the Company's request, its Contracts and
other documents with a legend (in form and substance satisfactory to the
Agent) describing the conveyance hereunder to JPFD and the Agent, for the
benefit of the Company and the Bank Investors, of the Transferred Assets;
and
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(C) Obtain additional search reports as may be requested by
JPFD, the Agent, the Company or any of the Bank Investors.
(ii) Each of the Sellers hereby authorizes and appoints each of the
Agent and the Collection Agent as its attorney-in-fact, to the fullest extent
permitted by applicable law, to sign and file UCC financing statements,
continuation statements and amendments thereto and assignments thereof without
the Seller's signature. A carbon, photographic or other reproduction of this
Agreement or any financing statement covering the Transferred Assets or any
part thereof, shall be sufficient as a financing statement.
(b) Designation of New Collection Agent. At any time after the
designation of a Collection Agent (other than JPFD, any of the Sellers or any
Affiliate of JPFD or any of the Sellers pursuant to Section 6.1 of the TAA),
each of the Sellers hereby authorizes the Agent and the Collection Agent to
take any and all steps in such Seller's name and on behalf of such Seller
necessary or desirable, in the determination of the Agent or the Collection
Agent, as applicable, to collect all amounts due under any and all Receivables,
including without limitation, endorsing such Seller's name on checks and other
instruments representing Collections and enforcing such Seller's Receivables
and the related Contracts.
(c) Financial Reporting. Maintain, for itself and each of its
respective Subsidiaries, a system of accounting established and administered in
accordance with GAAP, and furnish to JPFD, the Agent and each Bank Investor:
(i) Annual Reporting. In the case of Distributors, within
ninety (90) days after the close of each Fiscal Year, audited financial
statements, prepared in accordance with GAAP on a consolidated and
consolidating basis (consolidating statements need not be audited by such
accountants) for Distributors and its consolidated Subsidiaries,
including balance sheets as of the end of such period, related statements
of operations, shareholder's equity and cash flows, accompanied by an
unqualified audit report certified by independent certified public
accountants, acceptable to JPFD and to the Agent under the TAA, prepared
in accordance with generally accepted auditing principles and any
management letter prepared by said accountants and by a certificate of
said accountants that, in the course of the foregoing, they have obtained
no knowledge of any Termination Event or Potential Termination Event under
the TAA, or if, in the opinion of such accountants, any Termination Event
or Potential Termination Event shall exist, stating the nature and status
thereof.
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(ii) Quarterly Reporting. In the case of Distributors, within
forty-five (45) days after the close of the first three quarterly periods
of each Fiscal Year, for Distributors and its consolidated Subsidiaries,
in each case, consolidated and consolidating unaudited balance sheets as
at the close of each such period and consolidated and consolidating
related statements of operations, shareholder's equity and cash flows for
the period from the beginning of such Fiscal Year to the end of such
quarter, all certified by its chief financial officer.
(iii) Compliance Certificate. In the case of Distributors,
together with the financial statements required pursuant to the
immediately preceding clauses (i) and (ii) hereunder, a compliance
certificate signed by Distributors' chief financial officer stating that
(x) the attached financial statements have been prepared in accordance
with GAAP and accurately reflect the financial condition of Distributors
and its consolidated Subsidiaries and (y) to the best of such Person's
knowledge, no Termination Event or Potential Termination Event exists
under the TAA, or if any Termination Event or Potential Termination Event
exists, stating the nature and status thereof and showing the computation
of, and showing compliance with, each of the financial ratios and
restrictions set forth in Sections 7.1(q) and (r) of the TAA.
(iv) Shareholders Statements and Reports. Promptly upon the
furnishing thereof to such Seller's shareholders, copies of all financial
statements, reports and proxy statements, if any, so furnished.
(v) S.E.C. Filings. Promptly upon the filing thereof, copies
of all registration statements and annual, quarterly, monthly or other
regular reports, if any, which such Seller or any of its Subsidiaries
files with the Securities and Exchange Commission.
(vi) Notice of Termination Events, Potential Termination Events
or Collection Agent Defaults. As soon as possible and in any event within
two (2) Business Days after becoming aware of the occurrence of each
Termination Event, each Potential Termination Event or each Collection
Agent Default, a statement of the chief financial officer or chief
accounting officer of such Seller setting forth details of such
Termination Event, Potential Termination Event or Collection Agent Default
and, in the case of any such Termination Event, such Potential
Termination Event or, to the extent the Collection Agent is any of the
Sellers or any Affiliate of any of the Sellers, such Collection Agent
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Default, the action which such Seller proposes to take with respect
thereto.
(vii) Change in Credit and Collection Policy. Within ten (10)
days after the date any material change in or amendment to the Credit and
Collection Policy is made, a copy of the Credit and Collection Policy then
in effect indicating such change or amendment.
(viii) Credit and Collection Policy. Within ninety (90) days
after the close of each Fiscal Year, deliver to JPFD a complete copy of
the Credit and Collection Policy then in effect.
(ix) Revolving Credit Agreement; Private Debt Indenture. As
soon as practicable (and in any case within three (3) Business Days after
such Seller's receipt thereof) copies of any notices of default under, or
the termination of, the Revolving Credit Agreement and/or the Private Debt
Indenture (or any of the securities issued thereunder).
(x) ERISA. Promptly after the filing or receiving thereof,
copies of all reports and notices with respect to any Reportable Event
(as defined in Article IV of ERISA) which such Seller or any of its ERISA
Affiliates files under ERISA with the Internal Revenue Service, the
Pension Benefit Guaranty Corporation or the U.S. Department of Labor or
which such Seller or any of its ERISA Affiliates receives from the
Internal Revenue Service, the Pension Benefit Guaranty Corporation or the
U.S. Department of Labor.
(xi) Other Information. Such other information (including
non-financial information) as JPFD, the Agent or the Administrative
Agent may from time to time reasonably request with respect to any such
Seller or any of its Subsidiaries.
(d) Conduct of Business. (i) Carry on and conduct its business in
substantially the same manner and in substantially the same fields of
enterprise as it is presently conducted, (ii) do all things necessary to
remain duly incorporated, validly existing and in good standing as a domestic
corporation in its jurisdiction of incorporation and (iii) maintain all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted, except, in the case of clause (iii) hereof, where the
failure to do so would not result in a Material Adverse Effect.
(e) Compliance with Laws. Comply, and cause each of its
Subsidiaries to comply, with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which
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it or its respective properties may be subject, except where such failure to so
comply would not have a Material Adverse Effect.
(f) Furnishing of Information and Inspection of Records. Furnish
to JPFD and the Agent from time to time such information with respect to the
Receivables as the Agent may reasonably request, including, without limitation,
listings identifying the Obligor and the Outstanding Balance for each
Receivable. Permit JPFD and the Agent, or its agents or representatives, at
any time and from time to time during regular business hours, (i) to examine
and make copies of, and make abstracts from, all of such Seller's Records and
(ii) to visit the offices and properties of such Seller, for the purpose of
examining such Records, and to discuss matters relating to such Seller's
Receivables or such Seller's performance hereunder and under the other
Transaction Documents to which such Seller is a party with any of the officers,
directors, employees or independent public accountants of such Seller having
knowledge of such matters.
(g) Keeping of Records and Books of Account. Maintain and
implement administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing its Receivables in the
event of the destruction of the originals thereof), and keep and maintain, all
documents, books, records and other information reasonably necessary or
advisable for the Collection of all of such Seller's Receivables (including,
without limitation, records adequate to permit the daily identification of each
new Receivable and all Collections of and adjustments to each existing
Receivable). Give JPFD and the Agent notice of any material change in the
administrative and operating procedures of such Seller referred to in the
previous sentence.
(h) Performance and Compliance with Receivables and Contracts. At
such Seller's expense, timely and fully perform and comply with all material
provisions, covenants and other promises required to be observed by such Seller
under the Contracts related to the Receivables.
(i) Credit and Collection Policy. Comply in all material respects
with the Credit and Collection Policy in regard to each of its Receivables and
the related Contracts.
(j) Collections. Instruct all of its Obligors to cause all
Collections to be remitted directly to a Lock-Box, Lock-Box Account or Deposit
Account of such Seller.
(k) Collections Received. Hold in trust, and deposit,
immediately, but in any event not later than forty-eight (48) hours of such
Seller's receipt thereof, to one of its Lock-Box
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Accounts or Deposit Accounts, all Collections received from time to time by
such Seller.
(l) Separate Identity. Take all actions reasonably required to
maintain JPFD's status as a separate legal entity, including, without
limitation, (i) not misleading third parties as to JPFD's identity as an
entity with assets and liabilities distinct from the Parent and the Parent's
Subsidiaries; (ii) not holding itself out to be responsible for the debts or
decisions or actions relating to the business and affairs of JPFD; (iii)
taking such other actions as are necessary on its part to ensure that the
covenants made by JPFD in Section 5.1(j)(ii) of the TAA are true and correct at
all times; and (iv) taking such other actions as are necessary on its part to
ensure that JPFD's corporate procedures required by its certificate of
incorporation and by-laws are duly and validly taken.
(m) Preservation of Corporate Existence; Separate Business. (x)
Preserve and maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and (y) qualify and remain
qualified in good standing as a foreign corporation in each respective
jurisdiction where the failure to do so would have a Material Adverse Effect.
(n) Insurance. Ensure that all Persons that, in the ordinary
course of the performance of their duties in their employment or engagement
with such Seller are required or authorized to accept or receive Collections
directly from the Obligors thereon are covered by a fidelity bond, fidelity
insurance or other similar bond or insurance, in each case, in an amount
reasonably acceptable to JPFD and the Agent.
SECTION 5.02. Negative Covenants of the Sellers. From the date
hereof until the Collection Date, no Seller shall, without the written consent
of JPFD, the Agent and the Majority Investors:
(a) No Sales, Liens, Etc. Except as otherwise provided herein and
the TAA, sell, assign (by operation of law or otherwise) or otherwise dispose
of, or create or suffer to exist any Adverse Claim upon or with respect to (x)
any of the Receivables or the Related Assets, (y) any inventory or goods, the
sale of which may give rise to a Receivable, except where such Person in whose
favor such Adverse Claim exists has acknowledged in writing in form and
substance satisfactory to JPFD and the Agent that it does not claim, and
thereby releases, any Adverse Claim in the Receivables and the Related Assets,
whether arising as Proceeds of such Person's collateral or otherwise, or (z)
upon or with respect to any Lock-Box Account or Deposit Account to which any
Collections of any Receivable are sent or deposited, or assign any right to
receive income in respect thereof; provided, that the Sellers shall be
permitted to
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sell their inventory in the ordinary course of their respective businesses.
(b) No Extension or Amendment of Receivables. Except as otherwise
permitted in Section 6.03(b) hereof, extend, amend or otherwise modify the
terms of any Receivable, or amend, modify or waive any term or condition of any
Contract related thereto.
(c) No Change in Business or Credit and Collection Policy. Make
any change in the character of its business or in the Credit and Collection
Policy, which change would, in either case, impair the collectibility of any
Receivable or otherwise have a Material Adverse Effect.
(d) No Mergers, Etc. (i) Consolidate or merge with or into any
other Person except where such Seller shall be the surviving entity of such
merger or consolidation and no Termination Event or Potential Termination Event
shall then be outstanding or would result therefrom; provided that any Seller
may merge or consolidate with any other Seller so long as no Termination Event
or Potential Termination Event shall then be outstanding or would result
therefrom; and provided, further, that unless the Agent and JPFD shall have
consented, no receivables of any Person (other than another Seller) with whom
such Seller shall have merged or consolidated (including such receivables
arising from such person's businesses or divisions after the date thereof)
shall be sold to JPFD hereunder, deemed to be a Receivable hereunder, or
collected or deposited in any Lock-Box, Lock-Box Account or Deposit Account, or
(ii) sell, lease or transfer all or substantially all of its assets to any
other Person.
(e) Assignment. Assign any of the Seller's rights or delegate any
of the Seller's duties under this Agreement, the TAA, or any of the other
Transaction Documents to which the Seller is a party, without the prior written
consent of the Agent.
(f) Change in Payment Instructions to Obligors. Add or terminate
(x) any bank as a Lock-Box Bank, any account as a Lock-Box Account or any
lock-box as Lock-Box to or from those listed on Schedule 4.01(o) hereto or make
any change in its instructions to Obligors regarding payments to be made to any
Lock-Box or Lock-Box Account, or (y) any bank as a Deposit Account Bank or any
account as Deposit Account to or from those listed on Schedule 4.01(o) hereto,
unless, in each case, (i) such instructions are to deposit such payments to
another existing Lock-Box, Lock-Box Account or Deposit Account of such Seller
or (ii) the Agent shall have received written notice of such addition,
termination or change at least 30 days prior thereto and the Agent shall have
received a Lock-Box Agreement executed by each new Lock-Box Bank or an existing
Lock-Box Bank with respect
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to each new Lock-Box Account or Lock-Box or a Deposit Account Agreement
executed by each new Deposit Account Bank or an existing Deposit Account Bank
with respect to each new Deposit Account, as applicable.
(g) Deposits to Lock-Box Accounts and Deposit Accounts. Deposit or
otherwise credit, or cause or permit to be so deposited or credited, to any
Lock-Box, Lock-Box Account or Deposit Account any cash or cash proceeds other
than Collections of Receivables; provided, however, that if any such cash or
cash proceeds other than Collections are inadvertently deposited or credited to
any Lock-Box Account or Deposit Account, such Seller shall notify JPFD and the
Collection Agent immediately, but in any event within one (1) Business Day,
after such Seller shall have become aware thereof or shall have received notice
thereof.
(h) Change of Name, Etc. Change its name, identity or corporate
structure (within the meaning of Section 9-402(7) of the UCC as in effect in
the State of New York and the State in which such Seller's chief executive
office and principal place of business is located) nor the location of its
chief executive office or any office where Records are kept, unless at least 30
days prior to the effective date of any such change such Seller delivers to
JPFD, the Agent and the Collateral Agent (i) such documents, instruments or
agreements, executed by such Seller as are necessary to reflect such change and
to continue the perfection of JPFD's, the Agent's and the Collateral Agent's
ownership interests or security interests in the Receivables and the Related
Assets and (ii) new or revised Lock-Box Agreements and Deposit Account
Agreements executed by the Lock-Box Banks and Deposit Account Banks,
respectively, which reflect such change.
(i) Actions Inconsistent Herewith. Take any action under this
Agreement that shall have a material adverse effect on the Agent, the Company
or any Bank Investor or which is inconsistent with the terms of this Agreement
or the TAA.
(j) ERISA Matters. Nor permit any of its ERISA Affiliates to, (i)
engage in any prohibited transaction (as defined in Section 4975 of the Code
and Section 406 of ERISA) for which an exemption is not available or has not
previously been obtained from the U.S. Department of Labor; (ii) permit to
exist any accumulated funding deficiency (as defined in Section 302(a) of ERISA
and Section 412(a) of the Code) or funding deficiency with respect to any
Benefit Plan other than a Multiemployer Plan; (iii) fail to make any payments
to any Multiemployer Plan that such Seller or any of its ERISA Affiliates is
required to make under the agreement relating to such Multiemployer Plan or any
law pertaining thereto; (iv) terminate any Benefit Plan so as to result in any
liability; or (v) permit to exist any occurrence of any reportable event
described in Title IV of ERISA which represents a material risk of a liability
to such Seller or any
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of its ERISA Affiliates under ERISA or the Code, if such prohibited
transactions, accumulated funding deficiencies, payments, terminations and
reportable events incurring within any Fiscal Year, in the aggregate, involve a
payment of money or an incurrence of liability by such Seller or any of its
ERISA Affiliates, in an amount in excess of $200,000. Without limiting the
foregoing in any manner whatsoever, such Seller shall, and shall cause any such
ERISA Affiliate, as applicable, to satisfy any such liability (whether or not
in excess of $200,000) and to remedy the circumstances giving rise thereto, in
each case, within 10 days after such Person acquires or should have acquired
knowledge thereof.
(k) Payment to the Sellers. With respect to any Receivable sold or
contributed by such Seller to JPFD, effect such sale or capital contribution
under, and pursuant to the terms of, this Agreement, including, without
limitation, the payment by JPFD (either in cash or by increase in the amount
of the Subordinated Note) to such Seller, or the noting of a capital
contribution on the books and records of such Seller, in each case, of an
amount equal to the purchase price for each such Receivable so sold or
contributed as required by the terms of this Agreement.
(l) Sale Treatment. Account for (including for accounting and tax
purposes), or otherwise treat, the transactions contemplated by this Agreement
in any manner other than as a sale or capital contribution, as applicable, of
Receivables by such Seller to JPFD, except to the extent otherwise required by
GAAP or applicable law. In addition, fail to disclose (in a footnote or
otherwise) in all of its respective financial statements (including any such
financial statements consolidated with any other Persons' financial statements)
the existence and nature of the transaction contemplated hereby and the
interest of JPFD hereunder.
(m) Certificate of Incorporation. Cause JPFD to amend its
Certificate of Incorporation or Bylaws in any manner which would require the
consent of JPFD's independent director or directors, without the Agent's and
the Majority Investors' prior written consent.
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Collection of Receivables. (a) Each Seller hereby
acknowledges and agrees that the Agent has the exclusive ownership and control
of each Lock-Box and Lock-Box Account maintained by such Seller at a Lock-Box
Bank, and each Deposit Account maintained by such Seller at a Deposit Account
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Bank, and each Seller hereby agrees to take any further action necessary or
that the Agent or JPFD may reasonably request to evidence and/or effect such
ownership and control. If the Collection Agent or any Seller or its agents or
representatives shall at any time receive any cash, checks or other instruments
constituting Collections, such recipient shall immediately, but in any event
within forty-eight (48) hours of such receipt, remit such Collections, duly
endorsed or with duly executed instruments of transfer, to a Lock-Box Account
or Deposit Account. At any time after the Agent's designation of a Collection
Agent (other than the Parent, any of the Sellers, JPFD or any Affiliate of any
of the foregoing):
(x) JPFD (or its assignees) may notify any or all of the Obligors
of the ownership of Transferred Assets by JPFD (or any such assignee) and
may direct any or all of the Obligors of Receivables included in the
Transferred Assets to pay all amounts payable under any such Receivables
directly to JPFD (or any such assignee) or its designee;
(y) at JPFD's (or any such assignee's) request and at such
Seller's expense, each Seller shall give notice of JPFD's (or any such
assignee's) ownership of Transferred Assets purchased from such Seller to
each Obligor thereunder and direct that payments be made directly to JPFD
(or any such assignee) or its designee and assemble all Records of such
Seller, and make the same available to JPFD (or any such assignee) or its
designee at a place selected by JPFD (or its assignee) or its designee; or
(z) At JPFD's or the Agent's request, each Seller shall (A)
assemble all of the Records, and shall make the same available to the
Agent or its designee at a place selected by the Agent or its designee,
and (B) segregate all cash, checks and other instruments received by it
from time to time constituting Collections of Receivables in a manner
acceptable to JPFD and the Agent and shall, promptly upon receipt, remit
all such cash, checks and instruments, duly endorsed or with duly executed
instruments of transfer, to the Agent or its designee.
Each Seller hereby authorizes JPFD and/or the Collection Agent, on behalf of
JPFD, and gives each of JPFD and the Collection Agent its irrevocable power of
attorney, which authorization shall be coupled with an interest, to take any
and all steps in such Seller's name and on behalf of such Seller, which steps
are necessary or desirable, in the reasonable determination of JPFD and/or the
Collection Agent, to collect all amounts due under the Transferred Assets,
including, without limitation, endorsing such Seller's name on checks and other
instruments representing Collections and enforcing such Receivables and the
related Contracts.
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(b) JPFD shall, or shall cause the Collection Agent to, following
notification that collections of any receivable or other intangible owed to any
Seller or any Affiliate thereof, which is not a Transferred Asset, have been
deposited into a Lock-Box Account or Deposit Account, segregate all such
collections and, after such misapplied collections have been reasonably
identified to JPFD, JPFD shall, or shall cause the Collection Agent to, turn
over to such Seller or such Affiliate, as applicable, all such collections less
all reasonable and appropriate out-of-pocket costs and expenses, if any,
incurred by JPFD or the Collection Agent in collecting such receivables. All
amounts deposited in a Lock-Box Account or Deposit Account during any Fiscal
Month which are not identified prior to the succeeding Report Date as
collections on receivables or intangibles not included in the Transferred
Assets shall be irrevocably deemed to be Collections of the Receivables and the
property of JPFD.
SECTION 6.02. Designation of Collection Agent. (a) The servicing,
administering, enforcement and collection of the Receivables and the Related
Assets shall be conducted by the Person (the "Collection Agent") designated
pursuant to Section 6.1 of the TAA. Until JPFD gives notice to the Sellers of
the designation of a new Collection Agent as prescribed in the TAA,
Distributors is hereby designated as, and Distributors hereby agrees to perform
the duties and obligations of, the Collection Agent in accordance with this
Agreement, the TAA and the other Transaction Documents. The Collection Agent
will have responsibility for the management of the servicing and receipt of
Collections in respect of the Receivables and will have the authority to make
any management decisions relating to the Receivables to the extent such
authority is granted to the Collection Agent hereunder or under the other
Transaction Documents; and it being further understood that for so long as
JPFD, the Parent, Distributors, any of the other Sellers or any Affiliate of
any of the foregoing acts as Collection Agent, such Person (x) performs its
duties hereunder for the benefit of JPFD and its assignees and (y) holds all
Receivables, Related Assets, Records and Collections which it receives in its
capacity solely as Collection Agent and claims or retains no legal or
beneficial title or interest therein or thereto. Subject to the terms of the
TAA, the Agent may at any time designate any Person (including itself) to
replace Distributors or any successor Collection Agent as Collection Agent.
The Collection Agent may, with the prior written consent of the Agent,
subcontract with any other Person for the servicing, administering or
collecting of the Receivables (any such Person with which the Collection Agent
may so sub-contract being a "Sub-Collection Agent" and collectively, the
"Sub-Collection Agents"); provided, however, that the Collection Agent shall
remain liable for the performance of the duties and obligations of the
Collection Agent and Sub-Collection Agents pursuant to the terms hereof; it
being understood and agreed, that (i) the Agent may at any time after
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the occurrence of any event of the type described in the definition of
"Collection Agent Default" in the TAA, with respect to such Sub-Collection
Agent, terminate or cause the Collection Agent to replace any Sub-Collection
Agent and (ii) unless otherwise specified by the Agent, each Sub-Collection
Agent's appointment hereunder shall automatically terminate upon the
resignation or removal of the Collection Agent that appointed such
Sub-Collection Agent; and it being further understood and agreed that the
appointments of each of the Collection Agent and the Sub-Collection Agents
shall terminate on the date occurring on or after the Termination Date upon
which all of the Aggregate Unpaids shall have been paid in full, in cash. In
connection therewith, the Collection Agent hereby appoints each Seller as, and
each Seller hereby agrees to act as, a Sub-Collection Agent under the TAA and
this Agreement. Each such Seller will be responsible, as directed by the
Collection Agent, for the servicing and administration of only the Receivables
originated by it. The Agent hereby consents to the appointment of each of the
Sellers as Sub-Collection Agents as aforesaid. To the extent permitted by
applicable law, each of the Sellers (to the extent such Person is not then
acting as Collection Agent or Sub-Collection Agent hereunder) hereby grants to
any Collection Agent appointed pursuant to the terms hereunder and under the
TAA, an irrevocable power of attorney to take any and all steps in such
Seller's name and on behalf of the Seller necessary or desirable, in the
reasonable determination of the Collection Agent, to collect all amounts due
under any and all of the Receivables, including without limitation endorsing
such Seller's name on checks and other instruments representing Collections and
enforcing such Receivables and the related Contracts.
(b) Resignation of the Collection Agent. Neither the Collection
Agent nor the Sub-Collection Agents shall resign from the obligations and
duties imposed on it as Collection Agent or Sub-Collection Agent, as
applicable, except upon such Person's determination that (i) the performance
of its duties hereunder is no longer permissible under applicable law and (ii)
there is no reasonable action which the Collection Agent or Sub-Collection
Agent, as applicable, could take to make the performance of its duties
hereunder permissible under applicable law. No such resignation by the
Collection Agent or Sub-Collection Agent shall become effective until a
successor Collection Agent or Sub-Collection Agent, as applicable, satisfactory
to the Agent shall have assumed the responsibilities and obligations of the
Collection Agent or the Sub-Collection Agent, as applicable, in accordance with
the terms hereof and with the terms of any other Transaction Document to which
such Person is a party.
SECTION 6.03. Duties of the Collection Agent. (a) Duties of
Collection Agent in General. The Collection Agent shall service and administer
the Receivables and the other Transferred Assets and, subject to the terms and
provisions of
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this Agreement, shall have full power and authority to do any and all things in
connection with such Collection and administration which it may deem necessary
or appropriate. JPFD and/or each Seller, as applicable, shall execute and
deliver to the Collection Agent any powers of attorney or other instruments or
documents that the Collection Agent may reasonably deem necessary or
appropriate to enable the Collection Agent to carry out its collections and
administrative duties hereunder. The Collection Agent shall take or cause to
be taken all such action as may be necessary or advisable to collect each
Receivable from time to time, with reasonable care and diligence, and all in
substantial compliance with applicable law and in accordance with the Credit
and Collection Policy.
(b) Modification of Receivables. Etc. So long as no Termination
Event (other than a Termination Event of the type described in Section 7.1(k),
7.1(1) or, to the extent not caused by a breach by any of the Sellers
hereunder, 7.1(h) of the TAA) shall have occurred and be continuing, the
Collection Agent may, in the ordinary course of business and in accordance with
the applicable Credit and Collection Policy, extend the maturity of
Receivables, but not beyond thirty (30) days, and extend the maturity or adjust
the Outstanding Balance as the Collection Agent may determine to be appropriate
to maximize Collections thereof; provided, however, that such extension or
adjustment shall not alter the status of such Receivable as a Delinquent
Receivable, as a Receivable past due more than 60 days, or as a Defaulted
Receivable.
(c) Documents and Records. The Collection Agent shall maintain at
all times complete books, records and accounts relating to the Receivables and
the other Transferred Assets as are necessary for performance of its
obligations hereunder and under the TAA, and shall hold all such books, records
and accounts constituting Records in trust for JPFD. Copies of such entries
shall promptly be delivered to JPFD or its agents, representatives or assignees
upon request, including, without limitation, the Agent. Upon the appointment
of any successor Collection Agent, or upon the request of the Agent from and
after a Collection Agent Default, the Collection Agent shall, at its own
expense, deliver all such Records and copies of such other books, records and
accounts to such successor Collection Agent and/or the Agent, as applicable.
(d) Certain Duties to the Sellers. The Collection Agent, if other
than Distributors, any other Seller, JPFD, the Parent or any Affiliate of any
of the foregoing, shall, as soon as practicable after a demand by a Seller, and
at the expense of such Seller, deliver to such Seller all documents,
instruments and records in its possession that evidence or relate to accounts
receivable of such Seller or other Persons that are not Receivables or
Transferred Assets, and copies of all documents,
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instruments and records in its possession that evidence or relate to
Receivables and Transferred Assets originated by such Seller.
(e) Grant of Power of Attorney. JPFD hereby grants to the
Collection Agent an irrevocable power of attorney, with full power of
substitution, to take in the name of JPFD all steps which are reasonably
necessary or appropriate to endorse, negotiate, deposit or otherwise realize on
any writing of any kind held or transmitted by JPFD in connection with any
Receivable or Transferred Asset.
(f) Turnover of Collections. If the Collection Agent shall at any
time receive any cash, checks or other instruments constituting Collections,
the Collection Agent shall segregate such payments and hold such payments in
trust for, and in a manner acceptable to JPFD and otherwise as may be required
under the TAA and shall, promptly upon receipt (and in any event within
forty-eight hours following such receipt), remit all such cash, checks and
instruments, duly endorsed or with duly executed instruments of transfer, to a
Lock-Box Account or Deposit Account.
(g) Successor Collection Agent. In the event that either JPFD,
pursuant to its rights hereunder, or the Agent, pursuant to its rights under
the TAA, shall appoint a successor Collection Agent, the Collection Agent
agrees to cooperate with JPFD in effecting the transfer of the responsibilities
and rights of the Collection Agent hereunder to such successor Collection
Agent.
SECTION 6.04. Responsibilities of the Sellers. Anything herein to
the contrary notwithstanding:
(a) Each Seller shall (i) perform all of its obligations under the
Contracts related to the Receivables sold by it hereunder to the same extent as
if such Receivables had not been sold hereunder and the exercise by JPFD (or
any of its assignees) of its respective rights hereunder shall not relieve such
Seller from such obligations and (ii) pay when due any taxes relating to the
origination and sale of the Receivables and the other Transferred Assets,
except any such taxes which such Seller is contesting in good faith and by
appropriate proceedings and in respect of which (x) such Seller has established
adequate reserves on its books and records and (y) no Adverse Claim has
resulted from the non-payment thereof.
(b) JPFD and its assignees shall have no obligation or liability
with respect to any Receivable or related Contract, nor shall JPFD or any such
assignee be obligated to perform any of the obligations of the Seller
thereunder.
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(c) Each Seller shall, upon the request of JPFD, its assigns
(including the Agent) or the Collection Agent, deliver to JPFD, such assigns
and/or the Collection Agent, as directed, all Records that evidence or relate
to the Receivables and other Transferred Assets conveyed to JPFD under this
Agreement.
SECTION 6.05. Further Action Evidencing Purchases. (a) Each
Seller agrees that at any time and from time to time, at its expense, it will
promptly execute and deliver all further instruments and documents, and take
all further action that may be reasonably necessary to perfect, protect or more
fully evidence JPFD's, the Agent's and the Bank Investors' respective interests
in the Transferred Assets, or to enable JPFD, the Agent or any of the Bank
Investors to exercise or enforce any of their respective rights hereunder.
Without limiting the generality of the foregoing, each Seller will (i) execute
and file such financing or continuation statements, or amendments thereto or
assignments thereof, and such other instruments and notices, as may be
necessary or appropriate or as JPFD, the Agent, any Bank Investor or any of the
foregoing's agents, representatives or permitted assignees may reasonably
request, and (ii) mark its master data processing records evidencing such
Receivables and related Contracts with a legend indicating JPFD's and the
Agent's respective interests therein.
(b) If any Seller fails to perform any of its agreements or
obligations under this Agreement, following expiration of any applicable cure
period, JPFD (or any assignee thereof) may (but shall not be required to)
perform, or cause performance of, such agreement or obligation, and the
reasonable expenses of JPFD (or any such assignee) incurred in connection
therewith shall be payable by such Seller upon JPFD's (or any such assignee's)
written demand therefor (which demand shall itemize such expenses in reasonable
detail).
SECTION 6.06. Application of Collections. Any payment by an
Obligor in respect of any indebtedness or other obligations owed by such
Obligor to a Seller shall, except as otherwise specified by such Obligor or
otherwise required by law, be applied as a Collection of any Receivable of such
Obligor purchased hereunder (in the order of the age by invoice date of such
Receivables, starting with the oldest such Receivable) to the extent of any
amounts then due and payable thereunder before being applied to (i) any
Receivable arising subsequent to the Termination Date which is not purchased
hereunder or (ii) any other indebtedness of such Obligor to the Seller.
SECTION 6.07. Servicing Compensation. Pursuant to the TAA, the
Company or the Bank Investors shall pay to the Collection Agent a Servicing
Fee, as full compensation for servicing activities performed by the Collection
Agent under this Agreement, the TAA and the other Transaction Documents, as
more
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fully described in (and subject to the limitations set forth in) (x) the
definition of Servicing Fee" set forth in the TAA and (y) Sections 2.5 and 2.6
of the TAA. The Servicing Fee payable pursuant to the TAA shall be paid to
the Collection Agent who shall then allocate such fee among itself and the
Sub-Collection Agents as the Collection Agent and such Sub-Collection Agents
may determine based upon each such party's pro rata share of Receivables being
serviced by such party in its capacity as Collection Agent or Sub-Collection
Agent. None of the Company, the Agent or the Bank Investors shall have any
liability for the payment of any Sub-Collection Agent unless each such party
shall have agreed to be so bound in writing.
SECTION 6.08. Collection Agent Liability. JPFD and the Agent shall
have the absolute and unlimited right to direct the Collection Agent (whether
the Collection Agent is one of the Sellers, any of their Affiliates or any
other Person) to commence or settle any legal action to enforce Collection of
any Receivable or to foreclose upon or repossess any Transferred Assets;
provided, however, that the Collection Agent shall not make the Agent, any Bank
Investor or any of the foregoing's Affiliates a party to any litigation or
proceeding without such Person's express written consent.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Indemnities by the Sellers. Without limiting any
other rights which JPFD may have hereunder or under applicable law, the Sellers
hereby jointly and severally agree to indemnify JPFD and any successors and
permitted assigns and their respective officers, directors and employees
(collectively, "Indemnified Parties") from and against any and all damages,
losses, claims, liabilities, costs and expenses, including, without
limitation, reasonable attorneys' fees and disbursements (all of the foregoing
being collectively referred to as "Indemnified Amounts") awarded against or
incurred by any of them in any action or proceeding between any of the Sellers
(including, in such Person's capacity as the Collection Agent) and any of the
Indemnified Parties or between any of the Indemnified Parties and any third
party or otherwise arising out of or as a result of this Agreement, or the
other Transaction Documents, excluding, however, (i) Indemnified Amounts to
the extent resulting from gross negligence or willful misconduct on the part of
an Indemnified Party or (ii) recourse (except as otherwise specifically
provided in this Agreement) for uncollectible Receivables; it being understood
and agreed, that except as provided in Section 2.03(b), no Seller shall be
liable for the payment of, or to indemnify JPFD or any assignee thereof for the
payment of, any loss that any such Person may incur resulting solely from the
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non-payment or non-collectibility of any Receivable due to the creditworthiness
of the applicable Obligor thereof. Without limiting the generality of the
foregoing, each Seller shall indemnify each Indemnified Party for Indemnified
Amounts relating to or resulting from:
(i) any representation or warranty made by any of the Sellers
(including in such Person's capacity as the Collection Agent or a
Sub-Collection Agent) or any officers of the Seller (including in such
Person's capacity as the Collection Agent) under or in connection with
this Agreement, any of the other Transaction Documents, any Investor
Report delivered by the Collection Agent or any other information or
report delivered by the Seller or the Collection Agent on such Seller's
behalf pursuant hereto, which shall have been false or incorrect in any
material respect when made or deemed made;
(ii) the failure by any of the Sellers (including in such
Person's capacity as the Collection Agent or a Sub-Collection Agent) to
comply with any applicable law, rule or regulation with respect to any
Receivable or the related Contract, or the nonconformity of any Receivable
or the related Contract with any such applicable law, rule or regulation;
(iii) the failure to vest and maintain vested in JPFD or to
transfer to JPFD, legal and equitable title to and first priority
perfected ownership of, the Receivables and the Related Assets, which are
sold, conveyed or otherwise transferred by the Seller hereunder, free and
clear of any Adverse Claim (other than Adverse Claims created under the
other Transaction Documents);
(iv) the failure to file, or any delay in filing, financing
statements, continuation statements, or other similar instruments or
documents under the UCC of any applicable jurisdiction or other applicable
laws with respect to any of the Receivables or the Related Assets;
(v) any dispute, claim, offset or defense (other than
discharge in bankruptcy) of the Obligor to the payment of any Receivable
(including, without limitation, a defense based on such Receivable or the
related Contract not being legal, valid and binding obligation of such
Obligor enforceable against it in accordance with its terms), or any other
claim resulting from the sale of goods, inventory or merchandise or
services related to such Receivable or the furnishing or failure to
furnish such goods, inventory, merchandise or services;
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(vi) any failure of the Collection Agent to perform its duties
or obligations in accordance with the provisions hereof;
(vii) any products liability claim or personal injury or
property damage suit or other similar or related claim or action of
whatever sort arising out of or in connection with goods, merchandise,
inventory or services which are the subject of any Receivable or Contract;
(viii) the failure by any of the Sellers (individually or
as Collection Agent or a Sub-Collection Agent) to comply with any term,
provision or covenant contained in this Agreement or any of the other
Transaction Documents to which such Seller is a party or to perform any of
its respective duties under the Contracts;
(ix) the failure of any of the Sellers to pay when due any
taxes, including without limitation, sales, excise or personal property
taxes payable in connection with any of the Receivables;
(x) any repayment by an Indemnified Party of any amount
previously distributed which such Indemnified Party believes in good faith
is required to be made;
(xi) the commingling by the Seller or the Collection Agent of
Collections of Receivables at any time with other funds;
(xii) any investigation, litigation or proceeding related to
this Agreement, any of the other Transaction Documents, the use of
proceeds of Purchases by the Seller, the ownership or maintenance of any
interest in the Transferred Assets of or any Receivable, Related Security
or Contract;
(xiii) the failure of any Lock-Box Bank or Deposit Account Bank
to remit any amounts held in the Lock-Boxes, the Lock-Box Accounts or the
Deposit Accounts pursuant to the instructions of the Collection Agent, the
Agent, JPFD or any Seller (to the extent such Person is entitled to give
such instructions in accordance with the terms hereof and of any
applicable Lock-Box Agreement or Deposit Account Agreement, as applicable)
whether by reason of the exercise of set-off rights or otherwise;
(xiv) any inability to obtain any judgment in or utilize the
court or other adjudication system of, any state in which an Obligor of
any Seller may be located as a result of the failure of such Seller to
qualify to do business or
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file any notice of business activity report or any similar report;
(xv) any action taken by the Seller, or the Collection Agent
(if any of the Sellers or any Affiliate or designee of any of the Sellers)
in the enforcement or Collection of any Receivable;
(xvi) any recovery or action for recovery by any Person under
PACA relating to any of the goods, merchandise or inventory of such
Seller, the sale of which while subject, or purportedly subject, to the
statutory trust under such statute gave rise to any Receivables; or
(xvii) the sale of any Noncomplying Receivable by such Seller to
JPFD.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Waivers; Amendments. No failure or delay on the part
of JPFD (or any assignee thereof) in exercising any power, right or remedy
under this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or remedy preclude any other further
exercise thereof or the exercise of any other power, right or remedy. The
rights and remedies herein provided shall be cumulative and nonexclusive of any
rights or remedies provided by law. Any provision of this Agreement may be
amended if, but only if, such amendment is in writing and is signed by JPFD,
the Agent and the Majority Investors.
SECTION 8.02. Notices. Except as provided below, all
communications and notices provided for hereunder shall be in writing
(including telecopy or electronic facsimile transmission or similar writing)
and shall be given to the other party at its address or telecopy number set
forth below its name on the signature pages hereto or at such other address or
telecopy number as such party may hereafter specify for the purposes of notice
to such party. Each such notice or other communication shall be effective (i)
if given by telecopy, when such telecopy is transmitted to the telecopy number
specified for such Person and confirmation is received, (ii) if given by
mail, three (3) Business Days following such posting, postage prepaid, U.S.
Certified or registered, (iii) if given by overnight courier, one (1)
Business Day after deposit thereof with a national overnight courier service,
or (iv) if given by any other means, when received at the address specified on
the signature pages hereof.
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SECTION 8.03. Effectiveness; Binding Effect; Assignability (a)
This Agreement shall become effective on the Closing Date and shall, from and
after such date, be binding upon and inure to the benefit of the Sellers and
JPFD and their respective successors and permitted assigns. None of the
Sellers may assign any of their rights or delegate any of their duties
hereunder or any interest herein without the prior written consent of the
Agent. No provision of this Agreement shall in any manner restrict the ability
of JPFD (or the Company or any Bank Investor as assignees of JPFD) to assign,
participate, grant security interests in, or otherwise transfer any of their
rights or remedies hereunder.
(b) Without limiting the foregoing, each of the Sellers hereby
acknowledges that, contemporaneously herewith, JPFD is selling, assigning,
transferring and conveying to the Agent (for its benefit and for the benefit
of the Company, the Bank Investors, and each of the foregoing's respective
assignees, under the TAA, all of JPFD's right and title to and interest in,
among other things, the Transferred Assets and this Agreement, including all of
JPFD's rights, remedies, powers and privileges, and all claims of JPFD against
the Sellers, under or with respect to this Agreement (whether arising pursuant
to the terms of this Agreement or otherwise available at law or in equity),
including (i) the right of JPFD and the obligations of the Sellers hereunder
and (ii) the right, at any time, to give or withhold consents, requests,
notices, directions, approvals, demands, extensions or waivers under or with
respect to this Agreement or the obligations in respect of the Sellers
hereunder to the same extent as JPFD may do. Each of the Sellers hereby
consents to such sale, transfer, assignment and conveyance to the Agent and
acknowledges and agrees that the Agent, as the assignee of JPFD for the benefit
of the Company, the Bank Investors and each of the foregoing's respective
assignees, including but not limited to the Collateral Agent, shall be a third
party beneficiary of the rights of JPFD arising hereunder and under the other
Transaction Documents to which any of the Sellers is a party.
(c) Each of the Sellers hereby agrees to execute all agreements,
instruments and documents, and to take all other action, that JPFD or the Agent
reasonably determines is necessary or appropriate to evidence the assignments
described in clause (b) immediately above. To the extent that JPFD,
individually or through the Collection Agent, has granted or grants powers of
attorney to the Agent under the TAA, each Seller hereby grants a corresponding
power of attorney on the same terms to JPFD. Each Seller hereby acknowledges
and agrees that JPFD, in all of its capacities, shall assign to the Agent for
the benefit of the Company, the Bank Investors, and each of the foregoing's
respective assignees, such powers of attorney and other rights and interests
granted by each Seller to JPFD
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hereunder and agrees to cooperate fully with the Agent in the exercise of such
rights.
(d) This Agreement shall create and constitute the continuing
obligations of the parties hereto in accordance with its terms, and shall
remain in full force and effect until the date occurring after the Termination
Date upon which the Aggregate Unpaids have been paid in full, in cash;
provided, however, that (i) the rights and remedies with respect to any breach
of any of the provisions of Section 8.06, (ii) the indemnification and payment
provisions of Article VII and Section 8.05 and (iii) the provisions of Section
8.09, shall, in each case, be continuing and shall survive any termination of
this Agreement.
SECTION 8.04. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. EACH OF THE SELLERS AND JPFD HEREBY
SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN
THE CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF
THE SELLERS AND JPFD HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT THEY MAY
EFFECTIVELY DO SO, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY
CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. NOTHING IN THIS SECTION 8.04 SHALL AFFECT THE RIGHT OF
JPFD TO BRING ANY ACTION OR PROCEEDING AGAINST ANY SELLER OR ITS PROPERTY IN
THE COURTS OF OTHER JURISDICTIONS.
(b) EACH OF THE SELLERS AND JPFD HEREBY WAIVES ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT
OR OTHERWISE AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR
INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT
OR THE OTHER TRANSACTION DOCUMENTS.
SECTION 8.05. Costs and Expenses. In addition to the rights of
indemnification under Article VII hereof, the Sellers agree to pay JPFD on
demand all costs and expenses (including without limitation, reasonable counsel
fees and expenses) in connection with the enforcement of the covenants,
agreements, liabilities and obligations of the Sellers and the Collection Agent
under this Agreement and the other Transaction Documents.
SECTION 8.06. Confidentiality. (a) JPFD hereby acknowledges that
the Records and other information which the
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<PAGE> 43
Sellers must assign and/or deliver to JPFD hereunder may contain information in
which the Sellers have a proprietary interest and which may not, at the time of
assignment and/or delivery, be generally available to and known by the public.
JPFD hereby agrees to maintain as confidential all such information obtained
from the Sellers which is not otherwise generally available to the public and
not to disclose such information to any other Person, provided, however, that
nothing in this Section 8.06 shall prevent JPFD or its assignee from disclosing
such information (i) to any permitted assignee of JPFD or its assignees for the
purpose of such Person's enforcing its rights to and interest in the
Receivables and Related Assets; (ii) to JPFD's or such assignee's (and such
assignees') employees, agents, attorneys and accountants; (iii) subject to
the further requirements set forth in this Section 8.06, upon the order of any
court or administrative agency or upon the request or demand of any regulatory
agency, authority or official having jurisdiction over such party, (iv) which
has been obtained from any Person other than JPFD or its assignees, any Seller
or a party hereto, (v) in connection with any pending or threatened
litigation among the parties to the Transaction Documents; or (vi) as
otherwise expressly contemplated by this Agreement. In addition, each of the
Sellers hereby agrees that it will not disclose the contents of this Agreement,
the TAA, or any other proprietary or confidential information of JPFD or any of
its assignees to any other Person except (i) its auditors and attorneys,
employees or financial advisors (other than any commercial bank) and any
nationally recognized rating agency, provided such auditors, attorneys,
employees, financial advisors or rating agencies are informed of the highly
confidential nature of such information or (ii) as otherwise required by
applicable law or order of a court of competent jurisdiction.
(b) Notwithstanding the foregoing, each of the Sellers hereby
consents to the disclosure of any non-public information with respect to it
received by JPFD to any of the Company, the Agent, any nationally recognized
rating agency rating the Company's Commercial Paper, the Administrative Agent,
the Collateral Agent, any Bank Investor or potential Bank Investor, the
Liquidity Provider or the Credit Support Provider in relation to the TAA.
(c) Each of the Sellers hereby agrees that it will not disclose the
contents of the TAA, this Agreement or any other proprietary or confidential
information of the Company, the Agent, the Administrative Agent, the Collateral
Agent, any Liquidity Provider or any Bank Investor to any other Person except
(i) such Seller's auditors and attorneys, employees or financial advisors
(other than any commercial bank) and any nationally recognized rating agency,
provided such auditors, attorneys, employees, financial advisors or rating
agencies are informed of the highly confidential nature of such information or
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<PAGE> 44
(ii) as otherwise required by applicable law or order of a court of competent
jurisdiction.
SECTION 8.07. Execution in Counterparts; Severability. This
Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which when taken together shall
constitute one and the same agreement. In case any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 8.08. Purchase Termination. (a) The agreements of the
Sellers to sell Receivables hereunder may be terminated at any time by the
Sellers by giving written notice thereof to JPFD and the Agent of the Sellers'
election to terminate this Agreement, in which event the Purchase Termination
Date shall thereafter occur on the date specified therefor by the Sellers' in
such notice, but in any event not less than 60 days after the Agent's receipt
of such notice.
(b) Notwithstanding any such termination described under paragraph
(a) above, all other provisions of this Agreement shall remain in full force
and effect as provided in Section 8.03. On or after the termination of this
Agreement, JPFD will, at the request and expense of the Sellers, execute and
deliver to the Sellers such UCC termination statements and other documents as
the Sellers may reasonably request to evidence such termination.
SECTION 8.09. No Proceedings. (a) Each of the Sellers hereby
covenants and agrees that, prior to the date which is one year and one day
after the payment in full of all outstanding Commercial Paper or other
indebtedness of the Company, it will not institute against, or join any other
Person in instituting against, the Company any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceeding
under the laws of the United States or any other state of the United States.
(b) Each of the Sellers and the Collection Agent (including any
Sub-Collection Agents) hereby agrees that it will not institute against JPFD,
or join any other Person in instituting against JPFD, any proceeding of the
type referred to in the definition of "Bankruptcy Event", so long as any
Aggregate Unpaid shall be outstanding or there shall not have elapsed one year
plus one day since the last day on which any such Aggregate Unpaid shall have
been outstanding. The foregoing shall limit the rights of any Seller under
any and all agreements it may have
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<PAGE> 45
with JPFD but shall not limit the right of any Seller to file any claim in or
otherwise take any action with respect to any insolvency proceeding that was
instituted against JPFD by any Person other than a Seller or any Affiliate
thereof.
SECTION 8.10. Entire Agreement. This Agreement, together with the
other Transaction Documents, including the exhibits and schedules hereto and
thereto, contains a final and complete integration of all prior expressions by
the parties hereto with respect to the subject matter hereof and shall
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof, superseding all previous oral statements and other
writings with respect thereto.
SECTION 8.11. Survival of Agreement. All covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the Closing Date, the initial Purchase and each
subsequent Purchase and shall continue in full force and effect until the date
following the Termination Date upon which the Aggregate Unpaids have been paid
in full, in cash.
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<PAGE> 46
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the
date first above written.
JP FOODSERVICE DISTRIBUTORS, INC.
By: /s/ JAMES L. MILLER
---------------------------
Name: James L. Miller
Title: President
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Attention: George Megas
Telephone: (410) 312-7577
Telecopy: (410) 312-7599
SKY BROS., INC.
By: /s/ JAMES L. MILLER
---------------------------
Name: James L. Miller
Title: President
Burns Avenue and Canan Station
Altoona, Pennsylvania 16601
Attention:
Telephone:
Telecopy:
ILLINOIS FRUIT & PRODUCE CORP.
By: /s/ JAMES L. MILLER
---------------------------
Name: James L. Miller
Title: President
One Quality Lane
Streator, Illinois 61364
Attention:
Telephone:
Telecopy:
<PAGE> 47
JPFD FUNDING COMPANY
By: /s/ GEORGE T. MEGAS
------------------------------------
Name: George T. Megas - Vice President,
Finance
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Attention: George Megas
Telephone: (410) 312-7577
Telecopy:
JP FOODSERVICE, INC.
By: /s/ JAMES L. MILLER
------------------------------------
Name: James L. Miller
Title: President
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Attention: George Megas
Telephone: (410) 312-7577
Telecopy: (410) 312-7599
<PAGE> 1
Exhibit 10.28
================================================================================
TRANSFER AND ADMINISTRATION AGREEMENT
among
ENTERPRISE FUNDING CORPORATION,
as Company
and
JPFD FUNDING COMPANY
as Transferor
and
JP FOODSERVICE DISTRIBUTORS, INC.
as the initial Collection Agent
and
NATIONSBANK, N.A.
as Agent and as a Bank Investor
and
CERTAIN OTHER FINANCIAL INSTITUTIONS
FROM TIME TO TIME PARTIES HERETO
as Bank Investors
Dated as of May 30, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
ARTICLE I
DEFINITIONS
<S> <C> <C>
SECTION 1.1. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 1.3. Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE II
PURCHASES AND SETTLEMENTS
SECTION 2.1. Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.2. Transfers; Eligible Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.3. Selection of Tranche Periods and Tranche Rates . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2 4. Discount, Fees and Other Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.5. Non-Liquidation Settlement and Reinvestment Procedures; Partial Liquidations . . . . . . 36
SECTION 2.6. Liquidation Settlement Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 2.7. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 2 8. Protection of Ownership Interest of the Company and the Bank Investors . . . . . . . . . 39
SECTION 2.9. Deemed Collections; Application of Payments . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 2.10. Payments and Computations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 2.11. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 2.12. Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 2.13. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 2.14. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Transferor . . . . . . . . . . . . . . . . . . . . 43
SECTION 3.2. Reaffirmation of Representations and Warranties by the Transferor . . . . . . . . . . . 49
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE V
COVENANTS
SECTION 5.1. Affirmative Covenants of Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 5.2. Negative Covenants of the Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE VI
ADMINISTRATION and COLLECTIONS
SECTION 6.1. Appointment of Collection Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 6.2. Duties of Collection Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 6.3. Rights After Designation of New Collection Agent . . . . . . . . . . . . . . . . . . . . 66
SECTION 6.4. Collection Agent Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 6.5. Responsibilities of the Transferor and the Sellers . . . . . . . . . . . . . . . . . . . 68
ARTICLE VII TERMINATION EVENTS
SECTION 7.1. Termination Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 7.2. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS
SECTION 8.1. Indemnities by the Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 8.2. Indemnity for Taxes, Reserves and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 8.3. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 8.4. Other Costs, Expenses and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 8.5. Reconveyance Under Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . 81
ARTICLE IX
THE AGENT; BANK COMMITMENT
SECTION 9.1. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 9.2. Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 9.3. Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 9.4. Indemnification of the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 9.5. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 9.6. Payments by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 9.7. Bank Commitment; Assignment to Bank Investors . . . . . . . . . . . . . . . . . . . . . 85
ARTICLE X MISCELLANEOUS
SECTION 10.1. Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 10.2. Waivers; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 10.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 10.4. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; INTEGRATION . . . . . . 92
SECTION 10.5. Counterparts; Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 10.6. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 10.7. Waiver of Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 10.8. Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 10.9. No Bankruptcy Petition Against the Company . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 10.10. No Recourse Against Stockholders, Officers or Directors . . . . . . . . . . . . . . . . 94
SECTION 10.11. Characterization of the Transactions Contemplated by the Agreement . . . . . . . . . . . 94
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
ANNEX DESCRIPTION
<S> <C>
Annex I -- Financial Covenant Definitions
<CAPTION>
EXHIBITS DESCRIPTION
<S> <C>
Exhibit A -- Form of Contracts
Exhibit B -- Credit and Collection Policy
Exhibit C-1 -- Lock-Box Banks; Lock-Box Accounts; Lock-Box Numbers
Exhibit C-2 -- Form of Lock-Box Agreement
Exhibit D-1 -- Deposit Account Banks; Deposit Account
Numbers
Exhibit D-2 -- Form of Deposit Account Agreement
Exhibit E -- Form of Investor Report
Exhibit F -- Fiscal Months
Exhibit G -- Form of Assignment and Assumption Agreement
Exhibit H -- Litigation Matters
Exhibit I -- Addresses and Locations of Books and Records of the Transferor and Sellers
Exhibit J -- Tradenames of Transferor & Sellers
Exhibit K-1 -- Matters for inclusion in opinion of counsel to Transferor and the Sellers
Exhibit L-I -- Form of Secretary's Certificate (Transferor)
Exhibit L-2 -- Form of Secretary's Certificate (Sellers)
Exhibit M -- ERISA Matters
Exhibit N-1 -- Form of Officer's Certificate (pro-forma balance sheet)
Exhibit N-2 -- Form of Officer's Certificate (Closing Date certifications)
Exhibit O -- Environmental Matters
</TABLE>
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<PAGE> 6
TRANSFER AND ADMINISTRATION AGREEMENT
TRANSFER AND ADMINISTRATION AGREEMENT (this "Agreement"),
dated as of May 30, 1996, by and among JPFD FUNDING COMPANY, a Delaware
corporation, as transferor (in such capacity, the "Transferor"), JP
FOODSERVICE DISTRIBUTORS, INC., a Delaware corporation, as the initial
collection agent (in such capacity, the "Collection Agent"), ENTERPRISE
FUNDING CORPORATION, a Delaware corporation (the "Company"), NATIONSBANK, N.A.,
a national banking association ("NationsBank"), as agent for the Company and
the Bank Investors (in such capacity, the "Agent") and as a Bank Investor, and
those other financial institutions from time to time parties hereto as Bank
Investors.
PRELIMINARY STATEMENTS
WHEREAS, the Transferor may desire to convey, transfer and assign,
from time to time, undivided percentage interests in certain accounts
receivable, and the Company may desire to, and the Bank Investors, if
requested, shall, accept such conveyance, transfer and assignment of such
undivided percentage interests, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Administrative Agent" means NationsBank, N.A., as administrative
agent.
"Adverse Claim" means a lien, security interest, charge or
encumbrance, or other right or claim in, of or on any Person's assets or
properties in favor of any other Person (including any UCC financing statement
or any similar instrument filed against such Person's assets or properties).
"Affected Assets" means, collectively, the Receivables and the Related
Security, Collections and Proceeds relating thereto.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. A
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<PAGE> 7
Person shall be deemed to control another Person if the controlling Person
possesses, directly or indirectly, the power to direct or cause the direction
of the management or policies of the controlled Person, whether through
ownership of voting stock, by contract or otherwise.
"Affiliate Premises" shall mean real property in which the Transferor,
any Affiliate of the Transferor, or any Person which has been an Affiliate of
the Transferor at any time has or ever had any direct or indirect interest,
including, without limitation, ownership thereof, or any arrangement for the
lease, rental or other use thereof, or the retention or claim of any mortgage
or security interest therein or thereon.
"Agent" means NationsBank, N.A., in its capacity as agent for the
Company and the Bank Investors, and any successor thereto appointed pursuant to
Article IX.
"Aggregate Unpaids" means, at any time, an amount equal to the sum of
(i) the aggregate accrued and unpaid Discount with respect to all Tranche
Periods at such time, (ii) the Net Investment at such time, and (iii) all
other amounts owed (whether due or accrued) hereunder by the Transferor to the
Company, the Bank Investors, the Agent or the Collection Agent (if other than
the Transferor, any of the Sellers or any Affiliate of any of the foregoing) at
such time.
"Applicable Margin" means, for purposes of calculating the Eurodollar
Rate for any Eurodollar Tranche, the applicable margin corresponding to the
Total Debt and Investment Ratio (as such term is defined in Annex I hereto)
set forth below as determined as of the last day of each Fiscal Month and as
set forth on the Investor Report covering such Fiscal Month:
<TABLE>
<CAPTION>
Total Debt and
Investment Ratio Applicable Margin
---------------- -----------------
<S> <C>
Greater than 3.5 to 1.0 100 basis points
Equal to or less than 3.5
to 1.0 but greater than 3.0
to 1.0 87.5 basis points
Equal to or less than 3.0 to
1.0 but greater than 2.5 to
1.0 75.0 basis points
Equal to or less than 2.5 to
1.0 50.0 basis points
</TABLE>
The Applicable Margin shall be determined on each date that an Investor Report
shall be delivered by the Transferor or the
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<PAGE> 8
Collection Agent to the Agent for each Fiscal Month and such margin shall
remain in effect until the date upon which the next Investor Report shall have
been so delivered to the Agent at which time the Applicable Margin shall be
redetermined in accordance with the Total Debt and Investment Ratio reported at
such time.
"Arrangement Fee" means the fee payable by the Transferor to the
Administrative Agent pursuant to Section 2.7 hereof, the terms of which are set
forth in the Fee Letter.
"Assignment Amount" with respect to a Bank Investor shall mean at any
time an amount equal to the lesser of (i) such Bank Investor's Pro Rata Share
of the Net Investment at such time and (ii) such Bank Investor's unused
Commitment.
"Assignment and Assumption Agreement" means an Assignment and
Assumption Agreement substantially in the form of Exhibit G attached hereto.
"Average Collection Period" means at any time a period of days equal
to the product of (i) a fraction the numerator of which shall be the amount set
forth in the most recent Investor Report as the "Beginning Balance" of the
Receivables and the denominator of which shall be the Collections as set forth
in the most recent Investor Report and (ii) thirty (30).
"Bank Investors" means NationsBank, N.A. and its successors and
assigns.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978 (11 U.S.C.
Sections 101 et seq.), as amended.
"Base Rate" or "BR" means, a rate per annum equal to the greater of
(i) the prime rate of interest announced by the Liquidity Provider (or, if more
than one Liquidity Provider, then by NationsBank) from time to time, changing
when and as said prime rate changes (such rate not necessarily being the lowest
or best rate charged by the Liquidity Provider (or NationsBank, as applicable))
and (ii) the sum of (a) 1.50% and (b) the rate equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day that is a Business Day, the average of the quotations
for such day for such transactions received by the Liquidity Provider (or, if
more than one Liquidity Provider, then by NationsBank) from three Federal
funds brokers of recognized standing selected by it.
-3-
<PAGE> 9
"Benefit Plan" means any employee benefit plan as defined in Section
3(3) of ERISA in respect of which the Transferor, any of the Sellers or any
ERISA Affiliate of the Transferor or any of the Sellers is, or at any time
during the immediately preceding six years was, an "employer" as defined in
Section 3(5) of ERISA.
"Business Day" means any day excluding Saturday, Sunday and any other
day on which banks in New York, New York, Charlotte, North Carolina or
Columbia, Maryland are authorized or required by law to close, and, when used
with respect to the determination of any Eurodollar Rate or any notice with
respect thereto, any such day which is also a day for trading by and between
banks in United States dollar deposits in the London interbank market;
provided, that with respect to any act which is required to take place in a
jurisdiction other than one set forth above, the term "Business Day" shall mean
any day excluding Saturday, Sunday and any other day on which the banks in any
such jurisdiction are authorized or required by law to close.
"BR Tranche" means a Tranche as to which Discount is calculated at the
Base Rate.
"BR Tranche Period" means, with respect to a BR Tranche, either (i)
prior to the Termination Date, a period of up to 30 days requested by the
Transferor and agreed to by the Company, NationsBank on behalf of the Liquidity
Provider, or the Agent, as the case may be, commencing on a Business Day
requested by the Transferor and agreed to by the Company, NationsBank or the
Agent, as the case may be, or (ii) after the Termination Date, a period of one
day. If such BR Tranche Period would end on a day which is not a Business
Day, such BR Tranche Period shall end on the next succeeding Business Day.
"Capitalized Lease" of a Person means any lease of property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with GAAP.
"Change of Control" means any acquisition subsequent to the Closing
Date by any Person or group of Persons (within the meaning of Section 13 or 14
of the Securities and Exchange Act of 1934 (as amended, the "Exchange Act")),
other than one or more of (x) Sara Lee Corporation, (y) the Management
Group, or (z) any Persons comprising a group controlled (as defined in Rule
12b-2 under the Exchange Act) by one or more of Sara Lee Corporation or the
Management Group, of (a) beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) of a majority of the Voting Stock of Distributors or
(so long as any of the Sellers is a Subsidiary of the Parent) the Parent or (b)
all or substantially all of the properties and assets of Distributors or (so
long as any of the Sellers is a Subsidiary of the Parent) the Parent. For
purposes of this definition, "acquisition" by any
-4-
<PAGE> 10
Person or Persons of the Voting Stock or properties and assets referred to in
the preceding sentence shall mean the earlier of (i) the actual possession
thereof and (ii) the consummation of any transaction or series of transactions
which, with the passage of time, will give such Person or Persons the actual
possession thereof.
"Closing Date" means May 30, 1996.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Agent" means NationsBank, N.A., as collateral agent for
any Liquidity Provider, any Credit Support Provider, the holders of Commercial
Paper and certain other parties.
"Collection Account" means the account, established by the Agent, for
the benefit of the Company and the Bank Investors, pursuant to Section 2.12.
"Collection Agent" means at any time the Person then authorized
pursuant to Section 6.1 to service, administer and collect Receivables.
"Collection Agent Default" has the meaning specified in Section 6.4
hereof.
"Collections" means, with respect to any Receivable, all cash
collections and other cash proceeds of such Receivable, including, without
limitation, all Finance Charges, if any, and cash proceeds of Related Security
with respect to such Receivable.
"Commercial Paper" means the promissory notes of the Company issued by
the Company in the commercial paper market.
"Commitment" means for each Bank Investor, the commitment of such Bank
Investor to make acquisitions from the Transferor or the Company in accordance
herewith in an amount not to exceed the dollar amount set forth opposite such
Bank Investor's signature on the signature page hereto under the heading
"Commitment."
"Commitment Fee" means the fee payable by the Transferor to the Agent
for distribution to the Bank Investors pursuant to Section 2.7(b), which fee
shall be equal to the product of (x) the average daily unfunded aggregate
Commitment during the period for which such fee is owing and (y) the per annum
rate set forth in the Fee Letter.
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"Commitment Termination Date" means May 29, 1997, or such later date
as to which the Bank Investors may, after each such Person's completion of its
own independent credit analysis of the Transferor and the transactions
contemplated herein and in the other Transaction Documents (to be undertaken at
the request of the Transferor to extend such date (each such request to be made
no more than 90 and no less than 60 days prior to the then effective Commitment
Termination Date)), agree to extend their Commitments. Each Bank Investor
shall notify the Agent (which shall notify the Transferor) at least 45 days
prior to the then effective Commitment Termination Date of its decision to
extend its Commitment; it being understood and agreed, that (i) no Bank
Investor shall be under any obligation to extend such date, (ii) in no event
shall the date to which the Commitment Termination Date shall be extended be
later than 360 days after notice of such extension is delivered to the
Transferor, and (iii) failure of any Bank Investor to give any notice of
extension to the Agent within the time period prescribed herein shall be deemed
to be notice of non-renewal of such Person's commitment with respect hereto.
If one or more Bank Investor fails or elects not to extend its Commitment, then
the Commitment Termination Date shall not be extended unless (x) one or more
of the existing Bank Investors agrees to increase their respective commitments
by the amount, in aggregate, of such non-renewing Bank Investor or Bank
Investors, (y) any new financial institution acceptable to the Agent and the
Transferor shall agree to become a party hereto and to accept such Commitment
of such non-renewing Bank Investor or Bank Investors, or (z) the Transferor
reduces the Maximum Net Investment and, to the extent necessary so as not to be
in violation of Section 7.1(m)(iii), the Net Investment and the Interest
Component of any Related Commercial Paper, to equal the aggregate Commitments
of all Bank Investors that have agreed to so extend their Commitments
hereunder.
"Company" means Enterprise Funding Corporation, and its successors and
assigns.
"Concentration Factor" means, on any date of determination, for any
Designated Obligor, three percent (3%) of the Maximum Net Investment on such
date; provided, that (i) with respect to any Designated Obligor and its
affiliates whose long term unsecured debt obligations are rated at least "A1"
by Moody's and at least "A+" by Standard & Poor's and with respect to which
rating neither Moody's nor Standard & Poor's shall have made a public
announcement anticipating a downgrading of such Designated Obligor's long term
unsecured debt obligations to a rating less than the aforementioned ratings
("A1/A+ Rated Obligors"), such amount shall be equal to five percent (5%) of
the Maximum Net Investment on such date, (ii) with respect to any Special
Obligors, such amount shall be equal to such other amount or such percentage of
the Maximum Net Investment as shall be agreed upon by the Agent and the
Transferor, provided, that for
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<PAGE> 12
Service America Corporation, such amount shall be equal to $5,000,000 and for
Buffets, Inc., such amount shall be equal to five percent (5%) of the Maximum
Net Investment at such time, and (iii) with respect to any Designated Obligor
specified by the Agent, such amount shall be equal to such other amount or
percentage of Maximum Net Investment to be determined by the Agent in the
reasonable exercise of its good faith judgment and disclosed in a written
notice delivered to the Transferor.
"Contract" means an agreement or invoice in substantially the form of
one of the forms attached hereto as Exhibit A or otherwise approved by the
Agent, pursuant to or under which an Obligor shall be obligated to pay for
merchandise purchased or services rendered.
"CP Rate" means, with respect to any CP Tranche Period, the rate
equivalent to the rate (or if more than one rate, the weighted average of the
rates) at which Commercial Paper having a term equal to such CP Tranche Period
may be sold by any placement agent or commercial paper dealer selected by
the Company, provided, however, that if the rate (or rates) as agreed between
any such agent or dealer and the Company is a discount rate, then the rate (or
if more than one rate, the weighted average of the rates) resulting from the
Company's converting such discount rate (or rates) to an interest-bearing
equivalent rate per annum.
"CP Tranche" means a Tranche as to which Discount is calculated at a
CP Rate.
"CP Tranche Period" means, with respect to a CP Tranche, a period of
days not to exceed 90 days commencing on a Business Day requested by the
Transferor and agreed to by the Company pursuant to Section 2.3. If a CP
Tranche Period would end on a day which is not a Business Day, such CP Tranche
Period shall end on the next succeeding Business Day.
"Credit and Collection Policy" shall mean the credit and collection
policies and practices for the Sellers and their Affiliates relating to
Contracts and Receivables existing on the date hereof and attached hereto as
Exhibit B, as modified from time to time in compliance with Section 5.2(c).
"Credit Support Agreement" means the agreement between the Company and
the Credit Support Provider evidencing the obligation of the Credit Support
Provider to provide credit support to the Company in connection with the
issuance by the Company of Commercial Paper.
"Credit Support Provider" means the Person or Persons who provides
credit support to the Company in connection with the issuance by the Company of
Commercial Paper.
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"Dealer Fee" means the fee payable by the Transferor to the Collateral
Agent, pursuant to Section 2.4 hereof, the terms of which are set forth in the
Fee Letter.
"Deemed Collections" means any Collections on any Receivable deemed
to have been received pursuant to Section 2.9(a) or (b) hereof.
"Defaulted Receivable" means a Receivable: (i) as to which any
payment, or part thereof, remains unpaid for more than 90 days from the
original due date for such Receivable; (ii) as to which an Event of Bankruptcy
has occurred and is continuing with respect to the Obligor thereof; (iii)
which has been identified by the Transferor, the Seller originating such
Receivable or the Collection Agent as uncollectible; or (iv) which, consistent
with the Credit and Collection Policy, should be written off as uncollectible.
"Delinquency Ratio" means, the ratio (expressed as a percentage)
computed as of the last day of each Fiscal Month by dividing (i) the aggregate
Outstanding Balance of all Delinquent Receivables as of such date by (ii) the
aggregate Outstanding Balance of all Receivables (other than Defaulted
Receivables) as of such date; provided that in calculating both the amounts
described in clauses (i) and (ii) above, such amount shall exclude the
Outstanding Balance of any Delinquent Receivables of any Obligor in excess of
such Obligor's Concentration Factor.
"Delinquent Receivable" means a Receivable: (i) as to which any
payment, or part thereof, remains unpaid for more than 30 days from the
original due date for such Receivable and (ii) which is not a Defaulted
Receivable.
"Deposit Account" means an account maintained by the Transferor or any
of the Sellers at a Deposit Account Bank for the purpose of receiving
Collections from Receivables previously delivered to, deemed collected or
otherwise received by the Collection Agent (or any Sub-Collection Agent), the
applicable Seller or the Transferor.
"Deposit Account Agreement" means an agreement between the applicable
Seller, the Transferor, the Agent and the applicable Deposit Account Bank in
substantially the form of Exhibit D-2 hereto.
"Deposit Account Bank" means each of the banks set forth in Exhibit
D-1 hereto and such banks as may be added thereto or deleted therefrom pursuant
to Section 2.8 hereof.
"Designated Obligor" means, at any time, each Obligor; provided,
however, that any Obligor shall cease to be a
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Designated Obligor upon notice to the Transferor from the Agent, delivered at
any time.
"Dilution" means the reduction or cancellation of all or any portion
of a Receivable as a result of any Dilution Factor.
"Dilution Factor" has the meaning assigned to such term in the
definition of "Dilution Ratio".
"Dilution Ratio" means, the ratio (expressed as a percentage)
computed as of the last day of each Fiscal Month by dividing (i) the aggregate
amount of any Receivables during such Fiscal Month that are reduced or
cancelled as a result of any defective, rejected or returned merchandise or
services and all credits, rebates, discounts, disputes, warranty claims,
repossessed or returned goods, chargebacks, allowances, other dilutive factors,
and any other billing or other adjustment provided to any Obligors in respect
of their Receivables (whether effected through the granting of credits against
the applicable Receivables or by the issuance of a check or other payment in
respect of (and as payment for) such reduction) by the applicable Seller or
the Collection Agent (the foregoing being referred to collectively as
"Dilution Factors" and each individually as a "Dilution Factor") by (ii) the
aggregate Outstanding Balance of all Receivables which arose during such Fiscal
Month.
"Dilution Reserve" means, at any time, an amount equal to the product
of (i) two (2), (ii) the highest Dilution Ratio as of the last day for any of
the preceding 12 Fiscal Months and (iii) the sum of the Net Investment, the
Loss Reserve, the Discount Reserve and the Servicing Fee Reserve at such time.
"Discount" means, with respect to any Tranche Period:
TR x TNI x AD
-------------
360
where:
TR = the Tranche Rate applicable to such Tranche Period.
TNI = the portion of the Net Investment allocated to such Tranche Period.
AD = the actual number of days during such Tranche Period.
provided, however, that no provision of this Agreement shall require the
payment or permit the collection of Discount in excess of the maximum amount
permitted by applicable law; and provided, further, that Discount shall not be
considered paid by
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<PAGE> 15
any distribution if at any time such distribution is rescinded or must be
returned for any reason.
"Discount Reserve" means, at any time, an amount equal to:
TD + LY
where:
TD = the sum of the unpaid Discount for all Tranche Periods.
LY = the Liquidation Yield
"Distributors" mean JP Foodservice Distributors, Inc., a Delaware
corporation, together with its permitted successors and assigns.
"Early Collection Fee" means, for any Tranche Period (such Tranche
Period to be determined without regard to the early termination thereof pursuant
to clause (ii) of Section 7.2(b)) during which the portion of the Net Investment
that was allocated to such Tranche Period is reduced at the request of the
Transferor or upon the occurrence or declaration of the Termination Date or the
Reinvestment Termination Date, in either case, as a result of any Termination
Event (other than a No-Fee Termination Event), the excess, if any, of (i) the
additional Discount that would have accrued during such Tranche Period if such
reductions had not occurred, minus (ii) the income, if any, received by the
recipient of such reductions from investing the proceeds of such reductions.
"Eligible Investments" means any of the following (a) negotiable
instruments or securities represented by instruments in bearer or registered or
in book-entry form which evidence (i) obligations fully guaranteed by the
United States of America; (ii) time deposits in, or bankers acceptances issued
by, any depositary institution or trust company incorporated under the laws of
the United States of America or any state thereof and subject to supervision
and examination by Federal or state banking or depositary institution
authorities; provided, however, that at the time of investment or contractual
commitment to invest therein, the certificates of deposit or short-term
deposits, if any, or long-term unsecured debt obligations (other than such
obligation whose rating is based on collateral or on the credit of a Person
other than such institution or trust company) of such depositary institution or
trust company shall have a credit rating from Moody's and S&P of at least "P-1"
and "A-1", respectively, in the case of the certificates of deposit or
short-term deposits, or a rating not lower than one of the two highest
investment categories granted by Moody's and by S & P; (iii) certificates of
deposit having, at the time of investment
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<PAGE> 16
or contractual commitment to invest therein, a rating from Moody's and S&P of
at least "P-l" and "A-l", respectively; or (iv) investments in money market
funds rated in the highest investment category or otherwise approved in writing
by the applicable rating agencies; (b) demand deposits in any depositary
institution or trust company referred to in (a)(ii) above; (c) commercial
paper (having original or remaining maturities of no more than 30 days) having,
at the time of investment or contractual commitment to invest therein, a credit
rating from Moody's and S&P of at least "P-1" and "A-l", respectively; (d)
Eurodollar time deposits having a credit rating from Moody's and S&P of at
least "P-l" and "A-l", respectively; and (e) repurchase agreements involving
any of the Eligible Investments described in clauses (a)(i), (a)(iii) and
(d) hereof so long as the other party to the repurchase agreement has at the
time of investment therein, a rating from Moody's and S&P of at least "P-1" and
"A-l", respectively.
"Eligible Receivable" means, at any time, any Receivable:
(i) which has been originated by a Seller, sold to the
Transferor pursuant to (and in accordance with) the Receivables
Purchase Agreement and to which the Transferor has good title thereto,
free and clear of all Adverse Claims;
(ii) which (together with the Collections and Related Security
related thereto) has been the subject of either a valid transfer and
assignment from the Transferor to the Agent, on behalf of the Company
and the Bank Investors, of all of the Transferor's right, title and
interest therein or the grant of a first priority perfected security
interest therein (and in the Collections and Related Security related
thereto), effective until the termination of this Agreement.
(iii) the Obligor of which is a United States resident, is a
Designated Obligor at the time of the initial creation of an interest
therein hereunder, is not an Affiliate of any of the parties hereto,
and is not a government or a governmental subdivision or agency;
(iv) which is not a Defaulted Receivable at the time of the
initial creation of an interest therein hereunder;
(v) which is not a Delinquent Receivable at the time of the
initial creation of an interest therein hereunder;
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<PAGE> 17
(vi) which, (A) arises pursuant to a Contract with respect to
which the applicable Seller has performed all obligations required to
be performed by it thereunder, including without limitation shipment
of the merchandise and/or the performance of the services purchased
thereunder; (B) has been billed; and (C) according to the Contract
related thereto, is required to be paid in full within 30 days after
the original billing date therefor; provided, however, that any such
Receivable that is required to be paid in full within a period of 31
to 60 days after the original billing date therefor will be deemed to
be eligible under this clause (vi) (assuming it satisfies all other
eligibility criteria set forth herein) to the extent that, when
aggregated with all other Eligible Receivables that are required to be
paid in full within a period of 31 to 60 days after the original
billing date therefor, the aggregate Outstanding Balances of all such
Receivables would not exceed ten percent (10%) of the aggregate
Outstanding Balance of all Eligible Receivables at such time;
(vii) which is an "eligible asset" as defined in Rule 3a-7 under
the Investment Company Act of 1940, as amended;
(viii) a purchase of which with the proceeds of Commercial
Paper would constitute a "current transaction" within the meaning of
Section 3(a)(3) of the Securities Act of 1933, as amended;
(ix) which is an "account" or "general intangible" within the
meaning of Article 9 of the UCC of all applicable jurisdictions;
(x) which is denominated and payable only in United States
dollars in the United States;
(xi) which, arises under a Contract that together with the
Receivable related thereto, is in full force and effect and
constitutes the legal, valid and binding obligation of the related
Obligor enforceable against such Obligor in accordance with its terms
and is not subject to any litigation, dispute, offset, counterclaim or
other defense (other than any unexpired volume or pricing discounts or
rebates to which the Obligor thereon may be entitled); provided,
however, that only such portion of such Receivable which is the
subject of such litigation, dispute, offset, counterclaim or other
defense shall be deemed ineligible pursuant to this clause (xi);
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<PAGE> 18
(xii) which, together with the Contract related thereto, does
not contravene in any material respect any laws, rules or regulations
applicable thereto (including, without limitation, laws, rules and
regulations relating to truth in lending, fair credit billing, fair
credit reporting, equal credit opportunity, fair debt collection
practices and privacy) and with respect to which no part of the
Contract related thereto is in violation of any such law, rule or
regulation in any material respect;
(xiii) which (A) satisfies in all material respects all
applicable requirements of the Credit and Collection Policy, (B) is
assignable without the consent of, or notice to, the Obligor
thereunder, and (C) complies with such other criteria and requirements
as the Agent may from time to time specify to the Transferor following
five days' notice;
(xiv) which was generated from the sale of goods, merchandise
or inventory of the applicable Seller in the ordinary course of such
Seller's business and, to the extent such Receivables are generated by
any entity or business line acquired by a Seller after the Closing
Date, such Receivables or class of Receivables shall have been
approved by the Agent and the Majority Investors for inclusion in the
Net Receivables Balance (to the extent such Receivables otherwise meet
all of the other eligibility criteria set forth herein),
(xv) the Obligor of which has been directed that such payments
should be remitted directly to a Lock-Box or Lock-Box Account in
respect of which there shall be a Lock-Box Agreement in effect;
(xvi) the assignment of which under the Receivables Purchase
Agreement by the applicable Seller and hereunder by the Transferor
does not violate, conflict or contravene any applicable laws, rules,
regulations, orders or writs or any contractual or other restriction,
limitation or encumbrance;
(xvii) which has not been compromised, adjusted or modified
(including by the extension of time for payment or the granting of any
discounts, allowances or credits); provided, however, that only such
portion of such Receivable that is the subject of such compromise,
adjustment or modification shall be deemed to be ineligible pursuant
to the terms of this clause (xviii);
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<PAGE> 19
(xviii) which does not arise under a Contract which has been
rewritten or reissued in connection with the actual or probable
default or delinquency of the original Receivable or in connection
with a compromise or adjustment of or to the original Receivable based
on credit reasons; and
(xix) which, if arising under a long-term, supply, requirement
or similar Contract, such Contract contains provisions (x) allowing
for the adjustment by the applicable Seller of the prices of the
inventory, goods or merchandise covered thereby no less frequently
than weekly and (y) allowing for the cancellation thereof by the
applicable Seller, without cause, on no more than thirty (30) days'
prior notice to the Obligor thereunder.
"Environmental Claims" shall have the meaning assigned to such term in
Section 3.1(x).
"Environmental Law" shall mean any past, present or future Federal,
state, local or foreign statutory or common law, or any regulation, ordinance,
code, plan, order, permit, grant, franchise, concession, restriction or
agreement issued, entered, promulgated or approved thereunder, relating to (a)
the environment, human health or safety, including, without limitation,
emissions, discharges, releases or threatened releases of Hazardous Substances
into the environment, or (b) the manufacture, generation, refining,
processing, distribution, use, sale, treatment, receipt, storage, disposal,
transport, arranging for transport, or handling of Hazardous Substances.
"Environmental Permits" shall mean, collectively, any and all permits,
consents, licenses, approvals and registrations of any nature at any time
required pursuant to or in order to comply with any Environmental Law.
"ERISA" means the U.S. Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" means, with respect to any Person, (i) any
corporation which is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Code) as such Person; (ii) a
trade or business (whether or not incorporated) under common control (within
the meaning of Section 414(c) of the Code) with such Person; or (iii) a member
of the same affiliated service group (within the meaning of Section 414(n) of
the Code) as such Person, any corporation described in clause (i) above or any
trade or business described in clause (ii) above.
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<PAGE> 20
"Estimated Maturity Period" shall mean, at any time, the period,
rounded upward to the nearest whole number of days, equal to the weighted
average number of days until due of the Receivables as calculated by the
Collection Agent in good faith and set forth in the most recent Investor
Report, such calculation to be based on the assumptions that (a) each
Receivable within a particular aging category, (as set forth in the Investor
Report) will be paid on the last day of such aging category and (b) the last
day of the last such aging category coincides with the last date on which any
Outstanding Balance of any Receivables would be written off as uncollectible or
charged against any applicable reserve or similar account in accordance with
the objective requirements of the Credit and Collection Policy and the
applicable Seller's normal accounting practices applied on a basis consistent
with those reflected in such Seller's financial statements, provided, however,
that if the Agent, the Company or any of the Bank Investors shall reasonably
disagree with any such calculation, the Agent may recalculate the Estimated
Maturity Period, and such recalculation, in the absence of manifest error,
shall be conclusive.
"Eurodollar Rate" means, with respect to any Eurodollar Tranche
Period, a rate which is equal to the sum of (A) the Applicable Margin at such
time, (B) the rate (rounded upwards, if necessary, to the next higher 1/100
of 1%) obtained by dividing (i) the applicable LIBOR Rate by (ii) a percentage
equal to 100% minus the reserve percentage used for determining the maximum
reserve requirement as specified in Regulation D (including, without
limitation, any marginal, emergency, supplemental, special or other reserves)
that is applicable to the Agent during such Eurodollar Tranche Period in
respect of eurocurrency or eurodollar funding, lending or liabilities (or, if
more than one percentage shall be so applicable, the daily average of such
percentage for those days in such Eurodollar Tranche Period during which any
such percentage shall be applicable) and (C) the then daily net annual
assessment rate (rounded upwards, if necessary, to the nearest 1/100 of 1%) as
estimated by the Agent for determining the current annual assessment payable by
the Agent to the Federal Deposit Insurance Corporation in respect of
eurocurrency or eurodollar funding, lending or liabilities.
"Eurodollar Tranche" means a Tranche as to which Discount is
calculated at the Eurodollar Rate.
"Eurodollar Tranche Period" means, with respect to a Eurodollar
Tranche, prior to the Termination Date, a period of one, two or three months
requested by the Transferor and agreed to by the Company, Nationsbank, on
behalf of the Liquidity Provider, or the Agent, as the case may be, commencing
on a Business Day requested by the Transferor and agreed to by the Company,
NationsBank or the Agent, as applicable; provided, however, that if such
Eurodollar Tranche Period would expire on a day which is
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not a Business Day, such Eurodollar Tranche Period shall expire on the next
succeeding Business Day; provided, further, that if such Eurodollar Tranche
Period would expire on (a) a day which is not a Business Day but is a day of
the month after which no further Business Day occurs in such month, such
Eurodollar Tranche Period shall expire on the next preceding Business Day or
(b) if any Eurodollar Tranche commences on the last Business Day of any month
or on a Business Day for which there is no numerically corresponding day in the
month in which such Eurodollar Tranche Period is to end, such Eurodollar
Tranche Period shall expire on the last Business Day of such month.
"Event of Bankruptcy" means, with respect to any Person, (i) that
such Person (a) shall generally not pay its debts as such debts become due or
(b) shall admit in writing its inability to pay its debts generally or (c)
shall make a general assignment for the benefit of creditors; (ii) any
proceeding shall be instituted by or against such Person seeking to adjudicate
it as bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee or other similar official for
it or any substantial part of its property or (iii) if such Person is a
corporation, such Person or any Subsidiary shall take any corporate action to
authorize any of the actions set forth in the preceding clauses (i) or (ii).
"Excluded Taxes" shall have the meaning specified in Section 8.3
hereof.
"Fee Letter" means the letter agreement dated the date hereof between
the Transferor and the Company with respect to the fees to be paid by the
Transferor hereunder, as amended, modified or supplemented from time to time.
"Finance Charges" means, with respect to a Contract, any finance,
interest, late or similar charges owing by an Obligor pursuant to such
Contract.
"Fiscal Month" means a fiscal month in any Fiscal Year. Exhibit F sets
forth the dates upon which each fiscal month in each of the Fiscal Years ending
in 1996, 1997, 1998, and 1999 shall end.
"Fiscal Year" means the fiscal year of the Transferor and the Sellers,
which fiscal year shall end on the Saturday closest to June 30th of each
calendar year.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting
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Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such accounting profession, which are in effect as of
the date of this Agreement.
"Guaranty" means, with respect to any Person any agreement by which
such Person assumes, guarantees, endorses, contingently agrees to purchase or
provide funds for the payment of, or otherwise becomes liable upon, the
obligation of any other Person, or agrees to maintain the net worth or working
capital or other financial condition of any other Person or otherwise assures
any other creditor of such other Person against loss, including, without
limitation, any comfort letter, operating agreement or take-or-pay contract and
shall include, without limitation, the contingent liability of such Person in
connection with any application for a letter of credit.
"Hazardous Substances" shall mean and include those substances
included within the definitions of "hazardous substances," "hazardous
materials," "toxic substances" or "solid waste" in the Comprehensive
Environmental Response Compensation and Liability Act of 1980 (42 U.S.C.
Section 9601 et seq.), as amended by Superfund Amendments and Reauthorization
Act of 1986 (Pub. L. 99-499 100 Stat. 1613), the Resource Conservation and
Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.) and the Hazardous
Materials Transportation Act, (49 U.S.C. Section 1801 et seq.), and in the
regulations promulgated pursuant to said laws, all as amended; and in any event
shall include medical wastes, infectious wastes, asbestos, paint containing
lead, and urea formaldehyde.
"Incremental Transfer" means a Transfer which is made pursuant to
Section 2.2(a) hereof.
"Indebtedness" means, with respect to any Person such Person's (i)
obligations for borrowed money, (ii) obligations representing the deferred
purchase price of property other than accounts payable arising in the ordinary
course of such Person's business on terms customary in the trade, (iii)
obligations, whether or not assumed, secured by liens or payable out of the
proceeds or production from property now or hereafter owned or acquired by such
Person, (iv) obligations which are evidenced by notes, acceptances, or other
instruments, (v) Capitalized Lease obligations and (vi) obligations for which
such Person is obligated pursuant to a Guaranty.
"Indemnified Amounts" has the meaning specified in Section 8.1 hereof.
"Indemnified Parties" has the meaning specified in Section 8.1 hereof.
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"Interest Component" shall mean, (i) with respect to any Commercial
Paper issued on an interest-bearing basis, the interest payable on such
Commercial Paper at its maturity (including any dealer commissions) and (ii)
with respect to any Commercial Paper issued on a discount basis, the portion of
the face amount of such Commercial Paper representing the discount incurred in
respect thereof (including any dealer commissions).
"Investor Report" means a report, in substantially the form attached
hereto as Exhibit E or in such other form as is mutually agreed to by the
Transferor and the Agent, furnished by the Collection Agent pursuant to
Section 2.11 hereof.
"Law" means any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or
award of any Official Body.
"LIBOR Rate" means, with respect to any Eurodollar Tranche Period, the
rate at which deposits in dollars are offered to the Agent, in the London
interbank market at approximately 11:00 a.m. (London time) two Business Days
before the first day of such Eurodollar Tranche Period in an amount
approximately equal to the Eurodollar Tranche to which the Eurodollar Rate is
to apply and for a period of time approximately equal to the applicable
Eurodollar Tranche Period.
"Liquidation Yield" means, at any time, an amount equal to:
(RVF x LBR x NI) x (EMP x 1.5)
-----------
360
where:
RVF = the Rate Variance Factor at such time;
LBR = the Base Rate at such time which is applicable to the
liquidation period after a Termination Event;
NI = the Net Investment at such time; and
EMP = the Estimated Maturity Period of the Receivables.
"Liquidity Provider" means the Person or Persons who will provide
liquidity support to the Company in connection with the issuance by the Company
of Commercial Paper.
"Liquidity Provider Agreement" means the agreement between the Company
and the Liquidity Provider evidencing the obligation of the Liquidity Provider
to provide liquidity support to the Company in connection with the issuance by
the Company of Commercial Paper.
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<PAGE> 24
"Lock-Box" means a lock-box maintained by the Transferor or any of the
Sellers for the purpose of receiving Collections from Obligors by mail.
"Lock-Box Account" means an account maintained by the Transferor or
any of the Sellers at a Lock-Box Bank for the purpose of receiving Collections
from Receivables.
"Lock-Box Agreement" means an agreement among the applicable Seller,
the Transferor, the Agent and the applicable Lock-Box Bank in substantially the
form of Exhibit C-2 hereto.
"Lock-Box Bank" means each of the banks set forth in Exhibit C-1
hereto and such banks as may be added thereto or deleted therefrom pursuant to
Section 2.8 hereof.
"Loss Percentage" means on any day the greatest of (i) five (5)
times the highest Loss-to-Liquidation Ratio as of the last day of each of the
twelve (12) Fiscal Months preceding the then current Fiscal Month, (ii) three
(3) times the highest percentage used to determine the Concentration Factor of
any Designated Obligor (other than a Special Obligor or an A1/A+ Rated
Obligor), and (iii) ten percent (10%).
"Loss Reserve" means, on any day, an amount equal to:
LP x (NI + DLR + DR + SFR)
where:
LP = the Loss Percentage at the close of business of the Collection Agent
on such day;
NI = the Net Investment at the close of business of the Collection Agent on
such day;
DLR = the Dilution Reserve at the close of business of the Collection Agent
on such day;
DR = the Discount Reserve at the close of business of the Collection Agent
on such day; and
SFR = the Servicing Fee Reserve at the close of business of the Collection
Agent on such day.
Notwithstanding the foregoing, the Loss Reserve shall at all times be at least
equal to $3,000,000.
"Loss-to-Liquidation Ratio" means the ratio (expressed as a
percentage) computed as of the last day of each Fiscal Month by dividing (i)
the aggregate Outstanding Balance of all Receivables which became Defaulted
Receivables during such Fiscal
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<PAGE> 25
Month, by (ii) the aggregate amount of Collections received by the Collection
Agent during such Fiscal Month; provided that in calculating the amount
described in clause (i) above, such amount shall exclude the Outstanding
Balance of any such Defaulted Receivables of any Obligor in excess of such
Obligor's Concentration Factor on such date.
"Majority Investors" shall have the meaning specified in Section
9.1(a) hereof.
"Management Group" means the individuals who on November 10, 1994
held the offices of (i) Chairman of the Board and Chief Executive Officer and
(ii) Senior Vice President and Chief Financial Officer, in each case, of the
Parent.
"Material Adverse Effect" means any event or condition which would
have a material adverse effect on (i) the collectibility of the Receivables,
(ii) the condition (financial or otherwise), operations, businesses or
properties of the Transferor or of any of the Sellers and their respective
Subsidiaries, (iii) the ability of the Transferor or any of the Sellers to
perform its respective obligations under the Transaction Documents to which it
is a party or (iv) the interests of the Agent, the Company or the Bank
Investors under the Transaction Documents.
"Maximum Net Investment" means Fifty Million Dollars ($50,000,000);
provided that such amount may not at any time exceed the aggregate Commitments
at any time in effect; provided, further, that from and after the Termination
Date, the Maximum Net Investment shall at all times equal the Net Investment.
"Maximum Percentage Factor" means 98%.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA which is or was at any time during the current year
or the immediately preceding five years contributed to by the Transferor, any
of the Sellers or any ERISA Affiliate of the Transferor or any or the Sellers
on behalf of its employees.
"Net Asset Test" shall mean, in connection with any assignment by the
Company to the Bank Investors of an interest in the Net Investment pursuant to
Section 9.7 hereof, that on the day immediately prior to the day on which such
assignment is to take effect, the Net Receivables Balance shall be greater than
the Net Investment.
"Net Investment" means the sum of the cash amounts paid to the
Transferor for each Incremental Transfer less the
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aggregate amount of Collections received and applied by the Agent to reduce
such Net Investment pursuant to Section 2.5, 2.6 or 2.9 hereof; provided that
the Net Investment shall be restored and reinstated in the amount of any
Collections so received and applied if at any time the distribution of such
Collections is rescinded or must otherwise be returned for any reason; and
provided, further that the Net Investment may be increased by the amount
described in Section 9.7(g) as described therein.
"Net Receivables Balance" means at any time the Outstanding Balance
of the Eligible Receivables at such time reduced by the sum, without
duplication, of (i) the aggregate amount by which the Outstanding Balance of
all Eligible Receivables of each Designated Obligor exceeds the Concentration
Factor for such Designated Obligor, plus (ii) the aggregate Outstanding
Balance of all Eligible Receivables which are Defaulted Receivables, plus
(iii) the aggregate Outstanding Balance of all Eligible Receivables (other
than Defaulted Receivables) all or any portion of which remain unpaid
sixty-one (61) or more days past the original due date therefor, plus (iv) the
sum for all Obligors of each of the Sellers of the lesser for each such Obligor
of (x) the amount of any security deposits from such Obligor which is held by
any of the Sellers and (y) the aggregate Outstanding Balance of the Eligible
Receivables owing by such Obligor.
"No-Fee Termination Event" means any Termination Event of the type
described in Section 7.1(k), 7.1(1), or, to the extent caused by the occurrence
of a Termination Event of the type described in either 7.1(k) or 7.1(1), a
Termination Event of the type described in Section 7.1(h).
"Obligor" means a Person obligated to make payments for the provision
of goods and services pursuant to a Contract.
"Official Body" means any government or political subdivision or any
agency, authority, bureau, central bank, commission, department or
instrumentality of any such government or political subdivision, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
"Other Transferor" means any Person other than the Transferor that has
entered into a receivables purchase agreement or transfer and administration
agreement with the Company.
"Outstanding Balance" means, with respect to any Receivable at any
time, the then outstanding principal amount thereof, excluding any accrued and
outstanding Finance Charges related thereto.
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"PACA" means the perishable Agricultural Commodities Act, 7 U.S.C.
Sections 499a-499s (as in effect from time to time), and any successor
statute.
"Parent" means JP Foodservice, Inc., a Delaware corporation.
"Percentage Factor" means the fraction (expressed as a percentage)
computed at any time of determination as follows:
NI + LR + DLR + DR + SFR
-------------------------
NRB
where:
NI = the Net Investment at the time of such computation;
LR = the Loss Reserve at the time of such computation;
DLR = the Dilution Reserve at the time of such computation;
DR = the Discount Reserve at the time of such computation;
SFR = the Servicing Fee Reserve at the time of such computation; and
NRB = the Net Receivables Balance at the time of such computation.
The Percentage Factor shall be calculated by the Collection Agent on
the day of the initial Incremental Transfer hereunder. Thereafter, until the
Termination Date, the Collection Agent shall recompute the Percentage Factor at
the time of each Incremental Transfer pursuant to Section 2.2(a) and as of the
close of business on each Business Day and report such recomputations to the
Agent in the Investor Report and as otherwise requested by the Agent. The
Percentage Factor shall remain constant from the time as of which any such
computation or recomputation is made until the time as of which the next such
recomputation shall be made, notwithstanding any additional Receivables arising
or any reinvestment Transfer made pursuant to Section 2.2(b) and 2.5(a) during
any period between computations of the Percentage Factor. The Percentage
Factor, as calculated at the close of business on the Business Day immediately
preceding the Termination Date, shall remain constant at all times thereafter
until such time as the Agent, on behalf of the Company and the Bank Investors,
shall have received all of the Aggregate Unpaids, in cash, at which time the
Percentage Factor shall be reduced to zero.
"Person" means any corporation, limited liability company, natural
person, firm, joint venture, partnership, trust,
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unincorporated organization, enterprise, government or any department or agency
of any government.
"Private Debt Indenture" means that certain Note Purchase Agreement
dated as of November 10, 1994 among Distributors and the institutional
investors parties thereto, as the same may be amended, restated, reissued,
supplemented or otherwise modified from time to time.
"Potential Termination Event" means an event which but for the lapse
of time or the giving of notice, or both, would constitute a Termination Event.
"Pro Rata Share" means, for a Bank Investor, the Commitment of such
Bank Investor divided by the sum of the Commitments of all Bank Investors.
"Proceeds" means "proceeds" as defined in Section 9-306(1) of the
UCC.
"Program Fee" means the fee payable by the Transferor to the Company
pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee
Letter.
"Purchased Interest" means the interest in the Receivables acquired by
the Liquidity Provider through purchase pursuant to the terms of the Liquidity
Provider Agreement.
"Purchase Termination Date" means the date upon which (i) the
Transferor shall cease or be unable, for any reason whatsoever, to make
purchases of Receivables from any of the Sellers under the Receivables Purchase
Agreement, (ii) any Seller shall cease or be unable, for any reason
whatsoever, to make sales of Receivables to the Transferor under the
Receivables Purchase Agreement or shall (other than as a result of the sale
thereof by such Seller pursuant to the Receivables Purchase Agreement) fail to
have rights in any Receivables sold or intended to be sold under the
Receivables Purchase Agreement, or (iii) the Receivables Purchase Agreement
shall terminate for any reason whatsoever.
"Rate Variance Factor" means the number, computed from time to time in
good faith by the Agent, that reflects the largest potential variance (from
minimum to maximum) in selected interest rates over a period of time selected
by the Agent from time to time, set forth in a written notice by the Agent to
the Transferor and the Collection Agent.
"Receivable" means the indebtedness or other obligations owed to any
of the Sellers by any Obligor (prior to giving effect to any transfer or
conveyance thereof by such Seller to the Transferor under the Receivables
Purchase Agreement
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<PAGE> 29
at any time) under a Contract and sold or transferred by such Seller to the
Transferor pursuant to the Receivables Purchase Agreement, whether constituting
an account, chattel paper, instrument, investment property or general
intangible, arising in connection with the sale of goods, merchandise or
inventory or the rendering of services by such Seller and includes the right to
payment of any Finance Charges and other obligations of such Obligor with
respect thereto. Notwithstanding the foregoing, once a Receivable has been
deemed collected pursuant to Section 2.9 hereof, it shall no longer constitute
a Receivable hereunder.
"Receivables Purchase Agreement" means the Receivables Purchase
Agreement dated as of May 30, 1996 by and between each of the Sellers, as
sellers, the Transferor, as purchaser, and the Parent, as such agreement may be
amended, restated, supplemented or otherwise modified and in effect from time
to time.
"Records" means all Contracts and other documents, books, records and
other information (including, without limitation, computer programs, tapes,
discs, punch cards, data processing software and related property and rights)
maintained with respect to Receivables and the related Obligors.
"Reinvestment Termination Date" means the second Business Day after
the delivery by the Company to the Transferor of written notice that the
Company elects to commence the amortization of its interest in the Net
Investment.
"Related Commercial Paper" shall mean Commercial Paper issued by the
Company the proceeds of which were used to acquire, or refinance the
acquisition of, an interest in Receivables with respect to the Transferor.
"Related Security" means, with respect to any Receivable, all of the
Transferor's rights, title and interest in, to and under:
(i) the goods, merchandise or inventory (including returned or
repossessed goods, merchandise or inventory), if any, the sale of
which by the applicable originating Seller gave rise to such
Receivable;
(ii) all other security interests or liens and property subject
thereto from time to time, if any, purporting to secure payment of
such Receivable, whether pursuant to the Contract related to such
Receivable or otherwise, together with all financing statements signed
by an Obligor describing any collateral securing such Receivable;
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(iii) all guarantees, letters of credit, indemnities,
warranties, insurance policies (and proceeds and premium refunds
thereof) or other agreements or arrangements of any kind from time to
time supporting or securing payment of such Receivable whether
pursuant to the Contract related to such Receivable or otherwise;
(iv) all Records related to such Receivable;
(v) all rights and remedies of the Transferor under the
Receivables Purchase Agreement, together with all financing statements
filed by the Transferor against each of the Sellers in connection
therewith; and
(vi) all Proceeds of any of the foregoing.
"Revolving Credit Agreement" means that certain Credit Agreement dated
as of November 10, 1994 by and among Distributors, NationsBank, N.A. (as
successor in interest to NationsBank of North Carolina, N.A.), as
administrative agent and co-arranger, The Chase Manhattan Bank, N.A., as
co-agent and co-arranger, and the lenders from time to time parties thereto, as
the same may be amended, restated, supplemented or otherwise modified.
"Section 8.2 Costs" has the meaning specified in Section 8.2(d)
hereof.
"Seller" means any of Distributors, Illinois Fruit & Produce Corp.,
an Illinois corporation, Sky Bros., Inc., a Pennsylvania corporation, and, to
the extent the Agent and the Majority Investors shall have previously consented
thereto, any other Person that becomes a party to the Receivables Purchase
Agreement as a seller of Receivables thereunder, together in each case with
such Person's respective permitted successors and assigns, and "Sellers" means
all of the foregoing, collectively. To the extent applicable, the terms
"Seller" and "Sellers" shall be deemed to include and be a reference to any
Seller or the Sellers, in its or their capacity as a Sub-Collection Agent.
"Servicing Fee" means the fees payable by the Company or the Bank
Investors to the Collection Agent, with respect to a Tranche, in an amount
equal to 1.00% per annum on the amount of the Net Investment allocated to such
Tranche pursuant to Section 2.3 hereof or such other amount as shall be
determined pursuant to Section 6.2(b). Such fee shall accrue from the date of
the initial purchase of an interest in the Receivables hereunder to the later
of the Termination Date or the date occurring
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thereafter on which the Percentage Factor is reduced to zero. On or prior to
the Termination Date, such fee shall be payable only from Collections pursuant
to, and subject to the priority of payments set forth in, Section 2.5 (a)
hereof. After the Termination Date, such fee shall be payable only from
Collections pursuant to, and subject to the priority of payments set forth in,
Section 2.6 hereof.
"Servicing Fee Reserve" means at any time an amount equal to the
product of (i) the aggregate Outstanding Balance of all Receivables at such
time, (ii) the Servicing Fee percentage and (iii) a fraction having as the
numerator, the sum of (a) 1.5 times the Estimated Maturity Period plus (b)
30, and as the denominator, 360.
"Special Obligor" means any Designated Obligor designated in writing
by the Agent as being a Special Obligor, which designation has not been revoked
by the Agent. As of the Closing Date, Service America Corporation and
Buffets, Inc. are the only Special Obligors.
"Standard & Poor's" or "S&P" means Standard & Poor's Ratings Service,
a division of McGraw-Hill Companies, Inc.
"Sub-Collection Agent" means any Person appointed as such by the
Collection Agent (and which appointment has not been revoked) pursuant to
Section 6.1(b) hereof and Section 6.02(a) of the Receivables Purchase
Agreement.
"Subordinated Note" shall have the meaning specified in the
Receivables Purchase Agreement.
"Subsidiary" of a Person means any Person more than 50% of the
outstanding voting interests of which shall at any time be owned or controlled,
directly or indirectly, by such Person or by one or more Subsidiaries of such
Person or any similar business organization which is so owned or controlled.
"Taxes" shall have the meaning specified in Section 8.3 hereof.
"Termination Date" means the earliest of (i) the Business Day
designated by the Transferor to the Company as the Termination Date at any time
following 60 days' written notice to the Company, (ii) the date of termination
of the commitment of the Liquidity Provider under the Liquidity Provider
Agreement, (iii) the date of termination of the commitment of the Credit
Support Provider under the Credit Support Agreement, (iv) the date upon which
the Termination Date is declared or automatically occurs pursuant to Section
7.2(a) hereof, (v) two Business Days prior to the Commitment Termination Date,
(vi) the day on which the Reinvestment Termination Date shall occur, unless on
or prior
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to such date the Company shall have assigned one hundred percent of its
interest in the Net Investment to the Bank Investors in accordance with Section
9.7, (vii) the Purchase Termination Date, or (viii) May 28, 1999.
"Termination Event" means an event described in Section 7.1 hereof.
"Tranche" means a portion of the Net Investment allocated to a Tranche
Period pursuant to Section 2.3 hereof.
"Tranche Period" means a CP Tranche Period, a BR Tranche Period or a
Eurodollar Tranche Period.
"Tranche Rate" means the CP Rate, the Base Rate or the Eurodollar
Rate.
"Transaction Costs" has the meaning specified in Section 8.4(a)
hereof.
"Transaction Documents" means, collectively, this Agreement, the
Receivables Purchase Agreement, the Fee Letter, the Lock-Box Agreements, the
Subordinated Notes and all of the other instruments, documents and other
agreements executed and delivered by the Transferor and/or any of the Sellers
in connection with any of the foregoing, in each case, as the same may be
amended, restated, supplemented or otherwise modified from time to time.
"Transfer" means a conveyance, transfer and assignment by the
Transferor to the Company or the Bank Investors of an undivided percentage
ownership interest in Receivables hereunder (including, without limitation, as
a result of any reinvestment of Collections in Transferred Interests pursuant
to Section 2.2(b) and 2.5(a)).
"Transfer Date" means, with respect to each Transfer, the Business Day
on which such Transfer is made.
"Transfer Price" means with respect to any Incremental Transfer, the
amount paid in respect thereof to the Transferor by the Company or the Bank
Investors as applicable in accordance with Section 2.2(a).
"Transferor" means JPFD Funding Company, a Delaware corporation, and
its successors and permitted assigns.
"Transferred Interest" means, at any time of determination, an
undivided percentage ownership interest in (i) each and every then outstanding
Receivable, (ii) all Related Security with respect to each such Receivable,
(iii) all Collections with respect thereto, and (iv) other Proceeds of the
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foregoing, which undivided ownership interest shall be equal to the Percentage
Factor at such time, and only at such time (without regard to prior
calculations). The Transferred Interest in each Receivable, together with
Related Security, Collections and Proceeds with respect thereto, shall at all
times be equal to the Transferred Interest in each other Receivable, together
with Related Security, Collections and Proceeds with respect thereto. To the
extent that the Transferred Interest shall decrease as a result of a
recalculation of the Percentage Factor, the Company or the Bank Investors, as
applicable, shall be considered to have reconveyed to the Transferor an
undivided percentage ownership interest in each Receivable, together with
Related Security, Collections and Proceeds with respect thereto, in an amount
equal to such decrease such that in each case the Transferred Interest in each
Receivable shall be equal to the Transferred Interest in each other Receivable.
"UCC" means, with respect to any state, the Uniform Commercial Code as
from time to time in effect in such state.
"U.S." or "United States" means the United States of America.
"Voting Stock" means, with respect to any corporation, the capital
stock of such corporation the holders of which are ordinarily, in the absence
of contingencies, entitled to elect the corporate directors (or other persons
performing similar functions) of such corporation.
SECTION 1.2. Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. All terms used in
Article 9 of the UCC in the State of New York, and not specifically defined
herein, are used herein as defined in such Article 9. The words "herein,"
"hereof," and "hereunder" and other words of similar import refer to this
Agreement as a whole, including the Exhibits, Schedules and Annexes hereto, as
the same may from time to time be amended or supplemented, and not to any
particular Section, subsection or clause contained in this Agreement, and all
references herein to Sections, Exhibits, Schedules and Annexes shall mean,
unless the context clearly indicates otherwise, the Sections hereof and the
Exhibits, Schedules and Annexes attached hereto, the terms of which are hereby
incorporated into this Agreement. Whenever appropriate, in the context, terms
used herein in the singular also include the plural, and vice versa.
SECTION 1.3. Computation of Time Periods. Unless otherwise stated
in this Agreement, in the computation of a period of time from a specified
date to a later specified date, the word "from" means "from and including",
the words "to" and "until" each means "to but excluding", and the word "within"
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means "from and excluding a specified date and to and including a later
specified date".
ARTICLE II
PURCHASES AND SETTLEMENTS
SECTION 2.1. Facility. Upon the terms and subject to the
conditions herein set forth, at any time prior to the Termination Date (x) the
Transferor may, at its option, convey, transfer and assign to the Company or
the Bank Investors, as applicable, and (y) the Company may, at its option, or
the Bank Investors shall, if so requested by the Transferor, accept such
conveyance, transfer and assignment from the Transferor of, without recourse
except as provided herein, undivided percentage ownership interests in the
Receivables, together with Related Security, Collections and Proceeds with
respect thereto, from time to time. By accepting any conveyance, transfer and
assignment hereunder, neither the Company, any Bank Investor nor the Agent
assumes or shall have any obligations or liability under any of the Contracts,
all of which shall remain the obligations and liabilities of the applicable
Seller.
SECTION 2.2. Transfers; Eligible Receivables (a) Incremental
Transfers. Upon the terms and subject to the conditions herein set forth (x)
the Transferor may, at its option, convey, transfer and assign to the Company
or the Bank Investors, as applicable, and (y) the Company may, at its option,
or the Bank Investors shall, if so requested by the Transferor, accept such
conveyance, transfer and assignment from the Transferor of, without recourse
except as provided herein, undivided percentage ownership interests in the
Receivables, together with Related Security, Collections and Proceeds with
respect thereto (each, an "Incremental Transfer") from time to time prior to
the occurrence of the Termination Date; provided that after giving effect to
the issuance of Related Commercial Paper to fund the Transfer Price of any
Incremental Transfer and the payment to the Transferor of such Transfer Price,
the sum of the Net Investment plus the Interest Component of all outstanding
Related Commercial Paper would not exceed the Maximum Net Investment; and,
provided further, that the representations and warranties set forth in Section
3.1 shall be true and correct both immediately before and immediately after
giving effect to any such Incremental Transfer and the payment to the
Transferor of the Transfer Price related thereto and an Investor Report shall
have been delivered with respect to such Incremental Transfer as required by
Section 3.2 hereof.
The Transferor shall, by notice to the Agent given by telecopy, offer
to convey, transfer and assign to the Company or the Bank Investors, as
applicable, undivided percentage ownership
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interests in the Receivables and the other Affected Assets relating thereto at
least three (3) Business Days prior to the proposed date of any Incremental
Transfer. Each such notice shall specify (w) whether such request is made to
the Company or the Bank Investors (it being understood and agreed that once
the Bank Investors acquire any Transferred Interest hereunder, the Bank
Investors shall be required to purchase all Transferred Interests held by the
Company in accordance with Section 9.7 and thereafter the Company shall no
longer accept any additional Incremental Transfers hereunder), (x) the desired
Transfer Price (which shall be at least $5,000,000 or integral multiples of
$1,000,000 in excess thereof or, to the extent that the then available unused
portion of the Maximum Net Investment is less than such amount, such lesser
amount equal to such available portion of the Maximum Net Investment), (y) the
desired date of such Incremental Transfer and (z) the desired Tranche Period(s)
and allocations of the Net Investment of such Incremental Transfer thereto as
required by Section 2.3. The Agent will promptly notify the Company or each
of the Bank Investors, as the case may be, of the Agent's receipt of any
request for an Incremental Transfer to be made to such Person. To the extent
that any such Incremental Transfer is requested of the Company, the Company
shall accept or reject such offer by notice given to the Transferor and the
Agent by telephone or telecopy by no later than the close of its business on
the Business Day following its receipt of any such request. Each notice of
proposed Transfer shall be irrevocable and binding on the Transferor and the
Transferor shall indemnify the Company and each Bank Investor against any loss
or expense incurred by the Company or any Bank Investor, either directly or
indirectly (including, in the case of the Company, through the Liquidity
Provider Agreement) as a result of any failure by the Transferor to complete
such Incremental Transfer, including, without limitation, any loss or expense
incurred by the Company or any Bank Investor, either directly or indirectly
(including, in the case of the Company, pursuant to the Liquidity Provider
Agreement) by reason of the liquidation or reemployment of funds acquired by
the Company (or the Liquidity Provider) or any Bank Investor (including,
without limitation, funds obtained by issuing commercial paper or promissory
notes or obtaining deposits as loans from third parties) for the Company or
any Bank Investor to fund such Incremental Transfer.
On the date of the initial Incremental Transfer, the Agent, on behalf
of the Company or the Bank Investors, as applicable, shall deliver written
confirmation to the Transferor of the Transfer Price, the Tranche Period(s) and
the Tranche Rate(s) relating to such Transfer. On the date of each subsequent
Incremental Transfer, the Agent shall send written confirmation to the
Transferor of the Transfer Price, the Tranche Period(s), the Transfer Date and
the Tranche Rate(s) applicable to such Incremental Transfer.
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By no later than 11:00 a.m. (New York time) on any Transfer Date, the
Company or each Bank Investor, as the case may be, shall remit its share
(which, in the case of an Incremental Transfer to the Bank Investors, shall be
equal to such Bank Investor's Pro Rata Share) of the aggregate Transfer Price
for such Transfer to the account of the Agent specified therefor from time to
time by the Agent by notice to such Persons. The obligation of each Bank
Investor to remit its Pro Rata Share of any such Transfer Price shall be
several from that of each other Bank Investor, and the failure of any Bank
Investor to so make such amount available to the Agent shall not relieve any
other Bank Investor of its obligation hereunder. Following each Incremental
Transfer and the Agent's receipt of funds from the Company or the Bank
Investors as aforesaid, the Agent shall remit the Transfer Price to the
Transferor's account at the location indicated in Section 10.3 hereof, in
immediately available funds, an amount equal to the Transfer Price for such
Incremental Transfer. Unless the Agent shall have received notice from the
Company or any Bank Investor, as applicable, that such Person will not make its
share of any Transfer Price relating to any incremental Transfer available on
the applicable Transfer Date therefor, the Agent may (but shall have no
obligation to) make the Company's or any such Bank Investor's share of any such
Transfer Price available to the Transferor in anticipation of the receipt by
the Agent of such amount from the Company or such Bank Investor. To the
extent the Company or any such Bank Investor fails to remit any such amount to
the Agent after any such advance by the Agent on such Transfer Date, the
Company or such Bank Investor, on the one hand, and the Transferor, on the
other hand, shall be required to pay such amount, together with interest
thereon at a per annum rate equal to the Federal funds rate (as determined in
accordance with clause (ii) of the definition of "Base Rate"), in the case of
the Company or any such Bank Investor, or the Base Rate, in the case of the
Transferor, to the Agent upon its demand therefor. Until such amount shall be
repaid, such amount shall be deemed to be Net Investment paid by the Agent and
the Agent shall be deemed to be the owner of a Transferred Interest hereunder.
Upon the payment of such amount to the Agent (x) by the Transferor, the amount
of the aggregate Net Investment shall be reduced by such amount or (y) by the
Company or such Bank Investor, such payment shall constitute such Person's
payment of its share of the applicable Transfer Price for such Transfer.
(b) Reinvestment Transfers. On each Business Day occurring after
the initial Incremental Transfer hereunder and prior to the Termination Date,
the Transferor hereby agrees to convey, transfer and assign to the Company or
the Bank Investors then owning any Transferred Interests, and in consideration
of the Transferor's agreement to maintain at all times prior to the Termination
Date a Net Receivables Balance in an amount at least sufficient to maintain the
Percentage Factor at an amount not
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greater than the Maximum Percentage Factor, the Company may, and the Bank
Investors shall (in either case, to the extent such Persons then own any
Transferred Interest), agree to purchase from the Transferor, undivided
percentage ownership interests in each and every Receivable, together with
Related Security, Collections and Proceeds with respect thereto, to the extent
that Collections are available for such Transfer in accordance with Section
2.5(a) hereof, such that after giving effect to such Transfer, (i) the
amount of the Net Investment at the close of business on such Business Day
shall be equal to the amount of the Net Investment at the close of the business
on the Business Day immediately preceding such Business Day plus the Transfer
Price of any Incremental Transfer made on such day, if any, and (ii) the
Transferred Interest in each Receivable, together with Related Security,
Collections and Proceeds with respect thereto, shall be equal to the
Transferred Interest in each other Receivable, together with Related Security,
Collections and Proceeds with respect thereto.
(c) All Transfers. Each Transfer shall constitute a purchase of
undivided percentage ownership interests in each and every Receivable, together
with Related Security, Collections and Proceeds with respect thereto, then
existing, as well as in each and every Receivable, together with Related
Security, Collections and Proceeds with respect thereto, which arises at any
time after the date of such Transfer. The Company's and/or the Bank
Investors', as applicable, aggregate undivided percentage ownership interest in
the Receivables, together with the Related Security, Collections and Proceeds
with respect thereto, shall equal the Percentage Factor in effect from time to
time. Each of the Company's and each Bank Investor's undivided percentage
ownership interest in the Affected Assets shall equal such Person's ratable
share (determined on the basis of the relationship that such Person's Net
Investment bears to the aggregate Net Investment of the Company and all of the
Bank Investors at such time) of the Percentage Factor at such time.
(d) Agent's Books and Records. The Agent shall maintain books and
records in which shall be recorded (i) the date and amount of each Incremental
Transfer hereunder and the purchaser(s) thereof, (ii) the date and amount of
and parties to any assignment of rights and obligations hereunder pursuant to
Section 9.7, (iii) the amount of any Discount, fees or other amount due and
payable or to become due from the Transferor to the Agent, the Company, each of
the Bank Investors and/or the Collection Agent hereunder and (iv) the amount
and date of any reduction in the Net Investment. The entries made in the
Agent's books and records as described in this Section 2.2(d) shall be
conclusive and binding on the Transferor for all purposes absent manifest
error.
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SECTION 2.3. Selection of Tranche Periods and Tranche Rates.
(a) Transferred Interest held by Company. With respect to any
portion of the Transferred Interest not held by the Bank Investors (or any of
them), the Transferor may, subject to Section 7.2(b) and the Company's approval
and the limitations described below, request Tranche Periods and allocate a
portion of the Net Investment to each selected Tranche Period, so that the
aggregate amounts allocated to outstanding Tranche Periods at all times shall
equal the Net Investment held by the Company. The Transferor shall give the
Company irrevocable notice by telephone of the new requested Tranche Period(s)
at least three (3) Business Days prior to the expiration of any then existing
Tranche Period; provided, however, that the Company, in its sole discretion,
may select any such new Tranche Period if (i) the Transferor fails to provide
such notice on a timely basis, or (ii) the Company determines, in its sole
discretion, that the Tranche Period requested by the Transferor is unavailable
or for any reason commercially undesirable. The Company confirms that it is
its intention to allocate all or substantially all of the Net Investment held
by it to one or more CP Tranche Periods; provided that the Company may
determine, from time to time, in its sole discretion, that funding such Net
Investment by means of one or more CP Tranche Periods is not possible or is not
desirable for any reason. If the Liquidity Provider acquires from the Company
a Purchased Interest with respect to the Receivables pursuant to the terms of
the Liquidity Provider Agreement, NationsBank, on behalf of the Liquidity
Provider, may exercise the right of selection granted to the Company hereby.
The initial Tranche Period applicable to any such Purchased Interest held by
the Liquidity Provider shall be a period of not greater than 14 days and such
Tranche shall be a BR Tranche. Thereafter (subject to the limitations set forth
herein) the Tranche Rate applicable thereto shall be the Eurodollar Rate, to
the extent then available and determinable in accordance with the terms hereof,
or in all other cases, the Base Rate, in each case, as determined by
NationsBank; provided, that with respect to the occurrence of any of the events
described in clause (i) or (ii) immediately above with respect to any expiring
Tranche Period to which any Net Investment held by it is allocated,
NationsBank, on behalf of the Liquidity Provider, shall designate that such Net
Investment shall be allocated to a BR Tranche for a Tranche Period not to
exceed three (3) Business Days. At all times from and after the Termination
Date (subject to Section 7.2(b)), with respect to any portion of the
Transferred Interest which is not held by the Bank Investors (or any of them),
the Company or NationsBank, as applicable, shall select all new Tranche Periods
applicable thereto; provided, that the Company or NationsBank, as applicable,
shall use reasonable efforts, and shall consult with the Transferor, in
selecting such Tranche Periods to match such
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Tranche Periods to the anticipated cash flows relating to the Receivables then
outstanding so as to minimize the amount of Early Collection Fees which may be
payable by the Transferor.
(b) Transferred Interest Held by Bank Investor. Subject to
Section 7.2(b), the initial Tranche Period with respect to any portion of the
Transferred Interest transferred to the Bank Investors (or any of them)
pursuant to Section 9.7 shall be a period of not greater than 14 days and such
Tranche shall be a BR Tranche. Thereafter with respect to such portion, and
with respect to any other portion of the Transferred Interest held by the Bank
Investors (or any of them), such Net Investment shall be allocated at the
Transferor's option (subject Section 7.2(b) and to the limitations set forth
herein) to either BR Tranches or Eurodollar Tranches. The Transferor shall
give the Agent irrevocable notice by telephone of the new requested Tranche
Period at least three (3) Business Days prior to the expiration of any then
existing Tranche Period; provided, that if the Transferor shall fail to give
any such notice with respect to any expiring Tranche Period held by any Bank
Investor, the Transferor shall be deemed to have selected a BR Tranche having a
Tranche Period not exceeding three (3) Business Days. At all times from and
after the Termination Date (subject to Section 7.2(b)), with respect to any
portion of the Transferred Interest held by the Bank Investors (or any of
them), the Agent shall select all new Tranche Periods applicable thereto;
provided, that the Agent shall use reasonable efforts, and shall consult with
the Transferor, in selecting such Tranche Periods to match such Tranche Periods
to the anticipated cash flows relating to the Receivables then outstanding so
as to minimize the amount of Early Collection Fees which may be payable by the
Transferor.
(c) Eurodollar Rate Protection; Illegality. (i) If the Agent is
unable to obtain on a timely basis the information necessary to determine the
LIBOR Rate for any proposed Eurodollar Tranche, then
(A) the Agent shall forthwith notify the Company or Bank
Investors, as applicable and the Transferor that the Eurodollar Rate
cannot be determined for such Eurodollar Tranche, and
(B) while such circumstances exist, neither the Company, any of
the Bank Investors or the Agent shall allocate the Net Investment of
any additional Transferred Interests purchased during such period or
reallocate the Net Investment allocated to any then existing Tranche
ending during such period, to a Eurodollar Tranche.
(ii) If, with respect to any outstanding Eurodollar Tranche, the
Company or any of the Bank Investors owning any Transferred Interest therein
notifies the Agent that it is unable
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to obtain matching deposits in the London interbank market to fund its purchase
or maintenance of such Transferred Interest or that the Eurodollar Rate
applicable to such Transferred Interest will not adequately reflect the cost to
the Person of funding or maintaining its respective Transferred Interest for
such Tranche Period, then the Agent shall forthwith so notify the Transferor,
whereupon neither the Agent nor the Company or the Bank Investors, as
applicable, shall, while such circumstances exist, allocate any Net Investment
of any additional Transferred Interest purchased during such period or
reallocate the Net Interest allocated to any Tranche Period ending during such
period, to a Eurodollar Tranche.
(iii) Notwithstanding any other provision of this Agreement, if the
Company or any of the Bank Investors, as applicable, shall notify the Agent
that such Person has determined (or has been notified by any Liquidity
Provider) that the introduction of or any change in or in the interpretation
of any law or regulation makes it unlawful (either for the Company, such Bank
Investor, or such Liquidity Provider, as applicable), or any central bank or
other governmental authority asserts that it is unlawful, for the Company,
such Bank Investor or such Liquidity Provider, as applicable, to fund the
purchases or maintenance of Transferred Interests at the Eurodollar Rate, then
(x) as of the effective date of such notice from such Person to the Agent, the
obligation or ability of the Company or such Bank Investors, as applicable, to
fund its purchase or maintenance of Transferred Interests at the Eurodollar
Rate shall be suspended until such Person notifies the Agent that the
circumstances causing such suspension no longer exist and (y) the Net
Investment of each Eurodollar Tranche in which such Person owns an interest
shall either (1) if such Person may lawfully continue to maintain such
Transferred Interest at the Eurodollar Rate until the last day of the
applicable Tranche Period, be reallocated on the last day of such Tranche
Period to another Tranche Period in respect of which the Net Investment
allocated thereto accrues Discount at a Tranche Rate other than the Eurodollar
Rate or (2) if such Person shall determine that it may not lawfully continue
to maintain such Transferred Interest at the Eurodollar Rate until the end of
the applicable Tranche Period, such Person's share of the Net Investment
allocated to such Eurodollar Tranche shall be deemed to accrue Discount at the
Base Rate from the effective date of such notice until the end of such Tranche
Period.
SECTION 2.4. Discount, Fees and Other Costs and Expenses.
Notwithstanding the limitation on recourse under Section 2.1 hereof, the
Transferor shall pay, as and when due in accordance with this Agreement, all
fees hereunder, Discount (including Discount due the Company or any Bank
Investor), all amounts payable pursuant to Article VIII hereof, if any, and the
Servicing Fees. On the last day of each Tranche Period, the
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Transferor shall pay to the Agent, on behalf of the Company or the Bank
Investors, as applicable, an amount equal to the accrued and unpaid Discount
for such Tranche Period together with, in the event the Transferred Interest
is held by the Company, an amount equal to the discount accrued on the
Company's Commercial Paper to the extent such Commercial Paper was issued in
order to fund the Transferred Interest in an amount in excess of the Transfer
Price of an Incremental Transfer due to rounding as a result of the minimum
incremental funding restrictions in the commercial paper markets. The
Transferor shall pay to the Agent, on behalf of the Company, on each day on
which any Related Commercial Paper is issued by the Company, the Dealer Fee.
Discount shall accrue with respect to each Tranche on each day occurring during
the Tranche Period related thereto. Nothing in this Agreement shall limit in
any way the obligations of the Transferor to pay the amounts set forth in this
Section 2.4.
SECTION 2.5. Non-Liquidation Settlement and Reinvestment Procedures;
Partial Liquidations. (a) On each day after the date of any Incremental
Transfer but prior to the Termination Date and provided that no Potential
Termination Event shall have occurred and be continuing, the Collection Agent
shall out of the Percentage Factor of Collections received on or prior to such
day and not previously applied or accounted for: (i) set aside and hold in
trust for the Company or the Bank Investors, as applicable (or deposit into the
Collection Account if so required pursuant to Section 2.12 hereof) an amount
equal to all Discount and the Servicing Fee accrued through such day and not so
previously set aside or paid and (ii) apply the balance of such Percentage
Factor of Collections remaining after application of Collections as provided in
clause (i) of this Section 2.5(a) hereof to the Transferor, for the benefit of
the Company or the Bank Investors, as applicable, to the purchase of
additional undivided percentage interests in each Receivable pursuant to
Section 2.2(b) hereof. On the last day of each Tranche Period, from the
amounts set aside as described in clause (i) of the first sentence of this
Section 2.5(a) hereof, the Collection Agent shall deposit to the Agent's
account (to the extent not previously so deposited), for the benefit of the
Company or the Bank Investors, as applicable, an amount equal to the accrued
and unpaid Discount for such Tranche Period and shall deposit to its own
account an amount equal to the accrued and unpaid Servicing Fee for such
Tranche Period. The Agent, upon its receipt of such amounts in the Agent's
account, shall distribute such amounts to the Company and/or Bank Investors
entitled thereto as set forth above; provided that if the Agent shall have
insufficient funds to pay all of the above amounts in full on any such date,
the Agent shall pay such amounts ratably (based on the amounts owing to each
such Person) to all such Persons entitled to payment thereof.
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(b) The Transferor shall be entitled at any time during the term of
this Agreement to request a partial liquidation of the Transferred Interest
such that the aggregate Net Investment shall be reduced to an amount designated
by the Transferor in such request. Any such partial liquidation shall be
conducted on terms and provisions to be mutually acceptable to the Agent and
the Transferor; provided, however, that it is understood and agreed that,
unless otherwise requested by the Transferor, such partial liquidation shall
not result in a reduction in the Maximum Net Investment.
SECTION 2.6. Liquidation Settlement Procedures. If at any time on
or prior to the Termination Date, the Percentage Factor is greater than the
Maximum Percentage Factor, then the Transferor shall immediately pay to the
Agent, for the benefit of the Company or the Bank Investors, as applicable, an
amount equal to the amount such that, when applied in reduction of the Net
Investment, will result in a Percentage Factor less than or equal to the
Maximum Percentage Factor. Such amount shall be applied to the reduction of
the Net Investment of Tranche Periods selected by the Agent. On the
Termination Date and on each day thereafter, and on each day on which a
Potential Termination Event has occurred and is continuing, the Collection
Agent shall set aside and hold in trust for the Company or the Bank Investors,
as applicable (or deposit into the Collection Account if so required pursuant
to Section 2.12 hereof) the Percentage Factor of all Collections received on
such day and shall set aside and hold in trust for the Transferor such portion
of Collections not allocated to the Company or the Bank Investors, as
applicable. On the Termination Date or the day on which a Potential
Termination Event occurs, the Collection Agent shall deposit to the Agent's
account, for the benefit of the Company or the Bank Investors, as applicable,
any amounts set aside pursuant to Section 2.5(a) above. On the last day of
each Tranche Period to occur on or after the Termination Date or during the
continuance of a Potential Termination Event, the Collection Agent shall
deposit to the Agent's account, for the benefit of the Company or the Bank
Investors, as applicable, the amounts so set aside for the Company or the Bank
Investors pursuant to the second preceding sentence, but not to exceed the sum
of (i) the accrued Discount for such Tranche Period, (ii) the portion of the
Net Investment allocated to such Tranche Period, and (iii) all other Aggregate
Unpaids. On such day, the Collection Agent shall deposit to its account, from
the amounts set aside for the Company and the Bank Investors pursuant to the
preceding sentence which remain after payment in full of the aforementioned
amounts, the accrued Servicing Fee for such Tranche Period. If there shall be
insufficient funds on deposit for the Collection Agent to distribute funds in
payment in full of the aforementioned amounts, the Collection Agent shall
distribute funds first, in payment of the accrued Discount, second, if the
Transferor, any of the Sellers or any Affiliate of the Transferor or any of the
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Sellers is not then the Collection Agent, to the Collection Agent's account in
payment of the Servicing Fee payable to the Collection Agent, third, in
reduction of the Net Investment allocated to any Tranche Period ending on such
date, fourth, in payment of all fees payable by the Transferor hereunder,
fifth, in payment of all other Aggregate Unpaids and sixth, if the Transferor,
any of the Sellers or any Affiliate of the Transferor or any of the Sellers is
then the Collection Agent, to its account as Collection Agent, in payment of
the Servicing Fee payable to such Person. The Agent, upon its receipt of such
amounts in the Agent's account, shall distribute such amounts to the Persons
entitled thereto as set forth above; provided that if the Agent shall have
insufficient funds to pay all of the above amounts in full on any such date,
the Agent shall pay such amounts in the order of priority set forth above and,
with respect to any such category above for which the Agent shall have
insufficient funds to pay all such amounts owing on such date, ratably (based
on the amounts in such categories owing to such Persons) among all such Persons
entitled to payment thereof. Following the date on which the Net Investment has
been reduced to zero, all accrued Discount and Servicing Fees have been paid in
full, in cash and all other Aggregate Unpaids have been paid in full, in
cash, (i) the Percentage Factor shall be reduced to zero, (ii) the Agent, on
behalf of the Company and the Bank Investors, shall be considered to have
reconveyed to the Transferor all of the Company's and the Bank Investors'
right, title and interest in and to the Affected Assets (including the
Transferred Interest), (iii) the Collection Agent shall pay to the Transferor
any remaining Collections set aside and held by the Collection Agent pursuant
to the third sentence of this Section 2.6 and (iv) the Agent, on behalf of the
Company and the Bank Investors, shall execute and deliver to the Transferor, at
the Transferor's expense, such documents or instruments as are necessary to
terminate the Company's and the Bank Investors' respective interests in the
Affected Assets. Any such documents shall be prepared by or on behalf of the
Transferor. On the last day of each Tranche Period, the Collection Agent shall
remit to the Transferor such portion of Collections set aside for the
Transferor pursuant to this Section 2.6. Notwithstanding anything contained
herein to the contrary, no Collections or other funds applied to the reduction
of Net Investment as a result of the occurrence and continuance of a Potential
Termination Event which does not become a Termination Event shall effect or
cause a reduction in the Maximum Net Investment.
SECTION 2.7. Fees. Notwithstanding any limitation on recourse
contained in this Agreement, the Transferor shall pay the following
non-refundable fees:
(a) On the last day of each month and on the date occurring after
the Termination Date upon which the Percentage
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Factor is reduced to zero, to the Company solely for its own account, the
Program Fee;
(b) On the last day of each month and on the date occurring after
the Termination Date upon which the Percentage Factor is reduced to zero, to
the Agent for allocation to the Bank Investors, the Commitment Fee; and
(c) On the date of execution hereof, to the Administrative Agent
solely for its own account, the Arrangement Fee.
SECTION 2.8. Protection of Ownership Interest of the Company and the
Bank Investors. (a) The Transferor agrees that it will, and will cause each
of the Sellers to, from time to time, at its or their expense, promptly execute
and deliver all instruments and documents and take all actions as may be
necessary or as the Agent may reasonably request in order to perfect or protect
the Transferred Interest or to enable the Agent, the Company or the Bank
Investors to exercise or enforce any of their respective rights hereunder.
Without limiting the foregoing, the Transferor will, and will cause each of the
Sellers to, in order to accurately reflect this purchase and sale transaction,
(x) execute and file such financing or continuation statements or amendments
thereto or assignments thereof (as permitted pursuant to Section 9.7 hereof)
as may be requested by the Agent, the Company or any of the Bank Investors, and
(y) mark its respective master data processing records and, upon the request of
the Agent, the Company or any of the Bank Investors, mark its other documents
with a legend describing the conveyance to the Transferor (in the case of the
Sellers) and the Agent, for the benefit of the Company and the Bank Investors,
of the Transferred Interest. The Transferor shall, and will cause each of the
Sellers to, upon request of the Agent, the Company or any of the Bank Investors
obtain such additional search reports as the Agent, the Company or any of the
Bank Investors shall request. To the fullest extent permitted by applicable
law, the Agent shall be permitted to sign and file continuation statements and
amendments thereto and assignments thereof without the Transferor's or any of
the Sellers' signatures. Carbon, photographic or other reproduction of this
Agreement or any financing statement shall be sufficient as a financing
statement. The Transferor shall not, and shall not permit any of the Sellers
to, change its respective name, identity or corporate structure (within the
meaning of Section 9-402(7) of the UCC as in effect in the States of New York,
Maryland (in the case of the Transferor and Distributors), Illinois (in the
case of Illinois Fruit & Produce Corp.) and Pennsylvania (in the case of Sky
Bros., Inc.)) nor relocate its respective chief executive office or any office
where Records are kept unless it shall have: (i) given the Agent at least
thirty (30) days prior notice thereof and (ii) prepared at the Transferor's
expense and delivered to
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the Agent all financing statements, instruments and other documents necessary
to preserve and protect the Transferred Interest or requested by the Agent in
connection with such change or relocation. Any filings under the UCC or
otherwise that are occasioned by such change in name or location shall be made
at the expense of Transferor.
(b) The Collection Agent shall instruct all Obligors to remit all
Collections directly to a Lock-Box or a Lock-Box Account in respect of which a
Lock-Box Agreement shall be in effect. Each Lock-Box or Lock-Box Account
maintained by a Lock-Box Bank and each Deposit Account maintained by a Deposit
Account Bank shall, pursuant hereto and the applicable Lock-Box Agreement or
Deposit Account Agreement, be under the exclusive ownership and control of the
Agent which is hereby and thereby granted to the Agent by the applicable Seller
and the Transferor. The Collection Agent shall be permitted to give
instructions to the Lock-Box Banks and the Deposit Account Banks until such
time after the occurrence of any Collection Agent Default, Termination Event or
Potential Termination Event as the Agent shall, by notice to the Collection
Agent or any of the Lock-Box Banks and/or Deposit Account Banks, terminate such
authority. The Collection Agent shall not add any bank as a Lock-Box Bank or
any lock-box or lock-box account as a Lock-Box or Lock-Box Account or any bank
as a Deposit Account Bank or any deposit account as a Deposit Account, in any
case, to those listed on Exhibit C-1 or D-l, respectively, attached hereto
unless the applicable bank has entered into a Lock-Box Agreement or Deposit
Account Agreement, respectively. The Collection Agent shall not terminate any
bank as a Lock-Box Bank or Deposit Account Bank, any lock-box as a Lock-Box or
any account as a Lock-Box Account or Deposit Account unless the Agent shall
have received thirty (30) days' prior notice of such termination. If the
Transferor, any of the Sellers or the Collection Agent receives any
Collections, the Transferor, such Seller or the Collection Agent, as
applicable, shall immediately, but in any event within forty-eight (48) hours
of receipt, remit (and shall cause such Seller to remit) such Collections to a
Lock-Box Account or Deposit Account.
SECTION 2.9. Deemed Collections; Application of Payments. (a) If
on any day the Outstanding Balance of a Receivable is either (x) reduced or
canceled as a result of any Dilution Factor, or (y) reduced or canceled as a
result of a setoff or offset in respect of any claim by any Person (whether
such claim arises out of the same or a related transaction or an unrelated
transaction), the Transferor shall be deemed to have received on such day a
Collection of such Receivable in the amount of such reduction or cancellation
and the Transferor shall pay to the Collection Agent an amount equal to such
reduction or cancellation and such amount shall be applied by the Collection
Agent as a Collection in accordance with Section 2.5(a) or 2.6
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hereof, as applicable. The Net Investment shall be reduced by the amount of
such payment actually received by the Agent.
(b) If on any day any of the representations or warranties in
Article III was or becomes untrue with respect to a Receivable (whether on or
after the date of any transfer of an interest therein to the Agent, the Company
or the Bank Investors as contemplated hereunder), the Transferor shall be
deemed to have received on such day a Collection of such Receivable in full and
the Transferor shall on such day pay to the Collection Agent an amount equal to
the Outstanding Balance of such Receivable and such amount shall be allocated
and applied by the Collection Agent as a Collection allocable to the
Transferred Interest in accordance with Section 2.5(a) or 2.6 hereof, as
applicable. The Net Investment shall be reduced by the amount of such payment
actually received by the Agent.
(c) Any payment by an Obligor in respect of any indebtedness owed by
it to any of the Sellers shall, except as otherwise specified by such Obligor
or otherwise required by contract or law and unless otherwise instructed by the
Company, be applied as a Collection of any Receivable of such Obligor included
in the Transferred Interest (starting with the oldest such Receivable) to the
extent of any amounts then due and payable thereunder before being applied to
any other receivable or other indebtedness of such Obligor.
SECTION 2.10. Payments and Computations, Etc. All amounts to be paid
or deposited by the Transferor or the Collection Agent hereunder shall be paid
or deposited in accordance with the terms hereof no later than 11:00 a.m. (New
York City time) on the day when due in immediately available funds; if such
amounts are payable to the Company or any Bank Investor they shall be paid or
deposited in the account indicated in Section 10.3 hereof, until otherwise
notified by the Agent. The Transferor shall, to the extent permitted by law,
pay to the Agent, for the benefit of the Company and the Bank Investors upon
demand, interest on all amounts not paid or deposited when due hereunder at a
rate equal to 2% per annum plus the Base Rate. All computations of Discount,
interest and all per annum fees hereunder shall be made on the basis of a year
of 360 days for the actual number of days (including the first but excluding
the last day) elapsed. Any computations by the Agent of amounts payable by the
Transferor hereunder shall be binding upon the Transferor absent manifest
error.
In the event that any payment hereunder is stated to be due on a day
which is not a Business Day, then such payment shall be deemed due on the
immediately succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of Discount, interest or any fee
payable hereunder, as the case may be; provided, however, that if such
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extension would cause payment of Discount on any Eurodollar Tranche to be made
in the next calendar month, such payment shall be made on the next preceding
Business Day.
SECTION 2.11. Reports. Prior to the tenth day of each Fiscal
Month, the Collection Agent shall prepare and forward to the Agent, the
Administrative Agent and each of the Bank Investors, (i) an Investor Report as
of the end of the last day of the immediately preceding Fiscal Month, (ii) if
requested by the Agent or the Administrative Agent, a listing by Obligor of all
Receivables together with an aging of such Receivables and (iii) such other
information as the Agent or the Administrative Agent may reasonably request.
SECTION 2.12. Collection Account. There shall be established on
the day of the initial Incremental Transfer hereunder and maintained, for the
benefit of the Company and the Bank Investors, with the Agent, a segregated
account (the "Collection Account"), bearing a designation clearly indicating
that the funds deposited therein are held for the benefit of the Company and
the Bank Investors. On and after the occurrence of a Collection Agent Default
or a Termination Event or a Potential Termination Event, the Collection Agent
shall remit daily within forty-eight hours of receipt to the Collection Account
all Collections received with respect to any Receivables. Funds on deposit in
the Collection Account (other than investment earnings) shall be invested by
the Agent in Eligible Investments that will mature so that such funds will be
available prior to the last day of each successive Tranche Period following
such investment. On the last day of each Tranche Period, all interest and
earnings (net of losses and investment expenses) on funds on deposit in the
Collection Account shall be retained in the Collection Account and be available
to make any payments required to be made hereunder (including Discount) by the
Transferor. On the date occurring after the Termination Date upon which the
Percentage Factor shall have been reduced to zero, any funds remaining on
deposit in the Collection Account shall be paid to the Transferor.
SECTION 2.13. Sharing of Payments, Etc. If the Company or any Bank
Investor (for purposes of this Section only, being a "Recipient") shall obtain
any payment (whether voluntary, involuntary, through the exercise of any right
of setoff, or otherwise) on account of Transferred Interest owned by it (other
than pursuant to Section 2.7 or 9.7, or Article VIII and other than as a result
of the differences in the timing of the applications of Collections pursuant to
Section 2.5 or 2.6) in excess of its ratable share of payments on account of
Transferred Interest obtained by the Company and/or the Bank Investors entitled
thereto, such Recipient shall forthwith purchase from the Company and/or the
Bank Investors entitled to a share of such amount participations in the
Percentage Interests owned by such
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Persons as shall be necessary to cause such Recipient to share the excess
payment ratably with each such other Person entitled thereto; provided, however,
that if all or any portion of such excess payment is thereafter recovered from
such Recipient, such purchase from each such other Person shall be rescinded
and each such other Person shall repay to the Recipient the purchase price paid
by such Recipient for such participation to the extent of such recovery,
together with an amount equal to such other Person's ratable share (according
to the proportion of (a) the amount of such other Person's required payment to
(b) the total amount so recovered from the Recipient) of any interest or other
amount paid or payable by the Recipient in respect of the total amount so
recovered.
SECTION 2.14. Right of Setoff. Without in any way limiting the
provisions of Section 2.13, each of the Company and the Bank Investors is
hereby authorized (in addition to any other rights it may have) at any time
after the occurrence of the Termination Date to setoff, appropriate and apply
(without presentment, demand, protest or other notice which are hereby
expressly waived) any deposits and any other indebtedness held or owing by the
Company or such Bank Investor to, or for the account of, the Transferor against
the amount of the Aggregate Unpaids owing by the Transferor to such Person.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Transferor. The
Transferor represents and warrants to the Agent, the Company and the Bank
Investors that:
(a) Corporate Existence and Power. The Transferor is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate power and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business in each jurisdiction in which its business is now conducted,
except where the failure to have obtained or received any such governmental
license, authorization, consent or approval would not have a Material Adverse
Effect. The Transferor is duly qualified to do business in, and is in good
standing in, every other jurisdiction in which the nature of its business
requires it to be so qualified, except where the failure to be so qualified or
in good standing would not have a Material Adverse Effect.
(b) Corporate and Governmental Authorization; Contravention. The
execution, delivery and performance by the
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Transferor of this Agreement, the Receivables Purchase Agreement, the Fee
Letter, and the other Transaction Documents to which the Transferor is a party
(i) are within the Transferor's corporate powers, have been duly authorized by
all necessary corporate and shareholder action, (ii) require no action by or
in respect of, or filing with, any Official Body or official thereof (except
as contemplated by Section 2.8 hereof), (iii) do not contravene, or constitute
a default under, any provision of applicable law, rule or regulation or of any
agreement, judgment, injunction, order, writ, decree or other instrument
binding upon the Transferor, except where any such contravention or default
would not have a Material Adverse Effect, (iv) do not contravene the
Certificate of Incorporation or Bylaws of the Transferor, or (v) result in the
creation or imposition of any Adverse Claim on the assets of the Transferor
(except as contemplated by Section 2.8 hereof).
(c) Binding Effect. Each of this Agreement, the Receivables
Purchase Agreement, the Fee Letter, and the other Transaction Documents to
which the Transferor is a party constitutes the legal, valid and binding
obligation of the Transferor, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws affecting the rights of creditors generally.
(d) Perfection. Immediately preceding each Transfer hereunder, the
Transferor shall be the owner of all of the Receivables, free and clear of all
Adverse Claims. On or prior to each Transfer and each recomputation of the
Transferred Interest and except as would not violate Section 7.1(f) at such
time, all financing statements and other documents required to be recorded or
filed in order to perfect and protect the Transferred Interest against all
creditors of and purchasers from the Transferor and each of the Sellers will
have been duly filed in each filing office necessary for such purpose and all
filing fees and taxes, if any, payable in connection with such filings shall
have been paid in full.
(e) Accuracy of Information. All information heretofore furnished
by the Transferor (including without limitation, any Investor Reports, any
other reports delivered pursuant to Section 2.11 hereof and the Transferor's
financial statements) to the Company, any Bank Investors, the Agent or the
Administrative Agent for purposes of or in connection with this Agreement or
any transaction contemplated hereby is, and all such information hereafter
furnished by the Transferor to the Company, any Bank Investors, the Agent or
the Administrative Agent will be, true and accurate in every material respect,
on the date such information is stated or certified.
(f) Tax Status. The Transferor has filed all tax returns (federal,
state and local) required to be filed and has paid or made adequate provision
for the payment of all taxes,
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assessments and other governmental charges, except any such taxes, assessments
and/or other governmental charges which it is contesting in good faith and by
appropriate proceedings and in respect of which (x) the Transferor has
established adequate reserves on its books and records and (y) no Adverse Claim
has resulted from the non-payment thereof.
(g) Action, Suits. Except as set forth in Exhibit H hereof, there
are no actions, suits or proceedings pending, or to the knowledge of the
Transferor threatened, against or affecting the Transferor or any Affiliate of
the Transferor or their respective properties, in or before any court,
arbitrator or other body, which may, individually or in the aggregate, have a
Material Adverse Effect.
(h) Use of Proceeds. No proceeds of any Transfer will be used by
the Transferor to acquire any security in any transaction which is subject to
Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
(i) Place of Business. The principal place of business and chief
executive office of the Transferor are located at the address of the Transferor
indicated in Section 10.3 hereof and the offices where the Transferor keeps all
its Records, are located at the address(es) described on Exhibit I or such
other locations notified to the Company in accordance with Section 2.8 hereof
in jurisdictions where all action required by Section 2.8 hereof has been taken
and completed. The principal place of business and chief executive office of
each of the Sellers and the offices where each such Seller keeps all its
Records, are located at the address(es) described on Exhibit I or such other
locations notified to the Company in accordance with Section 2.8 hereof in
jurisdictions where all action required by Section 2.8 hereof has been taken
and completed.
(j) Good Title. Upon each Transfer and each recomputation of the
Transferred Interest, the Company shall acquire a valid and perfected first
priority undivided percentage ownership interest to the extent of the
Transferred Interest or a first priority perfected security interest in each
Receivable that exists on the date of such Transfer and recomputation and in
the Related Security and Collections with respect thereto free and clear of any
Adverse Claim.
(k) Tradenames, Etc. As of the date hereof: (i) the Transferor
has no Subsidiaries and (ii) the Transferor and each of the Sellers has, within
the last five (5) years, operated only under the tradenames identified in
Exhibit J hereto, and, within the last five (5) years, has not changed its
name, merged with or into or consolidated with any other corporation or been
the subject of any proceeding under the Bankruptcy Code, except as disclosed in
Exhibit J hereto.
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(l) Nature of Receivables. Each Receivable (x) represented by the
Transferor or the Collection Agent to be an Eligible Receivable (including in
any Investor Report or other report delivered pursuant to Section 2.11 hereof)
or (y) included in the calculation of the Net Receivables Balance in fact
satisfies at such time the definition of "Eligible Receivable" set forth
herein, is an "eligible asset" as defined in Rule 3a-7 under the Investment
Company Act, of 1940, as amended and, in the case of clause (y) above, is not
a Receivable of the type described in clauses (i), (ii) and (iii) of the
definition of "Net Receivables Balance."
(m) Coverage Requirement; Amount of Receivables. The Percentage
Factor does not exceed the Maximum Percentage Factor. As of the Closing Date,
the aggregate Outstanding Balance of the Receivables in existence was
$103,949,988 and the Net Receivable Balance was $84,119,975.
(n) Credit and Collection Policy. Since August 2, 1995, there
have been no material changes in the Credit and Collection Policy other than as
permitted hereunder.
(o) Collections and Servicing. Since July 1, 1995, there has been
no material adverse change in the ability of the Collection Agent or any
Sub-Collection Agent (in either case, to the extent it is any of the Sellers,
the Transferor or any Subsidiary or Affiliate of any of the foregoing) to
service and collect the Receivables.
(p) No Termination Event. No event has occurred and is continuing
and no condition exists which constitutes a Termination Event or a Potential
Termination Event.
(q) Not an Investment Company. Neither the Transferor nor any of
the Sellers is, or is controlled by, an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
(r) ERISA. Except as set forth on Exhibit M, none of the Parent,
the Transferor, any of the Sellers or any ERISA Affiliate of any of the
foregoing maintains any Benefit Plans. Each of the Parent, the Transferor,
the Sellers and the ERISA Affiliates of each of the foregoing is in compliance
in all material respects with ERISA and no Adverse Claims exist in favor of the
Pension Benefit Guaranty Corporation or the U.S. Department of Labor on any of
the Receivables or on the assets or properties of any such Person making such
representation.
(s) Lock-Box Accounts; Deposit Accounts. The names and addresses of
all the Lock-Box Banks, together with the account numbers of the Lock-Box
Accounts and the numbers of the related Lock-Boxes at such Lock-Box Banks are
specified in
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Exhibit C-1 hereto (or at such other Lock-Box Banks and/or with such other
Lock-Box Accounts as have been notified to the Agent and for which Lock-Box
Agreements have been executed in accordance with Section 2.8(b) hereof and
delivered to the Agent). The names and addresses of all the Deposit Account
Banks, together with the account numbers of the Deposit Accounts are specified
in Exhibit D-1 hereto (or at such other Deposit Account Banks and/or with such
other Deposit Account numbers as have been notified to the Agent and for which
Deposit Account Agreements have been executed in accordance with Section 2.8(b)
hereof and delivered to the Agent). All Obligors have been instructed to make
payments directly to a Lock-Box or a Lock-Box Account and only Collections are
deposited into the Lock-Box Accounts and the Deposit Accounts.
(t) Bulk Sales. No transaction contemplated hereby or by the
Receivables Purchase Agreement requires compliance with any bulk sales act or
similar law.
(u) Financial Statements; Material Adverse Change. The audited
consolidated balance sheets of Distributors and its consolidated Subsidiaries
dated as of July 1, 1995, and the consolidated statements of income, cash flows
and changes in financial position relating thereto for the Fiscal Year then
ended, copies of which have been furnished to the Agent, fairly present the
consolidated financial condition of such Persons as at such date and the
consolidated results of the operations and cash flows of such Persons for the
period ended on such date, all in accordance with generally accepted accounting
principles consistently applied. Since July 1, 1995, there has been no
material adverse change in the business, properties or condition (financial or
otherwise) of any of the Sellers or their respective Subsidiaries.
(v) Transfers Under Receivables Purchase Agreement. Each
Receivable which has been transferred to the Transferor by the applicable
Seller has been purchased by the Transferor from such Seller or contributed by
the applicable Seller to the capital of the Transferor, in each case, pursuant
to, and in accordance with, the terms of the Receivables Purchase Agreement.
(w) Preference; Voidability. The Transferor shall have given
reasonably equivalent value to the applicable Seller in consideration for the
transfer to the Transferor of the Receivables and Related Security from such
Seller, and each such transfer shall not have been made for or on account of an
antecedent debt owed by the Seller to the Transferor and no such transfer is
voidable under any Section of the Bankruptcy Reform Act of 1978 (11 U.S.C.
Sections 101 et seq.), as amended.
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(x) Environmental Matters. (i) The Transferor and its Affiliates
currently hold and at all times heretofore the Transferor and its Affiliates
held all Environmental Permits required under all Environmental Laws except to
the extent that the failure to have any such Environmental Permit, either alone
or considered together with all other such failures, has not had and can not
reasonably be expected to have a Material Adverse Effect.
(ii) The Transferor and its Affiliates currently are, and at all times
heretofore the Transferor and its Affiliates have been, in compliance with all
terms and conditions of all such Environmental Permits and all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in all applicable Environmental
Laws except to the extent failure to comply therewith, either alone or
considered together will all other such failures, has not had and can not
reasonably be expected to have a Material Adverse Effect.
(iii) Except as set forth in Exhibit O, neither the Transferor nor
any of its Affiliates has ever received, and, so far as is known to the
Transferor, no predecessor in interest of the Transferor and its Affiliates in
respect of any of the Affiliate Premises has ever received, from any Official
Body or other Person any notice of, and the Transferor has no knowledge of, any
events, conditions or circumstances that could prevent continued compliance in
all material respects with the Environmental Permits referred to in subclause
(ii) of this clause (x) or any scheduled renewals thereof or any applicable
Environmental Laws currently in effect, or that could give rise to any
liability on the part of the Transferor and its Affiliates or otherwise form
the basis of any claim, action, demand, request, notice, suit, proceeding,
hearing, study or investigation (collectively, "Environmental Claims")
involving the Transferor and its Affiliates, based on or related to (x) a
violation of any applicable Environmental Laws currently in effect or (y) the
manufacture, generation, refining, processing, distribution, use, sale,
treatment, receipt, storage, disposal, transport, arranging for transport or
handling, or the emission, discharge, release or threatened release into the
environment, of any Hazardous Substance in violation of any applicable
Environmental Laws currently in effect, other than any liability or
Environmental Claim referred to in this subclause (iii) which, either alone or
considered together with all other such liabilities and Environmental Claims,
has not had and can not reasonably be expected to have a Material Adverse
Effect. Neither the matters set forth in Exhibit O nor the resolution thereof
nor any action required to be taken by Transferor and/or any of its Affiliates
in connection therewith have had or, in the Transferor's good faith judgment,
can reasonably be expected to have, a Material Adverse Effect.
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(y) Representations and Warranties of the Sellers. Each of the
representations and warranties of each of the Sellers set forth in Section 4.01
of the Receivables Purchase Agreement are true and correct in all material
respects and the Transferor hereby remakes all such representations and
warranties for the benefit of the Agent, the Company, the Bank Investors and
the Administrative Agent.
Any document, instrument, certificate or notice delivered to the
Company hereunder shall be deemed a representation and warranty by the
Transferor as of the date of such delivery.
SECTION 3.2. Reaffirmation of Representations and Warranties by the
Transferor. On each day that a Transfer is made hereunder, the Transferor, by
accepting the proceeds of such Transfer, whether delivered to the Transferor
pursuant to Section 2.2(a) or Section 2.5(a) hereof, shall be deemed to have
certified that all representations and warranties described in Section 3.1
hereof are correct on and as of such day as though made on and as of such day
(except to the extent such representation or warranty expressly speaks only to
an earlier date). Each Incremental Transfer shall be subject to the further
condition precedent that prior to the date of such Incremental Transfer, the
Collection Agent shall have delivered to the Agent and the Administrative Agent,
in form and substance satisfactory to the Agent and the Administrative Agent, a
completed Investor Report dated within ten (10) days prior to the date of such
Incremental Transfer, together with a listing by Obligor, if requested and such
additional information as may be reasonably requested by the Administrative
Agent or the Agent; and the Transferor shall be deemed to have represented and
warranted that such conditions precedent have been satisfied.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. Conditions to Closing. On or prior to the date of
execution hereof, the Transferor shall deliver to the Agent the following
documents, instruments and fees all of which shall be in a form and substance
(and in such quantities as are) acceptable to the Agent:
(a) A copy of the resolutions of the Board of Directors of the
Transferor certified by its Secretary or Assistant Secretary approving the
execution, delivery and performance by the Transferor of this Agreement, the
Receivables Purchase Agreement, the Fee Letter and the other Transaction
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Documents to be delivered by the Transferor hereunder or there under.
(b) Copies of the resolutions of the Board of Directors of each of
the Sellers certified by its Secretary or Assistant Secretary approving the
execution, delivery and performance by such Seller of this Agreement (to the
extent relevant), the Receivables Purchase Agreement and the other Transaction
Documents to be delivered by such Seller hereunder or thereunder.
(c) The Certificate of Incorporation of the Transferor certified by
the Secretary of State or other similar official of the Transferor's
jurisdiction of incorporation, dated a date reasonably prior to the Closing
Date.
(d) The Articles/Certificates of Incorporation of each of the
Sellers certified by the Secretary of State or other similar official of such
Seller's jurisdiction of incorporation, dated a date reasonably prior to the
Closing Date.
(e) A Good Standing Certificate for the Transferor issued by the
Secretary of State or a similar official of the Transferor's jurisdiction of
incorporation and certificates of qualification as a foreign corporation issued
by the Secretaries of State or other similar officials of each jurisdiction
where such qualification is material to the transactions contemplated by this
Agreement and the other Transaction Documents, in each case, dated a date
reasonably prior to the Closing Date.
(f) Good Standing Certificates for each of the Sellers issued by the
Secretary of State or a similar official of such Seller's jurisdiction of
incorporation and certificates of qualification as a foreign corporation issued
by the Secretaries of State or other similar officials of each jurisdiction
where such qualification of such Seller is material to the transactions
contemplated by this Agreement and the other Transaction Documents, in each
case, dated a date reasonably prior to the Closing Date.
(g) A Certificate of the Secretary or Assistant Secretary of the
Transferor substantially in the form of Exhibit L-1 attached hereto.
(h) A Certificate of the Secretary or Assistant Secretary of each of
the Sellers substantially in the form of Exhibit L-2 attached hereto.
(i) Copies of proper financing statements (Form UCC-1) naming the
Transferor as the debtor and the Agent, for the benefit of the Company and the
Bank Investors, as secured party,
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or other similar instruments or documents as may be necessary or, in the
reasonable opinion of the Agent, desirable under the UCC of all appropriate
jurisdictions or any comparable law to perfect the Agent's undivided percentage
interest in all Receivables and the Related Security and Collections relating
thereto.
(j) Copies of proper financing statements (Form UCC-1) to be filed
in respect of each of the Sellers, separately, naming such Seller as the
debtor, the Transferor as secured party and the Agent, for the benefit of the
Company and the Bank Investors, as assignee of the secured party, or other
similar instruments or documents as may be necessary or, in the reasonable
opinion of the Agent, desirable under the UCC of all appropriate jurisdictions
or any comparable law to perfect the Transferor's ownership interest in all
Receivables.
(k) Copies of proper financing statements (Form UCC-3), if any,
necessary to terminate all security interests and other rights of any person in
Receivables previously granted by Transferor.
(l) Copies of proper financing statements (Form UCC-3), if any,
necessary to terminate all security interests and other rights of any person in
Receivables previously granted by any of the Sellers.
(m) Certified copies of request for information or copies (Form
UCC-11) (or a similar search report certified by parties acceptable to the
Agent) dated a date reasonably prior to the date of the initial Incremental
Transfer listing all effective financing statements which name any of the
Sellers (under their respective present names and any previous names) as debtor
and which are filed in jurisdictions in which the filings were made pursuant to
items (i) or (j) above together with copies of such financing statements
(none of which shall cover any Receivables or Contracts).
(n) Fully-executed copies of the each of the Lock-Box Agreements
relating to each of the Lock-Boxes and the Lock-Box Accounts and fully-executed
Deposit Account Agreements relating to each of the Deposit Accounts.
(o) An opinion of Shaw, Pittman, Potts & Trowbridge, counsel to the
Transferor and each of the Sellers, covering the matters set forth in the form
thereof attached as Exhibit K hereto in form and substance satisfactory to the
Agent and the Agent's counsel.
(p) An opinion of Shaw, Pittman, Potts & ,Trowbridge, counsel to the
Transferor and each of the Sellers, covering certain bankruptcy and insolvency
matters (i.e., "true
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sale" and nonconsolidation) in form and substance satisfactory to the Agent and
Agent's counsel.
(q) Executed counterparts of this Agreement, the Receivables
Purchase Agreement, the Fee Letter and each of the other Transaction Documents
to be executed by any of the Sellers and/or the Transferor, executed by such
Persons.
(r) The Arrangement Fee in accordance with Section 2.7(c).
(s) An Investor Report for the Fiscal Month ended May 4, 1996.
(t) A fully-executed copy of an amendment to the Revolving Credit
Agreement permitting the execution, delivery and performance of the Transaction
Documents by the Sellers and the Transferor of this Agreement and the other
Transaction Documents.
(u) A fully-executed copy of an amendment to the Private Debt
Indenture permitting the execution, delivery and performance of the Transaction
Documents by the Sellers and the Transferor of this Agreement and the other
Transaction Documents.
(v) A certificate of the Chief Financial Officer of Distributors and
the Transferor, certifying that the pro-forma balance sheet of the Transferor
dated as of the Closing Date attached thereto has been prepared in accordance
with GAAP and accurately reflects the financial condition of the Transferor
immediately after giving effect to the initial capitalization thereof and the
initial Incremental Transfer hereunder, which certificate shall be in the form
of that attached hereto as Exhibit N-1 and dated as of the Closing Date.
(w) A certificate of the Chief Financial Officer, the President or a
Vice President of each of the Transferor and each Seller, certifying the
accuracy of its representation and warranties hereunder and under the other
Transaction Documents to which it is a party, that no Termination Event or
Potential Termination Event has occurred and is continuing and that all
conditions precedent and covenants required to be complied with or performed on
or prior to the Closing Date by such Person have been so complied with or
performed, which certificate shall be in the form of Exhibit N-2 attached
hereto and dated as of this Closing Date.
(x) Such other documents, instruments, certificates and opinions as
the Agent or the Administrative Agent, shall reasonably request.
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ARTICLE V
COVENANTS
SECTION 5.1. Affirmative Covenants of Transferor. At all times
from the date hereof to the date occurring after the Termination Date upon
which the Percentage Factor shall have been reduced to zero, unless the Agent
and the Majority Investors shall otherwise consent in writing:
(a) Financial Reporting. The Transferor will, and will cause each
of the Sellers to, maintain, for itself and each of its respective
Subsidiaries, a system of accounting established and administered in accordance
with GAAP, and furnish to the Agent and each Bank Investor:
(i) Annual Reporting. Within ninety (90) days after the
close of each Fiscal Year, audited financial statements, prepared in
accordance with GAAP on a consolidated and consolidating basis
(consolidating statements need not be audited by such accountants) for
(x) the Transferor and (y) for Distributors and its consolidated
Subsidiaries, in each case, including balance sheets as of the end of
such period, related statements of operations, shareholder's equity
and cash flows, accompanied by an unqualified audit report certified
by independent certified public accountants, acceptable to the Agent,
prepared in accordance with generally accepted auditing principles and
any management letter prepared by said accountants and by a
certificate of said accountants that, in the course of the foregoing,
they have obtained no knowledge of any Termination Event or Potential
Termination Event, or if, in the opinion of such accountants, any
Termination Event or Potential Termination Event shall exist, stating
the nature and status thereof.
(ii) Quarterly Reporting. Within fortyfive (45) days
after the close of the first three quarterly periods of each Fiscal
Year, for (x) the Transferor and (y) for Distributors and its
consolidated Subsidiaries, in each case, consolidated and
consolidating unaudited balance sheets as at the close of each such
period and consolidated and consolidating related statements of
operations, shareholder's equity and cash flows for the period from
the beginning of such Fiscal Year to the end of such quarter, all
certified by its chief financial officer.
(iii) Compliance Certificate. Together with the financial
statements required hereunder, a
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compliance certificate signed by the Transferor's or Distributors', as
applicable, chief financial officer stating that (x) the attached
financial statements have been prepared in accordance with GAAP and
accurately reflect the financial condition of the Transferor or of
Distributors and its Subsidiaries, respectively and (y) to the best
of such Person's knowledge, no Termination Event or Potential
Termination Event exists, or if any Termination Event or Potential
Termination Event exists, stating the nature and status thereof and
showing the computation of, and showing compliance with, each of the
financial ratios and restrictions set forth in Sections 7.1(q), (r)
and (s) hereof applicable to such Person.
(iv) Shareholders Statements and Reports. Promptly upon
the furnishing thereof to the shareholders of the Parent, the
Transferor or any of the Sellers, copies of all financial statements,
reports and proxy statements so furnished.
(v) S.E.C. Filings. Promptly upon the filing thereof,
copies of all registration statements and annual, quarterly, monthly
or other regular reports which the Parent, the Transferor or any of
the Sellers or any of the foregoing's respective Subsidiaries files
with the Securities and Exchange Commission.
(vi) Notice of Termination Events, Potential Termination
Events or Collection Agent Defaults. As soon as possible and in any
event within two (2) Business Days after becoming aware of the
occurrence of each Termination Event, each Potential Termination Event
or each Collection Agent Default, a statement of the chief financial
officer or chief accounting officer of the Transferor setting forth
details of such Termination Event, Potential Termination Event or
Collection Agent Default and, in the case of any such Termination
Event, such Potential Termination Event or, to the extent the
Collection Agent is the Transferor, any of the Sellers or any
Affiliate of the Transferor or any of the Sellers, such Collection
Agent Default, the action which the Transferor proposes to take with
respect thereto.
(vii) Chance in Credit and Collection Policy. Within ten
(10) days after the date any material change in or amendment to the
Credit and Collection Policy is made, a copy of the Credit and
Collection Policy then in effect indicating such change or amendment.
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(viii) Credit and Collection Policy. Within ninety (90)
days after the close of each Fiscal Year, a complete copy of the
Credit and Collection Policy as then in effect.
(ix) Revolving Credit Agreement and Private Debt
Indenture. As soon as practicable (and in any case within three (3)
Business Days after its receipt thereof) copies of any notices of
default under, or the termination of, the Revolving Credit Agreement
or the Private Debt Indenture (or any of the securities issued
thereunder).
(x) ERISA. Promptly after the filing or receiving
thereof, copies of all reports and notices with respect to any
Reportable Event (as defined in Article IV of ERISA) which the
Parent, the Transferor, any of the Sellers or any ERISA Affiliate of
any of the foregoing files under ERISA with the Internal Revenue
Service, the Pension Benefit Guaranty Corporation or the U.S.
Department of Labor or which the Parent, the Transferor, any of the
Sellers or any ERISA Affiliates of any of the foregoing receives from
the Internal Revenue Service, the Pension Benefit Guaranty Corporation
or the U.S. Department of Labor.
(xi) Other Information. Such other information
(including non-financial information) as the Agent or the
Administrative Agent may from time to time reasonably request with
respect to the Parent, any of the Sellers, the Transferor or any
Subsidiary of any of the foregoing.
(b) Conduct of Business. The Transferor will, and will cause each
of the Sellers to, (i) carry on and conduct its business in substantially the
same manner and in substantially the same fields of enterprise as it is
presently conducted, (ii) do all things necessary to remain duly incorporated,
validly existing and in good standing as a domestic corporation in its
jurisdiction of incorporation and (iii) maintain all requisite authority to
conduct its business in each jurisdiction in which its business is conducted,
except, in the case of clause (iii) hereof, where the failure to do so would
not result in a Material Adverse Effect.
(c) Compliance with Laws. The Transferor will, and will cause each
of the Sellers and each of the Sellers' respective Subsidiaries to comply with
all laws, rules, regulations, orders, writs, judgments, injunctions, decrees
or awards to which it or its respective properties may be subject, except where
such failure to comply would not have a Material Adverse Effect.
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(d) Furnishing of Information and Inspection of Records. The
Transferor will, and will cause each of the Sellers to, furnish to the Agent
from time to time such information with respect to the Receivables as the Agent
may reasonably request, including, without limitation, listings identifying
the Obligor and the Outstanding Balance for each Receivable. The Transferor
will, and will cause each of the Sellers to, at any time and from time to time
during regular business hours permit the Agent, or its agents or
representatives, (i) to examine and make copies of, or make abstracts from all
Records and (ii) to visit the offices and properties of the Transferor or any
of the Sellers, as applicable, for the purpose of examining such Records, and
to discuss matters relating to Receivables or the Transferor's or any such
Seller's performance hereunder and under the other Transaction Documents to
which such Person is a party with any of the officers, directors, employees or
independent public accountants of the Transferor or any of the Sellers, as
applicable, having knowledge of such matters.
(e) Keeping of Records and Books of Account. The Transferor will,
and will cause each of the Sellers to, maintain and implement administrative
and operating procedures (including, without limitation, an ability to
recreate records evidencing Receivables in the event of the destruction of the
originals thereof), and keep and maintain, all documents, books, records and
other information reasonably necessary or advisable for the collection of all
Receivables (including, without limitation, records adequate to permit the
daily identification of each new Receivable and all Collections of and
adjustments to each existing Receivable). The Transferor will, and will cause
the each of the Sellers to, give the Agent notice of any material change in the
administrative and operating procedures of the Transferor or any such Seller,
as applicable, referred to in the previous sentence.
(f) Performance and Compliance with Receivables and Contracts. The
Transferor, at its expense, will, and will cause each of the Sellers to, timely
and fully perform and comply with all material provisions, covenants and other
promises required to be observed by the Transferor or any such Seller under the
Contracts related to the Receivables.
(g) Credit and Collection Policy. The Transferor will, and will
cause each of the Sellers to, comply in all material respects with the Credit
and Collection Policy in regard to each Receivable and the related Contract.
(h) Collections. The Transferor shall, and shall cause each of the
Sellers to, instruct all Obligors to cause all Collections to be remitted
directly to a Lock-Box or Lock-Box Account.
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(i) Collections Received. The Transferor shall, and shall cause
each of the Sellers to, hold in trust, and deposit, immediately, but in any
event not later than forty-eight (48) hours of such Person's receipt thereof,
to a Lock-Box Account or Deposit Account all Collections received from time to
time by the Transferor or any such Seller, as the case may be.
(j) Preservation of Corporate Existence; Separate Business. (i)
The Transferor shall, and shall cause each of the Sellers to (x) preserve and
maintain its respective corporate existence, rights, franchises and privileges
in the respective jurisdiction of its incorporation, and (y) qualify and remain
qualified in good standing as a foreign corporation in each respective
jurisdiction where the failure to do so would have a Material Adverse Effect.
(ii) The Transferor shall take all reasonable steps to continue its
identity as a separate legal entity and to make it apparent to third Persons
that it is an entity with assets and liabilities distinct from those of the
Parent, any of the Sellers, any Subsidiaries or other Affiliates of the Parent
or any of the Sellers (collectively, the "Related Parties" and individually, a
"Related Party") or any other Person, and that it is not a division of any of
the Related Parties or any other Person. In that regard, and without limiting
the foregoing in any manner, the Transferor shall:
(1) maintain its own board of directors and make independent
decisions with respect to its daily operations and business affairs
and not be controlled in making such decisions by any other Related
Party or any other Person;
(2) maintain at least one director who is not an officer,
director, employee, affiliate, associate, customer or supplier of any
of the Related Parties, nor a direct, indirect or beneficial owner of
more than 10% of the outstanding capital stock of any of the Related
Parties (any such Person also being a "Related Party"), nor a
relative of any of the foregoing, nor a trustee in bankruptcy for any
of the foregoing;
(3) maintain separate and clearly delineated office space
owned by it or evidenced by a written lease or sublease (even if
located in an office owned or leased by, or shared with, a Related
Party);
(4) maintain its assets in a manner which facilitates their
identification and segregation from those of any of the Related
Parties;
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(5) maintain a separate telephone number which will be
answered only in its own name and separate stationery and other
business forms;
(6) conduct all intercompany transactions with the Related
Parties on terms which the Transferor reasonably believes to be on an
arm's-length basis;
(7) not guarantee any obligation of any of the Related
Parties, nor have any of its obligations guaranteed by any Related
Party or hold itself out as responsible for the debts of any Related
Party or for the decisions or actions with respect to the business and
affairs of any Related Party, nor seek or obtain credit or incur any
obligation to any third-party based upon the creditworthiness or
assets of any Related Party or any other Person;
(8) not permit the commingling or pooling of its funds or
other assets with the assets of any Related Party;
(9) maintain separate deposit and other bank accounts to
which no Related Party (other than as Collection Agent or as a
Sub-Collection Agent) has any access;
(10) maintain financial records which are separate from
those of the Related Parties;
(11) compensate all employees, consultants and agents, and
Related Parties, to the extent applicable, for services provided to
the Transferor by such employees, consultants and agents or Related
Parties, in each case, from the Transferor's own funds;
(12) have agreed with each of the Sellers and the other
Related Parties to allocate among themselves shared overhead and
corporate operating services and expenses which are not reflected in
the Servicing Fee (including without limitation the services of shared
employees, consultants and agents and reasonable legal and auditing
expenses) on the basis of actual use or the value of services
rendered, and otherwise on a basis reasonably related to actual use or
the value of services rendered;
(13) pay directly for its own account for accounting and
payroll services, rent, lease and other expenses and not have such
operating expenses paid by any of the Related Parties, provided, that
Distributors shall be permitted to pay the initial organizational
expenses of the Transferor;
(14) maintain adequate capitalization in light of its
business and purpose;
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(15) conduct all of its business (whether in writing or
orally) solely in its own name through its duly authorized officers,
employees and agents;
(16) not make or declare any dividends or other
distributions of cash or property to the holders of its equity
securities or make redemptions or repurchases of its equity
securities, in either case, any more frequently than monthly, and all
such distributions, redemptions or repurchases shall only be permitted
hereunder to the extent that it is not violative of any applicable law
and that no Termination Event or Potential Termination Event then
exists or would result therefrom; and
(17) otherwise practice and adhere to corporate formalities
such as complying with its Certificate of Incorporation, By-laws and
corporate resolutions, the holding of regularly scheduled board of
directors meetings, and maintaining complete and correct books and
records and minutes of meetings and other proceedings of its
stockholders and board of directors.
(k) Performance of Receivables Purchase Agreement. The Transferor
shall, and shall cause each of the Sellers to, timely perform the respective
obligations required to be performed by each such Person under the Receivables
Purchase Agreement.
(l) Insurance. The Transferor shall, and shall cause each of the
Sellers to, ensure that all Persons that, in the ordinary course of the
performance of their duties in their employment or engagement with the
Transferor or any such Seller, as applicable, are required or authorized to
accept or receive Collections directly from the Obligors thereon are covered by
a fidelity bond, fidelity insurance or other similar bond or insurance, in each
case, in an amount reasonably acceptable to the Agent.
SECTION 5.2. Negative Covenants of the Transferor. During the term
of this Agreement, unless the Agent and the Majority Investors shall otherwise
consent in writing:
(a) No Sales, Liens, Etc. Except as otherwise provided herein and
in the Receivables Purchase Agreement, the Transferor will not, and will not
permit any of the Sellers to, sell, assign (by operation of law or otherwise)
or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or
with respect to (x) any of the Affected Assets, (y) any inventory or goods,
the sale of which may give rise to a Receivable, except, in the case of any
such Seller, where such Person in whose favor such Adverse Claim exists has
acknowledged in writing in form and substance satisfactory to the Agent that
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it does not claim, and thereby releases, any Adverse Claim in the Affected
Assets, whether arising as Proceeds of such Person's collateral or otherwise,
or (z) upon or with respect to any Lock Box Account or Deposit Account, or
assign any right to receive income in respect thereof; provided, that the
Sellers shall be permitted to sell their inventory in the ordinary course of
their respective businesses.
(b) No Extension or Amendment of Receivables. Except as otherwise
permitted in Section 6.2 hereof, the Transferor will not, and will not permit
any of the Sellers to, extend, amend or otherwise modify the terms of any
Receivable, or amend, modify or waive any term or condition of any Contract
related thereto.
(c) No Change in Business or Credit and Collection Policy. The
Transferor will not, and will not permit of the Sellers to, make any change in
the character of its business or in the Credit and Collection Policy, which
change would, in either case, impair the collectibility of any Receivable or
otherwise have a Material Adverse Effect.
(d) No Mergers, Etc. The Transferor will not, and except as
otherwise permitted pursuant to the Receivables Purchase Agreement, will not
permit any of the Sellers to, (i) consolidate or merge with or into any other
Person, or (ii) sell, lease or transfer all or substantially all of its assets
to any other Person.
(e) Change in Payment Instructions to Obligors. The Transferor will
not, and will not permit any of the Sellers to, add or terminate (x) any bank
as a Lock-Box Bank, any account as a Lock-Box Account or any lock-box as
Lock-Box to or from those listed in Exhibit C-1 hereto or make any change in
its instructions to Obligors regarding payments to be made to any Lock-Box or
Lock-Box Account, or (y) any bank as a Deposit Account Bank or any account as
Deposit Account to or from those listed in Exhibit D-l, unless, (i) in the
case of the immediately preceding clause (x), such instructions are to deposit
such payments to another existing Lock-Box or Lock-Box Account or (ii) in
either of the cases of the immediately preceding clause (x) or clause (y), the
Agent shall have received written notice of such addition, termination or
change at least 30 days prior thereto and the Agent shall have received a
Lock-Box Agreement executed by each new Lock-Box Bank or an existing Lock-Box
Bank with respect to each new Lock-Box Account or Lock-Box or a Deposit Account
Agreement executed by each new Deposit Account Bank or an existing Deposit
Account Bank with respect to each new Deposit Account, as applicable.
(f) Deposits to Lock-Box Accounts and Deposit Accounts. The Transferor will
not, and will not permit any of
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the Sellers to, deposit or otherwise credit, or cause or permit to be so
deposited or credited, to any Lock-Box Account or Deposit Account any cash or
cash proceeds other than Collections of Receivables; provided, however, that if
any such cash or cash proceeds other than Collections are inadvertently
deposited or credited to any Lock-Box Account or Deposit Account, the
Transferor shall, or shall cause the Collection Agent to, withdraw such amounts
immediately, but in any event within two (2) Business Days, after the
Transferor or the Collection Agent shall have become aware thereof or shall
have received notice thereof.
(g) Chance of Name, Etc. The Transferor will not, and will not
permit any of the Sellers to, change its name, identity or structure or the
location of its chief executive office, unless at least 30 days prior to the
effective date of any such change the Transferor or any such Seller, as
applicable, delivers to the Agent and the Collateral Agent (i) such
documents, instruments or agreements, executed by the Transferor or such
Seller, as applicable, as are necessary to reflect such change and to continue
the perfection of the Agent's and the Collateral Agent's ownership interests or
security interests in the Affected Assets and (ii) new or revised Lock-Box
Agreements and Deposit Account Agreements executed by the Lock-Box Banks and
Deposit Account Banks, respectively, which reflect such change and enable the
Agent to continue to exercise its rights contained in Section 2.8 hereof.
(h) Amendment to Receivables Purchase Agreement. The Transferor will
not, and will not permit any of the Sellers to, amend, modify, or supplement
the Receivables Purchase Agreement, except with the prior written consent of
the Agent, the Majority Investors and the Administrative Agent; nor shall the
Transferor take, or permit any of the Sellers to take, any other action under
the Receivables Purchase Agreement that shall have a material adverse effect on
the Agent, the Company or any Bank Investor or which is inconsistent with the
terms of this Agreement.
(i) Other Debt. Except as provided for herein, the Transferor will
not create, incur, assume or suffer to exist any indebtedness whether current
or funded, or any other liability other than (i) indebtedness of the
Transferor representing fees, expenses and indemnities arising hereunder or
under the Receivables Purchase Agreement or for the purchase price of the
Receivables under the Receivables Purchase Agreement (including, such
indebtedness evidenced by the Subordinated Notes), and (ii) other indebtedness
incurred in the ordinary course of its business in an amount not to exceed
$50,000 in any Fiscal Year.
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(j) Corporate Documents. The Transferor shall not amend, alter,
change or repeal any of the "Restricted Articles" of (and as such term is
defined in) its Certificate of Incorporation without the prior written consent
of the Agent, the Majority Investors and the Administrative Agent.
(k) ERISA Matters. The Transferor will not, and will not permit
the Parent, any of the Sellers or any ERISA Affiliate of any of the foregoing
to, (i) engage in any prohibited transaction (as defined in Section 4975 of
the Code and Section 406 of ERISA) for which an exemption is not available or
has not previously been obtained from the U.S. Department of Labor; (ii)
permit to exist any accumulated funding deficiency (as defined in Section
302(a) of ERISA and Section 412(a) of the Code) or funding deficiency with
respect to any Benefit Plan other than a Multiemployer Plan; (iii) fail to
make any payments to any Multiemployer Plan that the Transferor, the Parent,
any of the Sellers or any such ERISA Affiliate is required to make under the
agreement relating to such Multiemployer Plan or any law pertaining thereto;
(iv) terminate any Benefit Plan so as to result in any liability; or (v) permit
to exist any occurrence of any reportable event described in Title IV of ERISA
which represents a material risk of a liability to the Transferor, the Parent,
any of the Sellers, or any ERISA Affiliate of any of the foregoing under ERISA
or the Code, if such prohibited transactions, accumulated funding deficiencies,
payments, terminations and reportable events occurring within any Fiscal Year,
in the aggregate, involve a payment of money or an incurrence of liability by
the Transferor, Parent, any of the Sellers or any ERISA Affiliate of any of the
foregoing, in an amount in excess of $200,000. Without limiting the foregoing
in any manner whatsoever, Transferor shall, and/or shall cause the Parent, any
such Seller or any such ERISA Affiliate, as applicable, to satisfy any such
liability (whether or not in excess of $200,000) and to remedy the
circumstances giving rise thereto, in each case, within 10 days after such
Person acquires or should have acquired knowledge thereof.
(l) Payment to the Sellers. With respect to any Receivable sold or
contributed by any of the Sellers to the Transferor, the Transferor shall, and
shall cause each applicable Seller to, effect such sale or capital contribution
under, and pursuant to the terms of, the Receivables Purchase Agreement,
including, without limitation, the payment by the Transferor (either in cash or
by increase in the amount of the Subordinated Note) to such Seller, or the
noting of a capital contribution on the books and records of the Transferor, in
each case, of an amount equal to the purchase price for each such Receivable so
sold or contributed as required by the terms of the Receivables Purchase
Agreement.
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(m) Subsidiaries; Joint Ventures. The Transferor shall not
establish, organize or acquire any Subsidiaries or enter into any partnership
or any joint ventures with any Person.
(n) Sale Treatment. The Transferor will not (i) and will not
permit any of the Sellers to, account for (including for accounting and tax
purposes), or otherwise treat, the transactions contemplated by the Receivables
Purchase Agreement in any manner other than as a sale or capital contribution,
as applicable, of Receivables by such Seller to the Transferor, or (ii)
account for (other than for tax purposes) or otherwise treat the transactions
contemplated hereby in any manner other than a sale of Receivables by the
Transferor to the Company or the Bank Investors, as applicable, in each case,
except to the extent otherwise required in accordance with GAAP or applicable
law. In addition, the Transferor shall, and shall cause each of the Sellers
to, disclose (in a footnote or otherwise) in all of its respective financial
statements (including any such financial statements consolidated with any
other Persons' financial statements) the existence and nature of the
transaction contemplated hereby and by the Receivables Purchase Agreement and
the interest of the Transferor (in the case of the Sellers' financial
statements), the Company and the Bank Investors in the Affected Assets.
ARTICLE VI
ADMINISTRATION AND COLLECTIONS
SECTION 6.1. Appointment of Collection Agent. (a) The servicing,
administering and collection of the Receivables shall be conducted by such
Person (the "Collection Agent") so designated from time to time in accordance
with this Section 6.1. Until the Company, in accordance with this Section 6.1,
gives notice to Distributors of the designation of a new Collection Agent
(which notice may only be given after the occurrence of a Collection Agent
Default), Distributors is hereby designated as, and hereby agrees to perform
the duties and obligations of, the Collection Agent pursuant to the terms
hereof. The Agent may, and upon the direction of the Majority Investors the
Agent shall, after the occurrence of a Collection Agent Default designate as
Collection Agent any Person (including itself) to succeed Distributors or any
successor Collection Agent, on the condition in each case that any such Person
so designated shall agree to perform the duties and obligations of the
Collection Agent pursuant to the terms hereof. The Agent may notify any
Obligor of the Transferred Interest.
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(b) The Collection Agent may, with the prior written consent of the
Agent, subcontract with any other Person for the servicing, administering or
collecting of the Receivables (any such Person with which the Collection Agent
may so sub-contract being a "Sub-Collection Agent" and collectively, the
"Sub-Collection Agents"); provided, however, that the Collection Agent shall
remain liable for the performance of the duties and obligations of the
Collection Agent and Sub-Collection Agents pursuant to the terms hereof; it
being understood and agreed, that (i) the Agent may, at any time after the
occurrence of any event of the type described in the definition of "Collection
Agent Default" with respect to any such Sub-Collection Agent, terminate or
cause the Collection Agent to replace any Sub-Collection Agent and (ii) unless
otherwise specified by the Agent, each Sub-Collection Agent's appointment
hereunder shall automatically terminate upon the resignation or removal of the
Collection Agent that appointed such Sub-Collection Agent; and it being further
understood and agreed that the appointments of each of the Collection Agent and
the Sub-Collection Agents shall terminate on the date occurring on or after the
Termination Date upon which all of the Aggregate Unpaids shall have been paid
in full, in cash. In connection therewith, the Agent hereby consents to the
appointment of each of the Sellers as Sub-Collection Agents on the terms and
subject to the conditions set forth in the Receivables Purchase Agreement.
SECTION 6.2. Duties of Collection Agent.
(a) The Collection Agent shall take or cause to be taken all such
action as may be necessary or advisable to collect each Receivable from time to
time, all in accordance with applicable laws, rules and regulations, with
reasonable care and diligence, and in accordance with the Credit and Collection
Policy. Each of the Transferor, the Company, the Agent and the Bank Investors
hereby appoints as its agent the Collection Agent, from time to time designated
pursuant to Section 6.1 hereof, to enforce its respective rights and interests
in and under the Affected Assets. To the extent permitted by applicable law,
each of the Transferor and the Sellers (to the extent any such Person is not
then acting as Collection Agent hereunder) hereby grants to any Collection
Agent appointed hereunder an irrevocable power of attorney to take any and all
steps in the Transferor's and/or such Seller's name and on behalf of the
Transferor or such Seller necessary or desirable, in the reasonable
determination of the Collection Agent, to collect all amounts due under any and
all Receivables, including, without limitation, endorsing the Transferor's
and/or such Seller's name on checks and other instruments representing
Collections and enforcing such Receivables and the related Contracts. The
Collection Agent shall set aside for the account of the Transferor and the
Company their respective allocable shares of the Collections of Receivables in
accordance with Sections 2.5(a) and 2.6 hereof. The Collection
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Agent shall segregate and deposit to the Agent's account the Company's
allocable share of Collections of Receivables when required pursuant to Article
II hereof. So long as no Termination Event (other than any Termination Event
specified in Section 7.1(h), 7.1(k) or 7.1(1)) shall have occurred and be
continuing, the Collection Agent may, in accordance with the Credit and
Collection Policy, extend the maturity of Receivables, but not beyond thirty
(30) days, and extend the maturity or adjust the Outstanding Balance as the
Collection Agent may determine to be appropriate to maximize Collections
thereof; provided, however, that such extension or adjustment shall not alter
the status of such Receivable as a Delinquent Receivable, a Defaulted
Receivable, or (for purposes of determining the Net Receivables Balance) as
being 60 days or more past due. The Transferor shall deliver to the
Collection Agent and the Collection Agent shall hold in trust for the
Transferor, the Company, the Agent and the Bank Investors, in accordance with
their respective interests, all Records which evidence or relate to Receivables
or Related Security. Notwithstanding anything to the contrary contained
herein, the Agent shall have the absolute and unlimited right to direct the
Collection Agent (whether the Collection Agent is one of the Sellers or any
other Person) to commence or settle any legal action to enforce collection of
any Receivable or to foreclose upon or repossess any Related Security. The
Collection Agent shall not make the Agent, the Company or any of the Bank
Investors a party to any litigation without the prior written consent of such
Person.
(b) The Collection Agent shall, as soon as practicable following
receipt thereof, turn over to the Transferor any collections of any
indebtedness of any Person which is not on account of a Receivable. If the
Collection Agent is not the Transferor, any of the Sellers or an Affiliate of
the Transferor or any of the Sellers, then the Collection Agent, by giving
three Business Days' prior written notice to the Agent, may revise the
percentage used to calculate the Servicing Fee so long as the revised
percentage will not result in a Servicing Fee that exceeds 110% of the
reasonable and appropriate out-of-pocket costs and expenses of such Collection
Agent incurred in connection with the performance of its obligations hereunder
as documented to the reasonable satisfaction of the Agent. The Collection
Agent, if other than the Transferor, any of the Sellers or an Affiliate of the
Transferor or any of the Sellers, shall as soon as practicable upon demand,
deliver to the applicable Seller all Records in its possession which evidence
or relate to indebtedness of an Obligor which is not a Receivable.
(c) On or before 90 days after the end of each Fiscal Year,
beginning with the fiscal year ending June 29, 1996, the Collection Agent shall
cause a firm of independent public accountants (who may also render other
services to the Collection Agent, the Transferor, any of the Sellers or any
Affiliates of
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any of the foregoing) to furnish a report to the Agent to the effect that they
have (i) compared the information contained in the Investor Reports delivered
during such Fiscal Year then ended with the information contained in the
Contracts and the Collection Agent's records and computer systems for such
period, and that, on the basis of such examination and comparison, such firm
is of the opinion that the information contained in the Investor Reports
reconciles with the information contained in the Contracts and the Collection
Agent's records and computer system and that the servicing of the Receivables
has been conducted in compliance with this Agreement, (ii) verified that the
Receivables treated by the Collection Agent as Eligible Receivables in fact
satisfied the requirements of the definition thereof contained herein and (iii)
conducted a "negative confirmation" of a sample of the Receivables and verified
that the Collection Agent's records and computer system used in servicing the
Receivables contained correct information with regard to the due dates and
Outstanding Balances thereof, except, in each case for (a) such exceptions as
such firm shall believe to be immaterial (which exceptions need not be
enumerated) and (b) such other exceptions as shall be set forth in such
statement.
(d) Notwithstanding anything to the contrary contained in this
Article VI, the Collection Agent, if not the Transferor, any of the Sellers or
any Affiliate of the Transferor or any of the Sellers, shall have no obligation
to collect, enforce or take any other action described in this Article VI with
respect to any receivables or other indebtedness that are not Receivables other
than to deliver to the Transferor the collections and documents with respect to
any such receivables or other indebtedness as described in Section 6.2(b)
hereof.
SECTION 6.3. Rights After Designation of New Collection Agent. At
any time following the designation of a Collection Agent (other than the
Transferor, any of the Sellers or any Affiliate of the Transferor or any of the
Sellers) pursuant to Section 6.1 hereof:
(i) The Agent may direct that payment of all amounts
payable under any Receivable be made directly to the Agent or its
designee.
(ii) The Transferor shall, and shall cause each of the
Sellers to, at the Agent's request and at the Transferor's expense,
give notice of the Agent's, the Transferor's and/or the Bank
Investors' ownership of Receivables to each Obligor and direct that
payments be made directly to the Agent or its designee.
(iii) The Transferor shall, and shall cause each of the
Sellers to, at the Agent's request,
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(A) assemble all of the Records, and shall make the same available to
the Agent or its designee at a place selected by the Agent or its
designee, and (B) segregate all cash, checks and other instruments
received by it from time to time constituting Collections of
Receivables in a manner acceptable to the Agent and shall, promptly
upon receipt, remit all such cash, checks and instruments, duly
endorsed or with duly executed instruments of transfer, to the Agent
or its designee.
(iv) The Transferor hereby authorizes the Agent to take
any and all steps in the Transferor's name and on behalf of the
Transferor necessary or desirable, in the determination of the Agent,
to collect all amounts due under any and all Receivables, including,
without limitation, endorsing the Transferor's and/or, to the extent
permitted pursuant to the Receivables Purchase Agreement, any of the
Sellers' names on checks and other instruments representing
Collections and enforcing such Receivables and the related Contracts.
SECTION 6.4. Collection Agent Default. The occurrence of any one
or more of the following events shall constitute a Collection Agent Default:
(a) (i) the Collection Agent or, to the extent that the
Transferor, any of the Sellers or any Affiliate of the Transferor or any of the
Sellers is then acting as Collection Agent, the Transferor, such Seller or
such Affiliate, as applicable, shall fail to perform or observe any term,
covenant or agreement hereunder (other than as referred to in clause (ii) or
(iii) of this Section 6.4(a)) or under any of the other Transaction Documents
to which such Person is a party or by which such Person is bound, and such
failure shall remain unremedied for ten (10) days after notice of such failure
is given to such Person or such Person acquires or should have acquired
knowledge of such failure, or (ii) the Collection Agent or any Sub-Collection
Agent shall fail to make any payment or deposit required to be made by it
hereunder or under any of the other Transaction Documents when due and such
failure continues unremedied for two (2) Business Days, or (iii) the
Collection Agent shall fail to observe or perform any term, covenant or
agreement on the Collection Agent's part to be performed under Section 2.8(b)
hereof; or
(b) any representation, warranty, certification or statement made by
the Collection Agent or, to the extent that the Transferor, any of the Sellers
or any Affiliate of the Transferor or any of the Sellers is then acting as
Collection Agent, the Transferor, such Seller or such Affiliate, as
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applicable, in this Agreement, the Receivables Purchase Agreement or in any of
the other Transaction Documents or in any certificate or report delivered by
such Person pursuant to any of the foregoing shall prove to have been incorrect
in any material respect when made or deemed made; or
(c) failure of the Collection Agent or any of its Subsidiaries to
pay when due (after giving effect to any grace periods applicable thereto) any
amounts due under any agreement under which any Indebtedness greater than
$5,000,000 is governed; or any Indebtedness of the Collection Agent or any of
its Subsidiaries greater than $5,000,000 shall be declared to be due and
payable or required to be prepaid (other than by a regularly scheduled payment)
prior to the scheduled date of maturity thereof; or
(d) any Event of Bankruptcy shall occur with respect to the
Collection Agent or any Sub-Collection Agent; or
(e) there shall have occurred any material adverse change in the
operations of the Collection Agent since the end of the last fiscal year of the
Collection Agent ending prior to the date of its appointment as Collection
Agent hereunder or any other event shall have occurred which, in the
commercially reasonably judgment of the Agent, materially and adversely affects
the Collection Agent's ability to either collect the Receivables or to perform
under this Agreement; or
(f) to the extent the Collection Agent is the Transferor, any of the
Sellers or any Affiliate of any of the foregoing, such Collection Agent shall
cease to be a direct or indirect wholly-owned Subsidiary of the Parent or there
shall occur a Change of Control.
SECTION 6.5. Responsibilities of the Transferor and the Sellers.
Anything herein to the contrary notwithstanding, the Transferor shall, and/or
shall cause each of the Sellers to, (i) perform all of the applicable Seller's
obligations under the Contracts related to the Receivables originated by it to
the same extent as if interests in such Receivables had not been sold hereunder
and under the Receivables Purchase Agreement and the exercise by the Agent, the
Company and the Bank Investors of their rights hereunder and under the
Receivables Purchase Agreement shall not relieve the Transferor or the Sellers
from such obligations and (ii) pay when due any taxes, including without
limitation, any sales taxes payable in connection with the Receivables and
their creation and satisfaction, except any such taxes which the Transferor or
any such Seller is contesting in good faith and by appropriate proceedings and
in respect of which (x) the Transferor or such Seller, as applicable, has
established adequate reserves on its books and records and (y) no Adverse Claim
has resulted from the non-payment thereof. Neither the
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Agent, the Company nor any of the Bank Investors shall have any obligation or
liability with respect to any Receivable or related Contracts, nor shall it be
obligated to perform any of the obligations of the Sellers thereunder. In
addition, the Transferor shall have no obligations to perform any obligations
of the Sellers under any of the Contracts.
ARTICLE VII
TERMINATION EVENTS
SECTION 7.1. Termination Events. The occurrence of any one or more
of the following events shall constitute a Termination Event:
(a) the Transferor or any of the Sellers shall fail to make any
payment or deposit to be made by it hereunder or under the Receivables Purchase
Agreement when due hereunder or thereunder and such failure continues
unremedied for two (2) Business Days after such Person (x) has received
notice thereof or (y), if earlier, after such Person has acquired or should
have acquired knowledge of such failure; or
(b) any representation, warranty, certification or statement made by
the Transferor or any of the Sellers (including in its capacity as Collection
Agent or as a Sub-Collection Agent, to the extent applicable) in this
Agreement, any other Transaction Document to which it is a party or in any
other document delivered pursuant hereto or thereto shall prove to have been
incorrect in any material respect when made or deemed made; or
(c) the Transferor or any of the Sellers shall default in the
performance of any payment or undertaking (other than those covered by clause
(a) above) (i) to be performed or observed under Sections 5.1(a)(vi),
5.l(a)(vii), 5.1(a)(ix), 5.1(b) (i), 5.1(b) (iii), 5.1(h), 5.1(i) or 5.2 or
(ii) to be performed or observed under any other provision hereof and such
default in the case of this clause (ii) shall continue for ten (10) days after
such Person (x) received notice thereof or (y) if earlier, after such Person
acquired or should have acquired knowledge of such default; or
(d) failure of the Parent, the Transferor, any of the Sellers or any
Subsidiary of any of the foregoing to pay when due (after giving effect to any
grace periods applicable thereto) any amounts due under any agreement to which
any such Person is a party and under which any Indebtedness greater than
$5,000,000 is governed; or any Indebtedness owing by the Parent, the
Transferor, any of the Sellers or any Subsidiary of any of the foregoing
greater than $5,000,000 shall be declared to be due and
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payable or required to be prepaid (other than by a regularly scheduled payment)
prior to the scheduled date of maturity thereof; or
(e) any Event of Bankruptcy shall occur with respect to the Parent,
the Transferor or any of the Sellers; or
(f) the Agent, on behalf of the Company and/or the Bank Investors,
shall, for any reason, fail or cease to have a valid and perfected first
priority ownership or security interest in the Affected Assets free and clear
of any Adverse Claims; provided, that it shall not constitute a Termination
Event hereunder to the extent that the aggregate Outstanding Balance of any
Receivables (or the Related Security associated therewith) in which the Agent
shall fail or cease to have a valid perfected first priority ownership or
security interest shall not exceed $100,000 and such failure or cessation is
remedied within 10 Business Days after the Transferor (x) shall have received
notice thereof or (y) if earlier, after the Transferor or any applicable
Seller acquired or should have acquired knowledge of such cessation or failure;
or
(g) a Collection Agent Default shall have occurred; or
(h) the Receivables Purchase Agreement shall have terminated for any
reason whatsoever; or
(i) (x) the Transferor or any of the Sellers shall cease to be a
direct or indirect wholly-owned Subsidiary of the Parent and (in the case of
the Sellers other than Distributors) Distributors or (y) a Change of Control
shall have occurred; or
(j) there shall have occurred any material adverse change in the
condition (financial or otherwise) or operations of the Parent, the Transferor
or any of the Sellers since July 1, 1995 or any other Material Adverse Effect
shall have occurred; or
(k) the Liquidity Provider or the Credit Support Provider shall have
given notice that an event of default has occurred and is continuing under any
of its respective agreements with the Company; or
(l) the Commercial Paper issued by the Company shall cease to be
rated at least "A-2" by Standard & Poor's and at least "P-2" by Moody's; or
(m) (i) the Percentage Factor exceeds the Maximum Percentage Factor
unless the Transferor reduces the Net Investment or increases the balance of
the Affected Assets on the
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next Business Day so as to reduce the Percentage Factor to less than or equal
to the Maximum Percentage Factor; (ii) the Percentage Factor equals or exceeds
100% at any time; or (iii) the Net Investment plus the Interest Component of
all outstanding Related Commercial Paper shall exceed the Maximum Net
Investment; or
(n) the average of the Dilution Ratios for any three
consecutive Fiscal Months exceeds five percent (5%); or
(o) the average of the Loss-to-Liquidation Ratio for any
three consecutive Fiscal Months exceeds two percent (2%); or
(p) the Delinquency Ratio for any Fiscal Month exceeds
seven percent (7%); or
(q) The following ratio (expressed as a percentage) shall
at any time equal or exceed 130%:
PF% x NRB
---------
NI
where:
PF% = the Percentage Factor at such time of
determination; provided, that, for purposes of
--------
this definition only, the Percentage Factor shall
not exceed a maximum of 100%;
NRB = the Net Receivables Balance at such time; and
NI = the Net Investment at such time.
(r) any of the following financial performance tests shall
fail to be satisfied with respect to Distributors and its Restricted
Subsidiaries as of the relevant date set forth below (capitalized
terms used in this Section 7.1(r) and not otherwise defined herein shall have
the meanings assigned to such terms in Annex I attached hereto (and, in the
event that a term is defined both elsewhere herein and in Annex I, the
definition contained in Annex I shall be the relevant definition for purposes
of this Section):
(i) On any Determination Date, the Fixed Charge Coverage
Ratio shall be less than 1.75 to 1.0;
(ii) The Consolidated Net Worth shall at any time be less
than the Net Worth Minimum as of such date; or
(iii) On any Determination Date occurring during any period
specified in the following table, the Total Debt and
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Investment Ratio shall exceed the ratio set forth opposite such period on such
table:
<TABLE>
<CAPTION>
Period
(both dates inclusive) Ratio
---------------------- -----
<S> <C>
Closing Date through September 30, 1996 4.00:1.0
October 1, 1996 through September 30, 1997 3.75:1.0
October 1, 1997 and thereafter 3.50:1.0; or
</TABLE>
(s) On any Determination Date (as defined in Annex I), the net
worth of the Transferor (exclusive of goodwill and other intangibles (other
than the Affected Assets) permitted to be accounted for as assets of the
Transferor in accordance with GAAP) shall be less than $8,000,000.
SECTION 7.2. Termination. (a) Upon the occurrence of any
Termination Event, the Agent may, or at the direction of the Majority Investors
shall, by notice to the Transferor declare the Termination Date to have
occurred; provided, that, in the case of any event described in Section
7.1(e), 7.1(f), 7.1(m) (ii), 7.1(m) (iii) or 7.1(q), above, the
Termination Date shall be deemed to have occurred automatically upon the
occurrence of such event. Upon any such declaration or automatic occurrence,
the Agent shall have, in addition to all other rights and remedies under this
Agreement or otherwise, all other rights and remedies provided under the UCC of
the applicable jurisdiction and other applicable laws, which rights shall be
cumulative.
(b) Upon the occurrence and during the continuance of a Termination
Event (whether before or after the occurrence of the Termination Date, but
excluding any No-Fee Termination Event), and at all times after the automatic
occurrence or declaration of the Termination Date pursuant to Section 7.2(a)
(other than as a result of any No-Fee Termination Event), (i) the Base Rate
plus 2% shall be the Tranche Rate applicable to the Net Investment of all
Tranches and (ii) the Agent shall have the right, in its sole discretion, to
terminate all outstanding Tranche Periods.
ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS
SECTION 8.1. Indemnities by the Transferor. Without limiting any
other rights which the Agent, the Company or the Bank Investors may have
hereunder or under applicable law, the Transferor hereby agrees to indemnify
the Company, the Bank Investors, the Agent, the Administrative Agent, the
Collateral
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Agent, the Liquidity Provider and the Credit Support Provider and any
successors and permitted assigns and their respective officers, directors and
employees (collectively, "Indemnified Parties") from and against any and all
damages, losses, claims, liabilities, costs and expenses, including, without
limitation, reasonable attorneys' fees (which such attorneys may be employees
of the Liquidity Provider, the Credit Support Provider, the Agent, the
Administrative Agent or the Collateral Agent, as applicable) and disbursements
(all of the foregoing being collectively referred to as "Indemnified Amounts")
awarded against or incurred by any of them in any action or proceeding between
the Transferor or any of the Sellers (including, in any case, in such
Person's capacity as the Collection Agent) and any of the Indemnified Parties
or between any of the Indemnified Parties and any third party or otherwise
arising out of or as a result of this Agreement, the other Transaction
Documents, the ownership or maintenance, either directly or indirectly, by the
Agent, the Company or any Bank Investor of the Transferred Interest or any of
the other transactions contemplated hereby or thereby, excluding, however, (i)
Indemnified Amounts to the extent resulting from gross negligence or willful
misconduct on the part of an Indemnified Party or (ii) recourse (except as
otherwise specifically provided in this Agreement) for uncollectible
Receivables. Without limiting the generality of the foregoing, the Transferor
shall indemnify each Indemnified Party for Indemnified Amounts relating to or
resulting from:
(i) any representation or warranty made by the Transferor
or any of the Sellers (including, in any case, in such Person's
capacity as the Collection Agent or Sub-Collection Agent) or any
officers of the Transferor or any of the Seller (including, in any
case, in such Person's capacity as the Collection Agent) under or in
connection with this Agreement, the Receivable Purchase Agreement, any
of the other Transaction Documents, any Investor Report or any other
information or report delivered by the Transferor, any of the Sellers
or the Collection Agent pursuant hereto, which shall have been false
or incorrect in any material respect when made or deemed made;
(ii) the failure by the Transferor or any of the Sellers
(including, in any case, in such Person's capacity as the Collection
Agent or a Sub-Collection Agent) to comply with any applicable law,
rule or regulation with respect to any Receivable or the related
Contract, or the nonconformity of any Receivable or the related
Contract with any such applicable law, rule or regulation;
(iii) the failure to vest and maintain vested (x) in the
Company and/or the Bank Investors, an
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undivided first priority, perfected percentage ownership interest, to
the extent of the Transferred Interest, in the Affected Assets free
and clear of any Adverse Claim or (y) to create or maintain a valid
and perfected first priority security interest in favor of the Agent,
for the benefit of the Company and/or the Bank Investors, in the
Transferor's interest in the Affected Assets as contemplated pursuant
to Section 10.11, free and clear of any Adverse Claim;
(iv) the failure to file, or any delay in filing,
financing statements, continuation statements, or other similar
instruments or documents under the UCC of any applicable jurisdiction
or other applicable laws with respect to any of the Affected Assets;
(v) any dispute, claim, offset or defense (other than
discharge in bankruptcy) of the Obligor to the payment of any
Receivable (including, without limitation, a defense based on such
Receivable or the related Contract not being the legal, valid and
binding obligation of such Obligor enforceable against it in
accordance with its terms), or any other claim resulting from the sale
of merchandise or services related to such Receivable or the
furnishing or failure to furnish such merchandise or services;
(vi) any failure of the Collection Agent to perform its
duties or obligations in accordance with the provisions hereof;
(vii) any products liability claim or personal injury or
property damage suit or other similar or related claim or action of
whatever sort arising out of or in connection with goods, merchandise,
inventory or services which are the subject of any Receivable or
Contract;
(viii) the transfer of an ownership interest in any
Receivable other than an Eligible Receivable;
(ix) the failure by the Transferor or any of the Sellers
(in each case, individually or as Collection Agent or a Sub-Collection
Agent) to comply with any term, provision or covenant contained in
this Agreement or any of the other Transaction Documents to which it
is a party or to perform any of its respective duties under the
Contracts;
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(x) the Percentage Factor exceeding the Maximum Percentage
Factor at any time on or prior to the Termination Date;
(xi) the failure of the Transferor or any of the Sellers
to pay when due any taxes, including without limitation, sales,
excise or personal property taxes payable in connection with any of
the Receivables;
(xii) any repayment by any Indemnified Party of any amount
previously distributed in reduction of Net Investment which such
Indemnified Party believes in good faith is required to be made;
(xiii) the commingling by the Transferor, any of the
Sellers or the Collection Agent of Collections of Receivables at any
time with other funds;
(xiv) any investigation, litigation or proceeding related
to this Agreement, any of the other Transaction Documents, the use of
proceeds of Transfers by the Transferor or any of the Sellers, the
ownership of Transferred Interests, or any Receivable, Related
Security or Contract;
(xv) the failure of any Lock-Box Bank or Deposit Account
Bank to remit any amounts held in the Lock-Boxes, the Lock-Box
Accounts or the Deposit Accounts pursuant to the instructions of the
Collection Agent, the Transferor, any applicable Seller or the Agent
(to the extent such Person is entitled to give such instructions in
accordance with the terms hereof and of any applicable Lock-Box
Agreement or Deposit Account Agreement, as applicable) whether by
reason of the exercise of set-off rights or otherwise;
(xvi) any inability to obtain any judgment in or utilize
the court or other adjudication system of, any state in which an
Obligor may be located as a result of the failure of the Transferor or
any Seller to qualify to do business or file any notice of business
activity report or any similar report;
(xvii) any failure of the Transferor to give reasonably
equivalent value to the applicable Seller in consideration of the
purchase by the Transferor from such Seller of any Receivable, or any
attempt by any Person to void, rescind or set-aside any such transfer
under statutory provisions or common law
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or equitable action, including, without limitation, any provision of
the Bankruptcy Code;
(xviii) any action taken by the Transferor, any of the
Sellers, or the Collection Agent (if the Transferor, any of the
Sellers or any Affiliate or designee of the Transferor or any of the
Seller) in the enforcement or collection of any Receivable; or
(xix) any recovery or action for recovery by any Person
under PACA relating to any of the goods, merchandise or inventory of
any of the Sellers, the sale of which while subject or purportedly
subject to the statutory trust under such statute gave rise to any
Receivables;
provided, however, that if the Company enters into agreements for the purchase
of interests in receivables from one or more Other Transferors, the Company
shall allocate such Indemnified Amounts which are in connection with the
Liquidity Provider Agreement, the Credit Support Agreement or the credit
support furnished by the Credit Support Provider to the Transferor and each
Other Transferor; and provided, further, that if such Indemnified Amounts are
attributable to the Transferor, any of the Sellers or the Collection Agent and
not attributable to any Other Transferor, the Transferor shall be solely liable
for such Indemnified Amounts or if such Indemnified Amounts are attributable to
Other Transferors and not attributable to the Transferor, any of the Sellers or
the Collection Agent, such Other Transferors shall be solely liable for such
Indemnified Amounts.
SECTION 8.2. Indemnity for Taxes, Reserves and Expenses. (a) If
after the date hereof, the adoption of any Law or bank regulatory guideline or
any amendment or change in the interpretation of any existing or future Law or
bank regulatory guideline by any Official Body charged with the administration,
interpretation or application thereof, or the compliance with any directive of
any Official Body (in the case of any bank regulatory guideline, whether or not
having the force of Law):
(i) shall subject any Indemnified Party to any tax, duty
or other charge (other than Excluded Taxes) with respect to this
Agreement, the other Transaction Documents, the ownership, maintenance
or financing of the Transferred Interest, the Receivables or payments
of amounts due hereunder, or shall change the basis of taxation of
payments to any Indemnified Party of amounts payable in respect of
this Agreement, the other Transaction Documents, the ownership,
maintenance or financing of the Transferred Interest, the Receivables
or payments of amounts due hereunder or its obligation to advance
funds hereunder, under the
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Liquidity Provider Agreement or the credit support furnished by the
Credit Support Provider or otherwise in respect of this Agreement, the
other Transaction Documents, the ownership, maintenance or financing
of the Transferred Interest or the Receivables (except for changes in
the rate of general corporate, franchise, net income or other income
tax imposed on such Indemnified Party by the jurisdiction in which
such Indemnified Party's principal executive office is located);
(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without
limitation, any such requirement imposed by the Board of Governors of
the Federal Reserve System) against assets of, deposits with or for
the account of, or credit extended by, any Indemnified Party or shall
impose on any Indemnified Party or on the United States market for
certificates of deposit or the London interbank market any other
condition affecting this Agreement, the other Transaction Documents,
the ownership, maintenance or financing of the Transferred Interest,
the Receivables or payments of amounts due hereunder or its obligation
to advance funds hereunder under the Liquidity Provider Agreement or
the credit support provided by the Credit Support Provider or
otherwise in respect of this Agreement, the other Transaction
Documents, the ownership, maintenance or financing of the Transferred
Interest or the Receivables; or
(iii) imposes upon any Indemnified Party any other expense
(including, without limitation, reasonable attorneys' fees and
expenses, and expenses of litigation or preparation therefor in
contesting any of the foregoing) with respect to this Agreement, the
other Transaction Documents, the ownership, maintenance or financing
of the Transferred Interest, the Receivables or payments of amounts
due hereunder or its obligation to advance funds hereunder under the
Liquidity Provider Agreement or the credit support furnished by the
Credit Support Provider or otherwise in respect of this Agreement, the
other Transaction Documents, the ownership, maintenance or financing
of the Transferred Interests or the Receivables,
and the result of any of the foregoing is to increase the cost to such
Indemnified Party with respect to this Agreement, the other Transaction
Documents, the ownership, maintenance or financing of the Transferred Interest,
the Receivables, the obligations hereunder, the funding of any purchases
hereunder, the Liquidity Provider Agreement or the Credit Support Agreement,
then, within ten (10) days after demand by such Indemnified Party through the
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Agent, the Transferor shall pay to the Agent, for the benefit of such
Indemnified Party, such additional amount or amounts as will compensate such
Indemnified Party for such increased cost or reduction.
(b) If any Indemnified Party shall have determined that after the
date hereof, the adoption of any applicable Law or bank regulatory guideline
regarding capital adequacy, or any change therein, or any change in the
interpretation thereof by any Official Body, or any directive regarding capital
adequacy (in the case of any bank regulatory guideline, whether or not having
the force of law) of any such Official Body, has or would have the effect of
reducing the rate of return on capital of such Indemnified Party (or its
parent) as a consequence of such Indemnified Party's obligations hereunder or
with respect hereto to a level below that which such Indemnified Party (or its
parent) could have achieved but for such adoption, change, request or
directive (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by such Indemnified Party to be material, then
from time to time, within ten (10) days after demand by such Indemnified Party
through the Agent, the Transferor shall pay to the Agent, for the benefit of
such Indemnified Party, such additional amount or amounts as will compensate
such Indemnified Party (or its parent) for such reduction.
(c) The Agent will promptly notify the Transferor of any event of
which it has knowledge, occurring after the date hereof, which will entitle an
Indemnified Party to compensation pursuant to this Section 8.2. A notice by
the Agent or the applicable Indemnified Party claiming compensation under this
Section and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive in the absence of manifest error. In
determining such amount, the Agent or any applicable Indemnified Party may use
any reasonable averaging and attributing methods.
(d) Anything in this Section 8.2 to the contrary notwithstanding,
if the Company enters into agreements for the acquisition of interests in
receivables from one or more Other Transferors, the Company shall allocate the
liability for any amounts under this Section 8.2 which are in connection with
the Liquidity Provider Agreement, the Credit Support Agreement or the credit
support provided by the Credit Support Provider ("Section 8.2 Costs") to the
Transferor and each Other Transferor; provided, however, that if such Section
8.2 Costs are attributable to the Transferor, any of the Sellers or the
Collection Agent and not attributable to any Other Transferor, the Transferor
shall be solely liable for such Section 8.2 Costs or if such Section 8.2 Costs
are attributable to Other Transferors and not attributable to the Transferor,
any of the Sellers or the Collection Agent,
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such Other Transferors shall be solely liable for such Section 8.2 Costs.
(e) Each Indemnified Party hereby agrees to use reasonable efforts
to attempt to eliminate or minimize any costs, fees or expenses described in
Section 8.2(a)(ii) or 8.2(b) to the extent it may do so without incurring any
costs, fees or expenses. The Transferor shall have the right to cause any
Indemnified Party who seeks reimbursement from the Transferor under Section
8.2(a)(ii) or 8.2(b) to assign its rights, remedies and obligations to a
permitted assignee in accordance with Section 9.7, and such Indemnified Party
hereby agrees to do so upon the direction of the Transferor and the Agent.
Notwithstanding any such assignment, such Person shall continue to be entitled
to the indemnification provisions of this Section 8.2 with respect to the
amounts of any indemnified costs, fees or expenses incurred by it prior to
such assignment, which indemnification provisions shall survive such assignment
and the termination of this Agreement.
SECTION 8.3. Taxes. All payments made hereunder by the Transferor
or the Collection Agent (each, a "payor") to the Company, any Bank Investor
or the Agent (each, a "recipient") shall be made free and clear of and without
deduction for any present or future income, excise, stamp or franchise taxes
and any other taxes, fees, duties, withholdings or other charges of any nature
whatsoever imposed by any taxing authority on any recipient (or any assignee
of such parties) (such non-excluded items being called "Taxes"), but excluding
franchise taxes and taxes imposed on or measured by the recipient's net income
or gross receipts ("Excluded Taxes"). In the event that any withholding or
deduction from any payment made by the payor hereunder is required in respect
of any Taxes, then such payor shall:
(a) pay directly to the relevant authority the full amount required
to be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(c) pay to the recipient such additional amount or amounts as is
necessary to ensure that the net amount actually received by the recipient will
equal the full amount such recipient would have received had no such
withholding or deduction been required.
Moreover, if any Taxes are directly asserted against any recipient with respect
to any payment received by such recipient hereunder, the recipient may pay such
Taxes and the payor will promptly pay such additional amounts (including any
penalties, interest or expenses) as shall be necessary in order that the net
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amount received by the recipient after the payment of such Taxes (including any
Taxes on such additional amount) shall equal the amount such recipient would
have received had such Taxes not been asserted.
If the payor fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the recipient the required receipts or other
required documentary evidence, the payor shall indemnify the recipient for any
incremental Taxes, interest, or penalties that may become payable by any
recipient as a result of any such failure.
The Agent and each Bank Investor that is not created or organized
under the laws of the United States or a political subdivision thereof shall
deliver to the Transferor (with, in the case of each Bank Investor, a copy to
the Agent) (i) on or prior to the date upon which such Bank Investor becomes a
party hereto pursuant to Section 9.7, two (or such other number as may from
time to time be prescribed by applicable laws or regulations) duly completed
copies of IRS Form 4224, Form 1001 or W-8 (or any successor forms or other
certificates or statements which may be required from time to time by the
relevant United States taxing authorities or applicable laws or regulations),
as appropriate, to permit the Transferor or the Collection Agent to make
payments hereunder for the account of the Agent or such Bank Investor, as the
case may be, without deduction or withholding of United States Federal income
or similar taxes and (ii) upon the obsolescence or expiration of or the
occurrence of any event requiring a change in, any form or certificate
previously delivered pursuant to this Section 8.3, copies (in such numbers as
may from time to time be prescribed by applicable laws or regulations) of such
additional, amended or successor forms, certificates or statements as may be
required under applicable laws or regulations to permit the Transferor or the
Collection Agent to make payments hereunder for the account of the Agent or
such Bank Investor, as the case may be, without deduction or withholding of
United States Federal income or similar taxes. No Bank Investor or the Agent
that, in either case, is created or organized other than under the laws of
the United States of America or a political subdivision thereof shall be
entitled to any indemnification pursuant to this Section 8.3 for any period for
which it shall have failed to deliver any of the foregoing certificates to the
Transferor as required pursuant to this Section.
SECTION 8.4. Other Costs, Expenses and Related Matters. (a) The
Transferor agrees, upon receipt of a written invoice, to pay or cause to be
paid, and to save the Company, the Bank Investors and the Agent harmless
against liability for the payment of, all reasonable out-of-pocket expenses
(including, without limitation, attorneys', accountants' and other third
parties' fees and expenses, any filing fees and expenses incurred
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by officers or employees of the Company, the Bank Investors and/or the Agent)
or intangible, documentary or recording taxes incurred by or on behalf of the
Company, any Bank Investor and the Agent (i) in connection with the
negotiation, execution, delivery and preparation of this Agreement, the other
Transaction Documents and any documents or instruments delivered pursuant
hereto or thereto and the transactions contemplated hereby or thereby
(including, without limitation, the perfection or protection of the Transferred
Interest) and (ii) from time to time (a) relating to any amendments, waivers
or consents under this Agreement and the other Transaction Documents, (b)
arising in connection with the Company's, any Bank Investor's, the Agent's or
the Collateral Agent's enforcement or preservation of rights under the
Transaction Documents (including, without limitation, the perfection and
protection of the Transferred Interest under this Agreement), or (c) arising in
connection with any audit, dispute, disagreement, litigation or preparation for
litigation involving this Agreement or any of the other Transaction Documents
(all of such amounts, collectively, "Transaction Costs").
(b) The Transferor shall pay the Agent, for the account of the
Company and the Bank Investors, as applicable, on demand any Early Collection
Fee due on account of the reduction of a Tranche on a day prior to the last day
of its Tranche Period to the extent such reduction was made at the request of
the Transferor or upon the occurrence or declaration of the Termination Date or
the Reinvestment Termination Date as a result of any Termination Event (in
either case, other than a No-Fee Termination Event).
SECTION 8.5. Reconveyance Under Certain Circumstances. The
Transferor agrees to accept the reconveyance from the Agent, on behalf of the
Company and/or the Bank Investors, of the Transferred Interest if the Agent
notifies the Transferor of a material breach of any representation or warranty
made or deemed made pursuant to Article III of this Agreement and the
Transferor shall fail to cure such breach within 15 days (or, in the case of
the representations and warranties in Sections 3.1(d) and 3.1(j), 2 Business
Days) of such notice. The reconveyance price shall be paid by the Transferor
to the Agent, for the account of the Company and the Bank Investors, as
applicable, in immediately available funds on such 15th day (or 2nd Business
Day, if applicable) in an amount equal to the Aggregate Unpaids.
ARTICLE IX
THE AGENT; BANK COMMITMENT
SECTION 9.1. Authorization and Action. (a) The Company
and each Bank Investor hereby appoints and authorizes the Agent to take such
action as agent on its behalf and to exer-
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cise such powers under this Agreement and the other Transaction Documents as
are delegated to the Agent by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto. In furtherance, and without
limiting the generality, of the foregoing, the Company and each Bank Investor
hereby appoints the Agent as its agent to execute and deliver all further
instruments and documents, and take all further action that the Agent may deem
necessary or appropriate or that the Company or a Bank Investor may reasonably
request in order to perfect, protect or more fully evidence the interests
transferred or to be transferred from time to time by the Transferor hereunder,
or to enable any of them to exercise or enforce any of their respective rights
hereunder, including, without limitation, the execution by the Agent as
secured party/assignee of such financing or continuation statements, or
amendments thereto or assignments thereof, relative to all or any of the
Receivables now existing or hereafter arising, and such other instruments or
notices, as may be necessary or appropriate for the purposes stated
hereinabove. The Company and the Majority Investors may direct the Agent to
take any such incidental action hereunder. With respect to other actions
which are incidental to the actions specifically delegated to the Agent
hereunder, the Agent shall not be required to take any such incidental action
hereunder, but shall be required to act or to refrain from acting (and shall be
fully protected in acting or refraining from acting) upon the direction of the
Majority Investors; provided, however, that Agent shall not be required to take
any action hereunder if the taking of such action, in the reasonable
determination of the Agent, shall be in violation of any applicable law, rule
or regulation or contrary to any provision of this Agreement or shall expose
the Agent to liability hereunder or otherwise. Upon the occurrence and during
the continuance of any Termination Event or Potential Termination Event, the
Agent shall take no action hereunder (other than ministerial actions or such
actions as are specifically provided for herein) without the prior consent of
the Majority Investors. The Agent shall not, without the prior written consent
of all Bank Investors, agree to (i) amend, modify or waive any provision of
this Agreement in any way which would (A) reduce or impair Collections or the
payment of Discount or fees payable hereunder to the Bank Investors or delay
the scheduled dates for payment of such amounts, (B) increase the Servicing
Fee (other than as permitted pursuant to Section 6.2(b)), (C) modify any
provisions of this Agreement or the Receivables Purchase Agreement relating to
the timing of payments required to be made by the Transferor or the Sellers or
the application of the proceeds of such payments, (D) permit the appointment of
any Person (other than the Agent) as successor Collection Agent, or (E)
release any property from the lien provided by this Agreement (other than as
expressly contemplated herein). The Agent shall not agree to any amendment of
this Agreement which increases the dollar amount of a Bank Investor's
Commitment without the prior consent of such Bank Investor. In addition, the
Agent shall not agree to any amend-
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ment of this Agreement not specifically described in the two preceding
sentences without the consent of the Majority Investors. "Majority Investors"
shall mean, at any time, (i) those Bank Investors which hold Commitments
aggregating in excess of 51% of the Maximum Net Investment as of such date and
(ii) the Company, to the extent that either (x) the Company has any Net
Investment at such time or (y) the Company has no Net Investment at such time
but the Reinvestment Termination Date has not yet occurred. In the event the
Agent requests the Company's or a Bank Investor's consent pursuant to the
foregoing provisions and the Agent does not receive a consent (either positive
or negative) from the Company or such Bank Investor within 10 Business Days of
the Company's or Bank Investor's receipt of such request, then the Company or
such Bank Investor (and its percentage interest hereunder) shall be
disregarded in determining whether the Agent shall have obtained sufficient
consent hereunder.
(b) The Agent shall exercise such rights and powers vested in it by
this Agreement and the other Transaction Documents, and use the same degree of
care and skill in their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.
SECTION 9.2. Agent's Reliance, Etc. Neither the Agent nor any of
its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them as Agent under or in connection with
this Agreement or any of the other Transaction Documents, except for its or
their own gross negligence or willful misconduct. Without limiting the
foregoing, the Agent: (i) may consult with legal counsel (including counsel
for the Transferor or any of the Sellers), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (ii) makes no warranty or representation to
the Company or any Bank Investor and shall not be responsible to the Company or
any Bank Investor for any statements, warranties or representations made in or
in connection with this Agreement; (iii) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms,
covenants or conditions of this Agreement or any of the other Transaction
Documents on the part of the Transferor, the Collection Agent or the Sellers or
to inspect the property (including the books and records) of the Transferor,
the Collection Agent or the Sellers; (iv) shall not be responsible to the
Company or any Bank Investor for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any of the
other Transaction Documents or any other instrument or document furnished
pursuant hereto or thereto; and (v) shall incur no liability under or in
respect of this Agreement or any of the other Transaction Documents by acting
upon any notice (including notice by telephone), consent,
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certificate or other instrument or writing (which may be by telex) believed by
it to be genuine and signed or sent by the proper party or parties.
SECTION 9.3. Credit Decision. The Company and each Bank Investor
acknowledges that it has, independently and without reliance upon the Agent,
any of the Agent's Affiliates, any other Bank investor or the Company (in the
case of any Bank Investor) and based upon such documents and information as it
has deemed appropriate, made its own evaluation and decision to enter into this
Agreement and the other Transaction Documents to which it is a party and, if
it so determines, to accept the transfer of any undivided ownership interest in
the Affected Assets hereunder. The Company and each Bank Investor also
acknowledges that it will, independently and without reliance upon the Agent,
any of the Agent's Affiliates, any other Bank Investor or the Company (in the
case of any Bank Investor) and based on such documents and information as it
shall deem appropriate at the time, continue to make its own decisions in
taking or not taking action under this Agreement and the other Transaction
Documents to which it is a party.
SECTION 9.4. Indemnification of the Agent. The Bank Investors
agree to indemnify the Agent (to the extent not reimbursed by the Transferor),
ratably in accordance with their Pro Rata Shares, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by, or asserted against the Agent in any way
relating to or arising out of this Agreement or any action taken or omitted by
the Agent, any of the other Transaction Documents hereunder or thereunder,
provided that the Bank Investors shall not be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, the
Bank Investors agree to reimburse the Agent, ratably in accordance with their
Pro Rata Shares, promptly upon demand for any out-of-pocket expenses (including
counsel fees) incurred by the Agent in connection with the administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement and the other Transaction Documents, to
the extent that such expenses are incurred in the interests of or otherwise in
respect of the Bank Investors hereunder and/or thereunder and to the extent
that the Agent is not reimbursed for such expenses by the Transferor.
SECTION 9.5. Successor Agent. The Agent may resign at any time by
giving written notice thereof to each Bank Investor, the Company and the
Transferor and may be removed at any time for
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cause by the Majority Investors. Upon any such resignation or removal, the
Company and the Majority Investors shall appoint a successor Agent. The
Company and each Bank Investor agrees that it shall not unreasonably withhold
or delay its approval of the appointment of a successor Agent. If no such
successor Agent shall have been so appointed, and shall have accepted such
appointment, within 30 days after the retiring Agent's giving of notice of
resignation or the Majority Investors' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Company and the Bank Investors, appoint a
successor Agent which successor Agent shall be either (i) a commercial bank
organized under the laws of the United States or of any state thereof and have
a combined capital and surplus of at least $50,000,000 or (ii) an Affiliate of
such a bank. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article IX shall continue to
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
SECTION 9.6. Payments by the Agent. All amounts received by the
Agent on behalf of the Bank Investors or any of them shall be paid by the Agent
to the Bank Investors (at their respective accounts specified to the Agent
from time to time) in accordance with their respective related pro rata
interests in the Net Investment (unless specifically allocated to the Bank
Investors or any of them differently pursuant to the terms hereof, in which
case, such amounts shall be paid in accordance with such different allocation
to the applicable Bank Investors entitled thereto) on the Business Day received
by the Agent, unless such amounts are received after 12:00 noon on such
Business Day, in which case the Agent shall use its reasonable efforts to pay
such amounts to the applicable Bank Investors entitled thereto on such Business
Day, but, in any event, shall pay such amounts to the Bank Investors not later
than the following Business Day.
SECTION 9.7. Bank Commitment; Assignment to Bank Investors.
(a) Bank Commitment. At any time on or prior to the Commitment
Termination Date, in the event that the Company does not effect an Incremental
Transfer as requested under Section 2.2(a), then at any time, the Transferor
shall have the right to require the Company to assign its interest in the Net
Investment in whole to the Bank Investors pursuant to this Section 9.7. In
addition, at any time on or prior to the Commitment Termination Date (i) upon
the occurrence of a Termination
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Event or (ii) upon the Company's giving of a notice of the Reinvestment
Termination Date, the Transferor hereby requests and directs that the Company
assign its interest in the Net Investment in whole to the Bank Investors
pursuant to this Section 9.7 and the Transferor hereby agrees to pay the
amounts described in Section 9.7(d) below. Provided that (i) the Net Asset
Test is satisfied and (ii) the Transferor shall have paid to the Company all
amounts due as described in Section 9.7(d) hereof, upon any such election by
the Company or any such request by the Transferor, the Company shall make such
assignment and the Bank Investors shall accept such assignment and shall assume
all of the Company's obligations hereunder. In connection with any assignment
from the Company to the Bank Investors pursuant to this Section 9.7, each Bank
Investor shall, on the date of such assignment, pay to the Company an amount
equal to its Assignment Amount. In addition, at any time on or prior to the
Commitment Termination Date the Transferor shall have the right to request
funding under this Agreement directly from the Bank Investors, provided that at
such time all conditions precedent set forth herein for an Incremental Transfer
shall be satisfied, and provided further that in connection with such funding
by the Bank Investors, the Bank Investors accept the assignment of all of the
Company's interest in the Net Investment and assume all of the Company's
obligations hereunder concurrently with or prior to any such Incremental
Transfer. Upon any assignment by the Company to the Bank Investors
contemplated hereunder, the Company shall cease to make any additional
Incremental Transfers hereunder.
(b) Assignment. No Bank Investor may assign all or a portion of
its interests in the Net Investment, the Receivables, and Collections, Related
Security and Proceeds with respect thereto and its rights and obligations
hereunder to any Person unless approved in writing by the Agent and the
Transferor, which consent, in the case of the Transferor, shall not be
unreasonably withheld. In the case of an assignment by the Company to the
Bank Investors or by a Bank Investor to another Person, the assignor shall
deliver to the assignee(s) an Assignment and Assumption Agreement in
substantially the form of Exhibit G attached hereto, duly executed, assigning
to the assignee a pro rata interest in the Net Investment, the Receivables, and
Collections, Related Security and Proceeds with respect thereto and the
assignor's rights and obligations hereunder and the assignor shall promptly
execute and deliver all further instruments and documents, and take all further
action, that the assignee may reasonably request, in order to protect, or more
fully evidence the assignee's right, title and interest in and to such interest
and to enable the Agent, on behalf of such assignee, to exercise or enforce any
rights hereunder and under the other Transaction Documents to which such
assignor is or, immediately prior to such assignment, was a party. Upon any
such assignment, (i) the assignee shall have all of the rights and obligations
of the assignor hereunder and under the other
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Transaction Documents to which such assignor is or, immediately prior to such
assignment, was a party with respect to such interest for all purposes of this
Agreement and under the other Transaction Documents to which such assignor is
or, immediately prior to such assignment, was a party (it being understood
that the Bank Investors, as assignees, shall (x) be obligated to effect
Incremental Transfers under Section 2.2(a) in accordance with the terms
thereof, notwithstanding that the Company was not so obligated and (y) not have
the right to elect the commencement of the amortization of the Net Investment
pursuant to the definition of "Reinvestment Termination Date", notwithstanding
that the Company had such right) and (ii) the assignor shall relinquish its
rights with respect to such interest for all purposes of this Agreement and
under the other Transaction Documents to which such assignor is or,
immediately prior to such assignment, was a party. No such assignment shall
be effective unless a fully executed copy of the related Assignment and
Assumption Agreement shall be delivered to the Agent and the Transferor. All
costs and expenses of the Agent and the assignor incurred in connection with
any assignment hereunder shall be borne by the Transferor and not by the
assignor or any such assignee. No Bank Investor shall assign any portion of
its Commitment hereunder without also simultaneously assigning an equal portion
of its interest in the Liquidity Provider Agreement.
(c) Effects of Assignment. By executing and delivering an
Assignment and Assumption Agreement, the assignor and assignee thereunder
confirm to and agree with each other and the other parties hereto as follows:
(i) other than as provided in such Assignment and Assumption Agreement, the
assignor makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement, the other Transaction Documents or any other
instrument or document furnished pursuant hereto or thereto or the execution,
legality, validity, enforceability, genuineness, sufficiency or value or this
Agreement, the other Transaction Documents or any such other instrument or
document; (ii) the assignor makes no representation or warranty and assumes
no responsibility with respect to the financial condition of the Transferor,
the Sellers or the Collection Agent or the performance or observance by the
Transferor, the Sellers or the Collection Agent of any of their respective
obligations under this Agreement, the Receivables Purchase Agreement, the other
Transaction Documents or any other instrument or document furnished pursuant
hereto or thereto; (iii) such assignee confirms that it has received a copy of
this Agreement, the Receivables Purchase Agreement, and such other instruments,
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Assumption Agreement
and to purchase such interest; (iv) such assignee will, independently and
without reliance upon the Agent, or any of its Affiliates, or the assignor and
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based on such agreements, documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Transaction Documents;
(v) such assignee appoints and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers under this Agreement, the other
Transaction Documents and any other instrument or document furnished pursuant
hereto or thereto as are delegated to the Agent by the terms hereof or thereof,
together with such powers as are reasonably incidental thereto and to enforce
its respective rights and interests in and under this Agreement, the other
Transaction Documents, the Receivables, the Contracts and the Related Security;
(vi) such assignee agrees that it will perform in accordance with their terms
all of the obligations which by the terms of this Agreement and the other
Transaction Documents are required to be performed by it as the assignee of the
assignor; and (vii) such assignee agrees that it will not institute against
the Company any proceeding of the type referred to in Section 10.9 prior to the
date which is one year and one day after the payment in full of all Commercial
Paper issued by the Company.
(d) Transferor's Obligation to Pay Certain Amounts; Additional
Assignment Amount. The Transferor shall pay to the Agent, for the account of
the Company, in connection with any assignment by the Company to the Bank
Investors pursuant to this Section 9.7, an aggregate amount equal to all
Discount to accrue through the end of each outstanding Tranche Period plus all
other Aggregate Unpaids (other than the Net Investment). To the extent that
such Discount relates to interest or discount on Commercial Paper issued to
fund the Net Investment, if the Transferor fails to make payment of such
amounts at or prior to the time of assignment by the Company to the Bank
Investors, such amount shall be paid by the Bank Investors (in accordance
with their respective Pro Rata shares) to the Company as additional
consideration for the interests assigned to the Bank Investors and the amount
of the "Net Investment" hereunder held by the Bank Investors shall be increased
by an amount equal to the additional amount so paid by the Bank Investors.
(e) Administration of Agreement After Assignment. After any
assignment by the Company to the Bank Investors pursuant to this Section 9.7
(and the payment of all amounts owing to the Company in connection therewith),
all rights of the Administrative Agent and the Collateral Agent set forth
herein shall be deemed to be afforded to the Agent on behalf of the Bank
Investors instead of either such party.
(f) Payments. After any assignment by Company to the Bank
Investors pursuant to this Section 9.7, all payments to be made hereunder by
the Transferor or the Collection Agent to the Bank Investors shall be made to
the Agent's account
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as such account shall have been notified to the Transferor and the Collection
Agent.
(g) Downgrade of Bank Investor. If at any time prior to any
assignment by the Company to the Bank Investors as contemplated pursuant to
this Section 9.7, the short term debt rating of any Bank Investor shall be
"A-2" or "P-2" from Standard & Poor's or Moody's, respectively, with negative
credit implications, such Bank Investor, upon request of the Agent, shall,
within 30 days of such request, assign its rights and obligations hereunder to
another financial institution (which institution's short term debt shall be
rated at least "A-2" and "P-2" from Standard & Poor's and Moody's,
respectively, and which shall not be so rated with negative credit
implications). If the short term debt rating of a Bank Investor shall be
"A-3" or "P-3" or lower, from Standard & Poor's or Moody's, respectively (or
such rating shall have been withdrawn by Standard & Poor's or Moody's), such
Bank Investor, upon request of the Agent, shall, within five (5) Business Days
of such request, assign its rights and obligations hereunder to another
financial institution (which institution's short term debt shall be rated at
least "A-2" and "P-2" from Standard & Poor's and Moody's, respectively, and
which shall not be so rated with negative credit implications). In either
such case, if any such Bank Investor shall not have assigned its rights and
obligations under this Agreement within the applicable time period described
above, the Company shall have the right to require such Bank Investor to accept
the assignment of such Bank Investor's Pro Rata Share of the Net Investment;
such assignment shall occur in accordance with the applicable provisions of
this Section 9.7. Such Bank Investor shall be obligated to pay to the
Company, in connection with such assignment, in addition to the Pro Rata
Share of the Net Investment, an amount equal to the interest component of the
Commercial Paper issued to fund the portion of the Net Investment being
assigned to such Bank Investor, as reasonably determined by the Agent.
Notwithstanding anything contained herein to the contrary, upon any such
assignment to a downgraded Bank Investor as contemplated pursuant to the
immediately preceding sentence, the aggregate available amount of the Maximum
Net Investment, solely as it relates to new Incremental Transfers by the
Company, shall be reduced by the amount of unused Commitment of such downgraded
Bank Investor; it being understood and agreed, that nothing in this sentence or
the preceding two sentences shall effect or diminish in any way any such
downgraded Bank Investor's Commitment to the Transferor or such downgraded Bank
Investor's other obligations and liabilities hereunder and under the other
Transaction Documents.
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ARTICLE X
MISCELLANEOUS
SECTION 10.1. Term of Agreement. This Agreement shall terminate on
the date following the Termination Date upon which the Net Investment has been
reduced to zero, all accrued Discount and Servicing Fees have been paid in full
and all other Aggregate Unpaids have been paid in full, in each case, in cash;
provided, however, that (i) the rights and remedies of the Agent, the Company,
the Bank Investors and the Administrative Agent with respect to the
indemnification and payment provisions of Article VIII, and (ii) the agreements
set forth in Sections 10.8 and 10.9 hereof, shall be continuing and shall
survive any termination of this Agreement.
SECTION 10.2. Waivers; Amendments. No failure or delay on the part
of the Agent, the Company, the Administrative Agent or any Bank Investor in
exercising any power, right or remedy under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or remedy preclude any other further exercise thereof or the exercise of
any other power, right or remedy. The rights and remedies herein provided
shall be cumulative and nonexclusive of any rights or remedies provided by law.
Any provision of this Agreement may be amended if, but only if, such amendment
is in writing and is signed by the Transferor, the Agent and the Majority
Investors.
SECTION 10.3. Notices. Except as provided below, all communications
and notices provided for hereunder shall be in writing (including telecopy or
electronic facsimile transmission or similar writing) and shall be given to the
other party at its address or telecopy number set forth below or at such other
address or telecopy number as such party may hereafter specify for the purposes
of notice to such party. Each such notice or other communication shall be
effective (i) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section 10.3 and confirmation is received,
(ii) if given by mail, three (3) Business Days following such posting, postage
prepaid, U.S. certified or registered, (iii) if given by overnight courier, one
(1) Business Day after deposit thereof with a national overnight courier
service, or (iv) if given by any other means, when received at the address
specified in this Section 10.3. However, anything in this Section to the
contrary notwithstanding, the Transferor hereby authorizes the Company to
effect Transfers, Tranche Period and Tranche Rate selections based on
telephonic notices made by any Person which the Company in good faith believes
to be acting on behalf of the Transferor. The Transferor agrees to deliver
promptly to the Company a written confirmation of each telephonic notice signed
by an
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authorized officer of Transferor. However, the absence of such confirmation
shall not affect the validity of such notice. If the written confirmation
differs in any material respect from the action taken by the Company, the
records of the Company shall govern absent manifest error.
If to the Company:
Enterprise Funding Corporation
c/o Merrill Lynch Money Markets Inc.
World Financial Center--South Tower
225 Liberty Street
New York, New York 10080
Telephone: (212) 236-7200
Telecopy: (212) 236-7584
(with a copy to the Administrative Agent)
If to the Transferor:
JPFD Funding Company
9830 Paxtuxent Woods Drive
Columbia, Maryland 21046
Attention: George Megas
Telephone: (410) 312-7577
Telecopy: (410) 312-7599
Payment Information:
NationsBank of Texas, N.A.
ABA No.: 111 0000 12
Account No.: 375 006 9110
Reference: JPFD Funding Company
If to Distributors:
JP Foodservice Distributors, Inc.
9830 Paxtuxent Woods Drive
Columbia, Maryland 21046
Attention: George Megas
Telephone: (410) 312-7577
Telecopy: (410) 312-7599
If to the Collateral Agent:
NationsBank, N.A.
NationsBank Corporate Center--10th Floor
Charlotte, North Carolina 28255
Attention: Michelle M. Heath--
Structured Finance
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
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If to the Agent:
NationsBank, N.A.
NationsBank Corporate Center--10th Floor
Charlotte, North Carolina 28255
Attention: Michelle M. Heath--
Structured Finance
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
If to the Administrative Agent:
NationsBank, N.A.
NationsBank Corporate Center--10th Floor
Charlotte, North Carolina 28255
Attention: Michelle M. Heath--
Structured Finance
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
If to the Bank Investors, at their respective addresses set forth on
the signature pages hereto or of the Assignment and Assumption Agreement
pursuant to which it became a party hereto.
SECTION 10.4. GOVERNING LAW: SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL; INTEGRATION.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE TRANSFEROR HEREBY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING
IN THE CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE
TRANSFEROR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY
DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. NOTHING IN THIS SECTION 10.4 SHALL AFFECT THE RIGHT OF THE COMPANY, THE
AGENT OR THE ADMINISTRATIVE AGENT TO BRING ANY ACTION OR PROCEEDING AGAINST THE
TRANSFEROR OR ITS PROPERTY IN THE COURTS OF OTHER JURISDICTIONS.
(b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT
OR OTHERWISE AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR
INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT
OR THE OTHER TRANSACTION DOCUMENTS.
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(c) This Agreement and the other Transaction Documents contain
the final and complete integration of all prior expressions by the parties
hereto with respect to the subject matter hereof and shall constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof superseding all prior oral or written understandings.
SECTION 10.5. Counterparts; Severability. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 10.6. Successors and Assigns. (a) This Agreement shall be
binding on the parties hereto and their respective successors and assigns;
provided, however, that neither the Transferor nor any of the Sellers may
assign any of its respective rights or delegate any of its duties hereunder,
under the Receivables Purchase Agreement or under any of the other Transaction
Documents to which it is a party without the prior written consent of the
Agent. No provision of this Agreement shall in any manner restrict the ability
of the Company or any Bank Investor to assign, participate, grant security
interests in, or otherwise transfer any portion of the Transferred Interest.
(b) The Transferor hereby agrees and consents to the
assignment by the Company from time to time of all or any part of its rights
under, interest in and title to this Agreement and the Transferred Interest to
any Liquidity Provider. In addition, the Transferor hereby consents to and
acknowledges the assignment by the Company of all of its rights under, interest
in and title to this Agreement and the Transferred Interest to the Collateral
Agent.
SECTION 10.7. Waiver of Confidentiality. The Transferor and the
Collection Agent each hereby consents to the disclosure of any non-public
information with respect to it received by the Company, the Agent, any Bank
Investor or the Administrative Agent to any of the Company, the Agent, any
nationally recognized rating agency rating the Company's Commercial Paper, the
Administrative Agent, the Collateral Agent, any Bank Investor or potential Bank
Investor, the Liquidity Provider or the Credit Support Provider in relation to
this Agreement.
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SECTION 10.8. Confidentiality Agreement. Each of the Transferor and
the Collection Agent hereby agrees that it will not, and, will not permit any
of the Sellers to, disclose the contents of this Agreement or any other
proprietary or confidential information of the Company, the Agent, the
Administrative Agent, the Collateral Agent, any Liquidity Provider or any Bank
Investor to any other Person except (i) its auditors and attorneys, employees
or financial advisors (other than any commercial bank) and any nationally
recognized rating agency, provided such auditors, attorneys, employees,
financial advisors or rating agencies are informed of the highly confidential
nature of such information or (ii) as otherwise required by applicable law or
order of a court of competent jurisdiction.
SECTION 10.9. No Bankruptcy Petition Against the Company. Each of
the Transferor and the Collection Agent hereby covenants and agrees that, prior
to the date which is one year and one day after the payment in full of all
outstanding Commercial Paper or other indebtedness of the Company, it will not
institute against, or join any other Person in instituting against, the Company
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceeding under the laws of the United States or
any state of the United States.
SECTION 10.10. No Recourse Against Stockholders, Officers or
Directors. No recourse under any obligation, covenant or agreement of the
Company contained in this Agreement shall be had against Merrill Lynch Money
Markets Inc. (or any affiliate thereof), or any stockholder, officer or
director of the Company, as such, by the enforcement of any assessment or by
any legal or equitable proceeding, by virtue of any statute or otherwise; it
being expressly agreed and understood that this Agreement is solely a corporate
obligation of the Company, and that no personal liability whatsoever shall
attach to or be incurred by Merrill Lynch Money Markets Inc. (or any affiliate
thereof), or the stockholders, officers or directors of the Company, as such,
or any of them, under or by reason of any of the obligations, covenants or
agreements of the Company contained in this Agreement, or implied therefrom,
and that any and all personal liability for breaches by the Company of any of
such obligations, covenants or agreements, either at common law or at equity,
or by statute or constitution, of Merrill Lynch Money Markets Inc. (or any
affiliate thereof) and every such stockholder, officer or director of the
Company is hereby expressly waived as a condition of and consideration for the
execution of this Agreement.
SECTION 10.11. Characterization of the Transactions Contemplated by
the Agreement. It is the intention of the parties that the transactions
contemplated hereby constitute the sale of the Transferred Interest, conveying
good title thereto
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free and clear of any Adverse Claims to the Agent, on behalf of the Company and
the Bank Investors, and that the Transferred Interest not be part of the
Transferor's estate in the event of an insolvency. If, notwithstanding the
foregoing, the transactions contemplated hereby should be deemed a financing,
the parties intend that the Transferor shall be deemed to have granted to the
Agent, on behalf of the Company and the Bank Investors, and the Transferor
hereby grants to the Agent, on behalf of the Company and the Bank Investors, a
first priority perfected and continuing security interest in all of the
Transferor's right, title and interest in, to and under the Receivables,
together with Related Security, Collections and Proceeds with respect thereto,
and together with all of the Transferor's rights under the Receivables Purchase
Agreement with respect to the Receivables and with respect to any obligations
thereunder of the Sellers with respect to the Receivables, and that this
Agreement shall constitute a security agreement under applicable law. The
Transferor hereby assigns to the Agent, on behalf of the Company and the Bank
Investors, all of its rights and remedies under the Receivables Purchase
Agreement with respect to the Receivables and with respect to any obligations
thereunder of the Sellers with respect to the Receivables. The Transferor
agrees that it shall not give any consent or waiver required or permitted to be
given under the Receivables Purchase Agreement without the prior consent of the
Agent.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Transfer and Administration Agreement as of the date first written above.
ENTERPRISE FUNDING CORPORATION,
as Company
By: /s/
-----------------------------
Name:
Title:
JPFD FUNDING COMPANY,
as Transferor
By: /s/
-----------------------------
Name:
Title:
JP FOODSERVICE DISTRIBUTORS, INC.,
as Collection Agent
By: /s/
-----------------------------
Name:
Title:
Commitment NATIONSBANK, N.A., as Agent and
$50,000,000 as the sole initial Bank Investor
By: /s/
-----------------------------
Name:
Title:
<PAGE> 102
Annex I
to
Transfer and Administration Agreement
Financial Covenant Definitions
As used in Section 7.1(r) the following terms shall have the following
meanings:
"Capital-Lease" shall mean, as applied to any Person, any lease of
any property (whether real, personal or mixed) by such Person as lessee which
would, in accordance with GAAP, be required to be classified and accounted for
as a capital lease on the balance sheet of such Person or in the notes thereto,
other than, in the case of any Restricted Subsidiary, any such lease under
which Distributors or a Predominantly Owned Restricted Subsidiary is the
lessor.
"Capital Lease Obligations" shall mean, as at any date, with respect
to any Capital Lease, the amount of the obligation of the lessee thereunder
which would, in accordance with GAAP, appear on a balance sheet of such lessee
or in the notes thereto in respect of such Capital Lease.
"Consolidated Net Worth" shall mean, as of any date, the excess of
(a) the sum of capital stock (but excluding capital stock subscribed for but
unissued) and surplus (including retained earnings, additional paid-in capital
and the balance of the current profit and loss account not transferred to
surplus) accounts of Distributors and its Restricted Subsidiaries appearing on
a consolidated balance sheet of Distributors and its Restricted Subsidiaries
prepared in accordance with GAAP as of such date, after eliminating all
intercompany transactions and all amounts properly attributable to outside
minority interests in Restricted Subsidiaries over (b) the amount obtained by
subtracting (i) the aggregate amortization of Effective Date Intangibles in
accordance with GAAP subsequent to the Effective Date to and including such
date of determination to the extent such amortization has reduced the surplus
accounts of Distributors and its Restricted Subsidiaries appearing on a balance
sheet of Distributors and its Restricted Subsidiaries prepared in accordance
with GAAP as of the Effective Date (after giving effect to the consummation of
the Recapitalization) from (ii) the aggregate amount appearing in respect of
the Effective Date Intangibles on such balance.
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"Debt and Investment" shall mean, as applied to any Person, as of any
date of determination (without duplication):
(a) all obligations of such Person for borrowed money
or evidenced by bonds, debentures, notes, drafts or similar
instruments, or upon which interest payments are customarily made;
(b) all obligations of such Person for all or any part
of the deferred purchase price of property or services (other than
trade accounts payable arising in the ordinary course of business
which are not overdue by more than 30 days or which are being
contested in good faith by appropriate proceedings) or for the cost
of property constructed or of improvements;
(c) all obligations secured by any Adverse Claim
(other than (subject to the terms of subdivision (h) below) an
Adverse Claim deemed to exist in connection with any receivables
securitization (including the securitization contemplated by this
Agreement) permitted pursuant to the Credit Agreement and the Private
Debt Indenture (including any related filings of financing
statements); provided, that for purposes of calculating the Total
Debt and Investment Ratio, the Net Investment (and any similar
amounts under any other such receivables securitization to which
Distributors or any of its Restricted Subsidiaries is a party) shall
be included in this amount;
(d) all Capital Lease Obligations of such Person;
(e) all preferred stock issued by such Person or
required by the terms thereof to be redeemed, or for which mandatory
sinking fund payments are due, by a fixed date;
(f) all obligations of such Person, contingent or
otherwise, in respect of any letter of credit facility, bankers'
acceptance facility or other similar credit facility, exclusive,
however, of obligations in respect of any letter of credit issued
solely for the benefit of a state agency or insurance carrier in
connection with the maintenance by such Person of casualty, medical
or workers' compensation insurance through such agency or insurance
carrier;
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(g) the aggregate amount of the net liability exposure
of such Person under all Hedging Agreements (which net liability
exposure in respect of any such Hedging Agreement shall, for purposes
hereof, be deemed to be an amount equal to (i) the actual net
liability exposure of such Person under such Hedging Agreement to the
extent realized (upon the culmination or termination of such Hedging
Agreement or otherwise) and no longer contingent or (ii) to the
extent the net liability exposure of such Person under such Hedging
Agreement has not been actually realized and is contingent, the
product of (A) the then current notional principal amount of such
Hedging Agreement, (B) the number of years (or portions thereof) then
remaining to the date of maturity of such Hedging Agreement, and (C)
0.75%); and
(h) all Guaranties by such Person of or with respect
to obligations of the character referred to in the foregoing clauses
(a) through (g) of another Person.
provided, however, that in determining the Debt and Investment of Distributors,
so long as the Sara Lee Offset Agreement shall remain in full force and effect
and shall be effective to permit the offset of principal and interest due under
the Sara Lee Note against principal and interest due under PYA's Note (or to
establish Distributor's obligation in respect of the indebtedness evidenced by
the Sara Lee Note from and after a prepayment in full of PYA's Note as the
remaining principal balance of the Sara Lee Note after offset against amounts
owing thereon of the principal of and accrued and unpaid interest to the date
of prepayment on the PYA Note), the Debt and Investment evidenced by the Sara
Lee Note shall be deemed equal to the net amounts for which Distributors is
obligated under the Sara Lee Offset Agreement.
"Determination Date" shall mean the last day of each fiscal quarter
of the Transferor and the Sellers.
"Effective Date" shall mean November 22, 1994.
"Effective Date Intangibles" shall mean all goodwill and other
intangible assets that appear on a consolidated balance sheet of Distributors
and its Restricted Subsidiaries prepared in accordance with GAAP as of the
Effective Date immediately after giving effect to the Recapitalization.
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<PAGE> 105
"Everett Facility" shall mean the facility owned by Distributors on
November 10, 1994 located in Everett, Massachusetts.
"Fixed Charge Coverage Ratio" shall mean, as of any Determination
Date, the number obtained by dividing (a) Net Income Available for Fixed
Charges for the period ("Coverage Period") of four consecutive fiscal quarters
ended on such Determination Date by (b) Fixed Charges for such Coverage Period.
"Fixed Charges" shall mean, for any period, the sum of the following
amounts: (a) Interest and Discount Expense for such period, plus (b) the
aggregate amount of Operating Lease Rentals accrued (whether or not actually
paid) during such period.
"Guaranty" shall mean, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaranteed,
endorsed (other than for collection or deposit in the ordinary course of
business) or discounted or sold with recourse by such Person, or in respect of
which such Person is otherwise in any manner directly or indirectly liable,
including, without limitation, any such obligation in effect guaranteed by such
Person through any agreement (contingent or otherwise) to (a) purchase,
repurchase or otherwise acquire such obligation or any security therefor, or to
provide funds for the payment or discharge of such obligation (whether in the
form of loans, advances, stock purchases, capital contributions or otherwise)
or (b) maintain the solvency or any balance sheet or other financial condition
of the obligor of such obligation, or (c) make payment for any products,
materials or supplies or for any transportation or services regardless of the
nondelivery or non-furnishing thereof, in any such case if the purpose or
intent of such agreement is to provide assurance that such obligation will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such obligation will be protected against loss in
respect thereof. For purposes of all computations made under this Agreement,
the amount of any Guaranty shall be equal to the amount of the obligation
guaranteed or, if not stated or determined, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder) as determined by such Person in good faith.
"Hedging Agreement" shall mean any agreement entered into by a Person
for protection against future
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<PAGE> 106
fluctuations in interest rates, foreign exchange rates, commodity prices, or
the like (including, but not limited to, interest rate and/or currency swap
arrangements, interest rate, currency and/or commodities future or option
contracts, and other similar agreements) and which creates a contingent
obligation of such Person to make any payments (other than payments in respect
of any fee or charge for contracting to provide the protection provided by such
agreement) to the holder(s) thereof or counterparty(ies) thereunder upon the
culmination or termination of such agreement or otherwise.
"Interest and Discount Expense" shall mean, as applied to any Person,
for any period, the sum of the following amounts for all such Persons of: (a)
the aggregate amount of all interest accrued (whether or not actually paid)
during such period on Debt and Investment (including, without limitation, (i)
imputed interest on Capital Lease Obligations and (ii) all imputed interest,
whether in the form of "yield", "discount" or other similar item, that accrues
in respect of any receivables securitization permitted under the Credit
Agreement and the Private Debt Indenture (including, without limitation,
Discount hereunder) entered into by such Person (or by any Subsidiary of such
Person or any other Person "controlled" (as such term is defined in the
Securities Act of 1933 and the rules and regulations thereunder)), together
with any fees payable thereunder, plus (b) amortization of debt discount and
expense during such period, plus (c) all fees and commissions payable in
connection with any letters of credit during such period. Unless otherwise
specified, any reference to Interest and Discount Expense for any period is
intended as a reference to the sum for such period of said amounts for
Distributors and its Restricted Subsidiaries on a consolidated basis after
eliminating all intercompany transactions.
"Net Income Available for Fixed Charges" shall mean, for any period,
(a) the net income (or deficit) of Distributors and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP after eliminating
all nonrecurring items (whether cash or non-cash and whether or not deemed
extraordinary in accordance with GAAP) for such period, plus (b) the sum of the
following amounts, in each case to the extent deducted in arriving at the
amount determined in accordance with the foregoing subdivision (a): (i)
Interest and Discount Expense, (ii) provisions for taxes imposed on or measured
by income or excess profits, (iii) Operating Lease Rentals accrued (whether or
not actually paid), and (iv) provisions for amortization of Effective Date
Intangibles; provided however, that in determining the net income (or deficit)
of Distributors and its Restricted
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<PAGE> 107
Subsidiaries pursuant to the foregoing subdivision (a) for any period during
which Distributors shall have sold or otherwise disposed of the Everett
Facility, losses from such sale or other disposition shall be disregarded to
the extent the aggregate amount of all such losses (computed without regard to
Effective Date Intangibles attributable to such facility) does not exceed
$3,300,000 on an after tax basis.
"Net Worth Minimum" shall mean, as of any date, the sum of (i) the
Net Worth Minimum (determined as in this definition provided) in the
immediately preceding fiscal year (which amount for the Fiscal Year ended July
2, 1995 was $12,500,000) plus (ii) the greater of (x) zero and (y) 50% of the
net income of Distributors and its Restricted Subsidiaries for such preceding
fiscal year, determined on a consolidated basis in accordance with GAAP after
eliminating all intercompany items and deducting portions of income properly
attributable to outside minority interests, if any, in Restricted Subsidiaries
and after adding, to the extent deducted in determining such net income, the
amount of any provision for the amortization of Effective Date Intangibles.
"Operating Cash Flow" shall mean, for any period, (a) the net income
(or deficit) of Distributors and its Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP after eliminating all nonrecurring
items (whether cash or non-cash and whether or not deemed extraordinary in
accordance with GAAP) for such period; plus (b) the sum of the following
amounts, in each case to the extent deducted in arriving at such the amount
determined in accordance with the foregoing subdivision (a):
(i) Interest and Discount Expense,
(ii) provisions for taxes imposed on or measured by
income or excess profits, and
(iii) provisions for depreciation and amortization
(including, without limitation, amortization of Effective Date
Intangibles);
plus (c) the sum (without duplication) of the following items to the extent not
included in the amounts determined pursuant to subdivisions (a) and (b) above
(such sum being herein called the "Acquired Unit Adjustment"):
(i) the net income (or net deficit) for such period of
each Person which shall have become a Restricted Subsidiary during
such period (an "Acquired Subsidiary") after eliminating all
nonrecurring items
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<PAGE> 108
(whether cash or non-cash and whether or not deemed extraordinary in
accordance with GAAP),
(ii) the net income (or net deficit) derived during
such period from any operating assets acquired by Distributors or a
Restricted Subsidiary during such period ("Acquired Assets"), and
(iii) the sum (without duplication) of the following
items to the extent deducted in determining net income of any
Acquired Subsidiary or derived from any Acquired Assets for such
period: (A) Interest and Discount Expense of such Acquired Subsidiary
or associated with such Acquired Assets, (B) provisions for taxes
imposed on or measured by income or excess profits of such Acquired
Subsidiary or associated with such Acquired Assets, and (C)
provisions for depreciation and amortization of such Acquired
Subsidiary or associated with such Acquired Assets;
minus (d) the sum of the following items to the extent included in the amounts
determined pursuant to subdivisions (a), (b) and (c) above (such sum being
herein called the "Disposed Unit Adjustment"):
(i) the net income (or net deficit) for such period of
each Person which shall have ceased to be a Restricted Subsidiary
during such period (a "Disposed Subsidiary") after eliminating all
nonrecurring items (whether cash or non-cash and whether or not
deemed extraordinary in accordance with GAAP),
(ii) the net income (or net deficit) derived during
such period from any assets which were sole or otherwise disposed of
by Distributors or a Restricted Subsidiary during such period
("Disposed Assets"), and
(iii) the sum (without duplication) of the following
items to the extent deducted in determining net income of any
Disposed Subsidiary or derived from any Disposed Assets for such
period: (A) Interest and Discount Expense of such Disposed Subsidiary
or associated with such Disposed Assets, (B) provisions for taxes
imposed on or measured by income or excess profits of such Disposed
Subsidiary or associated with such Disposed Assets for such period,
and (C) provisions for depreciation and amortization of such Disposed
Subsidiary or associated with such Disposed Assets;
provided, however, that (1) for purposes of determining Operating Cash Flow for
any period, the Acquired Unit
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<PAGE> 109
Adjustment and the Disposed Unit Adjustment shall be determined by Distributors
in accordance with sound financial practice (and on the basis, to the extent
available, of appropriate financial statements and tax returns for such period)
and shall be set forth in a certificate of the principal financial officer of
Distributors accompanied by calculations in reasonable detail showing the
manner of determination thereof, which certificate shall be furnished to the
Administrative Agent and each of the Lenders not later than the certificate
required to be furnished by Distributors in respect of such period pursuant to
Section 5.1(a)(iii), and (2) no amount shall in any event be includable in
Operating Cash Flow pursuant to subdivision (c) of this definition for any
period in respect of any Acquired Unit Adjustment unless the amount and
calculation thereof, as set forth in the certificate for such period required
by the foregoing clause (i), shall also be includable pursuant to the Credit
Agreement; and provided further, however, that in determining the net income
(or deficit) of Distributors and its Restricted Subsidiaries pursuant to the
foregoing subdivision (a) for any period during which Distributors shall have
sold or otherwise disposed of the Everett Facility, losses from such sale or
other disposition shall be disregarded to the extent the aggregate amount of
all such losses (computed without regard to Effective Date Intangibles
attributable to such facility) does not exceed $3,300,000 on an after tax
basis.
"Operating Lease" shall mean any lease of property (real, personal or
mixed) having an original term (including terms of renewal or extension at the
option of the lessor or the lessee, whether or not any such option has been
exercised) of more than one year, other than (a) a capital Lease and (b) in
the case of any Subsidiary of Distributors, any such lease under which
Distributors or a Predominantly Owned Restricted Subsidiary is the lessor.
"Operating Lease Rentals" shall mean, as applied to Distributors and
its Restricted Subsidiaries for any period, the total amount (whether
designated as rentals or additional or supplemental rentals or otherwise)
payable as lessee under all Operating Leases during such period, including
amounts so payable during such period by reason of a lease termination or a
surrender of property but excluding amounts so payable on account of
maintenance, ordinary repairs, insurance, taxes, assessments and other similar
charges
"Predominantly Owned Restricted Subsidiary" shall mean any Restricted
Subsidiary at least 80% of all of the equity interests of each class of which
and at least 80% of
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<PAGE> 110
the voting interests of which shall, in each case, at the time be owned by
Distributors either directly or through one or more other Predominantly Owned
Restricted Subsidiaries.
"PYA" shall mean PYA/Monarch, Inc. a Delaware corporation.
"PYA's Note" shall mean that certain promissory note of PYA, dated
March 10, 1989, in the original principal amount of $110,000,000 and payable to
Distributors, which bears interest at rates between 10.35% and 10.8% per annum,
as such note shall be in effect on November 10, 1994.
"Recapitalization" shall mean the recapitalization referred to in
(and as defined in) the Parent's Form S-1 filed with the Securities and
Exchange Commission on August 11, 1994, as amended by those certain Amendments
Nos. 1 and 2 thereto filed with the Securities and Exchange Commission on
September 28, 1994 and October 21, 1994, respectively.
"Restricted Subsidiary" shall mean any Subsidiary of Distributors
which has not been designated or redesignated as an "Unrestricted Subsidiary"
under and in accordance with the Credit Agreement and the Private Debt
Indenture. Currently all of Distributor's Subsidiaries are Restricted
Subsidiaries. The Transferor shall, or shall cause Distributors, to give the
Agent notice of the designation or redesignation of any Subsidiary of
Distributors as an Unrestricted Subsidiary.
"Sara Lee Note" shall mean that certain promissory note of
Distributors dated August 19, 1989, made in the original principal amount of
$112,000,000 and payable to PYA, which bears interest at the per annum rate of
11%, as such note was in effect on November 10, 1994.
"Sara Lee Offset Agreement" shall mean the amended and Restated Note
Offset Agreement, dated as of July 3, 1989, by and between PYA and
Distributors, providing, among other things, for the settlement of maturities
of principal and accrued interest under the Sara Lee Note, on the one hand, and
under PYA's Note, on the other hand by offsetting the respective amounts due
thereunder.
"Total Debt and Investment" means, as of any date, the aggregate
amount of all Debt and Investment of Distributors and its Restricted
Subsidiaries outstanding on such date, determined on a consolidated basis.
"Total Debt and Investment Ratio" shall mean, as of any date, the
number obtained by dividing (a) Total Debt and Investment as of such date by
(b) Operating Cash Flow
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<PAGE> 111
for the period ("Cash Flow Period") of four consecutive fiscal quarters ended
on such date or (if such date shall not be a Determination Date) most recently
prior to such date; provided, that in calculating the Total Debt and Investment
Ratio for purposes of determination of the Applicable Margin, Total Debt and
Investment shall not include any Debt of Distributors or any of its Restricted
Subsidiaries of the type described in subdivision (h) of the definition of
"Debt and Investment".
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<PAGE> 112
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Transfer and Administration Agreement as of the date first written above.
ENTERPRISE FUNDING CORPORATION,
as Company
By: /s/
-----------------------------
Name:
Title:
JPFD FUNDING COMPANY,
as Transferor
By: /s/ GEORGE T. MEGAS
-----------------------------
Name: George T. Megas
Title: Vice President, Finance
JP FOODSERVICE DISTRIBUTORS, INC.,
as Collection Agent
By: /s/ JAMES MILLER
-----------------------------
Name: James Miller
Title: President
Commitment NATIONSBANK, N.A., as Agent and
$50,000,000 as the sole initial Bank Investor
By: /s/ MICHELLE M. HEATH
-----------------------------
Name: Michelle M. Heath
Title: Vice President
<PAGE> 1
Exhibit 10.29
EMPLOYMENT AGREEMENT
AGREEMENT by and between JP Foodservice, Inc., a Delaware corporation
(the "Company") and David M. Abramson (the "Executive"), dated as of the 10th
day of June, 1996.
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and
the Executive's employment with the Company is terminated by the Company or the
Executive terminates his employment for Good Reason (as defined in Section
5(c)) prior to the date on which the Change of Control occurs, and it it is
reasonably demonstrated by the Executive that such termination of employment
(i) was at the request of a third party who has taken steps reasonably
calculated to effect a Change of Control or (ii) otherwise arose in connection
with or in anticipation of a Change of Control, then for all purposes of this
Agreement the "Effective Date" shall mean the date immediately prior to the
date of such termination of employment.
(b) The "Employment Period" shall mean the period commencing on the
date hereof and ending on the third anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on each
annual anniversary of such date (such date and each annual anniversary thereof
shall be hereinafter referred to as the "Renewal Date"), unless previously
terminated, the Employment Period shall be automatically extended so as to
terminate three years from such Renewal Date, unless at least 60 days prior to
the Renewal Date the Company shall give notice to the Executive that the
Employment Period shall not be so extended; provided, further, however, upon a
Change of Control, the Employment Period shall be the period commencing on the
date of the Change of Control and ending on the third anniversary thereof.
2. Change of Control. For the purpose of this Agreement, a "Change
of Control" shall mean any of the following events:
(a) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at lease a majority of
the Board or if nominees of Sara Lee Corporation or its subsidiaries constitute
a majority of the Board; provided, however, that any individual
<PAGE> 2
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person (as defined in
Section 2(b)) other than the Board; or
(b) Any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") is or becomes the beneficial owner (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the
Company's stock generally entitled to vote for the election of directors
("Voting Stock") or the consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company or other transaction (a "Business Transaction"), in each
case, unless, following such Business Transaction, (i) no Person (excluding any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Transaction) beneficially owns, directly or
indirectly, 50% or more of, respectively, the then outstanding shares of Voting
Stock of the Company or the corporation resulting from such Business Transaction
and (ii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Transaction were members of the
Incumbent Board at the time of the execution of the initial agreement, or of
the action of the Board, providing for such Business Transaction; or
(c) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. Commencing on July 1, 1996 or such other date
as may be agreed by the Company and the Executive (the "Commencement Date"),
the Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company, subject to the
terms and conditions of this Agreement, for the Employment Period.
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive shall be General Counsel and a Senior Vice
President of the Company with such authority, duties and responsibilities as
shall be
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consistent therewith and (B) the Executive's services shall be performed at the
Company's offices in Columbia, Maryland.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the
Commencement Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Commencement
Date shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period,
the Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate of $16,667. During the Employment Period, the
Annual Base Salary shall be reviewed no more than 12 months after the last
salary increase awarded to the Executive prior to the Effective Date and
thereafter at lease annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase and
the term Annual Base Salary as utilized in this Agreement shall refer to annual
Base Salary as so increased.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be provided, for each fiscal year ending during the Employment Period, an
annual bonus opportunity in cash and stock-based incentives at least equal to
75% of the Executive's Annual Base Salary. Each such Annual Bonus shall be
paid no later than the end of the third month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
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(iii) Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all savings and
retirement plans, practices, policies and programs applicable generally to other
peer executives of the Company and its subsidiaries, but after the Effective
Date, in no event shall such plans, practices, policies and programs provide
the Executive with savings opportunities and retirement benefit opportunities,
in each case, less favorable, in the aggregate, than the most favorable of
those provided by the Company and its subsidiaries for the Executive under such
plans, practices, policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or if more favorable to
the Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its subsidiaries.
(iv) Welfare Benefit Plans. During the Employment Period,
the Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
subsidiaries (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its subsidiaries, but, after the Effective Date,
in no event shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for
the Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company
and its subsidiaries.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the policies, practices
and procedures of the Company.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, use of an automobile
and payment of related expenses, as generally provided to other peer executives
of the Company, provided that after the Effective Date such benefits shall be
in accordance with the most favorable plans, practices, programs and policies
of the Company and its subsidiaries in effect for the Executive at any
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time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Company and its subsidiaries.
Without limiting the generality of the foregoing, and notwithstanding anything
herein to the contrary, the Company shall, during the Employment Period, pay
all of the Executive's dues and membership assessments of two country clubs in
the geographical vicinity of the Company's headquarters, and such other club
memberships as are determined by the Executive and the Board to be useful in
connection with the Executive's duties on behalf of the Company. The Company
shall also reimburse the Executive for all reasonable expenses incurred at such
club(s) on behalf of the Company. In addition, without limiting the generality
of the foregoing, and notwithstanding anything herein to the contrary, the
Executive shall be entitled, during the Employment Period, at the Company's
expense, to the full use of a new car (including adequate insurance for the
Executive, automobile and occupants and full maintenance and operating costs
necessary and appropriate to maintain such car in prime and safe operating
condition) comparable, if applicable, to that provided under any previous
employment agreement between the Company and the Executive. In the event the
Executive terminates his employment for any reason other than for Cause (as
defined in Section 5(b)), the Executive shall be furthermore be offered the
option to acquire the car at the lesser of the book value of the car at the
time of the Executive's termination of employment or the lease purchase price
provided for in any car lease between the Company and any third party lessor at
the time of the Executive's termination of employment. The option to purchase
after termination as provided for herein shall be exercised by the Executive
no later than 90 days after termination of employment.
(vii) Vacation. During the Employment Period, the Executive
shall be entitled to at least four weeks of paid vacation per calendar year.
The Executive shall have the right to accrue and carry forward unused vacation.
5. Termination of Employment. (a) Death or Disability.
The Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that,
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within the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the
Company or one of its subsidiaries (other than any such failure
resulting from incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company
which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in
illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive has engaged in
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the conduct described in subparagraph (i) or (ii) above, and specifying the
particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or responsibilities
as contemplated by Section 4(a) of this Agreement, or any other action by
the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
the Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any
office or location outside of Baltimore, Maryland or more than 35 miles
from the location provided in Section 4(a)(i)(B) hereof or the Company's
requiring the Executive to travel on Company business to a substantially
greater extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive after the Effective Date shall be conclusive.
Anything in this Agreement to the contrary notwithstanding, a termination by
the Executive for any reason during the 30-day period immediately following the
date six months after the Effective Date shall be deemed to be a termination
for Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall
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be communicated by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause shall not waive any right of the Executive
or the Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the
case may be.
6. Obligations of the Company upon Termination. (a) Good Reason;
Other Than for Cause, Death or Disability. If, during the Employment Period,
the Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the product of
(x) the higher of (I) the highest annual bonus (annualized in the case of
any partial year) paid to the Executive with respect to any of the three
fiscal years ending prior to the Date of Termination, provided that if the
Date of Termination occurs prior to the third anniversary of the
Commencement Date, such
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amount shall be not less than 75% of the Executive's Annual Base Salary,
and (II) the Annual Bonus paid or payable, including any bonus or portion
thereof which has been earned but deferred (and annualized for any fiscal
year consisting of less than twelve full months or during which the
Executive was employed for less than twelve full months), for the most
recently completed fiscal year during the Employment Period, if any (such
higher amount being referred to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of which
is 365 and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of
the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum of
(x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus;
and
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would have been provided
to them in accordance with the plans, programs, practices and policies
described in Section 4(b)(iv) and Section 4(b)(vi) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its subsidiaries and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive for
retiree benefits pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until three years after
the Date of Termination and to have retired on the last day of such period; and
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(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts
or benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its subsidiaries (such other
amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and its
subsidiaries to the estates and beneficiaries of peer executives of the Company
and its subsidiaries under such plans, programs, practices and policies
relating to death benefits, if any, as in effect with respect to other peer
executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its subsidiaries and their beneficiaries.
(c) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without further obligations to the
Executive, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination. With
respect to the provision of Other Benefits, the term Other Benefits as utilized
in this Section 6(c) shall include, and the Executive shall be entitled after
the Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable of those generally provided by the Company
and its subsidiaries to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other peer executives and their
families at any time during the 120-day period immediately preceding the
Effective Date or,
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if more favorable to the Executive and/or the Executive's family, as in effect
at any time thereafter generally with respect to other peer executives of the
Company and its subsidiaries and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive voluntarily terminates employment during
the Employment Period, excluding a termination for Good Reason, this Agreement
shall terminate without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in
any plan, program, policy or practice provided by the Company or any of its
subsidiaries and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its subsidiaries. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its subsidiaries at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or
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enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (including, without limitation, amounts attributable to
the acceleration of vesting of stock options), but determined without regard to
any additional payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Payments do not exceed 110% of the greatest
amount (the "Reduced Amount") that could be paid to the Executive such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the aggregate,
shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall
be made by
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Price Waterhouse LLP or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within
15 business days of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 9, shall be paid by the Company to the Executive
within five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in
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writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo
any and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section 9(c)) promptly pay
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to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Restrictive Covenants. (a) The Executive
acknowledges that (i) the principal business of the Company and its
subsidiaries is the broadline foodservice distribution business (the "Present
Business"); (ii) the Company and its subsidiaries constitute one of a limited
number of persons who have developed the Present Business; (iii) the
Executive's work for the Company and its subsidiaries has given and will
continue to give him access to the confidential affairs and proprietary
information of the Company and its subsidiaries not readily available to the
public; and (iv) the agreements and covenants of the Executive contained in
this Section 10 are essential to the business and goodwill of the Company.
Accordingly, the Executive covenants and agrees that:
(a) While employed by the Company and for a period of one
year following the termination of this Agreement, he will not, (I) in any state
(other than any Excluded State, as defined below) where the Company or its
subsidiaries is then conducting business, directly or indirectly; (1) engage in
the Present Business and any other principal line of business developed by the
Company or its subsidiaries during the term of this Agreement which, in each
case, is then being conducted by the Company or its subsidiaries (hereinafter
collectively referred to as the "Company Business") for the Executive's own
account; (2) render any services in any capacity to any person (other than the
Company or its affiliates) engaged in such activities; or (3) become interested
in any person (other than the Company or its affiliates) engaged in such
activities as a partner, shareholder, principal, agent, trustee, consultant or
in any other relationship or capacity; provided, however, that the Executive
may own, directly or indirectly, solely as an investment, securities of any
person which are traded on any national securities exchange or NASDAQ if the
Executive (A) is not a controlling person of, or a member of a group which
controls, such person and (B) does not, directly or indirectly, own one percent
(1%) or more of any class of securities of such person, or
15
<PAGE> 16
(II) become an employee of, consultant to, or otherwise render services to
any of SYSCO Corporation, Kraft Foodservice, Inc., U.S. Foodservice, Inc. or
Rykoff Sexton, Inc. or any of their respective affiliates or successors. For
purposes of this Section 10(a), "Excluded State" shall mean any state in which
annual sales of the Company Business in the most recently completed fiscal
year were less than $1 million.
(b) During the Employment Period and thereafter, the Executive
shall keep secret and retain in strictest confidence, and shall not use for his
benefit or the benefit of others, except in connection with the business and
affairs of the Company and its affiliates, all confidential matters relating to
the Company Business and to the Company and its affiliates learned by the
Executive heretofore or hereafter, directly or indirectly, from the Company and
its affiliates, including any information concerning the business, affairs,
customers, clients, sources of supply and customer lists of the Company and its
affiliates (the "Confidential Company Information") and shall not disclose them
to anyone except with the Company's express written consent and except for
Confidential Company Information which (1) is at the time of receipt or
thereafter becomes publicly known, through no breach of this Agreement by the
Executive or (2) is received from a third party not under an obligation to keep
such information confidential and without breach of this Agreement by the
Executive. These rights of the Company are in addition to and without
limitation to those rights and remedies available under common law for
protection of the types of such confidential information which constitute
"trade secrets" as construed under controlling law.
(c) For a period of one year following the termination of this
Agreement, the Executive shall not, without the Company's prior written
consent, directly or indirectly, knowingly solicit or encourage to leave the
employment of the Company and its subsidiaries, any employee of the Company or
any of its subsidiaries or hire any employee who has left the employment of the
Company or any of its subsidiaries within one year of the termination of such
employee's employment with the Company or any of its subsidiaries.
(d) Any Confidential Company Information (including any memoranda,
notes, lists, records and other documents and all copies thereof) made or
compiled by the Executive or made available to the Executive concerning the
Company's Business or the Company or any of its affiliates shall be the
Company's property, shall be kept confidential in accordance with the
provisions of this Section 10 and shall be delivered to the Company at any time
on request.
16
<PAGE> 17
(e) If the Executive breaches, or threatens to commit a breach of,
any of the provisions of Section 10 (the "Restrictive Covenants"), the Company
shall have the right and remedy, in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or in equity, to have
the Restrictive Covenants specifically enforced by any court having equity
jurisdiction, including, without limitation, the right to an entry against the
Executive of restraining orders and injunctions (preliminary, mandatory,
temporary and permanent) against violations, threatened or actual, and whether
or not then continuing, of such covenants, it being acknowledged and agreed
that any such breach or threatened breach will cause irreparable injury to the
Company and that money damages will not provide an adequate remedy to the
Company.
11. Successors. (a) This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
17
<PAGE> 18
If to the Executive:
11043 Gaither Farm Road
Ellicott City, Maryland 21042
If to the Company:
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to
be a waiver of such provision or right or any other provision or right of this
Agreement.
13. Arbitration. In the event of any dispute, controversy or claim
arising out of any provision of this Agreement prior to the Effective Date,
(excluding, however, any dispute, controversy or claim arising out of Section
10), the parties agree to submit such dispute, controversy or claim to
arbitration and that the determination in such arbitration shall be final and
binding. Arbitration shall be effected in the State of Maryland by a panel of
three arbitrators in accordance with the commercial arbitration rules then in
force of the American Arbitration Association, which shall administer the
arbitration and act as appointing authority. In the event of any conflict
between the rules and the provisions of this Section 13, the provisions of this
Section 13 shall govern. The arbitrators shall interpret this Agreement in
accordance with the substantive laws of the State of Maryland. Any judgment
upon the award of the arbitrators may be entered
18
<PAGE> 19
in any court having jurisdiction thereof, with costs of the arbitration to be
borne equally by the parties, except that each party shall pay the fees and
expenses of its own counsel in the arbitration.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from the Executive Committee of its Board of
Directors, the Company has caused these presents to be executed in its name on
its behalf, all as of the day and year first above written.
/s/ DAVID M. ABRAMSON
----------------------
David M. Abramson
JP FOODSERVICE, INC.
/s/ JAMES MILLER
By ---------------------
James Miller
19
<PAGE> 1
Exhibit 10.30
July 16, 1996
JP Foodservice, Inc.
9830 Patuxent Woods Drive
Columbia, Maryland
Attention: James L. Miller
Dear Mr. Miller:
This letter is to confirm our understanding regarding certain
matters relating to the registration, under the Securities Act of 1933, as
amended (the "Securities Act"), and public offering of shares of common stock
(the "JP Stock") of JP Foodservice, Inc. ("JP") and certain rights of the PYA
Investors (collectively, "PYA") under the Amended and Restated Registration
Rights Agreement, dated as of November 22, 1994, by and among JP, PYA/Monarch,
Inc., an indirect wholly-owned subsidiary of Sara Lee Corporation, and certain
other parties thereto (the "Registration Rights Agreement").
PYA hereby agrees to waive its right to receive 45 days' prior
written notice of the filing of a registration statement by JP pursuant to
Section 4 of the Registration Rights Agreement with respect to the registration
and sale of up to 4,000,000 shares of JP Stock in a primary offering pursuant
to a Registration Statement on Form S-3 (as amended from time to time, the
"Registration Statement"), filed with the Securities and Exchange Commission on
July 1, 1996 (the "JP Offering"). PYA also agrees to waive its "piggy-back"
registration rights pursuant to Section 4 of the Registration Rights Agreement
solely with respect to the JP Offering if PYA's participation in the JP
Offering would, if in more than a de minimis amount, preclude JP from
accounting for the acquisition of Valley Industries, Inc. (the "Valley
Acquisition") as a "pooling-of-interests", in which case PYA shall not
participate at all in the JP Offering. If
<PAGE> 2
JP Foodservice, Inc.
July 16, 1996
Page 2
the JP Offering is not completed by September 16, 1996, JP agrees that it will
give reasonable consideration to a request by PYA to delay the JP Offering
until such time as PYA may participate in the JP Offering without affecting the
ability of JP to account for the Valley Acquisition as a "pooling-of-interests,"
provided that the determination whether to delay the JP Offering will be made
by JP in its sole discretion.
PYA agrees that it will permit JP to use a Form S-3 to
register the shares of JP Stock to be issued in connection with the Valley
Acquisition, provided that the securityholders of Valley agree that they will
sell such shares as if they were subject to the restrictions contained in Rule
145 of the Securities Act, and agrees to waive its notice and "piggy-back"
registration rights pursuant to Section 4 of the Registration Rights Agreement
with respect to the offering of JP Stock covered by such Form S-3. JP agrees
that it will use all reasonable efforts to close the Valley Acquisition as soon
as practicable.
PYA further agrees that it will not sell any shares of JP
Stock or engage in any marketing efforts with respect to the sale of its shares
of JP Stock during the period commencing five (5) days before the date the
Registration Statement is declared effective and ending on the earlier of 90
days after the effectiveness of the Registration Statement and November 22,
1996 and that it (and the Sara Lee Foundation) will enter into an agreement
with JP and the underwriters to such effect in the form attached hereto;
provided, that such agreement shall reflect that dates set forth above and
shall explicitly provide that it shall not prevent PYA from exercising a demand
registration during such period or the Company from filing on or after October
8, 1996 a registration statement with respect to such demand and taking all
necessary steps to have such registration statement ready to be declared
effective immediately upon the termination of such period. The first sentence
of Section 9 of the Registration Rights Agreement shall not restrict PYA from
selling JP Stock during the period beginning on the earlier of 90 days after
effectiveness of the Registra-
<PAGE> 3
JP Foodservice, Inc.
July 16, 1996
Page 3
tion Statement and November 22, 1996 and ending on February 15, 1997.
In consideration for the foregoing waivers and agreement by
PYA related to certain of its rights under the Registration Rights Agreement,
JP hereby agrees that if PYA elects to exercise a demand registration right
pursuant to Section 3.01 of the Registration Rights Agreement on or before
February 15, 1997, JP will file a registration statement with respect to such
demand as promptly as reasonably practicable, but in no event more than seven
(7) business days following receipt of notice from PYA. PYA agrees that it will
give reasonable consideration to a request by JP to limit the number of shares
of JP Stock to be sold, provided that the size of the offering will be
determined by PYA in its sole discretion. JP will use its best efforts to
cause the registration statement to become effective and take all other actions
necessary to enable PYA to offer and sell its shares of JP Stock commencing on
November 23, 1996 or such other date thereafter as may be specified by PYA,
provided that PYA remains subject to the limitations on any marketing efforts
set forth in the preceding paragraph. JP will otherwise comply with the terms
of the Registration Rights Agreement in connection with any such demand. JP
further agrees to waive its rights to postpone the filing of a registration
statement for up to 90 days pursuant to Section 3.02(e) of the Registration
Rights Agreement with respect to any offering of shares of JP Stock as a result
of the exercise by PYA of a demand registration right under Section 3.01 of the
Registration Rights Agreement prior to February 15,1997. Furthermore, JP agrees
that it will not issue any shares of JP Stock in a public offering or file any
registration statement (other than a registration statement on Form S-4 or Form
S-8) with respect thereto, except in connection with the JP Offering, during
the period from the earlier of 90 days after the effectiveness of the
Registration Statement and November 22, 1996 through the later of February 15,
1997 or, if PYA elects to exercise a demand registration right as described
above, the completion of the sale by PYA of its JP Stock but not later than May
1, 1997. JP will cooperate fully with PYA in any offering
<PAGE> 4
JP Foodservice, Inc.
July 16, 1996
Page 4
by PYA of its JP Stock, including, but not limited to, promptly providing the
assistance of senior executives of JP in the preparation of and participation
in road shows to facilitate the offering.
The undersigned PYA Investor holds at least 51% of the JP
Stock held by all PYA Investors.
In connection with the exercise of any demand registration
right by PYA as described above, the Management Investors (as defined in the
Registration Rights Agreement) shall not have any right pursuant to Section
3.03 of the Registration Rights Agreement to receive notice of such demand and
notwithstanding such Section 3.03 shall have no right to participate in such
registration unless they have provided PYA and the Company with written notice
of their decision to participate within 10 days of notice of PYA's demand. The
undersigned Management Investors hold at least 51% of the JP Stock held by the
Management Investors.
The Management Investors hereby agree to waive their right to
receive 45 days' prior written notice of the filing of the Registration
Statement and agree to waive their "piggy-back" registration rights pursuant to
Section 4 of the Registration Rights Agreement with respect to the JP Offering.
This letter agreement shall amend and supersede the
Registration Rights Agreement to the extent it is inconsistent therewith.
Except as otherwise specifically provided herein, the Registration Rights
Agreement will remain in full force and effect.
This letter agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of law. This letter agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same agreement.
<PAGE> 5
JP Foodservice, Inc.
July 16, 1996
Page 5
Please acknowledge your agreement with the foregoing by
signing and returning a copy of this letter to us, which thereupon will
constitute our agreement with respect to the foregoing.
Sincerely,
PYA/MONARCH, INC.
By: /s/ JANET LANGFORD KELLY
-------------------------------
Name: Janet Langford Kelly
Title: Vice President and Secretary
Confirmed and agreed to as of
the date first written above.
JP FOODSERVICE, INC.
By: /s/ LEWIS HAY III
----------------------------
Name: Lewis Hay III
Title: [sig]
THE MANAGEMENT INVESTORS
/s/ LEWIS HAY III
- --------------------------------
Name: Lewis Hay III
/s/ MARK R. KAISER
- --------------------------------
Name: Mark R. Kaiser
/s/ JAMES L. MILLER
- --------------------------------
Name: James L. Miller
/s/ GEORGE T. MEGAS
- --------------------------------
Name: George T. Megas
<PAGE> 1
Exhibit 10.33
AMENDMENT NO. 1
TO
TRANSFER AND ADMINISTRATION AGREEMENT
THIS AMENDMENT NO. 1 TO TRANSFER AND ADMINISTRATION AGREEMENT
(this "Amendment") dated as of July 1, 1996, is entered into by and among
JPFD FUNDING COMPANY, a Delaware corporation (the "Transferor"), JP FOODSERVICE
DISTRIBUTORS, INC., a Delaware corporation, as the initial "Collection Agent"
thereunder, ENTERPRISE FUNDING CORPORATION ("Enterprise"), THE FINANCIAL
INSTITUTIONS FROM TIME TO TIME PARTIES THERETO (collectively, the "Bank
Investors" and each a "Bank Investor"), and NATIONSBANK, N.A., as agent (in
such capacity, the "Agent") for Enterprise and the Bank Investors.
W I T N E S S E T H:
WHEREAS, the Transferor, the Collection Agent, Enterprise, the
Bank Investors and the Agent have entered into that certain Transfer and
Administration Agreement dated as of May 30, 1996 (as the same may from time to
time hereafter be amended, restated, supplemented or otherwise modified, the
"TAA"; capitalized terms used and not otherwise defined herein shall have the
meanings assigned to such terms in the TAA), pursuant to which the Transferor
has agreed to sell, assign or otherwise transfer to Enterprise and/or the Bank
Investors undivided percentage interests in the Transferor's Receivables and
certain other assets relating thereto;
WHEREAS, the parties hereto desire to amend the terms of the
TAA on the terms and conditions hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. Amendment of the TAA. Effective as of the date
---------------------
hereof, the TAA is hereby amended as follows:
1.1. The definition of "Commitment" set forth in Section
------------
1.1 of the TAA is hereby amended and restated in its entirety to read as
follows:
"'Commitment' means for each Bank Investor, the commitment of
-------------
such Bank Investor to make or participate in acquisitions from
the Transferor, the Company or the Liquidity Provider in
accordance with the terms hereof and/or of the Liquidity
Provider Agreement in an aggregate amount not to exceed the
dollar amount set forth either opposite such Bank Investor's
signature on
<PAGE> 2
the signature page hereto under the heading "Commitment" or in
the most recent Assignment and Assumption Agreement to which
such Bank Investor is a party, as applicable. Notwithstanding
the foregoing, upon the occurrence of the Commitment
Termination Date, each Bank Investor's Commitment shall be
deemed to equal the sum of (i) such Bank's Net Investment
hereunder and (ii) the outstanding principal balance of such
Bank Investor's participation interest the "Bank's Aggregate
Investment" under (and as such term is defined in) the
Liquidity Provider Agreement and relating to this Agreement."
1.2. Clause (ii) of the proviso contained in the
-------
definition of "Concentration Factor" set forth in Section 1.1 of the TAA
----------------------
is hereby amended and restated in its entirety to read as follows:
"(ii) with respect to any Special Obligors, such amount shall
be equal to such other amount or such other percentage of the
Maximum Net Investment as shall be agreed upon by the Agent,
the Majority Investors and Transferor, provided, that for
Service America Corporation, such amount shall be equal to
$5,000,000 and for Buffets, Inc., such amount shall be equal
to five percent (5%) of the Maximum Net Investment at such
time, and".
1.3. Section 2.7(b) of the TAA is hereby amended and
restated in its entirety to read as follows:
"(b) On the last day of each month and on the Commitment
Termination Date, to the Agent for allocation to the Bank
Investors, the Commitment Fee and".
1.4. The definition of "Majority Investors" set forth in
--------------------
Section 9.1(a) of the TAA is hereby amended to (x) delete the phrase "in
excess of 51%" appearing in clause (i) thereof and (y) substitute the
phrase "at least 66-2/3%" therefor.
SECTION 2. Representations and Warranties of the
-------------------------------------
Transferor. Upon the effectiveness of this Amendment, the Transferor hereby
- -----------
remakes and reaffirms all covenants, representations and warranties made by it
(or deemed made by it) in the TAA (except to the extent such covenants,
representations or warranties expressly speak only as to another date).
SECTION 3. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED
--------------
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
-2-
<PAGE> 3
SECTION 4. Severability. Each provision of this Amendment
-------------
shall be severable from every other provision of this Amendment for the
purpose of determining the legal enforceability of any provision hereof, and the
unenforceability of one or more provisions of this Amendment in any
jurisdiction shall not have the effect of rendering such provision or
provisions unenforceable in any other jurisdiction.
SECTION 5. Reference to and Effect on the TAA.
-----------------------------------
5.1. Upon the effectiveness of this Amendment, each reference
in the TAA to "this Agreement", "hereunder", "hereof", "herein" or
words of like import, and all references to the TAA in the Transaction
Documents and/or any other document, instrument or agreement executed and/or
delivered in connection therewith, shall, in each case, mean and be a reference
to the TAA as amended hereby. Except as otherwise amended by this Amendment,
the TAA shall continue in full force and effect and is hereby ratified and
confirmed.
5.2. The execution, delivery and effectiveness of this
Amendment shall not (x) operate as a waiver of any right, power or
remedy of the Agent, Enterprise, any of the Bank Investors or any of the
foregoing's respective successors or assigns under the TAA, any Transaction
Document or any other instrument, document or agreement executed and/or
delivered by the Transferor, the Collection Agent or any of the Sellers in
connection herewith of therewith or (y) in any such case, constitute a waiver
of any provision contained therein, except as specifically set forth herein.
SECTION 6. Counterparts. This Amendment may be executed in
-------------
one or more counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date first above written.
JPFD FUNDING COMPANY
By: /s/ GEORGE T. MEGAS
------------------------------------
Name: George T. Megas
Title: Vice President of Finance
JP FOODSERVICE DISTRIBUTORS, INC.,
individually and as Collection Agent
By: /s/ GEORGE T. MEGAS
------------------------------------
Name: George T. Megas
Title: Vice President of Finance
ENTERPRISE FUNDING CORPORATION
By: /s/ K. CARTER HARRIS
------------------------------------
Name: K. Carter Harris
Title: Vice President
NATIONSBANK, N.A., as the initial sole
Liquidity Provider and as Agent
By: /s/ MICHELLE M. HEATH
------------------------------------
Name: Michelle M. Heath
Title: Vice President
-4-
<PAGE> 1
EXHIBIT 10.34
AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS
AMONG
JP FOODSERVICE, INC.,
JP FOODSERVICE DISTRIBUTORS, INC.
AND
ARROW PAPER AND SUPPLY CO., INC.,
SHAREHOLDERS
OF
ARROW PAPER AND SUPPLY CO., INC.
SGD ASSOCIATES LIMITED LIABILITY COMPANY
AND
MEMBERS
OF
SGD ASSOCIATES LIMITED LIABILITY COMPANY
DATED AS OF JULY 17, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES ............................. 2
1.1 Purchase and Sale of Assets ............................................. 2
1.2 Excluded Assets ......................................................... 3
1.3 Assumption or Discharge of Liabilities ................................... 5
1.4 Closing .................................................................. 6
II. PURCHASE PRICE ................................................................ 7
2.1 Determination of Acquisition Purchase Price .............................. 7
2.2 Adjustments to Initial Acquisition Price ................................. 9
2.3 Allocation of Acquisition Purchase Price ................................. 12
III. REPRESENTATIONS AND WARRANTIES OF THE SELLER, SGD, THE SHAREHOLDERS AND
THE SGD MEMBERS .............................................................. 13
3.1 Organization, Qualification and Corporate Power of Seller ................ 13
3.2 Organization, Qualification and Corporate Power of SGD .................. 14
3.3 Authority ................................................................ 14
3.4 Consents and Approvals; No Violation .................................... 15
3.5 Title to Assets .......................................................... 16
3.6 Undisclosed Liabilities .................................................. 16
3.7 Financial Statements ..................................................... 16
3.8 Brokers' Fees ............................................................ 17
3.9 Real Property ............................................................ 17
3.10 Leases .................................................................. 17
3.11 Inventory .............................................................. 18
3.12 Licenses ............................................................... 18
3.13 Intellectual Property .................................................. 18
3.14 Material Adverse Effect ................................................. 19
3.15 Disposition of Assets .................................................. 19
3.16 Taxes ................................................................... 20
3.17 Employee Benefit Plans .................................................. 20
3.18 Collective Bargaining Agreements ....................................... 23
3.19 Premises ............................................................... 23
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.20 Certain Agreements ...................................................... 23
3.21 Compliance with Laws .................................................... 24
3.22 Litigation ............................................................. 24
3.23 Judgments ............................................................... 25
3.24 Insurance ............................................................... 25
3.25 Officers, Directors and Employees ....................................... 25
3.26 Employment Agreements ................................................... 26
3.27 Indebtedness ........................................................... 26
3.28 Purchase Orders, Sales Contracts or Commitments ......................... 26
3.29 Customers ............................................................... 26
3.30 Other Material Contracts ................................................ 27
3.31 Relationships with Customers and Suppliers .............................. 27
3.32 Employee and Shareholder Indebtedness .................................. 28
3.33 Environmental Matters .................................................. 28
3.34 Product Liability ...................................................... 29
3.35 Bonuses and Profit-Sharing Distributions ................................ 29
3.36 Bank Accounts ........................................................... 29
3.37 Related Party Agreements ............................................... 29
3.38 Change in Control ....................................................... 30
3.39 Otrobando Connector .................................................... 30
3.40 Disclosure .............................................................. 30
IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND JP ........................ 31
4.1 Organization ............................................................ 31
4.2 Capitalization ........................................................... 31
4.3 Authority Relative to this Agreement .................................... 31
4.4 Consents and Approvals; No Violation .................................... 32
4.5 Brokers' Fees ............................................................ 33
4.6 Disclosure ............................................................... 33
V. ADDITIONAL COVENANTS AND AGREEMENTS ........................................... 33
5.1 Conduct of Business ...................................................... 33
5.2 Real Estate Conveyance Taxes ............................................ 36
5.3 Prepayment and Termination Fees and Sales and Use Taxes .................. 36
5.4 Notification of Employees ................................................ 36
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.5 General Non-Competition Agreements ....................................... 36
5.6 Licenses ................................................................ 36
5.7 Consents ................................................................. 37
5.8 HSR Act Filings .......................................................... 37
5.9 Access to Information .................................................... 37
5.10 Publicity ............................................................... 37
5.11 Obtaining of Acceptable Financing ....................................... 38
5.12 Seller and SGD Credit Cards ............................................. 38
VI. POST CLOSING COVENANTS ........................................................ 38
6.1 Liquidity ................................................................ 38
6.2 Access to Books and Records .............................................. 38
6.3 Further Assurances ....................................................... 39
6.4 Post-Closing Insurance Matters .......................................... 39
6.5 Tax Reporting Consistent ................................................. 39
6.6 Purchaser's Retention of Employees ....................................... 39
6.7 Accounts Receivable ...................................................... 40
VII. CONDITIONS TO OBLIGATIONS OF THE SELLER, SGD, THE SHAREHOLDERS AND THE
SGD MEMBERS .................................................................. 41
7.1 Representations, Warranties and Covenants ................................ 41
7.2 Acquisition Purchase Price Consideration ................................ 41
7.3 HSR Act .................................................................. 42
7.4 No Injunction or Decree ................................................. 42
7.5 Approval ................................................................. 42
7.6 Certificates ............................................................. 42
7.7 Escrow Agreement ......................................................... 42
7.8 Registration Rights Agreement ........................................... 42
7.9 Assumption Agreement .................................................... 42
7.10 SGD Transaction ........................................................ 43
7.11 Opinion of Counsel ...................................................... 43
7.12 No Material Adverse Effect ............................................. 43
7.13 Employment Agreements .................................................. 43
7.14 Assignment and Assumption Agreements .................................... 43
7.15 Other Documents ......................................................... 43
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
VIII. CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND JP ............................. 44
8.1 Representations, Warranties and Covenants ................................ 44
8.2 Consents and Approval .................................................... 44
8.3 Combined Financial Statements ............................................ 44
8.4 No Injunction or Decree ................................................. 45
8.5 HSR Act .................................................................. 45
8.6 Approval ................................................................. 45
8.7 Certificates ............................................................. 45
8.8 Escrow Agreement ......................................................... 45
8.9 Employment Agreement ..................................................... 45
8.10 Executive Non-Competition Agreement ..................................... 46
8.11 Shareholder Representation Letter ....................................... 46
8.12 Bill of Sale and Assignment ............................................. 46
8.13 Assignment and Assumption Agreement ..................................... 46
8.14 Estoppel Certificate .................................................... 46
8.15 Opinion of Counsel ...................................................... 46
8.16 No Material Adverse Effect .............................................. 46
8.17 SGD Transaction ........................................................ 47
8.18 Certificate of Occupancy ................................................ 47
8.19 Obtaining of Acceptable Financing ...................................... 47
8.20 Other Documents ........................................................ 47
IX. TERMINATION .................................................................. 47
9.1 Termination by Mutual Consent ............................................ 47
9.2 Termination by any of the Seller, the Purchase of JP ..................... 48
9.3 Termination by the Purchaser of JP ...................................... 48
9.4 Termination by the Seller ................................................ 49
X. INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS
WARRANTIES .................................................................. 50
10.1 Indemnity Obligations of the Shareholders ............................... 50
10.2 Indemnity Obligations of the Purchaser and JP ........................... 51
10.3 Appointment of Representative .......................................... 52
10.4 Notification of Claims .................................................. 53
10.5 Survival ............................................................... 55
10.6 Limitations ............................................................. 55
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.7 Escrow ................................................................ 57
XI. EXPENSES OF THE PARTIES ...................................................... 59
XII. MISCELLANEOUS ............................................................... 59
12.1 Notices ................................................................ 59
12.2 Governing Law ......................................................... 60
12.3 Confidentiality ........................................................ 60
12.4 Section Headings ....................................................... 61
12.5 Amendments ............................................................ 61
12.6 Entire Agreement ....................................................... 61
12.7 Certain Disputes ....................................................... 62
12.8 Counterparts .......................................................... 64
12.9 Severability ........................................................... 64
12.10 Knowledge ............................................................. 64
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
1.1(d) ..................... Leases and Subleases
1.2(b) ..................... Life Insurance Policies
1.2(c) ..................... Items of Personal Property
2.1(b)(1) .................. Target August 31 Balance Sheet
2.1(b)(2) .................. Certain Accounting Procedures
5.1(b) ..................... Description of Expansion Facility
5.6 ....................... Form of General Non-Competition Agreement
7.7 ....................... Form of Escrow Agreement
7.8 ....................... Form of Registration Rights Agreement
7.9 ....................... Form of Assumption Agreement
7.10 ....................... Form of Purchase and Sale Contract
7.13 ....................... Form of Employment Agreement
7.14 ....................... Form of Assignment and Assumption Agreement
8.10 ....................... Form of Executive Non-Competition Agreement
8.11 ....................... Form of Shareholder Representation Letter
8.12 ....................... Form of Bill of Sale and Assignment
</TABLE>
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<PAGE> 7
AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS
THIS AGREEMENT (the "Agreement") is made as of the 17th day of July,
1996, by and among JP FOODSERVICE, INC., a Delaware corporation ("JP"), JP
FOODSERVICE DISTRIBUTORS, INC., a Delaware corporation (the "Purchaser") and a
direct wholly-owned subsidiary of JP, ARROW PAPER AND SUPPLY CO., INC., a
Delaware corporation (the "Seller"), DONALD DAREN, SELMA DAREN AND STEVEN
DAREN, the sole shareholders of the Seller (collectively, the "Shareholders"),
SGD ASSOCIATES LIMITED LIABILITY COMPANY, a Connecticut limited liability
company ("SGD"), and DONALD DAREN, SELMA DAREN AND STEVEN DAREN, the sole
members of SGD (the "SGD Members").
RECITALS
WHEREAS, the Seller is a broadline distributor of food, paper and
related products to restaurants and other foodservice establishments in New
England, New York and New Jersey (the "Business");
WHEREAS, the Purchaser wishes to purchase and the Seller wishes to
sell substantially all of the assets used in the operation of the Business (the
"Arrow Transaction").
WHEREAS, in connection with the Arrow Transaction, the Purchaser will
assume or discharge at the Closing (as defined below) substantially all of the
obligations, debts and liabilities of the Seller;
WHEREAS, the Arrow Transaction is one component of a transaction (the
"Acquisition") which includes the Purchaser's acquisition pursuant to a
Purchase and Sale Contract (the "SGD
<PAGE> 8
Agreement") of certain of the assets, and the assumption or discharge by the
Purchaser of certain of the liabilities of SGD at the Closing (the "SGD
Transaction").
WHEREAS, SGD leases to the Seller the distribution facilities in
Norwich, Connecticut from which the Seller conducts the Business (the
"Distribution Facilities");
NOW THEREFORE, in consideration of the respective covenants,
representations and warranties herein contained, the parties hereby agree as
follows:
ARTICLE I
PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES
1.1 Purchase and Sale of Assets. Upon the terms and subject to
the conditions hereinafter set forth, on the Closing Date (as defined below),
the Seller shall convey, sell, transfer, assign and deliver to the Purchaser,
and the Purchaser shall purchase from the Seller, all of the Seller's right,
title and interest in and to the Seller's assets, properties and rights
(contractual or otherwise) (other than the Excluded Assets set forth below)
including, without limitation, the following (collectively, the "Acquired
Assets"):
(a) real property, leaseholds and subleaseholds
therein, improvements, fixtures, and fittings thereon, and easements,
rights-of-way, and other appurtenants thereto (including, without limitation,
appurtenant rights in and to public streets);
(b) tangible personal property (including, without
limitation, machinery, equipment, inventories of raw materials and supplies,
manufactured and purchased parts, goods in process and finished goods,
furniture, automobiles, trucks, tractors, trailers and tools);
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<PAGE> 9
(c) intellectual property, goodwill associated
therewith, licenses and sublicenses granted and obtained with respect thereto,
including the Target Data License (as defined below), and rights thereunder,
remedies against infringements thereof, and rights to protection of interests
therein under the laws of all jurisdictions;
(d) leases, subleases and rights thereunder as set
forth on Schedule 1.1(d);
(e) agreements, contracts, indentures, mortgages,
instruments, security interests, guaranties, other similar arrangements, and
rights thereunder;
(f) accounts, notes and other receivables;
(g) securities (including, without limitation,
certificates of participation in co-operative buying groups);
(h) claims, deposits, prepayments, refunds, causes of
action, choices in action, rights of recovery, rights of set off, and rights of
recoupment;
(i) franchises, approvals, permits, licenses, orders,
registrations, certificates, variances, and similar rights obtained from
governments and governmental agencies;
(j) books, records, ledgers, files, documents,
correspondence, lists, plats, architectural plans, drawings, and
specifications, creative materials, advertising and promotional materials,
studies, reports, and other printed or written materials; and
(k) bank accounts, cash on hand, deposits and
investments.
1.2 Excluded Assets. Notwithstanding Section 1.1, the
following assets of the Seller are specifically excluded from the Acquired
Assets (collectively, the "Excluded Assets"):
(a) deferred federal, state or local taxes or
assessments of any kind;
(b) life insurance policies set forth on Schedule
1.2(b);
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<PAGE> 10
(c) items of personal property set forth on Schedule
1.2(c), provided that the fair market value of such items in the aggregate does
not exceed $10,000;
(d) automobiles purchased by the Shareholders pursuant
to Section 5.1(d)(ii);
(e) real estate owned by Seller located at the
westerly side of Route 32, Franklin, Connecticut;
(f) original books of account, tax records,
accountant's audit and review records, stock record and minute books of the
Seller;
(g) dividends or returns of premium after the Closing
Date with respect to the workers' compensation insurance policy administered
under MasterCare Loss sensitive dividend arrangements;
(h) any claims against any Shareholder or any
affiliate thereof not set forth on the Closing Balance Sheet;
(i) the right to and under the liability insurance
policies set forth in the Disclosure Schedule (as defined below) (or under any
predecessor policies of the Seller), including, without limitation, the rights
to defend and the rights to coverage, with respect to the Excluded Assets; and
(j) The name "Arrow Paper" as it relates to the
following entities: (i) Arrow Paper Party Store; (ii) Arrow Paper Equipment
Rentals; (iii) Arrow Paper Party Rentals; and (iv) such other businesses
operated by the Shareholders that are similar in nature to the businesses set
forth above;
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<PAGE> 11
(k) rights to indemnity, contribution and recoupment
from suppliers, manufacturers and other third parties with respect to the
Excluded Liabilities (as defined below); and
(l) Rights under a lease indenture with Seldon Realty
Associates to the premises known as 567-569 Colman Street, New London,
Connecticut (the "Colman Street Lease").
1.3 Assumption or Discharge of Liabilities. Subject to the
terms and conditions of this Agreement, the Purchaser agrees to assume or
discharge on the Closing Date and at the Closing any and all of the
obligations, debts and liabilities of the Seller, including but not limited to,
any lines of credit, construction loans, permanent loans, loans payable to
related parties, mortgages payable, capital leases, accrued liabilities and
trade payables, all as set forth on the Closing Balance Sheet (as defined
below), and obligations with employees and other obligations and liabilities
that are not required to be disclosed in the Closing Balance Sheet under
generally accepted accounting principles (collectively, the "Acquisition
Liabilities"); provided, however, the Purchaser shall not assume the following
obligations, debts and liabilities (collectively, the "Excluded Liabilities"):
(a) all obligations with respect to the payment of
federal, state or local income taxes arising on or prior to the Closing Date;
(b) leases for personal use automobiles of the
Shareholders (except for the lease to Steven Daren, which shall be assumed by
the Purchaser);
(c) any liability related to the Redemption
Transaction (as defined below);
(d) any liability with respect to credit cards of the
Seller or its employees that is not set forth on the Closing Balance Sheet;
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<PAGE> 12
(e) any liability or obligation with respect to the
Jeffrey Apicelli litigation, case reference Jeffrey Apicelli v. Arrow Paper and
Supply Company, Inc., CV 94 0105975 S.
(f) any liability or obligation known at the date of
the accountant's report on the Closing Balance Sheet arising out of Seller's
violation of any law, statute, order, rule, regulation, policy or guideline
promulgated, or judgment, decision or order entered by any federal, state,
local or foreign court or governmental authority or instrumentality;
(g) any liability or obligation of the Seller to or in
respect of any affiliate, officer, director or shareholder of Seller or any
family member of any officer, director or shareholder of Seller not set forth
on the Closing Balance Sheet;
(h) any liability or obligation known at the date of
the accountant's report on the Closing Balance Sheet to the extent the
liability or obligation is covered by the Seller's insurance; and
(i) any liability or obligation of the Seller in
respect of the Colman Street Lease.
In the event, the Purchaser elects to assume rather than discharge any
obligation, debt or liability of the Seller, the Purchaser shall provide
evidence to the Seller that the Seller and any related party guarantors have
been released from any obligations that they may have to pay or repay such
obligation, debt or liability.
1.4 Closing. The closing of the Acquisition (the "Closing")
shall take place either (i) at the offices of Brenner, Saltzman & Wallman, 271
Whitney Avenue, New Haven, Connecticut at 10:00 a.m. on the first business day
on which the last of the conditions set forth in Article VII and Article VIII
shall be fulfilled or waived in accordance with this Agreement or (ii) at such
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<PAGE> 13
other place, time and date as the Purchaser and Seller may mutually agree. The
date on which the Closing shall occur is hereinafter referred to as the
"Closing Date."
ARTICLE II
PURCHASE PRICE
2.1 Determination of Acquisition Purchase Price.
(a) The purchase price (exclusive of indebtedness
assumed or discharged) for the Acquisition payable by the Purchaser shall be
$29,565,000 (the "Initial Acquisition Purchase Price"), as adjusted pursuant to
Section 2.2 (as so adjusted, the "Acquisition Purchase Price"). The
Acquisition Purchase Price consists of two components: (i) the consideration in
the form of cash and shares of JP Common Stock, $.01 par value (the "JP Common
Shares"), payable to the Seller or the Shareholders in connection with the
Arrow Transaction as determined pursuant to Section 2.3(a) (the "Arrow
Consideration"); and (ii) the consideration in the form of cash payable to SGD
or the SGD Members in connection with the SGD Transaction (the "SGD
Consideration") as determined pursuant to Section 2.3(b).
(b) The Initial Acquisition Purchase Price was
determined on the basis of the projected pro forma combined balance sheet of
the Seller and SGD (collectively, the "Combined Group") at August 31, 1996
which is attached as Schedule 2.1(b)(1) hereto (the "Target August 31 Balance
Sheet"). As soon as practicable after the Closing, but in no event later than
30 days following the Closing, the Seller and SGD shall prepare on the same
basis as the Target August 31 Balance Sheet, and cause to be reported on by
Blum, Shapiro & Company, P.C., independent accountants to the Seller and SGD, a
combined balance sheet of the Combined
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<PAGE> 14
Group as of the end of the four or five week accounting period next preceding
the month in which the Closing occurs (the "Closing Balance Sheet"), but in no
event earlier than August 31, 1996. Certain accounting procedures and the
nature of the report of Blum, Shapiro & Company, P.C. relating to the Closing
Balance Sheet are described in Schedule 2.1(b)(2). The Closing Balance Sheet
shall not give effect to any indebtedness to Donald Daren, Selma Daren and
Debra Daren relating to the Redemption Transaction. The Purchaser and JP shall
make available to the Seller and Blum, Shapiro & Company, P.C. all records
necessary and appropriate for purposes of preparing the Closing Balance Sheet.
Price Waterhouse LLP shall be provided access to relevant books and records and
an opportunity to observe inventory as of the date of the Closing Balance Sheet
and to perform such other measures and tests of the financial records Price
Waterhouse LLP deems appropriate in connection with the financial reporting
requirements of the Purchaser. The Seller and SGD shall (i) deliver to JP a
copy of the Closing Balance Sheet promptly after Blum, Shapiro & Company, P.C.
has furnished its report with respect thereto and (ii) provide JP and its
authorized representatives (or cause JP and its authorized representatives to
be provided) with reasonable access during normal business hours to all
workpapers and other relevant books and records and employees required for JP
and its authorized representatives to complete their review of the Closing
Balance Sheet. The parties acknowledge that the Closing Balance Sheet is a
special report prepared for the purpose of determining the Acquisition Purchase
Price and is not intended to constitute a financial report on the Combined
Group for distribution to shareholders or creditors of JP or the Purchaser. In
connection with the above matters, the costs and expenses incurred in
connection with the report of Blum, Shapiro & Company, P.C. shall be borne
entirely by the Seller and the costs and expenses of Price
-8-
<PAGE> 15
Waterhouse LLP shall be borne entirely by JP and the Purchaser. Any disputes
regarding the preparation of the Closing Balance Sheet shall be resolved in
accordance with Section 12.7.
2.2 Adjustments to Initial Acquisition Price.
(a) Upon receipt of the Closing Balance Sheet, the
parties shall adjust the Initial Acquisition Purchase Price as follows:
(i) in the event that the working capital
(including cash overdrafts) reflected on the Closing
Balance Sheet exceeds the working capital (including cash
overdrafts) shown on the Target August 31 Balance Sheet,
the Initial Acquisition Purchase Price shall be increased
by the amount of such excess;
(ii) in the event that the working capital
(including cash overdrafts) reflected on the Target August
31 Balance Sheet exceeds the working capital (including
cash overdrafts) shown on the Closing Balance Sheet, the
Initial Acquisition Purchase Price shall be decreased by
the amount of such excess;
(iii) in the event that the indebtedness
(excluding trade payables and cash overdrafts) reflected on
the Target August 31 Balance Sheet exceeds the indebtedness
(excluding trade payables and cash overdrafts) shown on the
Closing Date Balance Sheet, the Initial Acquisition
Purchase Price shall be increased by the amount of such
excess;
(iv) in the event that the indebtedness
(excluding trade payables and cash overdrafts) reflected on
the Closing Balance Sheet exceeds the indebtedness
(excluding trade payables and cash overdrafts) shown on the
Target August 31 Balance Sheet, the Initial Acquisition
Purchase Price shall be decreased by the amount of such
excess;
(v) in the event that the net fixed assets
(the "Net Fixed Assets") reflected on the Closing Balance
Sheet exceed the Net Fixed Assets reflected on the Target
August 31 Balance Sheet, the Initial Acquisition Purchase
Price shall be increased by the amount of such excess;
(vi) in the event that the Net Fixed Assets
reflected on the Target August 31 Balance Sheet exceeds the
Net Fixed Assets reflected on the Closing Balance Sheet,
the Initial Acquisition Purchase Price shall be decreased
by the amount of such excess.
Notwithstanding the foregoing, in connection with the determination
of Net Fixed Assets, the amount reflected on the Closing Balance Sheet for land
held for new construction and new
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<PAGE> 16
building and equipment shall not exceed in the aggregate $7,230,497 (the Target
August 31 Balance Sheet amount for such items), subject to adjustment for
increases in cost factors reviewed and approved in writing by JP.
For the purposes of this Section 2.2 and Section 2.3(b),
"indebtedness" shall mean the current portion of long-term indebtedness, lines
of credit, capital lease obligations, loans payable, notes payable and
long-term indebtedness. The Purchaser and the Seller intend that the amounts
referred to above as working capital, indebtedness and Net Fixed Assets shall
include, without duplication, all items of assets and liabilities reflected on
the Target August 31 Balance Sheet or the Closing Balance Sheet, as applicable.
(b) In the event that, as of the date of the Closing
Balance Sheet, there is a liability of the Seller and SGD that is not reflected
on the Closing Balance Sheet, (i) and the parties are able to mutually agree
upon an estimate of the cost of ultimate resolution of such liability, the
Purchaser shall assume such liability, in which case the Initial Acquisition
Purchase Price shall be reduced by the mutually determined estimated cost of
such liability, or (ii) in the event that the parties are unable to agree upon
an estimate of such cost, any such liability shall be deemed an Excluded
Liability. In the event that, as of the date of the Closing Balance Sheet,
there is an asset of the Seller and SGD that is not reflected on the Closing
Balance Sheet, (i) and the parties are able to mutually agree upon the value of
any such asset, the Initial Acquisition Purchase Price shall be increased by
the mutually determined value of such asset or, (ii) in the event that the
parties are unable to agree upon an estimate of such value, such asset shall
remain an asset of the Seller and SGD.
-10-
<PAGE> 17
(c) In the event that, as of the date of the Closing
Balance Sheet, there exist non-transferable prepaid expenses (which have not
otherwise been eliminated) representing prepayments of salaries, bonuses or
other expenses of Shareholders, SGD Members, management or other related
parties of the Seller or SGD, then, at the option of the Purchaser, either (i)
the Initial Acquisition Purchase Price shall be reduced by the amount of such
non-transferable prepaid expenses or (ii) the guaranteed salary of Steve Daren
as set forth in Section 3.1 of the Employment Agreement attached hereto as
Schedule 7.13 shall be reduced by the amount of such non-transferable prepaid
expenses.
(d) The costs, fees and expenses (the "Transaction
Costs") associated with the Acquisition payable to any finder or broker
retained by the Seller or SGD or the Shareholders or SGD Members shall be borne
exclusively by the Shareholders or the SGD Members. In the event that the
Seller or SGD pays the Transaction Costs or any portion thereof, the Initial
Acquisition Purchase Price shall be reduced by the amount of such payment to
the extent not otherwise reflected on the Closing Balance Sheet.
(e) JP or the Purchaser shall, without offset to the
Initial Purchase Acquisition Price, pay up to $169,000 of prepayment or
termination fees incurred as a result of the prepayment of indebtedness assumed
by the Purchaser pursuant to Section 1.3; provided, however, in the event (i)
the amount of such fees exceeds $169,000, the Initial Acquisition Purchase
Price shall be reduced by the amount of such excess or (ii) the amount of such
fees is less than $169,000, the Initial Acquisition Purchase Price shall be
increased by the amount of such difference. In the event that the indebtedness
of the Seller or SGD to the U.S. Small Business Administration (SBA) or the
Connecticut Development Authority (CDA) is on terms
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<PAGE> 18
reasonably acceptable to JP, JP shall use commercially reasonable efforts to
assume such indebtedness (and, upon assumption, shall be deemed an Acquisition
Liability) and not to incur prepayment fees or termination fees in connection
therewith; provided, however, that in the event that such lenders refuse to
release the Seller, SGD, the Shareholders or the SGD Members from any guarantee
of such indebtedness, the obligation of JP pursuant to Section 1.3 to have such
persons discharged from liability thereon shall not be applicable.
(f) JP or the Purchaser, without offset to the
Initial Acquisition Purchase Price, shall pay sales and use taxes of up to
$40,000 incurred as a result of the transfer of personal property in connection
with the Acquisition; provided, however, in the event (i) the amount of such
sales and use taxes exceeds $40,000, the Initial Acquisition Purchase Price
shall be reduced by the amount of such excess or (ii) the amount of such sales
and use taxes is less than $40,000, the Initial Acquisition Purchase Price
shall be increased by the amount of such difference..
2.3 Allocation of Acquisition Purchase Price.
(a) The Arrow Consideration shall equal the
Acquisition Purchase Price minus the SGD Consideration determined pursuant to
Section 2.3(b). The Arrow Consideration shall consist of (i) that number of JP
Common Shares (the "Share Consideration") obtained by dividing $1,700,000 by
the Average Share Price (as defined below) plus (ii) cash (the "Arrow Cash
Consideration"). The "Average Share Price" shall mean the price for a JP
Common Share, rounded to the nearest cent, which is the average of the closing
bid and ask prices for the JP Common Shares, as reported on the Nasdaq National
Market, over the 20 trading days immediately preceding the Closing Date.
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<PAGE> 19
(b) The SGD Consideration shall be payable in cash
and shall equal the fair market value of the Distribution Facilities as
determined by appraisal plus the net book value of depreciable personal
property of SGD and cash of SGD as reflected on the Closing Balance Sheet minus
the total indebtedness of SGD as reflected on the Closing Balance Sheet.
(c) The allocation of the aggregate Acquisition
consideration, consisting of the Acquisition Purchase Price plus the
indebtedness assumed by the Purchaser, to the assets purchased pursuant to this
Agreement and the SGD Agreement shall be determined by the Purchaser on the
basis of third party appraisals or such other information with respect to such
assets that the Purchaser deems appropriate; provided, however, that no value
shall be allocated to inventories or depreciable personal property of the
Seller or SGD in excess of the book value for such items regularly maintained
by the Seller or SGD and no amount of the Acquisition Consideration shall be
allocated to the covenant not to compete to be delivered pursuant to Section
8.10.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE SELLER, SGD, THE SHAREHOLDERS AND THE SGD MEMBERS
The Seller, SGD, the Shareholders and the SGD Members jointly and
severally represent and warrant to the Purchaser and JP that, except as set
forth in the disclosure schedule accompanying this Agreement (the "Disclosure
Schedule"):
3.1 Organization, Qualification and Corporate Power of Seller.
The Seller (i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, (ii) is duly qualified or
authorized to conduct its business and is in good standing
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<PAGE> 20
under the laws of each jurisdiction in which such qualification or
authorization is required, except where the failure to so qualify or obtain
authorization would not result in a material adverse effect on the Seller,
(iii) has full corporate power and authority to carry on the business in which
it is engaged and to own and use the properties owned and used by it and (iv)
is duly qualified and taxed as an S corporation for federal income tax purposes
and has maintained S corporation status in effect since November 1, 1986.
3.2 Organization, Qualification and Power of SGD. SGD (i) is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Connecticut, (ii) is duly qualified or
authorized to conduct its business and is in good standing under the laws of
each jurisdiction in which such qualification or authorization is required,
except where the failure to so qualify or obtain authorization would not result
in a material adverse effect on SGD, (iii) has full power and authority to
carry on the business in which it is engaged and to own and use the properties
owned and used by it and (iv) is taxed as a partnership for federal and state
income tax purposes. SGD has no operations other than the leasing of the
Distribution Facilities to the Seller.
3.3 Authority. The Seller and SGD have the requisite power and
authority to execute and deliver this Agreement and the SGD Agreement
(collectively, the "Acquisition Agreements") and to consummate the transactions
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<PAGE> 21
contemplated thereby. The Acquisition Agreements and the consummation by the
Seller and SGD of the transactions contemplated thereby have been duly and
validly authorized by the board of directors of the Seller and the SGD Members,
respectively, and no other proceedings on the part of the Seller or SGD are
necessary to authorize the Acquisition Agreements or to consummate the
transactions contemplated thereby. The Acquisition Agreements have been duly
and validly executed and delivered by the Seller, SGD, the Shareholders and the
SGD Members, and, assuming the Acquisition Agreements constitute valid and
binding agreements of the Purchaser and JP, constitute valid and binding
agreements of the Seller, SGD, the Shareholders and the SGD Members,
respectively, enforceable against each such party in accordance with their
respective terms, except that the enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity.
3.4 Consents and Approvals; No Violation. Neither the
execution and delivery of the Acquisition Agreements nor the consummation by
the Seller, SGD, the Shareholders and the SGD Members, respectively, of the
transactions contemplated thereby will: (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation or By-Laws of the
Seller or the Operating Agreement of SGD; (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, except in connection with (A) the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and (B) any applicable federal or state securities
laws; (iii) require any consent, waiver or approval under, result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration or lien or other charge or encumbrance) under any of the
provisions of any note, license, agreement or other instrument or obligation to
which the Seller or SGD may be bound or to which any of the assets or property
of the Seller or SGD
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<PAGE> 22
may be subject; or (iv) violate any order, injunction, statute, rule or
regulation applicable to the Seller or SGD.
3.5 Title to Assets. The Seller and SGD (the "Combined Group")
have good and marketable title to all of their respective assets, free and
clear of all claims, security interests, mortgages, pledges, liens and other
encumbrances of every nature whatsoever (collectively, "Liens") or other
restrictions, except for (i) Liens for taxes not yet due and payable and (ii)
Liens reflected on the audited balance sheet of the Combined Group (the
"Balance Sheet") at December 29, 1995 (the "Balance Sheet Date") or disclosed
in the notes thereto.
3.6 Undisclosed Liabilities. Neither the Seller nor SGD has
liabilities (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any liability for
taxes, except for (i) liabilities reflected on the Balance Sheet or disclosed
in the notes thereto, (ii) liabilities which have arisen after the Balance
Sheet Date in the ordinary course of business (none of which results from,
arises out of, relates to, is in the nature of or was caused by any breach of
contract, breach of warranty, tort, infringement or violation of law) and (iii)
liabilities that are not required under generally accepted accounting
principles ("GAAP") to be disclosed in the Balance Sheet or the notes thereto.
3.7 Financial Statements. The balance sheets and the related
statements of operations, stockholders' equity (deficit) and cash flows,
including the related notes thereto, of the Seller at December 31, 1993
(reviewed), of the Seller at December 30, 1994 (reviewed) and of the Combined
Group at December 29, 1995 (audited) and for the years then ended have been
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prepared in accordance with GAAP applied on a basis consistent with prior
periods, and present fairly in all material respects the financial position of
the Seller or the Combined Group, as the case may be, as of their respective
dates and the results of operations and cash flows for the periods presented
therein. The Target August 31 Balance Sheet constitutes a projection of the
financial position of the Combined Group as of its date and was otherwise
prepared in accordance with GAAP on a basis consistent with past periods. The
books and records of the Seller and SGD adequately disclose the respective
assets and liabilities of the Seller and SGD and provide the information
reasonably necessary to reflect properly the financial condition of the Seller
and SGD, as applicable, consistent with the limitations of a financial
reporting system.
3.8 Brokers' Fees. The Disclosure Schedule sets forth all
liabilities or obligations of the Seller and SGD to pay any fees or commissions
to any broker, finder or agent with respect to the transactions contemplated by
the Acquisition Agreements.
3.9 Real Property. The Disclosure Schedule lists all real
property owned by the Seller and SGD, other than the Excluded Assets. The
ownership of such real property and the uses being made thereof by the Seller
and SGD comply with all applicable laws.
3.10 Leases. All leases pursuant to which the Seller and SGD
lease to or from others any real or personal property which have aggregate
remaining lease payments due of $10,000 or more are listed in the Disclosure
Schedule. All such leases are valid, effective and enforceable. There is not
under any of such leases any existing default or any event of default or event
which, with notice or lapse of time or both, would constitute such a default by
the Seller or, to the knowledge of the Seller or the Shareholders, by any other
party thereto. The Disclosure
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Schedule sets forth, with respect to each such lease, the parties thereto, the
term, any renewal or purchase options and the payment terms. All leased real
or personal property and the uses being made thereof by the Seller and SGD
comply with all applicable laws.
3.11 Inventory. The inventory of the Seller, taken as a whole,
is in good and marketable condition and is capable of being sold in the
ordinary course of business without discounts to the FIFO purchase cost
recorded on the books and records of the Seller, as applicable.
3.12 Licenses. The Seller and SGD have all licenses which are
necessary for the conduct of their respective businesses. All license taxes
have been paid if due or, if not yet due, accrued in accordance with GAAP. All
material licenses, contracts or commitments relating to patents, trademarks,
trade names, copyrights, trade secrets or other proprietary know-how used by
the Seller and SGD in the conduct of their respective businesses are listed in
the Disclosure Schedule. Neither the Seller nor SGD has received any notice of
conflict with the asserted rights of others in connection with such licenses,
contracts or commitments, and the Seller and SGD are not infringing such rights
of others. Neither the Seller nor SGD has any knowledge of any such conflict
or claim of such infringement or any basis therefor.
3.13 Intellectual Property. The Disclosure Schedule sets forth
a complete and accurate list of all material patents, patent applications,
unpatented inventions set forth or described in writing, registered trademarks
and service marks, trademark and service mark applications, trade names and
copyrights (the "Intellectual Property") owned by, registered in the name of or
used in the businesses of the Seller and SGD. All of the rights of the Seller
and SGD in the Intellectual Property are valid and subsisting. The Seller and
SGD are the sole and exclusive owners of, and
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have good and marketable title to, all of the Intellectual Property, free and
clear of all Liens. There are no licenses, agreements or commitments
outstanding or effective granting any other person any right to use, operate
under, license or sublicense, or otherwise concerning the Intellectual
Property. Neither the Seller nor SGD has received any notice or claim that any
of its Intellectual Property infringes upon or conflicts with the rights of any
other person, nor is the Seller or SGD aware of any basis for any such claim.
The Disclosure Schedule sets forth an outline of the terms of a license (the
"Target Data License"), which shall be assigned to Purchaser, between the
Seller and Target Data Systems, Inc. covering the software system used by the
Seller for order processing, inventory control, billing, cash receipts,
disbursements and to perform other management information system functions in
the business.
3.14 Material Adverse Effect. Since the Balance Sheet Date, no
event has occurred and no circumstance exists that has or is likely to have a
material adverse effect on the financial condition, business or assets of the
Seller or SGD other than changes attributable to general economic conditions or
conditions affecting the food or paper distribution business generally. Since
the Balance Sheet Date, there has not been any damage, destruction or loss,
whether or not covered by insurance, materially affecting any of the properties
or the business of the Seller or SGD, any increase greater than five percent in
the compensation payable by the Seller or SGD to any officer, director,
employee, shareholder or member or any material increase in any bonus,
insurance, pension or other employee benefit plan, payment or arrangement made
to, for or with any such officer, director, employee, shareholder or member.
3.15 Disposition of Assets. Since the Balance Sheet Date, (i)
the Seller or SGD has not sold or otherwise disposed of, or committed to
dispose of, any assets other than in the ordinary
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course of business and (ii) the Seller has maintained its inventory at
customary levels. Since the Balance Sheet Date, the Seller has not paid or
declared any dividends, made or committed to make any distribution of assets,
made or committed to make any loan or made or committed to make any repurchase
of shares of its capital stock other than in the Redemption Transaction.
3.16 Taxes. All federal, state, local and foreign tax returns
of the Seller, including, without limitation, returns with respect to income,
sales, social security, withholding and unemployment taxes that are required to
have been filed by the Seller, have been duly prepared, timely filed and are
complete and correct, and all taxes, interest and penalties shown thereon or
due in connection therewith have been paid, if due, or accrued according to
GAAP, if not yet due. The returns of the Seller with respect to federal and
state income tax, sales tax, unemployment tax and use tax are not currently
being audited and the Seller has not been contacted by any federal or state
official regarding any audit. The Disclosure Schedule sets forth, for each of
the foregoing categories of tax, the latest taxable year for which the returns
of the Seller have been audited. The Seller has not waived the statutes of
limitations for federal or state tax purposes. No deficiency has been proposed
and not paid with respect to any tax return filed by the Seller prior to the
date hereof. All payroll taxes that the Seller is required by law to withhold
have been withheld and properly deposited.
3.17 Employee Benefit Plans. The Seller does not have any
bonus, deferred compensation, profit-sharing, pension, 401(k), retirement or
stock option plan or agreement, or any other type of employee benefit plan (an
"Employee Benefit Plan") within the meaning of Section 3.3 the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any accrued
obligation thereunder, or any current or prospective obligation for the payment
of
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severance pay to any current or former employee. If any such agreement, plan
or obligation is disclosed in the Disclosure Schedule, the Seller has delivered
to the Purchaser and JP complete and correct copies of all documents evidencing
any such agreement, plan or obligation, together with copies of all reports
applicable thereto. The Disclosure Schedule also discloses the terms of any
unwritten Employee Benefit Plan. No employee pension benefit plan (an
"Employee Pension Benefit Plan"), as defined in Section 3(2) of ERISA, listed
in the Disclosure Schedule has incurred any "accumulated funding deficiency"
within the meaning of Section 302 of ERISA or Section 412 of the Internal
Revenue Code of 1986, as amended (the "Code"), whether or not waived, and full
payment has been or will be made or accrued of all required contributions under
any such plan for all periods prior to the Closing Date. No such Employee
Pension Benefit Plan is a "defined benefit plan," as defined in Section 3(35)
of ERISA, or a "multiemployer plan," as defined in Section 3(37) of ERISA, and
neither the Seller nor any person required to be aggregated with the Seller
under Section 414(b), (c), (m) or (o) of the Code has maintained or contributed
to a defined benefit plan or multiemployer plan within six years prior to the
Closing Date. With respect to each Employee Benefit Plan: (i) the Seller is
and always has been in compliance in all material respects with the applicable
provisions of ERISA and the Code and the regulations thereunder, including the
benefit continuation provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA); (ii) there has been no violation of ERISA's
fiduciary obligations nor any prohibited transaction (within the meaning of
Section 406 of ERISA and Section 4975 of the Code); (iii) no plan has any
liability for any federal, state, local or foreign taxes; (iv) the fair market
value of the assets of each such Employee Pension Benefit Plan is not less than
the present value of the benefits accrued thereunder; and (v) all
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reports required to be filed (if any) with the Department of Labor, state and
local governments, the Pension Benefit Guaranty Corporation and the Internal
Revenue Service have been filed with respect to each such plan and with respect
to the transactions contemplated by this Agreement. To the extent any Employee
Benefit Plan is insured, the Seller has paid or accrued or will pay or accrue
when due all premiums required to be paid for all periods through and including
the Closing Date. To the extent that any Employee Benefit Plan is funded other
than with insurance, the Seller has made or accrued or will have made or
accrued all contributions required to be paid for all periods through and
including the Closing Date. The Seller has no obligation to provide health or
other welfare benefits to retirees. Each Employee Benefit Plan that is
intended to be qualified under Section 401 of the Code (i) has been timely
amended to comply with the Tax Equity and Fiscal Responsibility Act of 1982,
the Deficit Reduction Act of 1984 and the Retirement Equity Act of 1984, (ii)
has been administered in compliance with the applicable provisions of the Tax
Reform Act of 1986 and (iii) has been amended as required by the Tax Reform Act
of 1986, the Technical and Miscellaneous Revenue Act of 1988, the Unemployment
Compensation Amendments of 1992 and the Revenue Reconciliation Act of 1993.
Any required requests for favorable determination letters regarding the
compliance of such plans with those requirements were filed with the Internal
Revenue Service. The Seller has not incurred any liability on account of a
termination of an Employee Benefit Plan which has not been satisfied. The
Seller has not incurred any liability on account of a complete or partial
withdrawal from any multiemployer pension plan. Each Employee Benefit Plan may
be amended or terminated by the Seller subject to the regulations promulgated
under the Code and the regulations of the Pension Benefit Guaranty Corporation.
All benefits earned by employees of the Seller pursuant to any
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Employee Benefit Plan have been accrued or paid or will be accrued or paid
prior to the Closing Date. All aggregate accrued vacation pay and sick pay
that is estimated to be due to the employees of the Seller is set forth in the
Disclosure Schedule as of a date which is the close of a payroll period not
more than ten days prior to the date hereof. Except as provided in Section
5.5, the officers and directors of the Seller have not made any representation
to their employees (other than Steven Daren and Steve Tedisky) with respect to
the continuation of their employment after the Closing Date.
3.18 Collective Bargaining Agreements. The Seller is not a
party to any collective bargaining or other labor union agreement. There is no
employee dispute pending or threatened against the Seller, and the Seller has
no knowledge of any existing basis for any such dispute.
3.19 Premises. Except for ordinary wear and tear attributable
to the routine and ordinary day-to-day conduct of the businesses of the Seller
and SGD, all of the offices and other equipment of the Seller which are
necessary for their respective business operations are in good operating
condition and repair, and all software utilized by the Seller and SGD is
properly licensed and all fees in connection therewith have been paid or
accrued. The Seller and SGD has properly maintained and repaired all heating,
air conditioning, refrigeration, plumbing and electrical systems at 222-260
Otrobando Avenue, Norwich, Connecticut (the "Premises") in accordance with
commercially reasonable practices, and all such systems and related equipment,
whether owned or leased, are in good operating condition.
3.20 Certain Agreements. The Seller is not subject to, bound by
or the beneficiary of any agreement not to compete or other obligation in the
nature of an agreement not to compete.
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Except for customer's checks deposited in the ordinary course of business, the
Seller is not a party to any guaranty or endorsement or has any contingent
obligations under any such agreement.
3.21 Compliance with Laws. The conduct by the Seller or SGD of
any of their respective businesses does not, to the knowledge of the Seller,
SGD, the Shareholders or the SGD Members, violate or infringe in any material
respect any domestic (federal, state or local) or foreign laws, statutes,
ordinances, regulations, decrees or orders now in effect, including, without
limitation, the Americans with Disabilities Act of 1990, the Occupational
Safety and Health Act of 1970 and the regulations and guidelines imposed by the
United States Department of Agriculture, and neither the Seller nor SGD has
received a notice of violation of any such laws, statutes, ordinances,
regulations, decrees or orders other than violations which have been cured and
as to which any related proceedings before or involving any governmental
authority have been finally resolved. To the knowledge of the Seller, SGD, the
Shareholders and the SGD Members, no law, statute, ordinance, regulation,
decree or order is proposed to be adopted, the enforcement of which is likely
to materially adversely affect any of such businesses or the value of the
properties or assets of the Seller or SGD.
3.22 Litigation. Neither the Seller nor SGD is involved in any
pending or, to the knowledge of Seller, SGD, the Shareholders or the SGD
Members, threatened litigation or any investigation by any governmental body or
any legal, administrative or arbitration proceeding, including, without
limitation, any workers' compensation proceeding, or is subject to any
judgment, award, order or decree. The Seller, SGD, the Shareholders and the
SGD Members have no knowledge of, nor have they received notice of, any
material action, claim, suit,
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proceeding or investigation threatened against or affecting the Seller or SGD
or any of their respective properties or assets.
3.23 Judgments. Neither the Seller nor SGD is subject to any
judgment, order, writ, injunction or decree of any court, governmental
authority or arbitration panel which might adversely affect in any way (i) the
financial condition, assets, business prospects or results of operations of the
Seller or SGD or (ii) the Acquisition.
3.24 Insurance. The Disclosure Schedule contains a complete and
correct list and summary description (including name of insurer, amount of
coverage, type of policy and policy number) of all policies of insurance or
binders of insurance which are owned by the Seller or SGD, including, without
limitation, all general liability, workers' compensation, automobile, property,
and directors and officers liability insurance policies. All such policies,
including, without limitation, all product liability policies, are in full
force and effect, and no notice of disallowance of any claim under any such
policy or binder has been received by the Seller or SGD. There has been no
default in the payment of premiums on any such policy, and to the knowledge of
the Seller, SGD, the Shareholders and the SGD Members, there is no ground for
cancellation or avoidance of any such policy, for reduction of the coverage
provided thereby or for an increase in the premiums paid therefor.
3.25 Officers, Directors and Employees. All officers, directors
and employees of the Seller are listed by title or position in the Disclosure
Schedule. The Seller, SGD, the Shareholders or the SGD Members have no
knowledge of, nor have received any notice of, any claim by any officer,
director, employee, shareholder or member of the Seller or SGD with
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respect to any indemnification from the Seller or SGD. No officer, director,
employee or shareholder of the Seller has any substantial financial interest,
direct or indirect, in any supplier, customer, lessor or lessee of the Seller
(other than SGD), is indebted to the Seller on account of loans or advances of
any kind, or has in his possession or under his control any property or assets
belonging to the Seller. All transactions, commitments, contracts and
agreements between the Seller and any supplier, customer or any other business
entity in which any officer, director, employee or shareholder of the Seller
has a substantial financial interest (other than SGD) are on arms-length terms
and at reasonable market prices.
3.26 Employment Agreements. The Seller does not have any
employment, service or consulting agreement with any person or entity which may
not be terminated within 30 days' notice without liability to the Seller and
pursuant to which the Seller's aggregate liability exceeds $10,000.
3.27 Indebtedness. All mortgages and deeds of trust encumbering
the Premises are listed in the Disclosure Schedule.
3.28 Purchase Orders, Sales Contracts or Commitments. The
Disclosure Schedule sets forth all of the open purchase orders, sales contracts
and commitments of the Seller as of a date which is not more than seven days
prior to the date hereof which either (i) were not entered into in the ordinary
course of business by the Seller or (ii) as of the date hereof are in excess of
$50,000.
3.29 Customers. The names and addresses of the customers of the
Seller with orders as of a date which is not more than seven days prior to the
date hereof in excess of $50,000 are
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listed in the Disclosure Schedule. To the knowledge of the Seller, SGD, the
Shareholders and the SGD Members, (i) all contracts and agreements with such
customers are valid, effective and enforceable and (ii) no such customer is
experiencing financial difficulties which reasonably could be expected to
affect adversely full and timely payment by such customer under any such
contract or agreement.
3.30 Other Material Contracts. Neither the Seller nor SGD has
any material contract, commitment or agreement that has not been otherwise
disclosed in the Disclosure Schedule. To the knowledge of the Seller, SGD, the
Shareholders and the SGD Members, (i) each such contract, commitment or
agreement is valid, effective and enforceable and (ii) no party to any such
contract, commitment or agreement is experiencing financial difficulties which
reasonably could be expected to affect adversely the full and timely payment of
any amount owed or to be owed to the Seller or SGD by any such party under any
such contract, commitment or agreement.
3.31 Relationships with Customers and Suppliers. The Seller
does not know of any written or oral communication, fact, event or action which
exists or has occurred within 120 days prior to the date of this Agreement
which would indicate that any of the following shall terminate or materially
reduce its business with the Seller:
(i) any current customer of the Seller
which accounted for over 1% of total consolidated net sales
of the Seller for its most recently completed fiscal year;
or
(ii) any current supplier to the Seller of
items essential to the conduct of the businesses of the
Seller, which items cannot be replaced at comparable cost
and the loss of which would have a material adverse effect
on the Seller, taken as a whole.
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Since the Balance Sheet Date, (A) the Seller has retained all sales
personnel employed in connection with the operation of their respective
businesses and (B) no customer (or group of customers) purchasing in the
aggregate of $50,000 in products and services on an annual basis has terminated
its relationship with the Seller.
3.32 Employee and Shareholder Indebtedness. The Disclosure
Schedule sets forth all indebtedness to the Seller of the Shareholders or the
officers, directors or employees of the Seller. All of such indebtedness has
been or will be repaid or offset against the indebtedness of the Seller to the
respective Shareholders on or before the Closing Date. The Disclosure Schedule
describes all credit card accounts and arrangements of the Seller and SGD.
3.33 Environmental Matters. The Seller and SGD are currently in
compliance, and have fully complied, with all laws, ordinances, regulations and
orders, including, without limitation, all zoning, safety and environmental
laws, ordinances, regulations and orders, applicable and material to their
respective businesses or properties, and the present uses by the Seller and SGD
of the Premises does not violate any such laws, ordinances, regulations or
orders. There is not currently and in the past during SGD's ownership of the
Premises and, to the knowledge of SGD, any prior ownership of the Premises,
there has not been (i) any unlawful use, treatment, storage or disposal of any
hazardous substance or material (as defined in 42 U.S.C. Section 9601(14)
(1982) and 40 C.F.R. Section 302.4 (1986)) or pollutant on the Premises (ii)
any unpermitted spill, leakage, discharge or release of any hazardous substance
or material or pollutant thereon or therefrom or (iii) any unlawful off-site
disposal by the Seller or SGD of any hazardous substance or material or
pollutant in any location. The Seller and the Shareholders have furnished, or
have caused SGD to furnish, to the Purchaser the test results for all tests
conducted on the underground
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storage tanks located on the Premises. Neither the Seller nor SGD has
purchased or sold asbestos, or any other hazardous substance or material or
pollutant. Neither the Seller nor SGD is subject to any pending, or to the
knowledge of the Seller, SGD, the Shareholders or the SGD Member, any
threatened liability or claim in connection with any environmental law or any
use, treatment, storage or disposal of any hazardous substance or material or
pollutant or any spill, leakage, discharge or release of any hazardous
substance or material or pollutant as a result of having owned or operated any
business prior to the Closing Date.
3.34 Product Liability. To the knowledge of the Seller, SGD,
and the Shareholders and the SGD Members, except to the extent covered by
insurance, the Seller has no liability (and, (and there is no basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against the Seller giving rise to any liability)
arising out of any injury to individuals or property as a result of the
ownership, possession or use of any product manufactured, sold, leased or
delivered by the Seller.
3.35 Bonuses and Profit Sharing Distributions. All bonuses and
profit-sharing distributions earned by employees of the Seller through August
31, 1996 have been or will be paid or have been or will be accrued by the
Seller.
3.36 Bank Accounts. The Disclosure Schedule sets forth all bank
accounts and accounts holding marketable securities (both debt and equity) of
the Seller and SGD.
3.37 Related Party Agreements. The Disclosure Schedule sets
forth all agreements between (i) the Seller and its employees (other than
noncompetition agreements), (ii) the Seller and the Shareholders, (iii) the
Seller and SGD, (iv) SGD and its members and (v) SGD and the
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Shareholders. Furthermore, the Seller and the Shareholders have disclosed to
the Purchaser and JP all compensation payments made to or to be made to, or for
the benefit of, the Shareholders from the Balance Sheet Date through the
Closing Date.
3.38 Change in Control. Neither the Seller nor SGD is a party
to any contract or arrangement which contains a "change in control," "potential
change in control" or similar provision, and the consummation of the
Acquisition shall not (either alone or upon the occurrence of additional acts
or events) result in any payment or payments becoming due from the Seller or
SGD to any person or give any person the right to terminate or alter the
provisions of any agreement to which the Seller and SGD is a party.
3.39 Otrobando Connector. All necessary approvals and
agreements for the construction of the connector building between 222-260 and
237 Otrobando Avenue have been obtained. The Disclosure Schedule sets forth
all letters, memoranda and other written documentation received by the Seller
and SGD regarding the State of Connecticut's commitment to relocate the road
that currently separates 222-260 Otrobando Avenue from 237 Otrobando Avenue.
3.40 Disclosure. Neither of the Acquisition Agreements,
including, without limitation, the Disclosure Schedule, the Schedules and the
attachments thereto, furnished by the Seller to JP, contain or shall contain
any untrue statement of a material fact or omit or shall omit to state a
material fact necessary in order to make the statements contained therein, in
light of the circumstances in which they were made, not misleading. For
purposes of this Agreement, disclosure in one section of the Disclosure
Schedule shall constitute disclosure for the purposes of the other sections of
the Disclosure Schedule.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER AND JP
The Purchaser and JP jointly and severally represent and warrant to
the Seller and the Shareholders that, except as set forth in the Disclosure
Schedule:
4.1 Organization. The Purchaser and JP are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
4.2 Capitalization. The authorized common stock of JP consists
of 45,000,000 shares, of which 16,025,014 JP Common Shares are issued and
outstanding and no JP Common Shares are held in treasury. All of the issued
and outstanding JP Common Shares have been duly authorized and are validly
issued, fully paid and nonassessable. All of the JP Common Shares issued
pursuant to this Agreement have been duly authorized and, upon consummation of
the Acquisition, shall be validly issued, fully paid and nonassessable. The
Company currently has on file with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-3 which, upon such Registration
Statement being declared effective by the SEC, would permit JP to issue up to
3,450,000 JP Common Shares. In addition, JP has reserved for issuance up to
2,500,000 JP Common Shares to be issued in connection with JP's acquisition of
Valley Industries, Inc. and "Z" Leasing Co.
4.3 Authority Relative to this Agreement. Each of the Purchaser
and JP has the requisite corporate power and authority to execute and deliver
the Acquisition Agreements and to consummate the transactions contemplated
thereby. The Acquisition Agreements and the consummation by the Purchaser and
JP of the transactions contemplated thereby have been duly
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and validly authorized by the boards of directors of the Purchaser and JP and
no other corporate proceedings on the part of the Purchaser and JP are
necessary to authorize the Acquisition Agreements or to consummate the
transactions contemplated thereby. The Acquisition Agreements have been duly
and validly executed and delivered by the Purchaser and JP and, assuming the
Acquisition Agreements constitute valid and binding agreements of the Seller,
SGD, the Shareholders and the SGD Members, constitute valid and binding
agreements of the Purchaser and JP, enforceable against each such party in
accordance with their respective terms, except that the enforcement hereof may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar laws now or hereafter in effect relating
to creditors' rights generally and (ii) general principles of equity.
4.4 Consents and Approvals; No Violation. Neither the
execution and the delivery of the Acquisition Agreements nor the consummation
by the Purchaser and JP of the transactions contemplated thereby will: (i)
conflict with or result in any breach of any provision of the Certificate of
Incorporation or By-Laws of the Purchaser or JP; (ii) require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, except in connection with (A) the
applicable requirements of the HSR Act and (B) any applicable federal or state
securities laws; (iii) result in a violation or breach of, or constitute (with
or without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration or lien or other charge or
encumbrance) under any of the provisions of any note, license, agreement or
other instrument or obligation to which the Purchaser or JP may be bound or to
which any of the assets or property of the Purchaser or JP may be subject,
provided the Purchaser obtains such consents or waivers, if any, as may be
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required pursuant to the terms of (A) the Note Purchase Agreements dated as of
November 10, 1994, as amended, between the Purchaser and the purchasers
identified therein, (B) the Credit Agreement dated as of November 10, 1994, as
amended, among the Purchaser and the lenders party thereto or (C) any
agreements to which the Purchaser is a party relating to its securitization
program; or (iv) violate any order, injunction, statute, rule or regulation
applicable to the Purchaser or JP.
4.5 Brokers' Fees. The Purchaser has disclosed to the Seller
all liabilities or obligations of the Purchaser or JP to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
4.6 Disclosure. No registration statement filed by JP pursuant
to the Securities Act of 1933 or report or document filed by JP pursuant to
Section 13, 14 or 15(d) of the Securities Exchange Act of 1934 prior to the
date hereof contained or shall contain any untrue statement of a material fact
or omitted or shall omit to state a material fact required to be stated therein
or necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 Conduct of Business. (a) During the period from the date
of this Agreement to the Closing Date (the "Standstill Period"), each of the
Seller and SGD shall conduct its operations according to its ordinary and usual
course of business consistent with past practice and with no less diligence and
effort than would be applied in the absence of this Agreement, shall seek to
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preserve intact its current business organization and shall use all
commercially reasonable efforts to keep available the services of its current
officers and employees and to preserve its relationships with customers,
suppliers and others having business dealings with it.
(a) Without limiting the generality of Section
5.1(a), the Seller and SGD shall complete prior to the Closing Date the
construction of the building located at 222-260 Otrobando Avenue, Norwich,
Connecticut in accordance with the plan of design and phase designation
described in Schedule 5.1(b) (the "Expansion Facility").
(b) Without limiting the generality of Section
5.1(a), during the Standstill Period, except as otherwise provided in this
Agreement or authorized in writing in advance by JP, the Seller and SGD shall
not:
(i) maintain inventory levels in a manner
that would not otherwise be maintained in the ordinary
course of business;
(ii) fail to maintain any or all insurance
policies described on the Disclosure Schedule, including,
without limitation, general liability, workers'
compensation, product liability, automobile and property
insurance policies or policies equivalent thereto;
(iii) pay or agree to pay any pension,
retirement allowance or other employee benefit not required
or contemplated by any of the existing benefit, severance,
termination, pension, welfare or employment plans,
agreements or arrangements as in effect on the date hereof
to any director, officer, key employee or shareholder
whether past or present;
(iv) except for the employment agreements
described in Section 7.13, enter into any new, or amend any
existing, employment or severance or termination agreement
with any director, officer, key employee or shareholder
other than the Seller's agreement with Steve Tedisky which
may be amended or terminated effective as of the Closing
Date (the "Tedisky Agreement");
(v) become obligated under any new pension
plan, welfare plan, multiemployer plan, employee benefit
plan, severance plan, benefit arrangement, or similar plan
or arrangement, which was not in existence on the date
hereof, or amend any such plan or arrangement in existence
on the date hereof if such amendment would have the effect
of enhancing any benefits thereunder other than in the
Tedisky Agreement;
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(vi) except for the payment of construction
costs in connection with the Expansion Facility or payments
made in connection with the Redemption Transaction (as
defined below), make any payment to any person or entity
that is not in the ordinary course of business or that is
not for a valid business purpose;
(vii) offer, negotiate, consummate or solicit
(by furnishing any information concerning the business,
properties or assets of the Seller or otherwise) any offer
or proposal for a merger or other business combination
involving the assets or securities of the Seller; or
(viii) authorize, recommend, propose or
announce an intention to do any of the foregoing, or enter
into any contract, agreement, commitment or arrangement to
do any of the foregoing.
(c) Notwithstanding the restrictions set forth under
Section 5.1(a) and (c), the Seller may effect the following transactions during
the Standstill Period:
(i) the Seller may acquire or commit to
acquire all or a portion of the stock of the Seller owned
by Donald Daren, Selma Daren or Debra Daren for such
consideration (consisting of obligations of the Seller
which shall not be deemed payable until after the Closing)
as may be deemed appropriate by the Sellers and the
Shareholders (the "Redemption Transaction");
(ii) the Seller may sell to the Shareholders
any or all automobiles owned by the Seller and currently
used by such Shareholders for an amount equal to the net
book value thereof; and
(iii) the Seller may terminate the lease of
warehouse facilities located in Wetherfield, Connecticut.
(d) The Seller, SGD, each Shareholder and each SGD
Member shall notify the Purchaser and JP promptly in the event it has knowledge
prior to the Closing Date that any representation or warranty made by it
hereunder is not true and correct; provided, however, the Seller, SGD, the
Shareholders and the SGD Members shall not be required to update the
representations and warranties to reflect developments occurring after the date
hereof which are consistent with the conduct of business operations under
Sections 5.1(a), 5.1(b) or 5.1(c).
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5.2 Real Estate Conveyance Taxes. The Seller or SGD shall pay
all conveyance taxes incurred in connection with deeds for transfer or other
conveyance documents of real property acquired by the Purchaser.
5.3 Prepayment and Termination Fees and Sales and Use Taxes.
Subject to Sections 2.2(e) and 2.2(f), the Purchaser shall pay all prepayment
and termination fees incurred as a result of the prepayment of indebtedness
assumed by the Purchaser pursuant to Section 1.3 and all sales and use taxes
incurred as a result of the transfer of personal property in connection with
the Acquisition.
5.4 Notification of Employees. Notwithstanding anything herein
to the contrary, after the date hereof and prior to the Closing, the Seller may
notify its employees of the existence of this Agreement and the general nature
of the transactions contemplated hereby. The parties shall cooperate in good
faith regarding the notification prior to the Closing Date of the Seller's
employees of the Purchaser's intention, pursuant to Section 6.6 to extend
offers of employment after the Closing Date to all or substantially all of such
employees.
5.5 General Non-Competition Agreements. Within 30 days after
the execution of this Agreement, if the Purchaser so requests, management of
the Seller shall use commercially reasonable efforts to have management
personnel of the Seller execute Non-Competition Agreements in the form attached
hereto as Schedule 5.6.
5.6 Licenses. The parties hereto shall use commercially
reasonable efforts to have all existing licenses material to Businesses
transferred to obtain new licenses for the Purchaser.
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5.7 Consents. JP shall use commercially reasonable efforts to
obtain, if necessary, any consents or waivers required pursuant to the terms of
the agreements identified in clause (iii) of Section 4.4. The Seller and SGD
shall use commercially reasonable efforts to obtain, if necessary, any required
consents disclosed pursuant to Section 3.4.
5.8 HSR Act Filings. As promptly as practicable after the date
hereof, JP and the Seller shall make their respective filings required under
the HSR Act, and shall thereafter promptly make any required submissions or
responses to second requests for information under the HSR Act, with respect to
the Acquisition and shall cooperate with each other with respect to the
foregoing.
5.9 Access to Information. Upon reasonable notice, the Seller
and SGD shall afford to officers, employees, counsel, accountants and other
authorized representatives of the Purchaser and JP (the "JP Representatives")
reasonable access during normal business hours throughout the Standstill Period
to any properties, books and records of the Seller, and, during such period,
shall furnish promptly to the JP Representatives all information concerning the
business, properties and personnel of the Seller and SGD, as may reasonably be
requested (except to the extent such party shall be prohibited from furnishing
any such information by any written agreement with a third party).
5.10 Publicity. The Seller and JP shall mutually agree upon any
public announcements relating to the Acquisition and shall not issue any such
public announcement prior to such agreement, except as may be required by
applicable law or pursuant to any listing agreement or designation criteria
with the Nasdaq National Market, in which case the party proposing to issue
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such public announcement shall use all reasonable efforts to consult in good
faith with the other party before issuing any such public announcement.
5.11 Obtaining of Acceptable Financing. JP shall use
commercially reasonable efforts to obtain financing on terms reasonably
acceptable to it which is in an amount sufficient for JP and the Purchaser to
consummate the Acquisition (the "Acquisition Financing").
5.12 Seller and SGD Credit Cards. All credit cards issued for
the account of the Seller or SGD shall be canceled on or before the Closing
Date.
ARTICLE VI
POST CLOSING COVENANTS
6.1 Liquidity. At any time after May 23, 1997, JP shall, upon
receipt of written notice from a Shareholder of such Shareholder's intent to
sell all or a portion of such Shareholder's JP Common Shares (other than JP
Common Shares held in escrow), at its sole option, (i) repurchase such JP
Common Shares from such Shareholder at a price equal to the closing price per
the Nasdaq National Market on the date immediately preceding the date of such
notice or (ii) provide other comparable means of liquidity for such
Shareholder.
6.2 Access to Books and Records. For a period of ten years
after the Closing Date, each party hereto shall, upon reasonable notice,
afford each other party with reasonable access to the books and records of the
Seller and SGD during normal business hours in the event that such access is
required to determine any matter related to the requesting party's rights and
obligations hereunder or with respect to compliance with any requirements of
any governmental authority.
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6.3 Further Assurances. The parties hereto each agree that
they will at any time and from time to time after the Closing Date, upon the
request of any other party, do, execute, acknowledge and deliver or cause to be
done, executed, acknowledged and delivered all such further acts, documents and
instruments as may be necessary or appropriate to consummate the transactions
contemplated hereby, including providing written evidence of the same in such
form as may be reasonably required by any governmental authority or third
party.
6.4 Post-Closing Insurance Matters. After the Closing, JP and
the Purchaser will carry the Seller and SGD as named insured on all policies of
liability insurance covering the Business or the Premises for purposes of
providing the defense of claims relating to the operation of the Business or
the ownership or use of the Premises prior to the Closing Date.
6.5 Tax Reporting Consistent. The parties shall cooperate in
good faith with respect to the determination after the Closing of a mutually
acceptable allocation statement to be incorporated in Internal Revenue Service
Form 8954 (which statement shall be consistent with the allocation described in
Section 2.3) to be filed by each party and each of the parties further agrees
that all federal, state and local tax returns filed by it shall be consistent
therewith.
6.6 Purchaser's Retention of Employees.
(a) It is expressly acknowledged and agreed that for
the purposes hereof, as between the Purchaser and the Seller, and without in
any manner creating any right or entitlement or claim in favor of any third
party (including any employee of the Seller), (i) the Purchaser agrees to offer
employment to substantially all of the employees of the Seller, and that any
individual who in fact works for the Purchaser after the Closing Date shall be
deemed to
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have accepted such offer of employment, and (ii) that each such offer of
employment (other than with respect to Steve Daren or Steve Tedisky) shall be
on terms and subject to such employee benefit programs and employment policies
as determined by the Purchaser in its sole discretion, provided, however, that
initial compensation levels shall generally be consistent with compensation
amounts paid by the Seller, and the benefit programs provided shall generally
be consistent with either the Seller's program or the Purchaser's programs.
(b) The Seller shall be responsible for compliance
with all laws, rules, ordinances and regulations respecting termination of any
of its employees, including, without limitation, the Worker Adjustment,
Notification and Training Act, 29 U.S.C. Section 2101 et. seq. ('WARN") up to
and including the Closing Date. After the Closing Date, the Purchaser shall be
responsible for compliance with all laws, rules, ordinances and regulations
respecting termination of any of its employees (including those employees of
the Seller who are hired by the Purchaser) including, without limitation, WARN.
6.7 Accounts Receivable. The Seller and SGD shall cause Blum,
Shapiro & Company, P.C. to deliver its report to JP to the effect that the
reserves against the accounts receivable reflected in the Closing Balance Sheet
are reasonably sufficient in light of the circumstances and conditions existing
on the date of the Closing Balance Sheet and the Seller's historical collection
experience.
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ARTICLE VII
CONDITIONS TO OBLIGATIONS OF
THE SELLER, SGD, THE SHAREHOLDERS AND THE SGD MEMBERS
The obligations of the Seller and the Shareholders to effect the
Arrow Transaction are subject to the satisfaction or waiver at or prior to the
Closing Date of the following conditions:
7.1 Representations, Warranties and Covenants. All
representations and warranties of the Purchaser and JP contained in Article IV
shall be true and correct in all material respects at and as of the Closing
Date as if such representations and warranties were made at and as of the
Closing Date, and the Purchaser and JP shall have performed all material
agreements and covenants required hereby to be performed by them prior to or at
the Closing Date. At the Closing, there shall be delivered to the Seller a
certificate signed by an authorized officer of each of the Purchaser and JP to
the foregoing effect.
7.2 Acquisition Purchase Price Consideration. The Seller shall
have received (i) the Arrow Cash Consideration by wire transfer in immediately
available funds to the account or accounts designated by the Seller, (ii) one
or more certificates representing the Share Consideration in the name or names
designated by the Seller and (iii) evidence of the Purchaser's assumption or
discharge on the Closing Date of the Acquisition Liabilities and, except as
otherwise provided by this Agreement, the release of any and all Shareholders,
SGD Members or related party guarantors with respect to any Acquisition
Liability that was so guaranteed and is assumed but not discharged by the
Purchaser at the Closing.
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7.3 HSR Act. The applicable waiting period, including any
extension thereof, under the HSR Act with respect to the HSR Act filings
referred to in Section 5.9 shall have expired or been earlier terminated.
7.4 No Injunction or Decree. There shall not be in effect any
statute, rule, regulation, decree, injunction or other order of a court or
governmental agency of competent jurisdiction directing that the transactions
contemplated hereby not be consummated; provided, however, that prior to
invoking this condition each party shall use all commercially reasonable
efforts to have such decree, injunction or order vacated.
7.5 Approval. The Acquisition Agreements and the Acquisition
shall have been approved by the Shareholders and the SGD Members in accordance
with applicable law.
7.6 Certificates. The Purchaser and JP shall have furnished
the Seller with such certificates of the respective officers of the Purchaser
and JP and others to evidence compliance with the conditions set forth in this
Article VII as may be reasonably requested by the Seller.
7.7 Escrow Agreement. The Purchaser and JP shall have executed
and delivered counterparts of the escrow agreement (the "Escrow Agreement") in
the form attached hereto as Schedule 7.7, together with any counterparts signed
by the Escrow Agent.
7.8 Registration Rights Agreement. JP shall have executed and
delivered counterparts of the Registration Rights Agreement in the form
attached hereto as Schedule 7.8.
7.9 Assumption Agreement. JP and the Purchaser shall have
executed and delivered counterparts of the Assumption Agreement in the form
attached hereto as Schedule 7.9.
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7.10 SGD Transaction. The SGD Agreement in the form attached
hereto as Schedule 7.10 shall have been executed, all conditions set forth in
Section 6.5 thereof shall have been satisfied or waived and the SGD Transaction
shall have closed.
7.11 Opinion of Counsel. The Seller, SGD, the Shareholders and
the SGD Members shall have received an opinion, dated as of the Closing Date,
from counsel to Purchaser and JP, addressed and in form satisfactory to the
Seller, the Shareholders and SGD.
7.12 No Material Adverse Effect. As of the Closing Date, no
event shall have occurred and no circumstance shall exist that has or could
have a material adverse effect on the financial condition, businesses, assets
or prospects of JP or the Purchaser other than changes attributable to general
economic conditions or conditions affecting the food or paper distribution
business generally and the JP Common Shares shall be continued to be listed on
the Nasdaq National Market (or other national securities exchange) and shall
not be subject to any trading halt, stop order or other restriction on trading.
7.13 Employment Agreements. Employment Agreements for Steven
Daren and Steve Tedisky in the form attached hereto as Schedule 7.13 shall have
been executed and delivered to the Seller.
7.14 Assignment and Assumption Agreements. The Seller and the
Shareholders shall have delivered to the Purchaser Assignment and Assumption
Agreements in the form attached hereto as Schedule 7.14.
7.15 Other Documents. The Purchaser and JP shall have executed
and delivered to the Seller such other certificates, documents and instruments
as the Seller may reasonably request.
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ARTICLE VIII
CONDITIONS TO OBLIGATIONS
OF THE PURCHASER AND JP
The obligations of the Purchaser and JP to effect the Arrow
Transaction are subject to the satisfaction or waiver at or prior to the
Closing Date of the following conditions:
8.1 Representations, Warranties and Covenants. All
representations and warranties of the Seller, SGD, the Shareholders and the SGD
Members contained in Article III shall be true and correct in all material
respects at and as of the Closing Date as if such representations and
warranties were made at and as of the Closing Date (but based on the revised
Disclosure Schedule delivered at Closing which shall reflect those changes in
the ordinary course of business or otherwise permitted pursuant to Section
5.1(e)), and the Seller, SGD, the Shareholders and the SGD Members shall have
performed all material agreements and covenants required hereby to be performed
by them prior to or at the Closing Date. At the Closing, there shall be
delivered to the Purchaser and JP a certificate signed by an authorized officer
of the Seller and SGD and by each Shareholder and each SGD Member to the
foregoing effect.
8.2 Consents and Approvals. The Seller shall have delivered or
caused to be delivered to the Purchaser and JP any consents, waivers,
approvals, permits, licenses or authorizations which, if not obtained on or
prior to the Closing Date, would have a material adverse effect on the
Purchaser's ability to conduct business as conducted by the Seller or SGD at
the Closing Date.
8.3 Combined Financial Statements. The Seller shall have
delivered or caused to be delivered to the Purchaser and JP the Combined
Financial Statements.
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8.4 No Injunction or Decree. There shall not be in effect any
statute, rule, regulation, decree, injunction or other order of a court or
governmental agency of competent jurisdiction directing that the transaction
contemplated hereby not be consummated; provided, however, that prior to
invoking this condition each party shall use all commercially reasonable
efforts to have such decree, injunction or order vacated.
8.5 HSR Act. The applicable waiting period, including any
extension thereof, under the HSR Act with respect to the HSR Act filings
referred to in Section 5.9 shall have expired or been earlier terminated.
8.6 Approval. The Acquisition Agreements and the Acquisition
shall have been approved by the Shareholders and the SGD Members in accordance
with applicable law.
8.7 Certificates. The Seller shall have furnished to the
Purchaser and JP such certificates of the officers of the Seller and SGD and
others to evidence compliance with the conditions set forth in this Article
VIII as may be reasonably requested by the Purchaser and JP.
8.8 Escrow Agreement. The Seller, the Shareholders and SGD
shall have executed and delivered counterparts of the Escrow Agreement in the
form attached hereto as Schedule 7.7, together with any counterparts signed by
the Escrow Agent and blank stock powers executed by each of the Shareholders
with respect to the JP Common Shares to be held in the Escrow Deposit (as
defined in below).
8.9 Employment Agreements. Employment Agreements for Steven
Daren and Steve Tedisky in the form attached hereto as Schedule 7.13 shall have
been executed and delivered to the Purchaser.
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8.10 Executive Non-Competition Agreements. Non-Competition
Agreements for Donald Daren and Selma Daren in the form attached hereto as
Schedule 8.10 shall have been executed and delivered to the Purchaser.
8.11 Shareholder Representation Letters. Shareholder
Representation Letters in the form attached hereto as Schedule 8.11 shall have
been executed by all of the Shareholders and delivered to JP.
8.12 Bill of Sale and Assignment. The Seller and the
Shareholders shall have executed and delivered the Bill of Sale and Assignment
in the form attached hereto as Schedule 8.12.
8.13 Assignment and Assumption Agreements. The Seller and the
Shareholders shall have delivered to the Purchaser Assignment and Assumption
Agreements in the form attached hereto as Schedule 7.14.
8.14 Estoppel Certificates. The Seller and the Shareholders
shall have delivered to the Purchaser estoppel certificates in form
satisfactory to the Purchaser and its counsel from each lessor of personal
property leased for use in the Business, provided such lease is being assumed
by the Purchaser.
8.15 Opinion of Counsel. The Purchaser and JP shall have
received an opinion, dated as of the Closing Date, from counsel to the Seller,
SGD, the Shareholders and the SGD Members addressed and in form satisfactory to
the Purchaser and JP.
8.16 No Material Adverse Effect. As of the Closing Date, no
event shall have occurred and no circumstance shall exist that has or could
have a material adverse effect on the financial condition, businesses, assets
or prospects of the Seller or SGD other than changes attributable to
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general economic conditions or conditions affecting the food or paper
distribution business generally.
8.17 SGD Transaction. The SGD Agreement shall have been
executed, all conditions set forth in Section 6.4 thereof shall have been
satisfied or waived and the SGD Transaction shall have closed.
8.18 Certificate of Occupancy. The Seller shall have furnished
to the Purchaser and JP evidence of a certificate of occupancy issued by the
appropriate local or state regulatory housing or real estate authority with
respect to the building located at 222-260 Otrobando Avenue, Norwich,
Connecticut.
8.19 Obtaining of Acceptable Financing. JP shall have obtained
the financing referred to in Section 5.12.
8.20 Other Documents. The Seller, SGD, the Shareholders and
the SGD Members shall have executed and delivered to the Purchaser and JP such
other certificates, documents and instruments as the Purchaser and JP may
reasonably request.
ARTICLE IX
TERMINATION
9.1 Termination by Mutual Consent. This Agreement may be
terminated and the Arrow Transaction may be abandoned at any time prior to the
Closing Date by the mutual written consent of the Seller and JP. Any action by
the Seller under this Article IX shall be binding upon the Shareholders, SGD
and the SGD Members.
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9.2 Termination by any of the Seller, the Purchaser or JP.
This Agreement may be terminated and the Arrow Transaction may be abandoned by
any of the Seller, the Purchaser or JP if (i) any court of competent
jurisdiction in the United States or other governmental body shall have issued
an order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Arrow Transaction and such order,
decree, ruling or other action shall have become final and nonappealable or
(ii) the Arrow Transaction shall not have been consummated on or before August
31, 1996; provided, that the right to terminate this Agreement pursuant to this
Section 9.2 shall not be available to any party whose failure to fulfill any of
its obligations under this Agreement results in the failure of the Arrow
Transaction to occur on or before such date. Upon any termination of this
Agreement pursuant to Section 9.1 or this Section 9.2, this Agreement and the
SGD Agreement shall forthwith become void and have no effect without any
liability on the part of any party hereto or thereto to any other party, other
than the provisions of Section 12.3.
9.3 Termination by the Purchaser or JP. This Agreement may be
terminated by the Purchaser or JP and the Arrow Transaction may be abandoned
prior to the Closing Date if (i) the Seller or the Shareholders shall have
failed to perform in any material respect its obligations under this Agreement
theretofore to be performed by the Seller or the Shareholders, or SGD or the
SGD Members shall have failed to perform in any material respect their
obligations hereunder or under the SGD Agreement theretofore to be performed by
SGD or the SGD Members, which failure to perform has not been cured within ten
days following receipt by the Seller, the Shareholders, SGD or the SGD Members
of notice of such failure to perform from the Purchaser or JP, (ii) any event
or condition described in Section 8.16 shall have occurred and is
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continuing for not less than five consecutive days; provided, however, in the
event such event or condition occurs within five business days of the
anticipated Closing Date, the Closing Date shall be postponed until such time
as the cure period has expired, or (iii) except as otherwise provided by the
Agreement, any material representation or warranty of the Seller, SGD, the
Shareholders or the SGD Members contained in this Agreement or the SGD
Agreement shall not be true and correct when made; provided, that such failure
to be true and correct has not been cured within ten days following receipt by
the Seller, SGD, the Shareholders or the SGD Members of notice of such failure
to be true and correct from the Purchaser or JP.
9.4 Termination by the Seller. This Agreement may be
terminated by the Seller and the Arrow Transaction may be abandoned prior to
the Closing Date if (i) the Purchaser or JP shall have failed to perform in any
material respect its obligations under this Agreement or the SGD Agreement
theretofore to be performed by the Purchaser or JP, which failure to perform
has not been cured within ten days following receipt by the Purchaser or JP of
notice of such failure to perform from the Seller, (ii) any material
representation or warranty of the Purchaser or JP contained in this Agreement
or in the SGD Agreement shall not be true and correct when made; provided, that
such failure to be true and correct has not been cured within ten days
following receipt by the Purchaser or JP of notice of such failure to be true
and correct from the Seller, or (iii) any event or condition described in
Section 7.12 shall have occurred and is continuing for not less than five
consecutive days; provided, however, in the event such event or condition
occurs within five business days of the anticipated Closing Date, the Closing
Date shall be postponed until such time as the cure period has expired.
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In the event of the termination and abandonment of this Agreement
pursuant to Section 9.3 or 9.4, this Agreement and the SGD Agreement shall
forthwith become void and have no effect, without any liability on the part of
the terminating party hereto or its affiliates, directors, officers or
shareholders, other than pursuant to the provisions of this Section 9.4 and the
provisions of Articles X and XI, and Sections 12.3. Nothing contained in
Section 9.3 or this Section 9.4 shall relieve any party from liability for any
breach of this Agreement or the SGD Agreement, including the non-breaching
party's right to seek damages from the breaching party as well as such other
relief that may be available at law or in equity.
ARTICLE X
INDEMNIFICATION; SURVIVAL OF
REPRESENTATIONS AND WARRANTIES
10.1 Indemnity Obligations of the Shareholders. The Seller,
SGD, each Shareholders and each SGD Member hereby jointly and severally agree
to indemnify and hold the Purchaser and JP harmless from, and to reimburse the
Purchaser and JP for, any Purchaser Indemnity Claim arising under the terms and
conditions of the Acquisition Agreements. For purposes of the Acquisition
Agreements, the term "Purchaser Indemnity Claim" shall mean any loss, damage,
deficiency, claim, liability, obligation, suit, action, fee, cost or expense of
any nature whatsoever resulting from (i) any breach of any representation and
warranty of the Seller, SGD or the Shareholders which is contained in the
Acquisition Agreements or any Schedule or certificate delivered pursuant
thereto; (ii) any breach or non-fulfillment of, or any failure to perform, any
of the covenants, agreements or undertakings of the Seller, SGD or the
Shareholders which are contained in the Acquisition Agreements; and (iii) all
interest, penalties and costs and expenses
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(including, without limitation, all reasonable fees and disbursements of
counsel) arising out of or related to any indemnification made under this
Section 10.1. Notwithstanding the foregoing, the indemnification obligations
of the Seller, SGD, any Shareholder and any SGD Member shall not be applicable
to any loss, damage, deficiency, claim, liability, obligation, suit, action,
fee, cost or expense that is covered by insurance, provided that such insuror
waives its subrogation rights with respect thereto, and paid by such insurance
or that would have otherwise been covered by insurance had the Purchaser, JP,
the Seller or SGD maintained insurance comparable to that insurance carried by
the Seller or SGD prior to the Closing Date.
10.2 Indemnity Obligations of the Purchaser and JP. The
Purchaser and JP jointly and severally agree to indemnify and hold the Seller,
SGD, each Shareholder and each SGD Member harmless from, and to reimburse the
Seller, SGD, each Shareholder and each SGD Member for, any Shareholder
Indemnity Claims arising under the terms and conditions of the Acquisition
Agreements. For purposes of the Acquisition Agreements, the term "Shareholder
Indemnity Claim" shall mean any loss, damage, deficiency, claim, liability,
suit, action, fee, cost or expense of any nature whatsoever incurred by the
Seller, SGD, any Shareholder or any SGD Member resulting from (i) any breach of
any representation and warranty of the Purchaser or JP which is contained in
the Acquisition Agreements or any Schedule or certificate delivered pursuant
thereto; (ii) any breach or non-fulfillment of, or failure to perform, any of
the covenants, agreements or undertakings of the Purchaser or JP which are
contained in the Acquisition Agreements; and (iii) all interest, penalties,
costs and expenses (including, without limitation, all reasonable fees and
disbursements of counsel) arising out of or related to any indemnification made
under this Section 10.2. Notwithstanding the foregoing, the Purchaser and JP
shall also
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indemnify the Seller, SGD, each Shareholder and each SGD Member in connection
with any loss, damage, deficiency, claim, liability, suit, action, fee, cost or
expense of any nature whatsoever arising out of indebtedness or other
obligations assumed by the Purchaser or JP as a result of the Acquisition, as
provided in Section 1.3, and any indebtedness of the Seller or SGD which is
guaranteed by the Shareholders and assumed by the Purchaser or JP as provided
in Section 1.3.
10.3 Appointment of Representative. The Seller, SGD, each
Shareholder and each SGD Member hereby appoints Steven Daren as its exclusive
agent to act on its behalf with respect to any and all Shareholder Indemnity
Claims and any and all Purchaser Indemnity Claims arising under the Acquisition
Agreements or such other representative as may be hereafter appointed by a
majority in interest of the Shareholders. Such agent is hereinafter referred
to as the "Representative." The Representative shall take, and the Seller, the
Shareholders and SGD agree that the Representative shall take, any and all
actions which the Representative believes are necessary or appropriate under
the Acquisition Agreements for and on behalf of the Seller, SGD, the
Shareholders or the SGD Members, as fully as if such parties were acting on
their own behalf, including, without limitation, asserting Shareholder
Indemnity Claims against the Purchaser and JP, defending all Purchaser
Indemnity Claims, consenting to, compromising or settling all Shareholder
Indemnity Claims and Purchaser Indemnity Claims, conducting negotiations with
JP and the Purchaser and its representatives regarding such claims, dealing
with the Purchaser, JP and the Escrow Agent under the Escrow Agreement referred
to in Section 10.7 with respect to all matters arising under the Escrow
Agreement, taking any and all other actions specified in or contemplated by
this Agreement and engaging counsel, accountants or
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other representatives in connection with the foregoing matters. The Purchaser
and JP shall have the right to rely upon all actions taken or omitted to be
taken by the Representative pursuant to the Acquisition Agreements and the
Escrow Agreement, all of which actions or omissions shall be legally binding
upon the Seller, SGD, each of the Shareholders and each of the SGD Members.
The Representative, acting pursuant to this Section 10.3, shall not be liable
to any other Shareholder or SGD Member for any act or omission, except in
connection with any act or omission that was the result of the Representative's
bad faith or gross negligence.
10.4 Notification of Claims. Subject to the provisions of
Section 10.5, in the event of the occurrence of an event which any party
asserts constitutes a Purchaser Indemnity Claim or a Shareholder Indemnity
Claim, as applicable, such party shall provide the indemnifying party with
prompt notice of such event and shall otherwise make available to the
indemnifying party all relevant information which is material to the claim,
including information with respect to the availability of insurance coverage,
and which is in the possession of the indemnified party. If such event
involves the claim of any third party (a "Third-Party Claim"), the indemnifying
party shall have the right to elect to join in the defense, settlement,
adjustment or compromise of any such Third-Party Claim, and to employ counsel
to assist such indemnified party in connection with the handling of such claim,
at the sole expense of the indemnifying party, and no such claim shall be
settled, adjusted or compromised, or the defense thereof terminated, without
the prior consent of the indemnifying party unless and until the indemnifying
party shall have failed, after the lapse of a reasonable period of time, but in
no event more than 30 days after written notice to it of the Third-Party Claim,
to join in the defense, settlement, adjustment or compromise of the same. Upon
receipt of written notice of any Third Party Claim, the indemnified party shall
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promptly, but in no event later than 15 days prior to the date a response or
answer thereto is due (unless a response or answer is due within fewer than 15
days from the date the indemnified party received notice thereof and then so
long as reasonably possible prior to the due date thereof), inform the
indemnifying party in writing thereof. An indemnified party's failure to give
timely notice as provided above or to furnish the indemnifying party with any
relevant data and documents in connection with any Third-Party Claim shall not
constitute a defense (in part or in whole) to any claim for indemnification by
such party, except and only to the extent that such failure shall result in any
material prejudice to the indemnifying party. Any indemnifying party may
elect, at such party's sole expense, to assume control of the defense,
settlement, adjustment or compromise of any Third-Party Claim, with counsel
reasonably acceptable to each indemnified party, insofar as such claim relates
to the liability of the indemnifying party, provided that such indemnifying
party shall obtain the consent of all indemnified parties (which consent shall
be deemed given if any request for consent is not responded to within ten
business days) before entering into any settlement, adjustment or compromise of
such claims, or ceasing to defend against such claims, if as a result thereof,
or pursuant thereto, there would be imposed on an indemnified party any
material liability or obligation not covered by the indemnity obligations of
the indemnifying parties under the Acquisition Agreements (including, without
limitation, any injunctive relief or other remedy). In connection with any
Third-Party Claim, the indemnified party, or the indemnifying party if it has
assumed the defense of such claim pursuant to the preceding sentence, shall
diligently pursue the defense of such Third-Party Claim and the indemnified
party shall cooperate with the indemnifying party in connection with such
claim, make available personnel, witnesses, books and records relevant thereto
and grant such
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authorizations to the agents, representatives and counsel of the indemnifying
party as the indemnifying party may request.
10.5 Survival. All representations and warranties contained in
or made pursuant to the Acquisition Agreements, and the rights of the parties
to seek indemnification with respect thereto, shall survive the Closing. Such
representations and warranties, and the rights of the parties to seek
indemnification with respect thereto, shall expire on the first anniversary of
the Closing Date, except for representations and warranties, and the rights of
the Purchaser and JP to seek indemnification with respect thereto, set forth in
(i) Section 3.33 which shall expire on the fifth anniversary of the Closing
Date and (ii) Section 3.16 which shall expire upon expiration of the statute of
limitations applicable thereto.
10.6 Limitations.
(a) Notwithstanding the foregoing, any claim by an
indemnified party against any indemnifying party under the Acquisition
Agreements for breach of any representation and warranty contained in the
Acquisition Agreements or any Schedule or certificate delivered pursuant
thereto shall be payable by the indemnifying party only in the event that the
accumulated amount of the claims in respect of such indemnifying party's
obligations to indemnify under the Acquisition Agreements for breaches of any
representation and warranty shall exceed the amount of $500,000 in the
aggregate (the "Indemnification Threshold"); provided, however, if the
Indemnification Threshold is exceeded, the indemnifying party shall be liable
only for the excess over $250,000. Notwithstanding the preceding sentence, the
following Claims shall not be subject to the Indemnification Threshold, but
shall be payable on a
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dollar-for-dollar basis without any exclusion therefor: (i) any Purchaser
Indemnity Claims for breach of the representations and warranties of the
Seller, SGD, the Shareholders and the SGD Members with respect to income tax
only contained in Section 3.16; and (ii) any Purchaser Indemnity Claims for
breach of the representations and warranties of the Seller, SGD, the
Shareholders and the SGD Members of this Agreement or any Shareholder Indemnity
Claims for breach of the representation and warranty of the Purchaser and JP
contained in this Agreement that occur as a result of fraudulent
misrepresentations or acts. The parties confirm that Claims that occur as a
result of the breach by any party of any covenant or agreement contained in
this Agreement, including, without limitation, the Purchaser's failure to pay
or discharge of the liabilities assumed pursuant to Section 1.3, shall not be
subject to the Indemnification Threshold. In no event shall the aggregate
liability of the Seller, SGD, the Shareholders and the SGD Members under the
Acquisition Agreements with respect to Purchaser Indemnity Claims exceed the
Acquisition Purchase Price.
(b) After the Closing, Sections 10.1 and 10.2 hereof
shall be the exclusive remedy for any breach of any representation and warranty
contained in the Acquisition Agreements or any Schedule or certificate
delivered pursuant thereto.
(c) Except as provided below, no Purchaser Indemnity
Claim or Seller Indemnity Claim shall include indirect, consequential, special
or exemplary damages or any claim for multiplier effect or any capitalization
of out-of-pocket expenses or lost profits. In the event that there are one or
more breaches of the representations or warranties contained in the Acquisition
Agreements or any Schedule or certificate delivered thereto which satisfy all
of the following conditions (collectively, a "Special Breach"): (i) the fact,
condition, or circumstance upon which such breach is based was known to the
Seller, SGD, the Shareholders or the SGD Members (within the meaning of Section
12.10) at the time such representation was made (notwithstanding whether such
representation was otherwise qualified by the knowledge of the such entities or
persons); (ii) such breach negatively affects the operating income of the
Business that would have otherwise been obtained in 1996 had such breach not
occurred; (iii) the fact, condition or circumstance
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upon which such breach is based will have or is likely to have a negative
impact on the anticipated operating income of the Business in future years; and
(iv) the effect of such breach, together with all such other Special Breaches
as may have occurred, on the operating income for 1996 (the "1996 Aggregate
Breach Amount") exceeds $271,000, the Purchaser Indemnity Claim or Claims
associated with such Special Breaches shall be an amount equal to (x) the
amount obtained by subtracting $108,400 from the 1996 Aggregate Breach Amount
times (y) ten. In the event that there is a dispute in connection with the
determination of any Purchaser Indemnity Claim determined pursuant to this
Section 10.6(c), such dispute shall be settled in accordance with Section 12.7.
(d) Any liability of the Purchaser or JP under the
Acquisition Agreements for Shareholder Indemnity Claims shall be satisfied
solely through the payment of cash.
10.7 Escrow. The Seller, SGD, the Shareholders and the SGD
Members shall deposit into escrow, with the Escrow Agent named in the Escrow
Agreement, a portion of the Acquisition Purchase Price equal to $3,000,000 (the
"Escrow Deposit"). Up to $1,700,000 of the Escrow Deposit may be satisfied by
delivery to the Escrow Agent of the JP Common Shares issued in connection with
the Arrow Transaction. Until such time as the aggregate amount of Purchaser
Indemnity Claims which have been definitively resolved to be payable in favor
of the
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Purchaser or JP shall equal or exceed the amount of the Deemed Escrow Value (as
hereinafter defined), all Purchaser Indemnity Claims shall be satisfied first
out of the JP Common Shares held in the Escrow Deposit and then the cash held
in the Escrow Deposit, as further provided under the terms of the Escrow
Agreement. For purposes hereof, all JP Common Shares returned to JP in
settlement of any Purchaser Indemnity Claims under the Escrow Agreement shall
be valued at the Average Share Price. At such time as the aggregate amount of
Purchaser Indemnity Claims which have been definitively resolved to be payable
in favor of the Purchaser or JP shall exceed the Deemed Escrow Value, the
Seller, SGD, the Shareholders and the SGD Members shall thereafter be jointly
and severally liable to the Purchaser and JP for such claims. The liability of
the Seller, SGD, the Shareholders and the SGD Members for payable Purchaser
Indemnity Claims in excess of the Deemed Escrow Value may be satisfied, at the
election of such parties, through (i) the delivery of JP Common Shares to the
Purchaser or JP, such shares to be valued at the Average Share Price, (ii) the
payment of cash or (iii) any combination of such JP Common Shares and cash.
For purposes of this Agreement, the term "Deemed Escrow Value" shall
mean (i) the value of the JP Common Shares to be transferred by the
Shareholders into the Escrow Deposit, determined by multiplying such number of
JP Common Shares times the Average Share Price plus (ii) the cash transferred
by the Shareholders into the Escrow Deposit. With respect to any JP Common
Shares to be returned to the Purchaser or JP by the Seller, the Shareholders
and SGD in settlement of Purchaser Indemnity Claims pursuant to this Section
10.7, any dividends previously paid in respect of such returned JP Common
Shares (whether paid in cash, JP Common Shares or other property) shall also be
returned to the Purchaser or JP. With respect to
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any cash to be returned to the Purchaser or JP by the Seller, the Shareholders
and SGD in settlement of Purchaser Indemnity Claims pursuant to this Section
10.7, any interest earned thereon shall also be returned to the Purchaser or
JP.
ARTICLE XI
EXPENSES OF THE PARTIES
Except as specifically provided herein, all expenses incurred by or
on behalf of the parties hereto, including, without limitation, all fees and
expenses of agents, representatives, counsel and accountants employed by the
parties hereto in connection with the preparation of Acquisition Agreements and
the consummation of the transactions contemplated by the Acquisition Agreements
shall be borne solely by the party or parties who shall have incurred such
expenses, and the other party or parties shall have no liability in respect
thereof.
ARTICLE XII
MISCELLANEOUS
12.1 Notices. All notices and other communications provided for
hereunder shall be in writing, unless otherwise specified, and shall be deemed
to have been duly given if delivered personally or by courier service, given by
prepaid telegram, facsimile transmission or similar means, or mailed, postage
prepaid, registered or certified mail, to the following addresses or at such
other addresses as the parties hereto may designate from time to time in
writing:
If to the Seller, SGD, the Shareholders and the SGD Members:
Mr. Steven Daren
6 Village Court
Old Lyme, Connecticut 06333
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With copy to:
Newton D. Brenner, Esq.
Brenner, Saltzman & Wallman
271 Whitney Avenue
New Haven, Connecticut 06511
Telecopy: (203) 562-2098
If to the Purchaser:
JP Foodservice Distributors, Inc.
c/o JP Foodservice, Inc.
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Attention: Lewis Hay, III
David M. Abramson
Telecopy: (410) 312-7149
With a copy to:
Richard J. Parrino, Esq.
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Telecopy: (202) 663-8007
12.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
EXCLUDING THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
12.3 Confidentiality. None of the parties hereto shall reveal
the contents of this Agreement or any of the documents, materials or
information provided to such party pursuant to this Agreement to any person or
other entity unless agreed in writing by the parties, except that the parties
may disclose such information to their professional advisors (provided that
such parties require their advisors to keep such information confidential) and
to governmental and
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regulatory agencies in accordance with the applicable legal requirements and
except that the parties may disclose information which has been disclosed to
the public either through filings with governmental agencies which are open to
the public or through public announcements which have been approved by the
parties to this Agreement. The provisions of that certain [confidentiality
agreement] dated _______ __, 1996 shall remain in full force and effect until
the Closing.
12.4 Section Headings. The section headings contained herein
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
12.5 Amendments. This Agreement, including, without limitation,
the Disclosure Schedule, the Schedules, the attachments or any other document
or certificate delivered pursuant hereto, may be amended, modified, superseded
or canceled and any of the terms, provisions and conditions hereof may be
waived only by a written instrument executed by all of the parties hereto.
Notice or knowledge of any matter shall not constitute a waiver of any
representation or warranty with respect to such matter. The waiver by any
party of any breach of any provision shall not be construed as a waiver of any
other provision by such party. Each party shall have the right to waive
fulfillment of a condition or covenant or compliance with a representation or
warranty of which it is the beneficiary.
12.6 Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto and supersedes all prior agreements,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof, including, the letter dated June 17,
1996. This Agreement inures to the benefit of and shall be binding on each of
the
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parties hereto or any of them, their respective representatives and successors;
provided, however, this Agreement and the rights and obligations hereunder
shall not be assignable by any party.
12.7 Certain Disputes.
(a) Upon the receipt by JP of the Closing Balance
Sheet, JP may object, upon written notice to the Representative, to the manner
in which the Closing Balance Sheet was prepared (a "Notice of Dispute"). If JP
fails to submit a Notice of Dispute within 15 days after the receipt of the
Closing Balance Sheet, JP shall be deemed to have accepted the Closing Balance
Sheet. If JP does so object, and if the Representative and JP are unable,
within ten days after receipt by the Representative of JP's Notice of Dispute,
to resolve any disputes regarding the Closing Balance Sheet, such disputes
shall be referred to a "Big Six" independent certified public accounting firm
(other than Price Waterhouse LLP or Blum, Shapiro & Company, P.C.) mutually
agreed upon by each of JP and the Representative, or, if no such agreement can
be reached, then each of JP and the Representative shall appoint one
independent certified public accounting firm, which accounting firms shall
select a third independent certified public accounting firm (other than Price
Waterhouse LLP or Blum, Shapiro & Company, P.C.) to which the Notice of Dispute
shall be referred. In the event that either JP or the Representative shall
fail to select an independent certified public accounting firm in accordance
herewith within ten days after notice by the other party that such selection
should be made, and such other party has selected an independent certified
public
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accounting firm pursuant to the provisions hereof, the Notice of Dispute shall
be referred to the accounting firm selected. In the event that each of JP and
the Representative select independent certified public accounting firms, and
within ten days after such selection such firms do not reach agreement on a
third independent certified public accounting firm, the Notice of Dispute shall
be submitted for settlement by arbitration before a single arbitrator under the
auspices of the American Arbitration Association ("AAA") at its office in
Hartford, Connecticut. The arbitrator so selected shall have expertise in
financial reporting matters and such proceeding shall be governed under the
commercial arbitration rules. The accounting firm to which the Notice of
Dispute is referred or AAA shall, as soon as reasonably possible after the
Notice of Dispute shall have been referred to it, deliver to JP and the
Representative a written report resolving such disputed matters, and its
determination shall be conclusive and binding upon the parties hereto.
(b) Except as otherwise provided in this Section
12.7(b), JP and the Seller shall each bear the costs of their respective
appointed independent certified accounting firms and share equally the costs
incurred for any mutually agreed upon or third independent certified accounting
firm or the AAA, as applicable (the "Third Party Arbiter"); provided, however,
that either party may apply to the Third Party Arbiter for the award from the
other party of all costs incurred in connection with the Notice of Dispute,
which award shall be in the sole discretion of the Third Party Arbiter.
Notwithstanding the foregoing, in the event that the Notice of Dispute is for
an amount that is less than $100,000 and the Third Party Arbiter rules in favor
of the nondisputing party, the disputing party shall be liable for all costs
incurred by the nondisputing party in connection with the nondisputing party's
defense of the Notice of Dispute, including, without limitation, the costs of
the independent certified public accounting firm, the Third Party Arbiter and
reasonable attorneys' fees.
(c) This Section 12.7 shall govern only disputes in
connection with the Closing Balance Sheet and disputes in connection with the
determination of Purchaser Indemnity Claims
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pursuant to Section 10.6(c) and shall, in no manner, affect the Purchaser's or
the Seller's rights to seek damages from the breaching party as well as such
other relief that may be available at law or in equity.
12.8 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument, and facsimile signatures
shall be deemed, for the purposes of this Agreement, original signatures.
12.9 Severability. In the event any provision of this Agreement
is deemed to be unenforceable, the remainder of this Agreement shall not be
affected thereby and each provision hereof shall be valid and enforced to the
fullest extent permitted by law.
12.10 Knowledge. To the extent that any representation and
warranty of the Seller, SGD, the Shareholders or the SGD Members is expressly
qualified by reference to the knowledge of such parties, knowledge shall mean,
(i) as of the date of this Agreement, the actual knowledge, after appropriate
investigation, of such parties, Steve Tedisky, Marty Samuels, and all other
officers of the Seller (excluding Jim Mariani) and, (ii) as of the Closing
Date, the actual knowledge, after appropriate investigation, of such parties,
Steve Tedisky, Marty Samuels, and all other officers of the Seller (including
Jim Mariani).
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
PURCHASER:
JP FOODSERVICE DISTRIBUTORS, INC.
By: /s/ DAVID M. ABRAMSON
-------------------------------
Title: Senior Vice President and
----------------------------
General Counsel
----------------------------
JP:
JP FOODSERVICE, INC.
By: /s/ DAVID M. ABRAMSON
-------------------------------
Title: Senior Vice President and
----------------------------
General Counsel
----------------------------
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SELLER:
ARROW PAPER AND SUPPLY CO., INC.
By: /s/ DONALD DAREN
-------------------------------
Title: Chief Executive Officer
----------------------------
SHAREHOLDERS:
/s/ DONALD DAREN
----------------------------------
Donald Daren
/s/ SELMA DAREN
----------------------------------
Selma Daren
/s/ STEVEN DAREN
----------------------------------
Steven Daren
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SGD:
SGD LIMITED LIABILITY COMPANY
By: /s/ DONALD DAREN
------------------------------
Title:
---------------------------
SGD MEMBERS
/s/ DONALD DAREN
---------------------------------
Donald Daren
/s/ SELMA DAREN
---------------------------------
Selma Daren
/s/ STEVEN DAREN
---------------------------------
Steven Daren
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in and to the incorporation by reference in
the Prospectus constituting part of this Amendment No. 2 to the Registration
Statement on Form S-3 of JP Foodservice, Inc. of our report dated August 2,
1995 which appears in such Prospectus and on page F-1 of JP Foodservice, Inc.'s
Annual Report on Form 10-K for the year ended July 1, 1995. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such Prospectus. However, it should be noted that Price Waterhouse LLP has
not prepared or certified such "Selected Financial Data."
PRICE WATERHOUSE LLP
Baltimore, Maryland
August 6, 1996
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Valley Industries, Inc. and Subsidiaries
and Z Leasing Company (A General Partnership):
We consent to the inclusion in the Prospectus constituting part of this
Amendment No. 2 to the Registration Statement on Form S-3 of JP Foodservice,
Inc. of our report dated June 17, 1996, with respect to the combined balance
sheets of Valley Industries, Inc. and Subsidiaries and Z Leasing Company (A
General Partnership) as of January 31, 1996, 1995, and 1994 and the related
combined statements of earnings, stockholders' and partners' equity, and cash
flows for each of the years in the three year period ended January 31, 1996
which report appears in current report on Form 8-K of JP Foodservice, Inc.
dated July 1, 1996. We also consent to the reference to our firm under the
heading "Experts" in the Prospectus.
KPMG PEAT MARWICK
Las Vegas, Nevada
August 6, 1996
<PAGE> 1
EXHIBIT 23.3
[BLUM SHAPIRO & COMPANY LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-07321) of
JP Foodservice, Inc. of our report dated July 15, 1996 relating to the combined
financial statements of Arrow Paper and Supply Co., Inc. and Affiliate, which
appears in the Current Report on Form 8-K of JP Foodservice, Inc. dated July 18,
1996. We also consent to the reference to us under the heading "Experts" in
such Prospectus.
/s/ BLUM SHAPIRO & COMPANY, P.C.
August 6, 1996
